It should not be looking towards those who retired during the Covid pandemic who are unlikely to “un-retire”.

Since the 2022 Autumn Statement, the Government has been analysing why the number of people who are economically inactive in the UK has risen. It’s expected the Chancellor will announce measures to target getting this group back into work at the upcoming Budget in March.

To help these groups back into work, the Government should be looking at the childcare system and the support in place for workers who take time off due to sickness, a new report has said.

Levels of economic inactivity are rising

Unemployment levels in the UK are currently at historic lows but there has been a rise in economic inactivity.

As a result of this increase, the Bank of England has said labour supply will contribute less than a quarter to potential economic growth between 2023 and 2025. However, this is not the same in all countries.

Most OECD countries have seen their working-age labour force participation rate rise since the start of the pandemic, the Resolution Foundation report found.

The labour participation rate for 15-64-year-olds fell by 0.8% in the UK between 2019 and 2022, but it rose 1.5% and 1.8% respectively in France and Germany

Wider reforms to childcare system are needed

The report argues that although an extension of free childcare places has been suggested, this alone will not help mothers return to the workforce.

It said wider reforms are needed to address the complexity of the childcare system and the barriers it can pose for people going back to work.

Those on low incomes, for example, are less likely to use the free childcare hours available from the Government and take-up is lower in these households.

The report said: “Low-income families have to choose between claiming childcare support within Universal Credit or via tax-free childcare, but it is often impossible to know which would be most financially beneficial.

“Within Universal Credit, childcare support is both administratively confusing on a month-to-month basis, and often off-putting in the first place since claimants must pay childcare costs upfront.

“Policymakers should consider radical policy changes, including moving childcare support for low-to-middle income households outside of the Universal Credit system altogether.”

People aren’t going to ‘un-retire’

The Government should not be focussing on “persuading the large Covid cohort of older workers to ‘unretire’” the report said.

It found that there was a rise in people retiring during the pandemic but this was workers who were largely in higher-paid professional jobs.

The report said: “It will be hard to persuade these people, two-thirds of whom own their own home outright and therefore have low living costs, to ‘unretire’.

“Someone who took early retirement during the summer of 2020 has now been economically inactive for two-and-a-half years. Historically, just 1-in-50 people in this situation return to work every three months.”

Increases in workers who are long-term sick

New research from consultancy firm LCP suggests that the rise in the number of people who are long-term sick, not the numbers of retiring workers, is the key factor for increases to economic inactivity.

It said the number of “long-term sick” workers rose by 353,000 since the start of the pandemic and this accounts for more than half of the growth in inactivity over that period.

It has suggested that the Government looks at benefits data to see if NHS bottlenecks mean that more people are getting stuck on sickness benefits and remain “economically inactive” for longer.

Steve Webb, partner at LCP said: “There is a real risk of the Government ‘barking up the wrong tree’ when it comes to the growth in economic inactivity. Policy solutions which aim to reduce early retirement or to encourage the retired out of retirement are likely to have only limited effect in reversing recent trends.

“Instead, the policy effort needs to be focused around understanding why flows into long-term sickness have grown and on early intervention to prevent people’s health from deteriorating. Without action there is a risk of a growing core of people stuck in long-term receipt of sickness benefits with limited prospect of returning to paid work and damaged prospects for retirement”.