As Britain battles rip-roaring inflation, fueled by a shortage of staff, one cohort of workers is notably missing in action from the labor force.
(Bloomberg) — As Britain battles rip-roaring inflation, fueled by a shortage of staff, one cohort of workers is notably missing in action from the labor force.
The number of 50–64-year-olds who have become economically inactive since the beginning of the pandemic – meaning they’re out of work and not looking for a job – has jumped by more than 300,000.
That’s far more, proportionally, than among any age group other than 18-24-year-olds, where a backlog of students post-pandemic has driven up inactivity.
The problem for Prime Minister Rishi Sunak’s government is that while young people are going back to work, older ones are leaving in droves.
The trend is limiting the UK’s growth potential, drying up tax revenues and threatening to add to a pensions time bomb as a bulge of Baby Boomers retires from the workforce.
Chancellor of the Exchequer Jeremy Hunt is likely to address the issue in his budget on March 15.
Just why so many older people have dropped out isn’t clear. Some are in ill health, many retired and more are caring for relatives.
There’s no one solution to put them back to work, either. But it’s an issue the government must fix to unlock the productivity it needs to boost the economy, said Tomasz Wieladek, chief European economist at T.
Rowe Price Group Inc.
“Most people reach peak productivity in their mid-50s and stay at that level for quite a while,” Wieladek said in an interview. Older workers “have skills and experience to deploy” that their younger peers do not.
Suggestions on measures the government could adopt come from a number of research groups including the Centre for Ageing Better, the Institute for Public Policy Research and the Recruitment & Employment Confederation.
Here’s a look at what he could do:
Retraining
Training might both help older people both revive careers and plug skills shortages that have cropped up since the pandemic — especially in the medical sector, or in IT and technology.
CAB and the REC suggest some sort of national training program outside the government Jobcentre system that usually deals with the unemployed.
“Government would get a better return on their investment if they supported recruiters in offering work coaching services to 50-plus returners,” said Kate Shoesmith, deputy chief executive of the REC.
Many older workers would be interested in taking up retraining opportunities, especially in fields which allow them to “give back” to their community, according to studies from CAB and the union Unison.
An over-50s employment support package, developed with firms and recruiters, would cost around £1 billion, though this could be covered by underspend other benefits, CAB estimates.
But think-tank the Resolution Foundation warns the uptake may be small.
Childcare Improvements
Few economists dispute the need for better childcare policies which would allow new parents – especially mothers – to work.
But less attention is paid to the benefits which this could afford older workers.
About 40% of the nation’s grandparents over the age of 50, or around 5 million people, are providing regular childcare for their grandchildren, meaning they too could be missing out on work, according to a survey by the charity Age UK.
More than one in four people aged 55-64 also provide care to someone due to disabilities, ill-health or old age.
Suggestions on how to address the problem vary. The CAB calls for the cost of carer leave to fall on employers, which might keep older people in the workplace.
IPPR wants the government-funded offer of 30 free hours of free childcare for three-year-olds extended to one- and two-year-olds. This would cost around £10 billion, though IPPR estimates it could pay for itself through higher tax receipts.
Tax breaks
Ministers have acknowledged they’re exploring tax breaks to bring older people back into work, including potentially exempting over 50s from income tax for up to a year.
The Treasury also could scrap the limit of just over £1 million on how much people can save into pension programs without incurring a levy.
Those moves “might get rid of some anxiety that people have about continuing to work,” said Louise Murphy, an economist at the Resolution Foundation.
“But we’re unsure if it would shift the dial on participation.”
The problem is, those moves would be very costly to the Treasury and could stoke conflict with younger people upset the elders are getting another perk.
The indication is the Treasury will make an adjustment for doctors.
Read more:
- Hunt Plans Pensions Overhaul to Stop Doctors Leaving UK’s NHS
Tighten Pension Rules
Since 2015, over-55s have been able to dip into their private pension savings and withdraw some or all of the cash — a quarter can be taken up front with no tax due.
Tweaking those rules may keep more people from retiring early.
Revoking this rule might be politically difficult for the Conservative government, which has previously branded it a “pension freedom.” But revisiting the decision may be unavoidable.
“In the summer of 2022, almost half of 55-59-year-olds who had left the workforce since the start of the Covid-19 pandemic and not returned to work were funding their retirement through a private pension,” the Resolution’s Murphy said.
It recommends raising the age at which pensions freedoms kick in, and putting a lower cap on the amount which can be pulled out tax-free.
This would have the added benefit of boosting revenue to the Treasury.
Read more:
- Wealthy Professionals Are Driving UK’s Early Retirement Crisis
- Older Women Worst Affected by Britain’s Shrinking Workforce
- Labor Shortages Help Drive UK Into £55 Billion Fiscal Hole
Health-Care Investment
Improving care in the National Heath Service could reduce the overall level of illness in the UK and make people fitter for work.
“Around 1.4 million people aged 50-64 are economically inactive because of long-term sickness, so investing in services to support those with ill health is invaluable,” said Catherine Foot of Phoenix Insights.
About one-in-eight people are waiting for care, according to the IPPR, and more could be done to prevent sickness.
The obstacle is cost.
Nurses are already striking over below-inflation pay deals, and every additional 1% of pay handed out by NHS trusts to their workers accounts for around £1 billion, according to NHS England. That suggests pay raises will require cuts in services in the absence of a big funding boost from the Treasury.
Read more:
- UK’s Hunt Accused of ‘Distraction’ Over Public Sector Pay Claims
- UK’s Sunak Looks to Pay Deals to Avert February Strike Chaos
- Money Distilled: Tight Labour Market?
It’s Health, Not Wealth
Flexibility and Culture
Many older people are looking for more flexible hours, suggesting a change in workplace culture could bring back more. A survey by CAB showed 40% of those who their jobs in the pandemic would consider returning to role that fits around other responsibilities.
“Greater flexibility could really help,” said T.
Rowe’s Wieladek. “Many people could be incentivized to come back if they were able to have advisory roles, perhaps working three or four days.”
The CAB suggests government point businesses to the “wealth of good practice” on how to retain older workers.
“The success of the campaign would be contingent on buy-in from employers,” said its deputy director Emily Andrews.
Read more:
- UK Unveils £360 Million Science Plan in Pre-Budget Growth Push
- UK Treasury Eyes Options for Fuel Duty and Child Care in Budget
- Hunt’s UK Budget of Fiscal Restraint to Come With Dose of ‘Hope’
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