Can the Government's welfare & workplace reforms reduce economic inactivity?

As the Government announces what it describes as the ‘biggest shake up to the welfare system in a generation’, I consider whether planned welfare and workplace reforms can reduce economic inactivity levels, thereby reducing skills shortages and aiding recruitment and retention for employers.

Background

The government recently announced significant reforms to the welfare system including:

• Delivering more tailored employment support aimed at getting more people into work, including support for disabled people and those with long-term conditions, providing earlier opportunities for people with health conditions to discuss work goals and available help, and investing in work support and training for young people
• Stopping people from falling into long-term economic inactivity through early intervention and support by improving the Access to Work scheme, and reforming unemployment benefits to provide people with support to find a new job
• Reforming the assessment process for financial support for health conditions, including ensuring that someone trying to work or on a pathway to employment will not lead to an immediate reassessment or award review
• Supporting disabled people who can’t and won’t ever be able to work and providing support for those who need it most

Concerns have been raised that these reforms could leave many sick and disabled people worse off.

Alongside the proposed welfare reforms, the Employment Rights Bill (the Bill), which is currently progressing through Parliament, is intended to ‘raise the minimum floor of employment rights’, with the aim of ‘creating the right conditions for long-term sustainable, inclusive, and secure economic growth’.

Can welfare and workplace reforms reduce economic inactivity?

In our 2024 white paper, Addressing Economic Inactivity: A Strategic Guide for UK Employers, AfterAthena found widespread agreement and support for the view that long-term sickness was the primary reason for the current level of economic inactivity.

Other key reasons for economic inactivity include people choosing to remain in education for longer than they had previously, and some people being disillusioned and disenchanted with work. We concluded that government policy had an important role to play in reducing inactivity levels.

With that in mind, improving conditions for workers. and increasing support for long-term sick and disabled people who could work with the right support in place should, in principle, contribute to a reduction in economic inactivity. 

Certain proposals either contained within the Bill, or being addressed by the government outside of it, can potentially improve conditions for workers (particularly low-wage workers) including:

• Fostering positive relationships between employees, employers, and trade unions by improving collective bargaining
• Implementing improved systems for resolving labour disputes quickly and effectively
• Providing more stable work
• Widening access to Statutory Sick Pay entitlement
• Providing a real living wage for all UK workers.

Some of the planned reforms to the welfare system should have a positive impact on economic inactivity levels, such as:

• Improving the Access to Work scheme
• Investing in work support and training
• Providing unemployment benefits that support workers during transitions between jobs
• Active labour market policies that help unemployed people find new employment.

However, only time will tell if these reforms are sufficient and effective enough to bring about the desired change.

With the Access to Work scheme already reportedly being under ‘significant pressure’, the system will inevitably need significant funding and other resources to offer the support needed to enable disabled people and those with long-term conditions to return to work and, in some cases, work for the first time.

Further, high costs of living and wealth inequality can create a cycle where low wages, lack of opportunity, and rising living costs make working seem less appealing, particularly in certain sectors and regions, and particularly for younger workers and those in low-paid roles.

Welfare and workplace reforms need to be effective enough to provide the support needed to enable disabled people and those with long-term conditions to work in a way that is not detrimental to them, and to create appealing opportunities which inactive workers feel will provide them with a good quality of life and an improvement in living standards.

What role can employers play in reducing economic inactivity?

The white paper by AfterAthena also concluded that government policy can only control increased levels of economic inactivity to a certain extent.

Depending upon the sector and nature of the work, employers can take action to support, enable and encourage those who are economically inactive to commence or return to employment. 

With the proposed welfare reforms leading to cuts in benefits for some, sick and disabled employees will require support from employers to enable them to work. This benefits employers by filling skills shortages, creating a wider pool from which to recruit, enhancing diversity of thought and experience, and increasing productivity.

Employment is likely to be more attractive and accessible to these individuals if employers:

• Support flexible working so that employees can better manage their work and personal responsibilities
• Cultivate a supportive and inclusive company culture which prioritises employee wellbeing
• Offer health benefits, such as health insurance and wellness programmes
• Offer work which is secure and stable where the worker desires this
• Pay workers a living wage
• Provide opportunities for growth and progression
• Design workplaces that reduce the risk of injury and contribute to physical health
• Implement reasonable adjustments tailored to individuals
• Train managers and supervisors to recognise signs of stress and poor health so that any issues can be addressed proactively
• Provide mental health support such as counselling services, mental health first aiders and employee assistance programmes.

Further, the world of work is changing at a fast pace, and the modern workplace requires a new approach, with a focus on creating an environment in which all workers thrive, and which optimises opportunities for collaboration. Workers are demanding better conditions including:

• More autonomy and flexibility over where and how they conduct their work 
• Better and more varied benefits packages
• Opportunities for development and growth
• A say in business strategy, irrespective of role or seniority
• Evidence of employer investment in Environmental, Social, and Governance (ESG)
• Greater equity, diversity, and inclusion

The government reforms create both a challenge and an opportunity for employers. Employers who embrace changing employee expectations, offer work which improves their quality of life, and are well-positioned to support people returning to work following a period of inactivity, will be in the best position to benefit from the government’s welfare and workplace reforms.