Rishi Sunak has rejected pleas from business to open the taps on immigration to fill holes in the labour market, in favour of a big push to tackle economic inactivity in Britain.
The prime minister and chancellor Jeremy Hunt have told business leaders that tackling Britain’s shrinking workforce is a top priority in 2023 and the issue will be at the heart of the Budget in March.
Mel Stride, work and pensions secretary, is drawing up proposals to encourage the over-50s to return to work, as well as those who are sick. He is also prioritising efforts to try to keep people in employment in the first place.
The government’s reluctance to take the quicker but more politically painful option of increasing immigration alongside efforts to tackle economic inactivity is drawing growing criticism.
Philip Hammond, former Tory chancellor, told LBC’s Andrew Marr on Friday: “We need labour in the UK, whether we like it or not, if our economy is going to prosper.
“We’re going to have to bring in hundreds of thousands of foreign workers to do the jobs that are currently not being done, and which are depressing our GDP growth through the restaurants that are closed, the pubs that can’t open seven nights a week, and so on.”
Business leaders have also urged Hunt to widen the government’s shortage occupation list, under which people from overseas obtain visas to work in the UK, but privately admit that increased immigration is off the table following Brexit.
Make UK, a manufacturing group, said that with “order books filling up and the domestic labour market unable to deliver the volume and quality of candidates needed, manufacturers have no option but to look to recruit from outside the UK”.
It added: “At a time when manufacturers are experiencing immediate labour shortages, their recruitment is being made more difficult by a burdensome immigration system that is not flexible enough or responsive enough to the needs of employers.”
An increase since the pandemic began of more than 500,000 in the number of working-age adults who have dropped out of the labour force is making it harder for businesses to hire, weighing on economic growth and threatening to make high inflation more persistent.
Among the reform options being considered by the government is a move to let people on long-term sickness benefits keep some of those payments when they first return to work.
Tax breaks to encourage the over-50s to return to work have also been discussed but are seen by some officials as unworkable in practice.
One ally of Stride said: “Our overwhelming focus is on helping people who are economically inactive back into work and stemming the increase of people who are moving into inactivity in the first place.”
Sir Keir Starmer, Labour leader, has also rejected a big increase in migrant workers.
Alongside Stride’s project, a delayed white paper on reform of the health and disability benefits system is due to be published.
At present, people who return to work and come off disability benefits have to begin the assessment process again from scratch if they prove unable to hold the job.
“Many people with ill health simply do not want to risk having to go through the whole benefits application and assessment process again if things go wrong,” said Jon Ashworth, shadow work and pensions secretary.
He pledged this week that a Labour government would allow people to return to the benefits they were on without the need to requalify.
The change would remove perverse incentives in the current system, in which people who have been assessed as too sick to work are generally not required to hunt for jobs, while those who are claiming unemployment benefit are subject to strict conditionality.
“At present, we have a system that incentivises people to prove they are too sick to work to avoid being hassled by Jobcentre Plus,” said Tony Wilson, director of the Institute for Employment Studies, a consultancy.
Vicki Nash, head of policy at Mind, a charity, said a reform allowing people to keep some benefits when returning to work was “potentially welcome”, although it has called for a broader change that would allow people to try paid work without losing their previous benefit entitlements for a year.