Workers (Economic Affairs Committee Report) - Motion to Take Note

– in the House of Lords at 11:46 am on 8 February 2024.

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Lord Bridges of Headley:

Moved by Lord Bridges of Headley

To move that this House takes note of the Report from the Economic Affairs Committee Where have all the workers gone? (2nd Report, Session 2022-23, HL Paper 115).

Photo of Lord Bridges of Headley Lord Bridges of Headley Chair, Economic Affairs Committee, Chair, Economic Affairs Committee

My Lords, I am delighted to open the debate. Behind its innocuous title, the subject matter we are dealing with is enormous: the overall state of our labour force, the impact of immigration on an ageing population, and what that means for growth, inflation and debt—I could go on.

Let me start by taking a step back. Before Covid struck, labour participation was a major driver of growth, repeatedly outperforming forecasts and partially offsetting falling productivity growth. From July 2011 to February 2020, the level of inactivity fell by 1.2 million to just under 8.4 million, and the inactivity rate fell by about 3% to 20%, their lowest levels on record. During Covid, that trend reversed. As in other countries, inactivity rose by almost 650,000 between February 2020 and its peak in July 2022. Some sectors saw acute labour shortages. As the impact of Covid passed, while inactivity fell elsewhere, here it remained high, having an impact on growth, inflation, monetary policy and the public finances.

In the autumn of 2022, the Economic Affairs Committee therefore posed a simple question: where have all our workers gone? I thank the Committee’s members—many of whom are here—our clerk, our policy adviser and our excellent adviser, Robert Joyce, for their input and hard work. We asked that question partly because no one seemed to know the answer, which was both odd, given the mountain of data that exists today, and extremely worrying, given that this data is critical to decisions made by the Treasury and the Bank of England.

The uncertainty around the data meant that a number of our conclusions carried caveats. That is just as well, because, since our report was published, the credibility of the Labour Force Survey has been shot, thanks in part to challenges in conducting household surveys and in measuring populations during Covid. In October, the ONS stopped its monthly publication of the key job market data altogether. On Monday, the ONS published reweighted figures, with a new classification—“official statistics in development”—which I think is Whitehall-speak for “We’re not entirely sure what is happening”. The document says: “The reweighted estimates suggest”, and we should note that word,

“that over the last five months, though the employment rate has remained broadly flat, the unemployment rate may”— note that too—

“have fallen, offset by an increase in the rate of economic inactivity; however, some uncertainty remains in these estimates”.

Furthermore, publication of the so-called Transformed Labour Force Survey is being delayed by six months to September. It therefore seems we can be certain only about the data’s uncertainty, making the credibility of the national statistics a subject for debate in and of itself, for how are the Treasury and the Bank to make critical decisions based on dodgy statistics?

With that Big Ben-sized caveat about the data in mind, I turn to our report. It found that between 2020 and late 2022, the UK’s workforce had been squeezed by four factors:

“retirement among those aged 50-64; increasing sickness; changes in the structure of migration; and the impact of an ageing UK population … an increase in the numbers in age groups which have lower participation rates”.

We concluded:

“The reduction in labour supply has been driven by an increase in economic inactivity, in particular amongst 50-64-year-olds”.

The causes appeared complex. The biggest contributor to this rise in inactivity had been an increase in the number of people leaving work and considering themselves retired rather than leaving work primarily due to worsening health. Although the population was getting sicker, much of the rise in sickness-related inactivity was among people who had already been out of work rather than people who were employed becoming inactive due to sickness.

I have asked our experts whether these findings, especially those about retirement, are now invalid given what we now know about the data. I was told that they are still valid, mainly because the longitudinal version of the LFS—the one that follows the same people from one quarter to the next—is less likely to be vulnerable to the statistical issues that have dogged the rest of the LFS, especially as regards response rates.

Alongside this trend, changes to the structure of migration also had an impact on specific sectors seeking workers for lower-paid roles. Many EU workers who did these jobs left the UK. Counterbalancing their departure was the arrival of non-EU workers granted visas under the new immigration scheme, which prioritises skilled workers. This contributed to a mismatch within the labour force, accentuating labour shortages in these sectors.

Finally, our report draw attention to the impact of the ageing UK population. Before the pandemic, ageing was driving down labour supply, but this effect was masked by other trends towards higher participation. The key difference since the pandemic has been that the ageing effect was reinforced rather than offset by those other factors.

It has now been a year since our report was published; events have moved on. I will turn to the lie of the land now, and especially what we learned from Monday’s ONS bulletin, so as to frame this debate. Officials now estimate that the adult population is 750,000 larger than previously thought. That is a city the size of Sheffield which has suddenly emerged. That alone I find astounding. More worrying still is how this has contributed to inactivity, which has risen to 9.25 million, 414,000 more than previously estimated and back to near its Covid peak. While inactivity in the UK is still below that of the other EU countries and below 2010 levels, the fact that more than one in five 16 to 64 year-olds are economically inactive poses an enormous challenge for our society and our economy.

The largest reason for this is what I and our report touched on: long-term sickness. Monday’s bulletin revised this figure up to 2.8 million people: 200,000 more than previously forecast. We bandy figures around but let us just pause here. On my estimates, 2.8 million people is roughly equivalent to the populations of Stoke-on-Trent, Middlesbrough, Coventry, Cardiff, Bournemouth and Edinburgh combined. It is an astoundingly large figure. These people are typically older; they are suffering from poor mental health—I very much look forward to the noble Lord, Lord Layard, talking about this—or other specified conditions, and it is worth noting that the rapid rise among 16 to 24 year-olds appears driven by mental health; they are relatively low skilled; and previously they worked in lower-paid jobs. As our report found, the vast majority who are inactive for health reasons have been inactive since before the pandemic. Roughly 1.5 million have been out of work for three years or more, and half a million have never had a job.

The OBR’s fiscal risk report, which also came out after our report, cited three factors that may be causing this: a slowdown, and in some cases partial reversal, in the rate of improvement in many health conditions that predated the pandemic; the impact of the pandemic on the health of the working-age population; and

“the degree of ongoing assessment, conditionality, and return-to-work support for those on health-related benefits versus other out-of-work benefits”.

It is worth noting that the OBR says that the

“numbers on incapacity benefits have increased sharply over the past three years”, and that:

“The expansion of conditionality and rising rates of sanctioning in the non-incapacity parts of the means-tested, working-age welfare system may have made applying for (largely unconditional and often-more-generous) incapacity benefits more attractive”.

We must stress “may”, and remember that this is only one factor. Longer NHS waiting lists and the strikes may also have contributed to inactivity due to long-term sickness rising, although it is worth noting that the OBR states that halving the waiting lists would reduce inactivity only by 25,000.

All this underlines a core point in our report. We need to understand much more about the causes of this trend and what can be done, to help these people not just to become healthy but to find a job. This is key, because the OBR said that these numbers

“remain on an upward trajectory”.

No one here wants to see ever-growing swathes of our communities trapped in a terrible, vicious cycle of ill health and inactivity. Nor can we afford this to happen. Inactivity puts pressure on welfare spending: 80% of those inactive receive incapacity benefits. It results in lost revenue: £9 billion this year. It pushes up health spending: each person who becomes inactive due to ill health costs the NHS between £900 and £1,800 a year. Consequently, inactivity due to ill health adds to borrowing: almost £16 billion since the pandemic. According to the OBR, if the working-age population falls for another year and remains there, and half a million more people are out of work for health reasons, that could add £21 billion to borrowing by 2027-28, which is more than we will spend on policing in England and Wales this year.

This is happening against the backdrop of two other trends. The first is migration. We know that net migration hit a record high of 740,000 in 2022 and is forecast under latest estimates to average 315,000 a year in the long run. The second trend, coming back to our report, is our ageing population. The demographic shift, as we said, comes through quite abruptly right now, and will put yet further pressure on our public finances, accentuating the need for growth to pay for this.

This highlights another question we need to ask ourselves. Is it right that growth is to be powered in part by immigration of 315,000 a year while hundreds of thousands of people are off sick and too ill to work? Are we doing enough to help them get back into the workforce?

Therefore, coming back to our report and what we ask the Government to do, I will be most grateful if my noble friend the Minister can shed light on three things. The first, as I have alluded to, is the ONS. It is absolutely critical that it addresses the failings of the statistics. I would like him to tell the House what the ONS is doing to ensure that our statistics, and those core statistics, are fit for purpose. Secondly, as our report asks, what is being done to encourage older people back into work? We made a series of proposals here, including those looking at pensions and other things, but also suggested practical measures. I will be grateful if he can highlight that. Thirdly, the most worrying thing for me is the rise in long-term sickness. What is being done specifically to address inactivity in that group and help that group also find work?

Inactivity combined with an ageing population, low growth, low productivity and high levels of debt makes for a dangerous cocktail. If we do not have a fit, dynamic workforce, how will we get the growth that we so badly need? We urgently need to understand the reasons behind the rise in activity and we need to do much more to address it.

Photo of Lord Layard Lord Layard Labour 12:00, 8 February 2024

My Lords, I am delighted to follow our chairman, who does such a wonderful job in leading our work.

This report is timely because everybody wants to see more economic growth. The most obvious way to achieve that is to increase employment. The central issue is how we can raise employment in the most cost-effective way. As our chairman hinted at, the most obvious way is to help the long-term sick back into work. I want to take in particular about those who have mental health problems.

Mental illness is by far the biggest illness among working-age people. People with mental health problems comprise at least half of all those on disability benefits who are unable to work. Yet mental health is treated by the NHS quite differently from physical health. Most people with physical health problems are in treatment while most people with mental health problems are not; only 40% of them get any form of help from the NHS. What is even more shocking is that, although NICE recommends that all mentally ill people should receive psychological therapy based on evidence-based methods, only 13% actually receive it.

Yet there is overwhelming evidence that these therapies more than pay for themselves in terms of the public finances. They are exceptionally cost effective; of course, this is because people with depression or anxiety disorders are often unable to work so relieving their problems helps them back into work, off benefits and into paying taxes. The evidence is clear: psychological therapy is the cheapest policy that we have for economic growth in this country. That is my central point.

For anxiety disorders or depression, a typical course of treatment costs around £1,000. If such a programme is offered to a clientele, some of whom work and some of whom do not, it needs only 5% of all those treated to move into work from not working to pay for the whole programme for the 100%, through the reduced benefits that they claim and the increased taxes that they pay. The evidence is clear: the existing programme produces at least that effect. It has now been copied in five other countries. Extraordinary evidence from Norway about a randomised trial shows that people who are treated earn four times more than the extra cost of treating them.

I want to talk about a programme that we have, NHS Talking Therapies, with which I have been associated. It now treats 700,000 people a year; half of them recover within a course of treatment, which averages eight sessions. The Chancellor has wisely given the programme another £600 million to expand over the next Parliament but this programme covers only people suffering from depression and anxiety disorders. There is another large group of people who are unable to work because they suffer from addiction to alcohol, drugs or gambling, as well as people who suffer from personality disorders that either make them anti-social or make them self-harm. Hardly any of these people receive any form of psychological therapy from the NHS yet they have very low employment rates—lower than for people with depression or anxiety disorders. They suffer and cause others to suffer, and they cost the country a lot of money. We need a programme parallel to NHS Talking Therapies to provide psychological therapy to this group too; I would like to see this as a commitment in every party’s election manifesto.

How does the programme for addiction compare with the case for other types of expenditure? Our group at the London School of Economics is analysing the relationship between benefits and costs across a whole range of public expenditures. For example, in road building, the average ratio of benefit to cost is about three to one; it is less than that for many rail projects. However, as I said, the benefits obtained by psychological therapy for anxiety and depression are zero costs, so surely the case for expansion there is absolutely overwhelming. Our calculations also suggest a cost-benefit ratio that could go up to 25 to 1 with psychological therapy for addiction and personality disorders.

Our policies for economic growth are too centred on things and not centred enough on people; that is the fundamental point I want to make. For example, we shamefully neglect the skills of people who do not go to university, although even the Department for Education estimates a cost-benefit ratio of seven to one for apprenticeship—double that in road building—because of, again, the effects on employment and earnings. We should, within five years, be guaranteeing an apprenticeship to every qualified person who wants one; in my view, this is another election pledge that every party should be considering.

When one looks at the pattern of public expenditure, the tragedy is this: the small sums needed to transform people’s lives are so difficult to raise while we splash out on physical infrastructure, which makes much less of a difference to people’s lives. Going back to mental illness, according to the OECD, it reduced GDP by at least 4%. It is mainly a disease among people of working age whereas, as we know, physical illness is mainly a disease among retired people. Yet, despite all the rhetoric over the past 20 years, the share of mental health spending in the NHS budget has not increased at all. It is time for that to change. The economics are clear: mental health should be the number one component of a strategy for growth.

Photo of Lord Londesborough Lord Londesborough Crossbench 12:07, 8 February 2024

My Lords, first, I congratulate members of the Economic Affairs Committee on producing such a topical and insightful report on one of the key constraints on our economic growth. I should declare that, although I now sit on this committee, I sadly cannot claim any credit for this report as it came out a month before I joined.

My experience as an entrepreneur, employer and SME adviser tells me that labour supply remains a huge issue—both qualitatively and quantitatively—and continues to depress both our GDP and our productivity. I will focus on just two connected areas today: the health and fitness of our workforce, and its productivity. The committee’s report highlighted back in 2022 that ill health was rising and was one of the key factors contributing to increased inactivity. However, as the noble Lord, Lord Bridges, pointed out, much of the rise in sickness-related inactivity was apparently among those who were already inactive.

The multiple intersecting reasons for inactivity make statistical analysis particularly challenging. On top of that, the new data from the Labour Force Survey carries its own health warning: it is experimental so we have no historical trends based on this new mode of data collection. As we have heard, the latest survey suggests that an already dire situation has got much worse. The 2.5 million figure for long-term sick among working-age people, reported in 2022, has grown by another 300,000. How much of this increase is down to historical underreporting? How much of it is due to a continued deterioration in our health? This distinction is important.

While the long-term sickness figures are shocking, they should not come as a surprise, as NHS waiting lists for treatment have doubled, from 4 million to almost 8 million, in the space of just five years, and this factor alone was bound to impact on our workforce. In addition, employers report that NHS waiting lists are also impacting the productivity of those who are in employment but waiting for treatment. Can I therefore ask the Minister: do we have any reliable updated data on how many economically active have been taken out of the workforce due to ill health in each of the years 2020 to 2023 and how many long-term sick were able to rejoin the workforce in each of those years? Breaking down those numbers by health condition or disability would be very helpful. These numbers are crucial to help the NHS apply its resources in a more targeted way, to help more of the sick to return to work, whether full-time or part-time, but without joined-up health and employment data, such a strategy will misfire.

Let me provide one example—the condition of migraine, which I raised in a Question to the Minister last year. The cost to the economy through working days lost due to migraine is estimated at between £5 billion and £10 billion per annum, yet the NHS spends just £150 million per annum on treating a condition that impacts 10 million people across the UK, the majority of whom are of working age. That is a mismatch—an economic as well as a health own goal.

Numerous studies have also shown that economic inactivity is bad for your health—none more so than for the hundreds of thousands of those who are off work suffering from poor mental health, where inactivity hits them not just financially but in terms of anxiety, self-esteem and general well-being, as the noble Lord, Lord Layard, so eloquently explained. Studies have shown that, for the 64 to 75 age group, working part-time or full-time is better for your health than retirement, in terms of mental and physical health. That is even more relevant to an ageing population such as the UK’s, as we need some of this cohort to return to the workplace. Perhaps I could hold up this House’s workforce, with your Lordships’ average age of 72, as a shining example of the benefits of an extended working life.

I was tempted to amend the report’s title to “Where Has All the Workers’ Productivity Gone?”, because demographic and health trends tell us that it will be very difficult to grow a workforce beyond the current 33 million who are active other than through immigration. The only sustainable way to grow out of economic stagnation is by addressing worker productivity. Output per hour lags Germany and France by 12% to 15% and the US by 18% to 20%. The UK’s productivity has been a long-standing problem ever since the financial crisis of 2008, since which an historic average of 2.3% annual improvement has slowed to a miserly 0.5%. That remains the economy’s qualitative problem. I do not have time to address the so-called productivity puzzle other than to point out that the declining health of our nation is strongly correlated to our poor productivity rates. While it is true that we do not have enough people in work, it is also true that those who are economically active are not active enough.

Photo of Lord Willetts Lord Willetts Conservative 12:13, 8 February 2024

My Lords, I congratulate my noble friend Lord Bridges on an excellent opening to this debate and all members of the committee on a really topical and important review—made even more topical by Monday’s ONS announcements, revealing how little we understand what is happening to the labour market and making his call for better data particularly important. I would like to draw on my position as president of the Resolution Foundation to make four practical proposals as to how we might tackle this problem by intervening at different ages of the life cycle.

First, among young people aged 18 to 24, we seem to have an increasing problem of inactivity, particularly due to ill health, which has doubled, and within that mental ill-health. There is clearly a complex link with low skills because, by and large, more educated young people, even if they report mental health problems, appear to be more likely to remain in work and in the workforce, so low skills and inactivity are linked to ill health, particularly mental ill-health. It is very tricky to challenge this, but I am increasingly concerned by the Government’s proposal to defund 200,000 BTECs—the 200,000 young people studying BTECs, a vocational qualification introduced back in the 1980s—in the expectation that they will instead do T-levels, which are currently taken up by 5,000 people and are a far more academic qualification. There is a real risk that the defunding of BTECs over the next two years will contribute to a rise in inactivity and worklessness among young people, as they find that there is no suitable educational altercation which justifies their remaining in study until the age of 18. I hope that the Minister will give us assurances that the effects of this phasing out of the funding of BTECs will not lead to an increase in worklessness.

Secondly, for women—it is preponderantly women—with children, especially less well-paid women working relatively small hours for low pay and unemployed mothers with young children, the Government have an excellent initiative to increase access to formal childcare. However, low-paid and less educated mothers are least likely to be accessing formal childcare; their childcare arrangements tend to be less formal and, therefore, they are least likely to be helped by the Government’s initiative, however welcome it is. There are two specific things that could be done to help them. First, they are very likely to be using childminders, but the regulations about childminding that is accessible and will be publicly funded are very strict, so a more liberal regime on funding childminding might help a group whom it would be particularly beneficial to get into the workforce. Secondly, although universal credit also helps with childcare costs, the processes are very bureaucratic. There is no specifically identified line of universal credit for your childcare and, if you increase your hours, there will be an unpredictable reduction in your total universal credit entitlement, even if you are using childcare to reduce your hours. Therefore, the free childcare option that the Government are currently pursuing is not sufficient to tackle inactivity among less-educated low-paid mothers with children.

Thirdly, on sickness and the links between sickness and inactivity, the committee draws attention to the fact that, sadly, being long-term sick seems to lead to people disengaging from the labour market. We on these Benches are always very wary of more labour market regulation—our labour market is already very heavily regulated—but, at the moment, when you cease receiving sick pay from your employer and go on to sickness benefit, you lose all rights to remain in contact with, and have the potential to return to, your employer. There is an argument for a right to return for the long-term sick, in order to keep them in touch with their employer. Such an initiative that is worth considering.

Fourthly, on older people, as the committee explains, the British model, with a higher rate of pension income from funded savings and less dependence on state benefits means that the benefit regime is less shaping behaviour—you keep on working until you get your benefit—and behaviour is more influenced by private pension savings. The Government already have some proposals in place for increasing the age at which you can access your private pension savings without tax penalty to 57. There is a strong case for raising that age further, so that if you wish to access your pension savings, you have to remain in work—you are not able to do so without a significant tax penalty—until you are even older than 57. I have always been rather a hardliner on raising the pension age. I personally think that the obvious way to help offset the enormous costs of the triple lock is to carry on raising the pension age as rapidly as possible. At least the proposal is to link the tax relief—the tax benefits—to pension age minus 10, but I think pension age minus 10 is too generous; we should have a more ambitious goal so that people are able to access their funded savings only at a later age.

Finally, I very much agree with the points in the committee’s report that, although there is frustration about what has happened to the stock of economically inactive people, we should focus in particular on the flow of people into economic activity; there is more we can do there and that should be the policy priority. Although it is rather a cliché at the end of every piece of policy research to say that more data is needed, on this occasion it really is very important. As my noble friend explained in his powerful opening contribution, the labour market statistics, particularly the Labour Force Survey, are now in a total mess. Nobody can make sense of what is happening, the ONS has confessed it cannot really understand it, and this is an area where more data and research are certainly needed.

Photo of Viscount Chandos Viscount Chandos Labour 12:20, 8 February 2024

My Lords, I am delighted to follow the noble Lord, Lord Willetts, even if his incisive analysis is an extremely hard act to follow—as was the introduction by the noble Lord, Lord Bridges. Like my noble friend Lord Layard, I was privileged to be a member of the committee under the chairmanship of the noble Lord, Lord Bridges, and his introduction was as excellent as his leadership of the committee, which benefited hugely from the work and intellectual rigour of the staff who supported and guided us.

Although seasonally adjusted economic activity fell in the period following the completion of the report, from 565,000 above pre-pandemic levels to a low point of 281,000 in March to May 2023, it rose again to the most recent public figure of 410,000. There remains, therefore, the worrying adverse divergence from the experience of most of our peers, who have returned to a position as good as, or better than, pre-pandemic levels. Despite the length of time that has passed since the committee published its report, let alone since it began to take evidence, the analysis and conclusions remain valid and speak for themselves. I propose therefore to comment briefly on only a couple of points.

The committee came to recognise just how complex the various factors were that lay behind the change in the level of economic activity. “It’s complicated”, as the Alec Baldwin/Meryl Streep movie is titled, albeit in relation to personal relationships rather than labour market dynamics. The committee started work on its inquiry only months after the end of Covid-related restrictions. This can be taken, perhaps, as a proxy for the pandemic becoming endemic, rather than disappearing.

It is not surprising, therefore, that many of us started with the suspicion that long Covid and other health-related issues lay predominantly behind the increase in economic inactivity. But, as we received evidence, it became clear that this was no more than one contributory factor. Four years on from the start of the pandemic, its impact on long-term health is still hard to measure with accuracy and confidence. But it is none the less clear that—as previous speakers have highlighted—chronic health conditions of all sorts, mental as well as physical, pose a significant macroeconomic problem, as well as an even more devastating one for the individuals unfortunate enough to be affected. The desperate state of the NHS exacerbates this problem. I have no doubt that economic inactivity will remain higher than it should until the investment in, and careful reform of, the NHS are implemented—which, to be party-political for a moment, a Labour Government will do.

Early retirement emerged as arguably the most significant factor behind the economic inactivity changes, as the noble Lord, Lord Bridges, highlighted. The committee questioned whether this would, at least to some extent, reverse itself as the cost of living pressures then emerging pushed early retirees back into the labour market. I think the caution expressed in the committee’s conclusions is being borne out, but, if there is little likelihood of many of that cohort of early retirees returning to work, whatever measures might be introduced, it is highly likely that this is essentially a one-off phenomenon.

There were a number of factors that appeared to encourage early retirement with no significant adverse health issues in this cohort. Arguably, the experience of lockdown during the pandemic and, in many cases, support through the furlough schemes, offered individuals a trial period of a changed lifestyle—a number of witnesses concurred with this. Less well explored, and a subject I hope for future work, is the possible effect of a long period of low interest rates that will have enabled mortgages to be paid off earlier, facilitating early retirement, even if occupational and state pension entitlements on their own, as described by the noble Lord, Lord Willetts, might not have made this so financially feasible.

Even if the early retirement trends in recent years have contributed to the labour market issues on which we are focused, I suspect that this is an ephemeral issue and that future generations are more likely to need to continue working beyond their preferred date of retirement, rather than being able to anticipate it. Migration trends were the subject of a particularly interesting evidence session with Madeleine Sumption of Oxford University's Migration Observatory and Professor Jonathan Portes. Though they argued that the move from EU to non-EU driven immigration, resulting from Brexit, was not itself a major factor in overall labour market changes, it posed a significant problem for certain sectors such as hospitality and agriculture, where shorter-term flexibility in migration is so important; Professor Portes warned against becoming dependent on migration in the care sector in particular.

It is hard not to feel that Mel Stride’s announcement last year that the measures announced in the spring Budget represent the conclusion of the DWP review of workforce participation is a signal that the Government do not really get the severity of the problem and the need for the improvements in data from the ONS that the noble Lord, Lord Bridges, referred to.

Photo of Lord Skidelsky Lord Skidelsky Crossbench 12:28, 8 February 2024

My Lords, I add my thanks to the noble Lord, Lord Bridges, for his consummate chairmanship of the committee that produced this report, and on which I had the privilege of serving.

We are faced with a great British mystery: The Case of the Missing Workers. It is an especially British mystery. In all developed countries, workers were furloughed during 2020-21 as industry was locked down, and when it reopened, they went back to work—except in the UK. There were 560,000 people who stayed at home—“excess retirees”. There is a striking table on page 13 of our report which shows how the UK was simply out of line with what happened in similar countries. Today, the excess inactivity number is still over 400,000, and is mainly people in their 50s.

Why is this a problem? A reduction in labour supply limits growth and produces inflation through higher unit costs. It puts us in the slow lane for economic recovery. However, there is a sub-mystery within the mystery: a shortage of labour is normally associated with a booming economy. You can hardly call our economy in the last couple of years a booming one. It has not exactly been shrinking, but it has certainly been stagnant. That is another issue that needs attention; I will come back to it.

The inquiry was about why the inactivity rate shot up post Covid. I cannot say that we made decisive progress in unravelling this mystery, and there are a couple of reasons why. The first, as the noble Lord, Lord Bridges, pointed out, is the inadequacy of the statistics. The statistical basis to come to firm conclusions was simply not there. More important was the complexity of the causes—what doctors call the comorbidities. There are so many comorbidities here that it is very difficult to say what causes what.

We learned a number of distressing facts, chief of which is that Britain is the sickest nation in Europe, with life expectancy now falling and with the worst access to healthcare of any European country. Deteriorating health and health provision pre-dated Covid and could not have been the main driver of the spurt in inactivity rates that we experienced after the lockdown ended.

We also have more flexible pension provision than other developed countries, allowing earlier retirement, but until the pandemic we had a lower inactivity rate than countries like us; we worked more hours, days and weeks of our lives than our European counterparts. So better pensions cannot be the explanation for the spurt in inactivity. Similarly, population ageing cannot explain short-run effects and Brexit has not reduced the net flow of immigrants, so it cannot explain overall labour shortage, although it can explain shortages in particular sectors such as hospitality and agriculture.

So we are left with unexplained lifestyle choices. I quote from paragraph 81 of the report:

“It is possible that people got used to different habits and ways of working during the COVID-19 pandemic, which prompted them to reflect on their careers”.

Indeed that is possible, but the unanswered question is why we should have been so much more reflective than the Germans, French or Americans.

There is also the question that we skirted around: how many premature retirees would like to return to work if they could? Our report took the view that retirement was a positive, not reluctant, choice and would not be reversed by increasing the aggregate demand for labour, but I am quite sceptical about this. It is plausible that people choose not to work because they are discouraged by persistent insufficient demand for their services and just leave the labour market. Retirement, for those who can afford it, is an alternative to unemployment benefit. Labour supply cannot be separated from labour demand; in other words, it is a macroeconomic and not just a microeconomic problem.

To start in another place, why should the rising inactivity rate pose a challenge for the economy? We are talking about the human activity rate. The challenge to the economy is not that there is a shortage of labour but that there is a shortage of machines to replace the jobs being evacuated. The report hints at this when it says that some sectors are destined to shrink unless they are “replacing labour through automation”. So one can say that the problem with the economy is that inactivity is growing faster than innovation or, to put it another way, people are leaving the workforce faster than they are being rebranded. This is a long-term problem, which Covid-19 might have speeded up. But one has to dig deeper.

The report cites a survey by Phoenix Insights, which suggests that British workers aged 50 to 64 dislike their jobs more than the same cohort in Germany and the United States: 58% in the UK like their jobs, compared with 74% in America and 73% in Germany. In other words, people retire early or work less not just because they are financially able to but because they do not like their jobs. This brings out a fundamental truth: we work not just because we have to but because it gives meaning to our lives. This is something that economists, who treat work as a disutility, have never understood.

The case of doctors is one of the most popular. There is an acute shortage of GPs—doctors of working age are leaving the profession faster than new doctors are entering it—because they have lost their sense of vocation. Doctors tell you this all the time.

The revelation that so many people dislike their jobs has opened up a field of inquiry beyond the scope of our short report. The question we asked was: where have all the workers gone? I suggest that the subject of a subsequent committee report should be: where have all the decent jobs gone?

Photo of Baroness Noakes Baroness Noakes Conservative 12:36, 8 February 2024

My Lords, I was a member of your Lordships’ Economic Affairs Committee when this report was produced, and I pay tribute to my noble friend Lord Bridges of Headley’s leadership of that committee.

We produced our report in December 2022. It then took about four months for the Government to respond and another nine months for us to get this slot to debate the report. As I have said before in your Lordships’ House, our reports really must be debated on a timely basis. The delay is a particular problem for this debate, not only because the data on which our report was based are out of date but because it is difficult to work out exactly what has happened subsequently, as my noble friend Lord Bridges and others referred to. The Office for National Statistics has paused its Labour Force Survey and is using new, experimental workforce data. We simply do not have a complete picture of what is happening at present.

In October 2022, there were 8.9 million economically inactive 16 to 64 year-olds, some 565,000 more than the pre-Covid era, which had been characterised by falling inactivity numbers. The latest figures published by the ONS, which my noble friend Lord Bridges of Headley referred to, show 9.3 million, reflecting a reweighting by the ONS. Other factors mean that the percentage inactivity increase is somewhat less. Whatever the precise number or percentage, there is clearly a problem and the trend is out of line with international experience.

As other noble Lords have said, the workforce participation rate is key to the growth of our country’s economy. The Office for Budget Responsibility’s 2023 Fiscal Risks and Sustainability report tested scenarios that increased or decreased health-related inactivity by 0.5 million. This moved the participation rate by a little more than 1 percentage point up or down, but the debt to GDP ratio moved by around 3 percentage points by 2027-28. Understanding what drives participation and inactivity rates is one of the most important issues facing economic management.

Behind the headline increases of economic inactivity, we found two key contributors: long-term sickness and inactivity among 51 to 64 year-olds. Most commentators, including the OBR, describe this in terms of the 50-plus age group getting sick and therefore leaving the workforce. Our examination found a different explanation, in that the over-50s became sick after they had decided to leave the workforce.

We really do not know much about the drivers of long-term sickness or early retirement. We were much encouraged during our evidence sessions that the Government were carrying out a workforce participation review. Several of our recommendations were aimed at ensuring that the review addressed many of the grey areas that we had identified. We thought that more work should be done on long Covid and the impact of NHS waiting lists. We wanted the review to focus on whether there had been a secular change in attitudes to work in the 50-plus demographic, and what could encourage them to stay in or return to work. We also recommended further work on the impact of savings and the furlough scheme on inactivity.

It was disappointing that the Government’s response to our report made no reference to the workforce participation review. My noble friend Lord Bridges of Headley then wrote to the Secretary of State for Work and Pensions, who replied saying that the review had resulted in a number of changes in the 2023 Budget. However, there was no sign of the further work that we had suggested. I find it curious that the Government do not want to get to the bottom of the issues impacting workforce participation and inactivity.

The government response, as is typical of government responses, listed lots of initiatives of varying degrees of significance. I do not doubt the Government’s desire to reduce economic inactivity. What I cannot see is a forensic approach to the problem. The initiatives might well produce results, but it is not clear that they are underpinned by a clear understanding of the underlying issues. This does not appear to be the best way to proceed.

I will highlight just one other area dealt with in the report, namely the impact of ageing on the UK’s workforce. This is not a new phenomenon, but in the past the reduction in the workforce due to retirement was masked by other factors, in particular the increased participation in the workforce of women. A simulation by the Bank of England shows that population ageing is increasing, knocking about five percentage points off the workforce each year by about 2032. Other factors are thought to be broadly static, so ageing will start to be a really big factor in the size of the workforce. The implications of this for economic growth are clearly significant.

In addition, successive reports from the OBR have shown how demographic changes contribute to a dramatic increase in the growth of debt as a percentage of GDP. The Government must face some difficult decisions, including about pensions and taxation, pretty soon if a longer-term financial crisis is to be avoided.

The response to our report was described as “the Government’s formal response”, but it came from the Department for Work and Pensions and ignored the broader economic issues of an ageing population. I hope my noble friend the Minister will be able to respond on behalf of the whole of government, including the Treasury, when he winds up.

Photo of Lord Hendy Lord Hendy Labour 12:43, 8 February 2024

My Lords, I too congratulate the noble Lord, Lord Bridges, on securing this debate and on his speech, and the Economic Affairs Committee on its report. A number of factors were identified for the remarkable and increasing exodus from work. One was long-term sickness. Among other things, the report cited an ONS survey that found that 10% of those who were economically inactive gave as a reason mental ill-health and stress, about which my noble friend Lord Layard has spoken. A trade union general secretary pointed to the “intensification of work demands”. The report cites a survey that found that only 58% of UK workers aged 50 to 64 liked their job, compared with 74% in the USA and 73% in Germany.

I suggest that one critical factor in the “Great British mystery” cited by the noble Lord, Lord Skidelsky, and amplified in his question, “Where have all the good jobs gone?”, is that pay, terms and conditions in the United Kingdom have become so bad that those who can are opting out or being invalided out. Taking pay alone, according to the ONS, median pay in November 2023 was £2,299 per calendar month, or £27,588 per annum. By definition, half the UK’s workforce earns even less. True, half the workforce earns more—the pay of FTSE 100 CEOs is about 116 times that of the median worker, up from 11 times in 1980—but the well paid are few in number. The fact is that only 25% of our wage earners earn more than £42,300 a year, and one-quarter of the workforce earns less than £16,068 per annum. The real value of average weekly earnings, including bonus, was the same in November last year as it was in March 2007.

Consider, as an example, the food sector. The workers who grew or caught our food, processed it, sold it in shops and supermarkets, and transported and delivered it were hailed as heroes during the pandemic, but that praise did not enhance their living standards. The Bakers, Food and Allied Workers Union recently published a report, Foodworkers on the Breadline, which showed that over 60% of its members did not have wages high enough to cover their basic needs, 88% had reduced their heating, and 60% had reduced their food consumption to cope. The other side of that equation is captured by the UN Trade and Development Report at the end of last year, which stated:

“The last few years of commodity price volatility have coincided with a period of record profit growth by global energy and food traders. In the area of food trading, the four companies that conservatively account for about 70 per cent of the global food market share registered a dramatic rise in profits during 2021-2022”.

Nearly half the population of the United Kingdom are workers: 32 million out of 67 million. In its report UK Poverty 2024 from a couple of weeks ago, the Joseph Rowntree Foundation tells us that 14.4 million people were living in poverty in 2021-22, and that nearly 3.8 million people experienced destitution—a 148% increase in just over five years. That included 1 million children—nearly three times as many as in 2017. Low pay is a principal contributor. Two-thirds of working-age adults in poverty lived in a household where someone was in work. More people in work are reliant on benefits than those who are not in work.

The consequences of inequality are well documented, in terms of misery, hopelessness, mental and physical ill-health, homelessness, diminished life expectancy, increased perinatal mortality, damage to children’s education, increase in crime, and anti-social behaviour—see the brilliant work of Professor Sir Michael Marmot and that of Professors Wilkinson and Pickett.

I suggest that the major factor behind this state of affairs is the collapse of collective bargaining in the United Kingdom. From the Second World War until the 1980s, the terms and conditions of around 85% of British workers were negotiated between unions and employers. Since then, collective bargaining coverage has been driven down to less than 25% today, so three-quarters of our workers—some 24 million of them—have no collective say over their terms and conditions, and next to none are in a position to negotiate individually. This lack of voice leads to both low pay and alienation.

International law, including the International Labour Organization, mandates the promotion of collective bargaining. The OECD annually recommends it in its employment outlook. Even the EU has now finally recognised the importance of collective bargaining. Its directive on national adequate wages requires member states to have an action plan to ensure that at least 80% of workers are covered by a collective agreement. I commend the course adopted by Sir Winston Churchill, who, as President of the Board of Trade in 1909, introduced a legislative scheme of compulsory sectoral collective bargaining to combat low pay, which became wages councils. The Labour Party is committed to a similar model in the form of fair pay agreements. Will the Minister say whether the present Government will fulfil their duty to promote collective bargaining and low pay?

Photo of The Bishop of Bristol The Bishop of Bristol Bishop 12:51, 8 February 2024

My Lords, it is a pleasure to speak in this important debate about the nature of the UK workforce in a challenging economic climate. I pay tribute to the noble Lord, Lord Bridges, as have others, and all the members of the Economic Affairs Committee who worked to produce this report and have stimulated our thinking today.

On a personal note, having recently found it hard to recruit lay staff to my office in Bristol, I am very grateful for being informed by the report we are debating today. At the heart of my diocese, you can find the New Room, the chapel where John Wesley led the first Methodist congregation from 1739. As part of his pioneering ministry, he offered “Rules of a Helper” to ordained Ministers, the first of which is:

“Never be unemployed a moment, never be triflingly employed, never while away time”.

While the word “unemployed” might have pricked the ears of your Lordships in the context of this debate, the final clause may be the significant one here. In effect, we are reminded about the importance of using our time on earth well. There is work to be done, good news to share and disciples to be made. Wesley was on to something. There is great purpose and fulfilment to be found in using our time well, maximising our skills and ensuring we fulfil our potential. It enriches our lives and the lives of our community, and that is central to my remarks today.

I pay tribute to the work of the charity Livability as I begin by considering the area of disability. Livability seeks to improve the quality of life for people with disabilities and to create a life that adds up for them. Five of Livability’s 10 residents in Eastbourne—Stacey, Debbie, Bob, Linda and Shaun—are in in work, well above the national average for disabled people, finding independence and fulfilment in jobs that enable them to serve others. Several of the residents in Eastbourne engaged with the Archbishops’ Commission on Reimagining Care, helping to guide the commission’s thinking and the articulation of a vision in which everyone can be supported to flourish, regardless of age or ability.

Good employers play an important role in developing every employee’s skills. There are many good employers, including, I have no doubt, the employers of our friends at Livability, but we need to ensure that employers are doing everything they can to meet their obligations under the Equality Act and to make reasonable adjustments for disabled employees, making them feel welcome in practice as well as in their procedures. In the last Autumn Statement, the Government made significant efforts to encourage disabled people back into work. A Government Minister noted that disabled people should do their duty and work if they could. An emphasis was made on encouraging disabled people therefore to work from home, yet the sectors with the most significant shortages—social care, hospitality and retail—provide few jobs which can be done effectively from home.

There are wider societal implications from the absence of workers in our economic environment. The report we are discussing today demonstrates that the shortages in the labour market are particularly acute because people are retiring earlier. We have heard that laid out extensively. At the same time, just this week, the International Longevity Centre has released a report saying that the state pension age might need to increase to keep in line the proportion of workers per state pensioner. Without more careful consideration about the nature, attractiveness and meaning of work itself, we risk becoming an ever more unequal society in which people work longer than they probably should to maintain services for people well enough to work but with the means to retire early.

The report of the Archbishops’ Commission on Families and Households noted that the pandemic changed much about how we think about our work, relationships and well-being. I note that the committee’s report reflected on early retirements triggered by the pandemic as being a lifestyle choice for many, which undoubtedly is true for some with the means to do so. I add that a contributing factor must also be the weight of the loss we have shared together with our families and communities. As the Covid inquiry continues, the extent of the loss and bereavement we faced is something with which we may only be beginning to come to terms.

Finally, this report quite reasonably focuses on the employment picture in the immediate aftermath of the pandemic. The pandemic showed us just how quickly circumstances can change. The development of artificial intelligence and the rapid pace of change we are seeing as a result of generative AI leave us with profound moral questions as we consider the future of work. Technology is not neutral. We need a set of principles which underpin our engagement with this fourth industrial revolution. It is not clear where we are heading. The Church of England will be exploring this in the coming weeks as we seek to engage with the Rome call for an ethical approach to AI and deeper reflection on the crucial elements of fair and fulfilling work in the face of AI and technologies to come. In the meantime, the committee’s report is excellent and gives us much to think about in terms of understanding employment trends. I am grateful for it and for this debate.

Photo of Lord Turnbull Lord Turnbull Crossbench 12:58, 8 February 2024

My Lords, in the seven or so years since I joined the Economic Affairs Committee, it has produced a number of excellent reports such as those on education, training and skills for the half of the school leavers who do not go to university, building more homes, the operation of the Bank of England and the subject of today’s debate, Where Have All the Workers Gone? This was produced when I was not a member, but I am happy to praise it highly.

I wondered whether there was a thread connecting these subjects. I found an answer from the excellent testimony we received recently from Dr El-Erian, the president of Queens’ College, Cambridge. The connecting thread, he argued, was the supply side of the economy, which has been neglected over the past decade, including much of the labour market, while too much attention has been paid to managing demand in the economy. He argued that there was a dominant view in the decade 2010 to 2020 that there was a surplus of savings and insufficient demand in the global economy and in the UK, which was seen as constantly teetering on the verge of recession, meaning that interest rates needed to be kept low. It also meant that you could flood the system with fiscal and monetary stimulus and not pay the cost in terms of inflation. Dr El-Erian’s conclusion was that we live no longer in a world of insufficient demand but in a world of insufficiently flexible supply. The supply side is governing the outcomes for growth.

A number of events have damaged supply here in the UK, some coming from outside the country and some from faulty domestic policy decisions. In the decade between 2010 and 2020, the Bank of England and the Government tried to boost demand by stuffing the banks with liquidity through QE, while boosting household incomes by increasing public spending faster than taxes. But this failed to produce growth; it was described as “pushing on a string”.

Looking through the past reports of the EAC, one can see where opportunities to improve the supply side of the economy are being missed. In the area of skills, we have funded universities generously but, as the noble Lord, Lord Willetts, noted, the provision for school leavers not going to universities but taking courses such as HNCs or BTECs, or going to apprenticeships and FE colleges, has been trashed. As a result, we do not have enough skills to build the number of houses we need. Priority has been given to helping first-time buyers but we have not increased the supply of homes for them to buy, with the result that house prices have risen.

The report we are discussing reveals a major anomaly in the British economy, as the noble Lord, Lord Skidelsky, pointed out. During the pandemic the level of inactivity in labour markets around the world rose, but in almost every other major country the level of inactivity has returned close to pre-pandemic levels. The UK stands out as the one where inactivity levels have gone up and remained high. The ONS published revised figures on the labour market earlier this week and, although there are some doubts as to how much confidence we should place in them, they show a picture even worse than we expected when the report was written. The inactivity rate has been revised upwards and the numbers who are long-term sick have been revised up from 2.4 million to 2.8 million. Something has gone seriously wrong when the numbers who are long-term sick are this high while there are serious labour shortages in key parts of our economy. Because we are failing to get enough of the people already living here into work, we have resorted to bringing in more workers from abroad, with all the tensions that brings.

As the report indicates, the reasons for the inactivity rate rising and staying high are complex: the ageing population, changing preferences about early retirement, access to disability benefits and a deterioration in health, physical and mental, are all contributing. The report rightly urges the Government to study this more intensively. I think paragraphs 58 and 59 of the report rather downplay the role of sickness in raising inactivity. In the light of the new figures, we should possibly revisit that conclusion.

What does all this mean for policy going forward? The emphasis should be on measures that improve the supply side of the economy and productivity, rather than simply pushing more money into the banks or giving short-term, pre-election tax cuts. We should certainly aim to improve health, which is acting as a major drag on our performance.

Other evidence we have heard from the committee recently is that, despite the huge quantity of government debt that needs to be sold each year, there has been no significant difficulty apart from the Truss crisis. This indicates that we may have some time in which we could prioritise measures to improve supply and productivity over further increases in demand: by changes to in-work benefit rules, improvements in healthcare and boosting investment, public and private. That is pretty much the approach recommended by the National Institute of Economic and Social Research in its latest report on the economy.

I have one final observation: we should reorganise our thinking and our statistics around the way we characterise age 65 as a watershed. Below that age, people are described as “of working age”, implying that those above that age are not. Many in that age group could be brought back into the workforce with the right incentives and support. That is something we should certainly work on.

Photo of Lord Balfe Lord Balfe Conservative 1:04, 8 February 2024

My Lords, I too begin by thanking my noble friend Lord Bridges for the report. It is an incisive report and is good at defining problems, but we are still left looking for the solutions. I also welcome back my friend the noble Lord, Lord Skidelsky. I applaud his contribution and am very pleased that he is now back with us in this House.

As I said, this report is a good definition of the problems, but the last thing we are going to get in an election year is any solution to them. I see the problems as falling into three separate parts: what you might call the voluntary part, the sickness part and the structural part. The voluntary part is quite simply that people have decided that it is a very good idea to retire. I was very fortunate that, thanks to the pension reforms for MEPs passed by Margaret Thatcher—I will not hear a bad word said against her—I was able to retire on a full pension at 60. I have always been very grateful to that good lady for that.

The big thing about retiring is that you no longer have anyone telling you what to do. It is not that I stopped doing any work—in fact, I probably work just as hard—but no longer was there any compulsion. No longer was the diary out saying that I had to do this or that, so I can well understand the attraction of early retirement. Of course, thanks to George Osborne, if you have private means you can now retire at around 55 with a SIPP and a lot of people have decided to do just that.

I know one or two in my city of Cambridge who have decided that they had better retire. A number of them work in the medical profession, then go back as locums to do part-time work so that they can supplement their income but be retired. There is nothing wrong with that and nothing we can do about it. It is a free choice in a free society. The Government could look at upping the age at which you can acquire a pension from your SIPPs, but they cannot and really should not do much about people using their voluntary idea of retiring and leaving the labour force. In the experience of my friends who have retired, they are often doing something pretty useful afterwards.

We then get to the next category, which is where all the money is going. The claims for PIPs have doubled recently, so I am told, and the costs are going to go up because 2.8 million people are now unable to work. It is going to be a challenge for this Government and the next Government, whoever they may be, to sort out how to bring under control social security payments. However much we may think that they are under control, they are clearly not. Not only does the ONS have great problems with the statistics but there seems to be an eternal moving up.

The noble Lord, Lord Layard, who is not in his place, made a very good point about the costs of mental illness. He reminded me of another noble Member of this House, my noble friend Lord Hammond. When he was Chancellor of the Exchequer, I met him on a number of occasions. I recall that on one of them he said to me, “You know, Richard, the trouble is quite simple. There is lots of ‘invest’ but I never see any of the ‘save’”, and this is a problem. We can always say that if we put more money in we will get a dividend out, but I am afraid that we have to tackle the issue of depression in society because if people are too depressed to work, that is a problem. My colleague—I am not sure I am entitled to call him my friend—the noble Lord, Lord Hendy, had a point when he talked about the way in which the working people of this country have gradually had their rights pushed backwards.

Noble Lords will know that I have often stood here and said that we need a much better working relationship with the Trades Union Congress and the labour movement. This is not a left-wing policy. In the European Parliament, where I spent most of my political life, what were known as the “Christian unions”—the right-wing unions—played an important part in the development of policy. Indeed, we had a trade union group in the Christian Democrats when I sat with them in the European Parliament.

We have to look at the conditions of work, and we have to stop regarding workers as latter-day slaves to be pushed around. We have to realise, as Winston Churchill did, that they need to be treated with dignity, compassion and respect. That is the way to get the best out of the workforce. You do not get it through brutalism. If it is the policy of one of the parties in this Chamber to let people carry interest on their ill-gotten gains in private equity, and then not be able to afford to look after working people, that is very sad. One of the lessons in the report, for me, is the need to treat people better and to be better in the way we approach our industrial relations.

Photo of Lord Sikka Lord Sikka Labour 1:11, 8 February 2024

My Lords, I thank the Economic Affairs Committee for its report. The title, Where Have All the Workers Gone?, is intriguing. Neoliberal economists would argue that markets do not have shortages if buyers are willing to pay the appropriate price. However, the report does not advocate higher real wages to address market failures, even though that reduces staff turnover and training costs. The report seems to hanker for an expanded reserve army of labour at low wages, and it associates higher wages with inflation. This logic is at odds with the current bout of inflation, which is caused by profiteering. The real average wage has not changed since 2007. The Government themselves do not associate inflation with higher executive pay and bankers’ bonuses, so it is surprising that they are not advocating the same for workers in order to relieve worker shortages. Perhaps the Minister would like to comment on that.

Government policies have caused labour shortages in this country. With never-ending austerity, millions are struggling to get access to good food, housing, education, clothing, upgrading of skills and healthcare. Deprived people cannot work long hours or fulfil their potential. More workers are reporting being sick and have mental health problems, as has been said by other speakers. So higher disposable income and good public services are key requirements for maintaining and expanding the labour supply.

But the Government have done the opposite, cutting real wages and access to healthcare. Some 6.3 million people in England are waiting for 7.6 million hospital appointments—that is 1 in 9 people. Around 2.8 million people are chronically ill and unable to work, and more than 500,000 under-35s in the UK are out of work due to long-term illness. An August 2023 study by the Times reported that, in the five years to 2022, some 1.5 million people in England died while waiting for a hospital appointment—that is 300,000 a year. A 2022 study published in the Journal of Epidemiology and Community Health reported that, between 2012 and 2019, government-imposed austerity caused 335,000 excess deaths in England and Scotland—nearly 48,000 a year. One-third of these deaths were among people under 65. The Government’s obsession with austerity, wage cuts and defunct economic theories has turned the state into a debilitating killing machine, and this is a major cause of the labour shortages we are experiencing.

Reskilling should be a major issue. Apprenticeships have more or less vanished, or are scarce, and fewer people in England are now going to universities. They are burdened by student debt of £206 billion. Unlike other European countries, England charges university fees, which is now deterring people. The Government seem to have little by way of a strategy to address these issues. I hope that the Minister will announce that the Government will write off student debt, because it will have to be written off sooner or later.

The labour shortages are deepened by having too much dead weight in the economy. For example, the UK has nearly 400,000 professionally qualified accountants, which is the highest number per capita in the world. Nearly a quarter are engaged in what is called “tax planning”, which is really a euphemism for tax dodging—there is no other word for it. They are well paid to plunder the public purse, but this adds little to the productive capacity of the economy. The higher rewards from tax abuse persuade graduates to shun other sectors of the economy. Just think about the huge social cost associated with producing one tax-dodging accountant. There is a huge misallocation of resources, which exacerbates labour shortages in other industries. The Minister will, I hope, tell us how he will rebalance the economy.

Labour shortages can be alleviated by new technology, but there is chronic underinvestment in the UK economy. Investment has fallen from 23% of GDP in the late 1980s to around 17% from 2000 onwards, compared to 20% to 25% in other major industrial economies. In the OECD league table of investment, the UK occupies the 35th spot out of 38 countries. The private sector does not invest enough because people do not have enough purchasing power to buy the goods and services it might actually produce. These days, the public sector is more about handing cash to footloose corporations, rather than directly investing in industries. There was a time when we had an entrepreneurial state that directly invested in new industries and created information technology, aerospace, biotechnology and other industries. But these days, we just give cash away and nothing is created.

To sum up, government policies are a key reason for labour shortages. We cannot alleviate them with further doses of neoliberal policies that oppose higher wages, better public services and the creation of new industries. I hope the Minister will tell us that the Government will change all their policies.

Photo of Lord Bilimoria Lord Bilimoria Crossbench 1:18, 8 February 2024

My Lords, my first public appointment was 25 years ago, when I joined the New Deal taskforce in what was then the Department of Employment. It then became the national employment panel in the Department for Work and Pensions. Our sole purpose was getting people from welfare to work. Right up front, I ask the Minister: is there such an initiative now in government, with the pure objective of helping people get from welfare to work? Work is good not only in enabling people to earn money, but for well-being, health and mental health, which the noble Lord, Lord Layard, spoke about.

I thank the noble Lord, Lord Bridges, and his Economic Affairs Committee for its report, Where Have All the Workers Gone?, published in December 2022, as the noble Baroness, Lady Noakes, said. As the noble Lord said in his excellent opening speech, the answer is that the UK’s workforce has been squeezed by four factors: retirement among those aged 50 to 64, increasing sickness, changes in the structure of migration, and the impact of an ageing UK population.

We have had the latest labour market statistics, hot off the press on 5 February, and we know that unemployment is now at 3.9%. That is fantastic; it is a really low rate—it is back to where it was before the pandemic. However, we have this figure of 9.25 million aged 16 to 64 who are economically inactive, revised up from 8.68 million. The report says that the Learning and Work Institute said that

“since the pandemic if the UK had matched the economic activity rate growth of Australia, France or Netherlands, there would be an additional one million people in the UK workforce”.

The noble Lord, Lord Skidelsky, in his excellent speech, pointed to page 13 of the report, which has graph after graph of country after country showing that other countries have recovered, while we are still up there, with our graph very high, showing economically inactive people. So we have not done as well as other countries have done.

My friend Andy Haldane, the chief executive of the Royal Society of Arts, of which I am a fellow, has said:

“Having been a strong tailwind for two centuries, health is now a strengthening headwind to UK economic growth, for perhaps the first time since the Industrial Revolution”.

The noble Lord, Lord Skidelsky, said in his speech that Britain is the sickest country in Europe.

Every day now in the press we hear about the crisis in dentistry. The UK spends barely £3 billion of the NHS budget on dentistry. That is shocking. In real terms, it has fallen by 33%, because it is at the same level as it was in 2010, when the current Government came to power. The overall national health budget is £170 billion. Why are teeth less important, given the agony that every one of us has experienced with teeth? Dentistry is not free at the point of delivery; you have to pay for it, and it is expensive to go privately. The NHS is meant to provide a service for everyone on demand, but the reality is different. The latest is that nine out of 10 practices are not accepting new adult patients.

As the chancellor of the University of Birmingham, one of the proudest moments of my tenure was when we opened our brand-new dentistry school on the old Pebble Mill BBC site, and Her Majesty Queen Elizabeth and Prince Philip, the then Duke of Edinburgh, came to open that school. Do you know that we have now only 1,000 dentistry school places available each year? If we do not put health first, we will be the sickest nation in Europe.

The report refers to the furlough scheme and the effect of lockdown on early retirement. As president of the CBI—the Confederation of British Industry—I was one of the first people during the pandemic, as early as August 2020, to ask the Government to provide free lateral flow tests to everyone, at home and in the workforce, therefore preventing lockdowns. I am convinced that we could have avoided the second and third lockdowns if we had used those lateral flow tests earlier. Noble Lords may remember that, by the time we started to use them, in December 2021 and January 2022, we ran out of them, because we were using them so much. Oxford University conducted a test with schools in the summer of 2021—it was published in July—proving very clearly that effective use of lateral flow tests could control the spread of the disease. We did not do it early enough—and, to my knowledge, the Covid inquiry, which is costing so much money and taking so much time, is not even looking into that aspect. So many operations could have taken place, and so many children could have not missed out on school and university, and we would not have a 30 million waiting list at the moment.

On immigration, the committee noted that the end of EU free movement and the introduction of the UK’s points-based visa scheme changed the structure of UK immigration. The committee said that many lower-paid roles in the economy, such as in agriculture, hospitality and care, had previously been filled by EU workers, while the new immigration system prioritises skilled workers. The report said that this had

“contributed to a mismatch within the labour force, accentuating labour shortages in these sectors”.

In my own business of Cobra Beer, in the hospitality industry, we supply 7,000 restaurants—a £54 billion industry in terms of tax receipts alone, employing 3.5 million. The changes to the immigration system, set to be implemented in April, mean that the minimum salary needed to get a skilled worker visa will rise from £26,200 to £38,700. That will further shrink the talent of good people that the hospitality business needs. The reality is that 75% of hospitality jobs are domestic, but we still need to recruit from abroad. How is our economy meant to grow without access to labour?

The noble Lord, Lord Bridges, spoke about the record 740,000 net migration figure. However, as chancellor of Birmingham University, president of UKCISA and co-chair of the All-Party Parliamentary Group for International Students, I ask why the Government keep including international students in the net migration figure. Other countries treat them as temporary migrants; we should exclude international students from the net migration figure.

We have a low-growth economy, high debt at 100% of GDP, high government spending and low productivity, as the noble Lord, Lord Londesborough, said, and what nobody else has mentioned is that we have the highest tax burden in 70 years. High taxes and freezing the thresholds affects everybody: it is a disincentive to work. We need to reduce our taxes, which will help people to get back to work as well. I hope that I have now answered the mystery posed by the noble Lord, Lord Skidelsky, of where all the workers have gone.

Photo of Lord Griffiths of Fforestfach Lord Griffiths of Fforestfach Conservative 1:25, 8 February 2024

My Lords, as a member of the committee that produced this report, I, too, thank our chairman, the noble Lord, Lord Bridges, who did an outstanding job, as well as fellow members of the committee. It was a very lively committee, as with other times when I have served on that committee—it has always been lively.

At this stage of the debate, much of what I might have liked to say has been said, but there are some points that I would like to draw noble Lords’ attention to. The noble Lord, Lord Skidelsky, is right in saying that the title, Where Have All the Workers Gone?, sounds a bit like a whodunnit. However, when you open the report, you are immediately thrown into the detail of statistics about the economics of the labour market, and you get down to the minutiae.

The first point that I make is that this is really a debate about economic growth, which matters enormously. It matters for the quality of the public services that we have and for the welfare state, as well as for defence and for future tax cuts. It matters for managing our national debt. Among economists, a lot of emphasis is given to public and private investment and labour productivity, but much less to the size and health of the labour force. The size and health of the labour force are crucial to growth. I very much agree with the noble Lord, Lord Layard, my colleague, that mental health is absolutely central to what we are discussing today.

The second point that I want to make is that I believe that this is a crisis. Having been on the committee that wrote the report and having taken an interest in this area, I was astonished to find the figures published by the ONS on Monday. Nearly 3 million people in this country are economically inactive because of long-term sickness. It is a very grim picture. In the section of the publication on economic inactivity, the ONS posed the question: “Do you want a job?” That might seem an odd question to pose, given that it has produced statistics on economic inactivity, with regard to people who are not looking for work. It says that 1.8 million people responded to that question very positively, which may be entirely made up of students—but I cannot help feeling that those who are suffering from long-term sickness are people who would really aspire to having a job, and they are actually quite disappointed because they do not have one.

The third point that I would like to make is that we started our report under the shadow of Covid. It is not clear to me that, as a society, we really understand what the longer-term effects of Covid really are. You see it in small ways. When you talk to schoolteachers, they tell you that Covid had such an impact that children today are much more casual about attending school. For example, we know that people coming to an office only two or three days a week has now become a norm.

The statistics seem to hide things, and we really need more data from the ONS on this subject. We do not have nearly enough data explaining the relevance of economic inactivity, and particularly mental illness, to growth. The question arises of what needs to be done. I would say the first thing is: do no harm. The last thing we should do is to get on a bandwagon that says, “Pull up your socks, start walking, find a job—any job you possibly can”. There is great temptation to do that when the public finances are in the difficult state that they are. Secondly, more immigration is not the answer. While it might be a net benefit initially to the public finances, there is the problem of social housing and that the people who come have partners, get married, have children, and need education and health services. There is therefore likely to be a cost later.

We must recognise the work done, not least by the LSE, emphasising that economic inactivity is not something new. We experienced it in the late 1970s and early 1980s, and at the start of Covid. Because sickness rates have been much higher among older and less skilled workers, especially those in manual occupations, policy—particularly for the over-55s—should be encouraging or creating apprenticeships, focusing on workers with fewer skills.

This really leads to the issue of mental illness. Recently, the Economist had a very interesting series of articles on this subject. One question it raised was, with so many campaigns on mental illness—which I think are a good thing—might it not lead people to conflate normal responses to life’s problems with mental health disorders? Clearly, mental illness is a serious problem in our society, and it is important that it has resources and research. However, on the other hand, it is important to find out why mental illness is as prevalent as it is at present.

I say to the Minister, in conclusion, that if we are to do something about people employing more people, we need to have business on side. The department was very complimentary about the report. What does he think the department can do now to make sure that work will prove a source of well-being for those with long-term illness?

Photo of Lord Davies of Brixton Lord Davies of Brixton Labour 1:33, 8 February 2024

My Lords, it is an honour and a pleasure to take part in this debate, with its stellar cast of speakers. The report was introduced extremely well by the noble Lord, Lord Bridges of Headley. I should mention that I am currently a member of the Economic Affairs Committee, but I was not when it produced this report. Indeed, when I saw that this was down for debate, I thought that I was going to have to stand up and make a whole series of criticisms, but then I took the precaution of reading the report, rather than just the press.

The report itself is measured in what it says. It does not attempt to make moral judgments about the situation, but identifies that we need to know more and that there is a shortage of data—the intervening period since its publication has strongly reinforced that point. I agree with the remarks of the noble Baroness, Lady Noakes. The Government’s failure to get to grips with understanding the situation is the most concerning point that we need to discuss today.

I will direct my remarks, not surprisingly, to what the report says about pensions and retirement, but I think that the most important part is where it talks about sickness and ill health. I strongly endorse the remarks of my noble friend Lord Layard in relation to mental health.

We should recognise that economic inactivity is quite a difficult concept to pin down. It appears in some official statistics, so we are very much subject to the way in which those statistics are drawn up. One issue that has not been addressed in this debate is how useful people classified as economically inactive are to the overall standard of living and quality of life: how they are contributing. It is doubtless that many are making a massive contribution that is simply not reflected in the economic statistics. Having said that, it is clearly a matter of importance that we take an interest in the reduction that we have seen in the size of the workforce, as measured by the statistics.

It is important to understand that the report does not provide us with policy solutions, and it certainly does not tell us what the long-term implications are, how significant the reduction of the workforce is, or even whether it is a good or bad thing. Certain speakers have claimed generally that it is a bad thing that we have seen this reduction in the workforce, but the report itself does not do that—unlike, as I suggested earlier, much of the commentary on the report.

Chapter 1 identifies the impacts of the reduction of the workforce. It identified inflation, but went on to say that inflation was because of the implications that the reduction in the workforce has for people’s wages. I want to be absolutely clear that I think that pressure to increase wages is a good thing, both economically and for the individuals concerned. Business needs people to spend money, and they will spend money only if they have good wages. The report also said that it limited economic growth and, as an associated point, would worsen public finances. As we know, GDP is a pretty bad measure; it is the only one we have, which is why we use it, but, as a measure of quality of life it is a pretty poor proxy. I suggest that—I need to say this the right way round—men and women were not made for the GDP. You cannot assess the quality of people’s lives by the level of GDP, because they are doing other things that are not reflected in the GDP figures themselves.

It is right that the report focuses on retirement and the changes that have taken place in retirement. We should try to understand figure 16, and what it tells us about the reasons people are taking retirement. The report is a bit thin on this; it raises lots of questions and provides some speculation, but it does not really tell us why people are taking retirement.

Looking at figure 16, what it suggests to me—and here I am entering into speculation, along with everyone else—is a considerable class divide. People on higher incomes are not retiring as much; people on very low incomes are not retiring as much; but people in the middle are. At the risk of making very broad generalisations, people on higher incomes have the resources to retire but they probably also have more fulfilling, more interesting, more rewarding jobs—by definition they are more rewarding—so they keep working. People on low incomes cannot afford to retire, so they stay at work. It is people in the middle income bands who have some agency here and who actually take retirement. That is obviously influenced by factors such as home ownership and what the report describes as financial resilience, which I assume means a bit of money in the bank. The report suggests that people who retire are the well-resourced group. Well, yes, I am sure that is true.

Amazingly, I have gone well over my time. I shall finish, skipping a lot of what I wanted to say, with a remark about retirement age. I always worry when people who are well off, in well-paid, interesting jobs, say that other people should be retiring later than they want to. The whole issue of the retirement age is going to come back to us, I am sure, but I want to add a dissenting note: you cannot solve the productivity problem by forcing people to stay at work.

Photo of Lord de Clifford Lord de Clifford Crossbench 1:41, 8 February 2024

I congratulate the noble Lord, Lord Bridges, and the committee on this excellent report in an area where I want to learn more and of which I want to widen my knowledge. The veterinary industry, in which I work, has faced a recruitment challenge for the past few years. Brexit and the pandemic had a significant effect on the availability of qualified veterinary surgeons. If you speak to many veterinary practices and businesses and ask them what their most significant challenge has been this year and in the past few years, it has been the retention and recruitment of veterinary nurses and veterinary surgeons. The demand for these qualified individuals has increased, due to the significant rise in pet ownership and the additional vets needed to facilitate the export trade in meat and live animals.

The industry has identified three areas which have caused this shortage of labour. The supply of new vets has changed significantly. Back in 2018, the number of vets being registered by the RCVS, the governing body, was 810 new graduates from universities, while the majority of new registrations, 1,158, came from the EU. These numbers changed significantly over the next four years, with 970 new grads being registered from universities and only 329 vets coming from the EU. The reduction in the number of EU vets coming to work in the UK is due to the increasing burden of applying for visas and requiring sponsorship from practices, which causes them increased costs. Also, the RCVS now applies a proficiency in English test, due to the loss of free movement of people.

The second reason, which is more appropriate to today’s debate, is the retention of staff. We are registering significantly more new veterinary surgeons, but the dropout rate from the industry is significant, with the average time of registration for a veterinary surgeon now at seven years. In 2021, the industry looked into what was causing vets to leave the industry. There are varied reasons but some recurring themes: a lack of flexible working; unsatisfactory pay; a poor work/life balance; cultural issues; and a lack of support in a high-stress environment. Since 2021, we have seen an increase in veterinary surgeons’ and nurses’ salaries, but other issues persist. According to the latest BVA Voice of the Veterinary Profession survey, 47% of people questioned said their work/life balance was either not good or terrible, and 25% said that job-related stress was extremely high.

The number of vets registered has started to increase since 2021, but the make-up of the workforce is changing too. Back in 2018, 70% of veterinary nurses and vets worked over 36 hours per week; now, it is just 52%. Part-time and flexible working was 28% in 2018; the latest data shows it is now 36%. Only 50% of the profession work full time. Without doubt, the veterinary industry needs to improve its HR and the management of its staff. These skills are being highlighted and pushed by many organisations, and the industry has started to embrace these skills: other industries should consider this too.

The retirement of long-serving vets within the industry has also increased. The last 10 years have seen notable changes in the ownership structure of practices, with large, established companies purchasing practices throughout the country. A number of veterinary practice owners have sold their practices and, now that they are financially secure, have left the industry, possibly becoming economically inactive, as others have mentioned in the debate.

The sector I work in, and other sectors that have a vocational skills bias, such as doctors, nurses, teachers and the care professions, all meet the demands of their customers to the best of their abilities, but the workload often overwhelms the available workforce and creates stressful and demanding workplaces, resulting in poor morale, increased sickness, increased mental health issues and, ultimately, poor retention. With changes in society’s attitude to work and with many seeking a good work/life balance, I encourage the Minister to invest in research and improved data, echoing the points made by the noble Lords, Lord Bridges and Lord Willetts, that will help us address the issues facing these vocational professions.

Photo of Baroness Kramer Baroness Kramer Liberal Democrat Lords Spokesperson (Treasury and Economy) 1:46, 8 February 2024

My Lords, I was privileged to be part of the committee that delivered this report, serving under the noble Lord, Lord Bridges, who has so effectively presented the conclusions in our report and given an update based on the additional data that has become available. I am probably rather redundant in this debate, but that has never stopped me before and I am afraid it will not do so today.

Economic activity matters to economic growth—the noble Lord, Lord Griffiths, rehearsed this issue well—so it was not great news when on Monday the ONS revised its figures for the three months to November 2023, showing economic inactivity at 21.9% rather than 20.8%. I accept, as the noble Lords, Lord Bridges and Lord Willetts, the noble Baroness, Lady Noakes, and others have pointed out, that the ONS is finding it extremely difficult to get sound survey statistics in this changing labour market. On its behalf, I point out that it is not alone; the FT ran an article last week entitled “Guess the US job numbers”. This is really difficult, and we must accept that we will never get pure statistics, but our goal must be to get enough to drive us in the right direction.

It is clear from all the numbers we have that Covid left a different impact in the UK from other developed countries, as the noble Lords, Lord Skidelsky, Lord Turnbull and Lord Bilimoria, pointed out. Other countries found that economic inactivity during the Covid period recovered post Covid, but we have found the reverse. If anything, it has intensified. It is important to say that, when we began our report, we honestly did not expect to find that early retirement among the 50 to 64 year-old cohort would be such a powerful factor in economic inactivity. If anything, we assumed when we began that a post-Covid rise in sickness and long NHS waiting lists would be the cause. They are important parts of the problem, but our report clearly demonstrates that increased ill health, as others have said, typically came after retirement rather than causing it.

The noble Lord, Lord Skidelsky, caught this rather well. The scale of the significant lifestyle change that we identified, which caught me unawares, is still in many ways a mystery. We have heard a number of potential answers to that question today. The noble Lord, Lord Hendy, talked about terms and conditions and the noble Lord, Lord Skidelsky, about people just not finding their work enjoyable. The noble Viscount, Lord Chandos, and others also addressed this and the noble Lord, Lord de Clifford, gave us an example from veterinary services of why it is so hard to retain people in work, which must be part of their choosing early retirement. We almost have a vicious circle; as people fall out of the workforce, the stress that falls on those who remain is higher than ever. I very much hope the Minister will explore this and that the Government will do significantly more work in this area. I know that the OBR is treating this cohort of 50 to 64 year-olds retiring early as a temporary change; I am less sure, but that is another reason why we need to explore this.

However, I do not think that recognising early retirement negates the urgency of dealing with the NHS backlog. Virtually every speaker made the point that this is a critical area on which we must focus. If people in the 50 to 64 retired cohort become and remain ill, any chance that they will rejoin the workforce is pretty much lost, no matter what support and incentives are on offer. Yesterday’s ONS figures suggesting that some 2 million people in work are underperforming because of sickness underscore the issue. There was a further warning in more recent evidence given to the Economic Affairs Committee, on a different issue, by Richard Hughes, chair of the OBR:

“People used to be getting healthier as they aged, but the data has been more disappointing recently, in the sense that you are getting more years of unhealthy life rather than more years of healthy life”.

We have to find a way to change that, for many reasons, including the workforce. I see no way other than a significant investment in reform to increase services and deal with both prevention and treatment. The noble Lord, Lord Layard, underscored the importance of ensuring that mental health is not neglected in that focus on reforming health and investing in improved health.

In undertaking this report, we were beginning to focus on a much more fundamental problem which may not have been as fully discussed in this debate: the changing ratio between our working-age population in the UK and our dependant population. Richard Hughes said:

“The underlying demographics remain pretty stark, in the sense that, in the 1970s, we had about two people in work for every one person in retirement. At the moment, we have about one and a half people in work for every one person in retirement. By the time we get out to 2070, we have only one person in work for every one person in retirement”.

This is despite expected future increases in the state pension age. The noble Lord, Lord Davies, has a point: for some jobs it is easy to think of asking people to work longer, but for many it would not be appropriate.

There was a time, perhaps until 2018 or 2019—and the noble Baroness, Lady Noakes, made this point—that bringing women into the workforce and raising the state pension age and free movement sustained our working-age population. The first two have largely run their course, and, as we know, free movement has ended. This is not a debate on immigration or Brexit, but I am quite taken with the fact that, according to the OBR, historic data showed EU migrants as having higher employment rates and making fewer demands on public services than the general population, while migrants under the current system are now forecast to mirror the population. This highlights that we need a proper immigration debate in which workforce issues are properly included, and the noble Lord, Lord Bilimoria, underscored that point.

This is also not a debate on productivity, but obviously increases in productivity can substitute for workforce. The noble Lord, Lord Willetts, talked about technical and educational qualifications, and indeed childcare, as playing an important part in releasing people into the workforce. Better training, better use of the apprenticeship levy and return to work schemes are all important, but we should not fool ourselves that these will provide us with a sufficient number of people to make up the workforce shortfall in the demographics we are looking at.

Like a lot of people, I very much hope that Al will give us a productivity revolution and, essentially, resolve our demographic shortfall. One hears this spoken of widely. The right reverend Prelate the Bishop of Bristol made the point that AI comes with many issues, complications and moral questions. I would add another word of caution around the simple assumption that AI will drive forward this kind of change in productivity. The House will remember that, many years ago, we discussed the notion that first came the agricultural revolution, which drove up productivity, and then the Industrial Revolution drove it up, and then in the 1990s we expected that the digital revolution would follow the same pattern. But in the UK at least—quite a number of noble Lords have talked about our weak productivity performance—the digital revolution changed the way we work but led to no rise in our productivity.

I am desperately concerned that, in looking at this issue—the noble Lord, Lord Londesborough, gave us the statistics on how productivity has been scraping along, barely above zero—we recognise that, if we are going to use AI as the offset, we need a proper strategy in place to be able to do so. It has got to be comprehensive and challenging, and not the bitty and scattered arrangements or pieces of policy that we have today.

I close by picking up the point made by the noble Baroness, Lady Noakes, and the noble Lord, Lord Davies. Frankly, the Government’s reply to the report is pretty complacent and largely misses the point. It does not recognise the scale of the issue that we are dealing with. Yes, we need better data, but we also need the Government to understand that there are real and fundamental issues around the size of the workforce and our demographic profile. These issues have to be thought through and encompassed in every plan that we have for the economy, or else we will not see the economic growth that we want to see to sustain our population and our quality of life.

Photo of Baroness Sherlock Baroness Sherlock Shadow Spokesperson (Work and Pensions) 1:57, 8 February 2024

My Lords, I thank the noble Lord, Lord Bridges of Headley, for introducing this debate and all members of the committee for their hard work. Having heard many of them in action, I think the noble Lord’s chairing skills must be fine indeed. I imagine it was a lively committee, as the noble Lord, Lord Griffiths, described it—I would have liked to have been a fly on the wall at times.

I found the report fascinating. It had that combination of focus and sheer intellectual curiosity that characterises the best of the reports that come from this House. I hope it will prod the Government to take the opportunity to consider some of these things in a way and to a depth that they might not otherwise have done. It is a shame, as the noble Baroness, Lady Noakes, pointed out, it has taken us so long to discuss the report, because there is so much in it and it would have been even more helpful had we discussed it at the time.

“Where have all the workers gone?” is still a great question, and clearly still relevant. After all, employment levels in the UK have still not reached their pre-pandemic rates, unlike those in other countries—a point made by my noble friend Lord Chandos. Vacancies are still above pre-pandemic levels and so is economic inactivity. We will maybe get a better sense of things when the Labour Force Survey’s reweighted data come out, and I take the points made about the difficulties in getting good data. However, the noble Baroness, Lady Kramer, is right that the report is at least pointing us in the right direction. If we look at what the ONS said this week about the likely impact of the reweighting, it is clearly pointing us towards the fact that we have a bigger, sicker workforce, and that our employment rate is even lower than previously thought. It also looks as though there are at least another 100,000 more people out of work due to long-term sickness than previously thought—and previously it was at a record high.

The committee’s report answers its own exam question by pointing to four drivers, each of which I will pick up briefly. First, I will pick up the point made mainly by the noble Baroness, Lady Noakes, about the DWP review into workforce participation. This was announced in the 2022 Autumn Statement and never mentioned again. It simply did not appear in the government response to the committee. I pay tribute to the noble Lord, Lord Bridges, who did his best to track it down, having written to the Secretary of State to ask for an update and a publication date. The response from the Secretary of State, in his letter of May 2023 to the noble Lord, Lord Bridges, was frankly extraordinary. Simply to point to a bunch of measures in the spring budget and declare that that

“represents the conclusion of my review” is just astonishing.

Does the Minister not think it a touch unorthodox for a document such as the Autumn Statement to announce a review but for Ministers to then refuse to give any information about its terms of reference, its work or its findings, even to a committee of this House? When pressed on the matter, they simply pointed to a list of Budget measures and said, “Oh, that’s it”. Really? It ended up making a mockery of the committee’s recommendations, because, not unreasonably, it thought this was an ongoing piece of work. The committee made lots of recommendations pointing to a review, only to find that apparently it had happened and we had not noticed it. Can the Minister please explain to the House what is going on?

Having got that off my chest, I will come back now to the content of the report. On the issues around early retirement, there have been some very interesting comments both here and in the report. As we heard from my noble friend Lord Chandos, the committee seems to have gathered evidence around two broad explanations: that the Covid years gave people a taste for life beyond work, and that our flexible pension access arrangements, turbocharged by the recent pension freedoms, made this possible. In other words, Covid made people think they would like to retire and the pension situation meant that they could—or at least some of them could.

I take the points given for colour by the right reverend Prelate the Bishop of Bristol that Covid had more complex relationships than we yet properly know. I suspect quite a lot of people were traumatised in ways that are only beginning to surface down the line. That may be having effects that we have not properly begun to understand. I also take the point made by the noble Lord, Lord Balfe, that one of the things that defines work and separates it from activities we choose is choice. That is pretty important to making such choices, and there is not a lot that the Government can do about that; nor, as the noble Lord said, can the Government stop people using their savings in general. However, the state has a legitimate interest in savings to which the taxpayer has contributed, by giving tax relief on pension contributions, so I am interested to hear what the Government have to say about that.

The Government response sounded as though they felt that the retirement issue was not that big of a deal. Certainly, the most recent September stats show a drop of 2.5% in those giving “retired” as the reason for leaving the labour market, but that still leaves almost a third of all those who are leaving. It is not insignificant, so I hope that is being thought about in some depth in DWP. I take the point of the noble Baroness, Lady Noakes, that, above anything else, there is an apparent lack of curiosity on the part of the Government as to what is going on, and I find that disappointing. I hope the Minister can tell us where their thinking is on that.

Sickness as a cause of economic inactivity has been raised by many noble Lords. It is worrying that the number out of work due to long-term sickness is now either at an all-time high of 2.6 million or at an all-time high of 2.8 million, depending on which figure is picked. But it is big, and it is more than twice what it was in 2010-11. We also now have more people who cannot work fully. The Health Foundation reports that 3.7 million people in work have a health condition that limits either what they can do or how much work they can do. That is also up by 1.4 million over the last decade.

As my noble friend Lord Sikka said, we also have a healthcare problem, with waiting lists for hospital appointments spiking since the pandemic. We do not yet have clear data on causal relationships. However, when the ONS figures show that almost a fifth of those aged 50 to 64 who left work since the start of the pandemic reported that they were on a waiting list for NHS medical treatment—which is noticeably higher than the average—we ignore that at our peril.

There is also the question of disability, raised by the right reverend Prelate the Bishop of Bristol. Disabled people are almost twice as likely to be unemployed and three times as likely to be economically inactive as non-disabled people, and yet they are more likely to want a job. What are we doing to make that possible? The Access to Work programme is key to this, but the waiting list quadrupled in two years, and, by last September, over 22,000 people were waiting for their applications to be heard. Can the Minister tell us what is happening with that?

The final driver was changes in the structure of migration. I do not have time to discuss them in any detail, but they were addressed by the noble Lord, Lord Bilimoria, and a number of other noble Lords. The noble Baroness, Lady Kramer, is right: we need a bigger debate on that as a matter by itself. Like others, I have received clear briefings about the impact on particular sectors, such as hospitality and agriculture, and it has been interesting today to listen to noble Lords describe the sectors they know. This issue is not just about the economy: most of us would like to drink the beer of the noble Lord, Lord Bilimoria; many of us will have pets that we would like to be treated by the colleagues of the noble Lord, Lord de Clifford; many people want to buy products from the SMEs described by the noble Lord, Lord Londesborough; and, as a Church of England priest, I certainly want to know that my bishops are properly supported and that the right reverend Prelate can get the staff she needs in her diocese. Although this issue hits certain sectors, it is not just about economic growth but about the quality of life in our country.

This is so complicated; everything is connected to everything else. What you think is wrong depends on where you stand: the macroeconomists will tell us that we are not going macro enough, while people like me, the shadow DWP person, will inevitably focus on what is happening to employment. We have heard some interesting contributions—the noble Lord, Lord Turnbull, made an interesting point on the supply side measures that need drilling down into more—but we need to know more. The noble Lord, Lord Griffiths, made a strong point: this is in essence a debate about economic growth. My noble friend Lord Layard said, interestingly, that when we talk about growth, we talk too often about things and not enough about people. While we are trying to work out what is going on, we should at least try to do what we can about that.

One of the questions is about making sure there are good enough jobs, a theme that has emerged repeatedly during today’s debate. Labour is committed to creating jobs that provide security, treat workers fairly and pay decent wages. I loved the little kick from the noble Lord, Lord Skidelsky, to the economists—which I would not dare to do—in saying that they always view work as a disutility, whereas in fact, for most people, work is much more than that. We are all looking for meaning and we find it in different ways, but we find it very much in connection and relationship with other people, as well as in wanting to be needed and in making a difference to our society—and work is a key part of that. But, as my noble friend Lord Davies, the noble Lord, Lord Balfe, and others have commented, it has to be work that makes us feel valued and fulfilled to want to carry on doing it.

This may all sound a bit bleak, and perhaps it is. I am sure the Minister will have come armed with a list of things that the Government will do—he has a big folder, and I can see that it is full of such ideas—but one of the questions is: is what has been done working? Despite the Government pouring money into their plans, the OBR is forecasting that the employment rate will stay static over the next five years at just over 60%, and that there will be 600,000 more people on health and disability benefits by 2028-29, with costs going up to somewhere around £33 billion.

I accept that it is complicated, but Labour has tried to set out what we would do, and I offer these ideas to the Minister in a spirit of co-operation, because we should be curious and look at everything going on here. We want to overhaul jobcentres so that they focus on tackling barriers to good jobs, to devolve new powers over employment support and to get collaborating with the NHS and other agencies. We want to give full-time employment support in young futures hubs and to change the benefit rules to help more sick and disabled people risk a new job without worrying about losing money or getting reassessed. We will provide money for an extra 2 million operations, scans and appointments a year to try to get people back to work. We will expand mental health support by recruiting 8,500 more staff and providing specialists in schools, because that is crucial, as many noble Lords have pointed out. I could go on for a long time, but I will not.

This important debate has focused attention in a very helpful way on one of the biggest challenges facing not just our economy but our country and who we are as a people. If nothing changes, things will carry on getting worse. But we can choose to try to get to the bottom of it and to take steps to restore hope and opportunity to millions of people who have been written off—and, in the process, give a much-needed injection to our labour market and economy. I urge the Government to seize the day.

Photo of Viscount Younger of Leckie Viscount Younger of Leckie The Parliamentary Under-Secretary of State for Work and Pensions 2:08, 8 February 2024

My Lords, I am very pleased to close this debate on the Lords Economic Affairs Committee report Where Have All the Workers Gone?. I thank all noble Lords for their valuable contributions, particularly my noble friend Lord Bridges of Headley for initiating the debate. I also thank his committee for the work undertaken in producing its report. This topic is one close to my heart, following my long career in human resources in industry and the City. I really do know how important it is that businesses are able to get the right people with the right skills in a competitive labour market.

Where have all the workers gone? I start by echoing the views of the noble Baroness, Lady Sherlock, also picked up by the noble Lords, Lord Sikka and Lord Hendy, and my noble friend Lord Balfe, about the importance and value of the workforce. The noble Lord, Lord Hendy, spoke—quite rightly, too—about the importance of the unions, and my noble friend Lord Balfe mentioned looking after the workers and their dignity, giving them compassion and respect from the employer’s point of view, and of course he is quite right.

My messages today are the following. Workers must feel that they want to go to work. They should feel that they are paid properly—indeed they should be paid properly—and that they have a stake in the business. That does not have to be a financial stake, but they should at least feel that their views are heard and their skills respected, nurtured and optimally utilised.

To pick up an important point about pay raised by the noble Lord, Lord Hendy, he will know that we expect the increases to the national living wage and the national minimum wage to give a pay rise to around 3 million workers. My noble friend Lord Griffiths and the noble Baroness, Lady Kramer, made some good points about the spirit of this debate. The working population, their health and the numbers in employment really matter, with all the knock-on effects on the economy, particularly of inactivity. Those are my opening points.

This is an appropriate moment to take a step back and reflect on just how much the labour market has changed over time. Just over 50 years ago, four in 10 women were economically inactive, largely due to caring responsibilities. Today, I am pleased to say that the figure is down to 25%, with more women choosing to enter and remain in the workplace to build a career. To address a question raised by my noble friend Lord Griffiths, expanding the opportunities for people to do work that they find fulfilling and rewarding is very much at the heart of what we are trying to do in government.

This report focuses on the rise in both vacancies and economic inactivity following the pandemic. However, the House will note, as pointed out by my noble friend Lord Bridges himself, that the publication goes back to December 2022. To reassure the noble Lord, Lord Bilimoria, I am keen to emphasise that the Government understand the scale of this challenge and have since announced an additional £6 billion of investment in additional support aimed at increasing workforce participation—I will expand on that.

The UK is also not alone in the challenges we face, as most countries for which we have data have higher vacancies than before the pandemic. This issue was raised by my noble friends Lord Bridges and Lord Griffiths, and the key question was: are the statistics fit for purpose? Getting the data on the labour market right is vital. My noble friends will know that the ONS is an independent organisation that decides for itself the best way to produce labour market statistics. However, we engage regularly with it and understand that it has taken a number of steps to improve the quality of the Labour Force Survey, and that survey data is being reintroduced from next week. We review and monitor a wide range of labour market statistics to inform our view, not just the LFS.

The noble Lords, Lord Skidelsky and Lord Bilimoria, expanded on this and stated that we are worse than other countries. That is not entirely true. The UK still has economic inactivity rates that are well below the average for the European Union and the OECD, as well as being the fourth lowest in the G7—but I acknowledge the higher levels of inactivity, which of course is the theme of this debate.

The report makes a number of recommendations, which centre on three main themes: the rise in economic inactivity due to long-term sickness and disability; those choosing to retire and leave the labour market early; and the impact that migration changes may have on certain sectors. I will address each of these in turn. They largely mirror the main points raised in the speech of my noble friend Lord Bridges; I appreciate the detailed analyses of the reasons behind the inactivity from the noble Lord, Lord Skidelsky.

First, on the important issue of long-term sickness and disability, which is now the most common reason stated for economic inactivity, the Government share the concern of noble Lords here today regarding increased economic inactivity levels for those who are disabled or long-term sick. I share the comments of my noble friend Lord Bridges on the statistic that one in five in the 16 to 64 group are inactive. The 2.8 million long-term sick figure is certainly one for great concern.

As the noble Lords, Lord Londesborough and Lord Layard, and the right reverend Prelate the Bishop of Bristol mentioned, we know that rewarding work is hugely beneficial for mental health and well-being, which is why this Government have an ambitious programme of initiatives to support disabled people and people with health conditions, including mental health conditions, into employment. They include increased work coach support and disability employment advisers in jobcentres; the Work and Health Programme and intensive personalised employment support; Access to Work grants—I reassure the noble Baroness, Lady Sherlock, that the backlog is reducing; I will follow up with her on that and give some figures proving that that is correct—the Disability Confident scheme; the information and advice service; and employment advice in NHS Talking Therapies, which was raised by the noble Lord, Lord Layard.

The noble Lord, Lord Layard, made a point about support for addiction. We are investing £39 million to expand our individual placement support programme for drug and alcohol dependency across England by 2025. This programme provides employment support alongside clinical treatment, making employment a key aim of recovery. The NHS is also expanding the mental health aim of this important programme and we are testing a peer mentoring programme in selected jobcentre areas; peer mentors use their lived experience of addiction and recovery to inspire, motivate and support others to manage their dependency, access appropriate support and move towards employment.

My noble friend Lord Griffiths asked about the knowingly economically inactive and their wish to work. He is right: the ONS figures indicate that more than 600,000 people who are inactive due to long-term sickness would very much like a job.

The right reverend Prelate the Bishop of Bristol spoke about disabled people. Let me say a few words about them. The Government are determined to do more to help close the disability employment gap and help more disabled and long-term sick people into work. That is why we have announced even more support targeted at this group over the past year. I will quickly reel some examples off: expanding the existing additional Work Coach support programme; introducing universal support, a new supported employment programme for disabled people; launching WorkWell, which will bring together the NHS, local authorities and other partners in collaboration with jobcentres; introducing employment advisers to musculoskeletal conditions services in England; and, importantly, consulting on occupational health provision in the workplace, as well as expanding the funding for the forthcoming small and medium-sized enterprise subsidy pilot for occupational health services. This week, we also published the Disability Action Plan, setting out 32 practical actions that the Government will take forward over the next 12 months to improve disabled people’s daily lives; noble Lords will be aware that I updated the House on this on Tuesday evening.

The noble Lord, Lord Londesborough, asked whether the Government have up-to-date statistics on those taken out of the workforce for each year between 2020 and 2023 because of sickness, as well as on how many were able to rejoin in each of those years. It was a precise question, and I hope I can give a precise answer. The ONS data suggests that, between those years, almost half a million more people were inactive due to long-term sickness. The most common conditions among this group were depression, anxiety and nervous dispositions, which also had the largest increase. Once people become economically inactive and the main reason for doing so is long-term sickness, relatively few of them move back into employment; that is rather sobering. Between 2019 and 2021, only around 3% of those who were long-term sick inactive moved into employment, so the noble Lord makes an important point.

I turn to the next issue raised in by the report. When we are talking about early retirement, I say to the noble Baroness, Lady Sherlock, “Yes, we take this matter extremely seriously”. I am pleased to note that data from the ONS shows that the number of those who state they are economically inactive due to early retirement has been decreasing. I think it was mentioned that the average age of Members of this House is 72; perhaps we are a good example, as we should be, of a cohort—a very distinguished one—working past retirement age.

Picking up on the remark by the noble Lord, Lord Skidelsky, I believe that our role in this Chamber at least is a decent job. To pick up another point, raised by the noble Lord, Lord Turnbull, perhaps we should be defined as being of working age. We can mull that over after this debate. However, we know that those over 50 seeking employment may face additional barriers, which is why the Government are committed to continuing to deliver a comprehensive package of support to help older workers remain in and return to work. I think that answers the second question from my noble friend Lord Bridges. This includes the additional work coach time for eligible jobseekers aged 50-plus on UC, dedicated 50-plus champions working out of every job centre across the UK, and the midlife MOT, which I am sure the House has heard of. It is a review for workers in their 40s, 50s and 60s that helps them take stock of their finances, skills and health.

The report also questions whether pensions freedoms in the UK are driving more people aged over 55 to become inactive. I took careful note of the remarks made on this subject by my noble friend Lord Willetts and the right reverend Prelate the Bishop of Bristol. Where individuals do access their pension using pension freedoms, this does not necessarily mean they have become economically inactive, and the evidence supports this conclusion. The DWP’s research shows that people use pension income to supplement other activities such as childcare and helping to support younger generations in work. Importantly, accessing pension income can help significant numbers of individuals to change vocation, work flexibly or go part-time, which allows them to stay in employment where they may otherwise have left the workforce.

I will now turn to the last main theme of the report—migration. On 4 December 2023 the Government announced a new package of measures to curb immigration abuse and further reduce net migration. The Government have been mindful of the need to balance the impacts on the labour market against the need to reduce net migration. These reforms are the right package to support reducing net migration to sustainable levels while enabling the UK economy to access the skills and talent we need. We understand that some sectors may be concerned about their ability to fill certain roles. I strongly encourage any employer, of whatever size, sector or place, to engage with their local jobcentre or the DWP nationally if they are looking to recruit. Our jobcentres have a fantastic offer for employers, including help with job adverts and recruitment opportunities to connect directly with jobseekers at job fairs and other events, and access to government-funded training.

The hospitality sector, which is very close to the heart of the noble Lord, Lord Bilimoria, is mentioned in the report. This is a fantastic example of the DWP supporting vital sectors. Working with UK hospitality and employers such as Greene King, Hilton and Premier Inn Limited—and, I am sure, Cobra Beer—we recently launched a new destination hospitality pilot. These are innovative new schemes which combine training, work experience and a guaranteed job interview, and demonstrate the availability of motivated jobseekers for firms that are looking to recruit.

Turning to the theme of childminders and universal credit, my noble friend Lord Willetts and the noble Baroness, Lady Kramer, alluded to the relevant issue of parents entering the workplace. The Government very much know that the cost of childcare remains a critical barrier preventing many people re-entering the workforce. This is why we are delivering the biggest expansion in childcare support in England’s history—to help parents on universal credit who are moving into work or increasing their hours. Since last June, the Government have been providing additional support with upfront childcare costs. Last June, we also increased the childcare costs that parents on UC can claim back by nearly 50%, to up to £951 per month for one child and £1,630 for two or more children. Also, the Government are aware of the demand/supply issue in childcare and the increased demand for nurseries, and we are working very closely with the DfE to address this very point.

The noble Baroness, Lady Kramer, mentioned apprenticeships, and as you can see from the badge with the big capital A that I am wearing, this is National Apprenticeship Week. It would be remiss of me not to take this opportunity to promote apprenticeships as a further example of how firms can secure the staff that they need and support them to build their skills. My noble friend Lady Noakes, the noble Viscount, Lord Chandos, and the noble Baroness, Lady Sherlock, spoke about the workforce participation review, and the gist of their question was: is this the end of it all? Since last year’s Spring Budget, we have announced our back to work plan, investing another £2.5 billion to boost workforce participation. We continue to work across government to tackle barriers to work and decreases in activity. This is not the end of the story, as the announcements made at the Autumn Statement show. However, the Government will continue to consider how we can increase workforce participation. The best thing to do would be to write further on this because it is an important point.

We know that the labour market is complex; as the noble Viscount, Lord Chandos, put it succinctly, it is rather complicated. It is an oversimplification to think that, because we have nearly a million vacancies and many more millions of inactive people, it is straightforward to match the two to ease labour shortages. The Lords Economic Affairs Committee’s report skilfully set out many of the challenges in filling vacancies amid a changing labour market. As such, the DWP is continually analysing what skills are required to ensure that there is a plethora of support for our customers in this ever-changing landscape and to take the steps to tackle whatever barriers they face. For the avoidance of doubt, and for the benefit of the noble Viscount, I say that we certainly get the importance of this subject, but I hope I have given a flavour of the huge number of initiatives that my department is taking and how it is working across government on this important area.

I opened by reflecting on the significant progress we have made as a country over the last 50 years on female labour market participation. I will turn to the future of the labour market and the role that technology will play but, before I do, I will pick up a few more brief points. The noble Lord, Lord Bilimoria, mentioned that he was on the New Deal task force and asked if such a thing still exists. It does not, but the Government work with a wide range of stakeholders when developing and evaluating our policy interventions. He also spoke passionately about dentistry. As part of the NHS long-term workforce plan, we will build a pipeline of new dentists for the future by expanding dental undergraduate training places by 40% to more than 1,100 per year by 2031 up to 2032, with an additional 24% increase to 1,000 places by 2028-29. The Government will also consult this spring on the tie-ins for dentist graduates to the NHS and increase the number of dental therapists and other dental care professionals through a 40% increase to more than 500 training places per year by 2031-32. Lastly, the Government will make it easier for NHS practices to recruit overseas dentists who meet the UK’s highest regulatory standards.

My noble friend Lord Balfe raised a point that I alluded to at the beginning of my remarks about treating workers better, and he is right. The 2019 manifesto pledged changes to enhance workers’ rights and support people to stay in work. The Government have delivered on these commitments by supporting a package of six Private Members’ Bills, helping new parents, unpaid carers and hospitality workers, and giving all employees easier access to flexible working and giving all workers a right to request a more predictable working pattern.

Just before I conclude, I will address a couple more points that were raised by the right reverend Prelate the Bishop of Bristol and alluded to by the noble Baroness, Lady Kramer, on AI—a very important subject generally. The priority of the Department for Work and Pensions in the labour market is to ensure that people continue to have access to good and meaningful work. This involves adapting to structural changes in the labour market now and in the longer term. There is a lot going on in my department on AI, and I will add that to the letter I am writing, and I will copy in all Peers.

I conclude by reflecting on the fact that, this month 40 years ago, this House was debating the degree of emphasis on new technologies in youth training schemes. We have seen the positive impact that computers have had on the workplace since then. As new technologies such as AI emerge, the DWP’s key focus will be to understand their impacts on the labour market and harness their potential to better support people to work. I hope that, in another 40 years, this House will reflect on the contribution that these new technologies have made to similar improvements in the labour market participation of other groups.

Photo of Lord Bridges of Headley Lord Bridges of Headley Chair, Economic Affairs Committee, Chair, Economic Affairs Committee 2:30, 8 February 2024

My Lords, I thank all noble Lords who have spoken so eloquently and powerfully in this debate. In particular, I thank past and present members of the Economic Affairs Committee for their contributions. I wish only that we could continue to expand the committee’s membership, so that people did not have to leave and we did not have to ask “Where have all the workers gone?” when they do.

Our report poses the simple question, “Where have all the workers gone?” and tries to answer it. The noble Lord, Lord Davies, thinks that we may not have done that, and I will come on to why in a moment, but the debate has shown that we have provoked even more questions than there are answers. From listening to these speeches, those questions fall into three buckets in my mind.

The first is data. We cannot tackle the problem if we are trying to do so on shoddy data. My noble friend Lady Noakes, in a typically forensic and excellent speech, made this point very powerfully, as did the noble Lord, Lord Londesborough, and the noble Baroness, Lady Kramer. I hear what the Minister is saying, but I still do not feel that we have clear answers to the simple questions. Here are just three. Who is becoming inactive and why? Who among the inactive are suffering from long-term sickness and why? Who is leaving the pool of inactive workers and why? As long as we have this uncertainty, it will be difficult for us to tackle the problem.

Far worse, I still do not understand how the Chancellor and the Monetary Policy Committee are meant to make decisions when drawing up the forthcoming Budget and thinking about what to do about interest rates. They are sitting in the cockpit of the economy, yet the instruments on the dashboard in front of them are all flashing and whirring around. How are they meant to make sense of this? I do not understand it. This is not a peripheral matter that we can leave just to statisticians to think about; it matters to all here and to the entire country, because of the decisions that those institutions are taking. This is mission critical.

We are told that we will get a new Transformed Labour Force Survey in six months. We face some dire problems right now; can we really wait as long as six months? We will have to, but this is not a satisfactory state of affairs. That is my first point.

The second area of questions is about what we will do to stop the flow into inactivity. I thank all those who have spoken. I cannot summarise all their points now, and it would be invidious for me to do so, but I will pick up on what my noble friend Lord Willetts and the noble Lord, Lord Layard, said on this in particular. As the noble Baroness, Lady Sherlock, highlighted, we face a very complex knot of problems; training, childcare and pensions are just three areas. We need a joined-up approach. I pay tribute to the Minister for summarising all this but, as my noble friend Lady Noakes said, it speaks volumes that this is coming from the DWP alone. I do not really like the phrase “joined-up government” but, now more than ever, we need a joined-up government approach to this.

This brings me to my third area—what we are doing to help those who are already inactive. The right reverend Prelate the Bishop of Bristol spoke very movingly and properly about the communities that are being hit, and we again must ask ourselves if we are focusing our attention properly. Just one fact: more than a third of working-age people in Liverpool, Manchester and Nottingham are economically inactive. I hang my head in shame about that; it is an appalling statistic. What are we doing? Is our approach here joined up too?

We have to do this, and urgently. I heard Mel Stride, the Secretary of State for the DWP, say on the radio the other day, “We have a lot of work to do”. He is absolutely right. I pick up on what the noble Baroness, Lady Sherlock, said: we were informed via his letter that he had done this review and set out his programme of action. On Monday, the ONS showed in its statistics what that is doing and the indicators are going in the wrong direction. So he is quite right: there is a lot of work to do here.

We must do this if we want to stop the inactivity levels in this country getting worse. We can debate how best to do that and we should have that debate, but we should not lose sight of the social cost of inactivity, as well as the economic cost. My noble friend Lord Griffiths was quite right to highlight this. It is a driver and determinant of our levels of growth. We can all agree and disagree on what to do, but I end by quoting a written piece of evidence that David Miles of the OBR sent the Economic Affairs Committee just a few days ago:

“Faster growth in the labour supply would boost GDP … A greater supply of labour from the population in the UK, particularly if it reflected fewer people not participating because of health issues and fewer people under-employed (or not employed at all), is fiscally highly advantageous. Not only do these sorts of rising employment generate more incomes and tax revenues, they can also reduce the welfare payments bill”.

He went on to say, and here I refer to what the noble Lord, Lord Bilimoria, and my noble friend Lord Willetts said:

“It is much less clear that persistently high levels of net immigration to boost the labour force can generate sustained fiscal improvements. New immigrants, particularly if they come on work visas”— work visas, not student visas—

“may generate a favourable balance of extra tax revenue relative to extra public spending for some years. But immigrants who stay grow older and have children so the favourable tax to spending balance does not persist”.

This is a very important matter. It merits much more debate. If there is anything we can surely agree on, it is that we have keep the issue of labour force inactivity at the very top of the political agenda in the weeks and months ahead.

Motion agreed.