Clear vision is needed from government to fix the labour market puzzle

The shocks of Brexit and the pandemic have led to big changes in the UK’s labour market and immigration system. Tom Sasse asks if the government’s policies add up
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By Tom Sasse

29 Jun 2023

The big task Jeremy Hunt set himself in the March Budget was finding Britain’s missing workers. Since the pandemic, more than half a million people have left the workforce. The Office for Budget Responsibility has warned that if businesses cannot recruit, it will be impossible to tackle Britain’s sluggish growth. 

Most of the missing workers are over 50, though some are younger. Their exact reasons for leaving are something of a mystery. Research so far points to some combination of ill health, poor pay and conditions, increasingly stressful work, a lack of support to retrain, and relatively generous pensions. The furlough scheme was akin to a forced early retirement; many decided it was not worth coming back. 

Other countries have also experienced problems getting workers back after the pandemic, but not on nearly the same scale. “The UK is having one of the worst labour market recoveries from Covid in the developed world,” says Tony Wilson, director of the Institute for Employment Studies. “We are one of the only countries where employment is lower than it was before the pandemic.” 

Hunt set out what he called “the biggest-ever employment package” to remedy this. Measures included tightening conditionality on out-of-work benefits, improving training available for over-50s, expanding support for those with disabilities, reforming pensions, and significantly expanding free childcare. 

These policies were broadly welcomed but experts do not think they will be enough. The OBR thinks they will make up for only around a fifth of the lost workers (110,000) in five years’ time. “Midlife MOTs” to help older workers understand their options have been used successfully by businesses like Aviva. But it is not clear that the government has a compelling plan for attracting over-50s back into the workforce. 

“Fundamentally, we need to make work better if we want people to stay in the workforce longer" Tony Wilson, IES

This is not just a post-pandemic challenge, but a demographic one. “Fundamentally, we need to make work better if we want people to stay in the workforce longer,” Wilson says. The UK also lacks high-quality and widely available employment support to help people back into good jobs, with current schemes targeted at a small proportion of those out of work. 

However, the OBR documents also contain a second story about Britain’s post-Brexit trajectory that Hunt neglected to mention. By far the biggest increase in the size of the workforce (160,000) will come not from any of the chancellor’s employment measures, but from immigration. 

This is not what was predicted. “Pretty much everyone thought Brexit would result in lower immigration, with a lot less EU immigration not made up for by a slight increase in non-EU migration,” says Madeleine Sumption, director of the Migration Observatory. 

In fact, the UK recorded its highest-ever level of net migration last year – with 606,000 more people arriving than leaving in the year to June 2022 – a far cry from Theresa May’s pipe dream of reducing migration to the “tens of thousands”. This partly reflected new visa schemes for Ukrainians, Afghans and Hong Kongers. There was also an “artificial blip” in the figures due to a smaller number of students arriving two to three years ago, Sumption notes.

But a big part of the story has been a much larger than expected increase in people coming to the UK on working visas from others parts of the world, including India, Nigeria and the Philippines. This includes lots of high-skilled workers in areas including IT, finance and business services. 

Visas for these workers have been processed more efficiently than many predicted, with few reports of businesses complaining about delays, and some experts offering praise for the Home Office’s administrative efficiency.

Jonathan Portes, professor of economics and public policy at King’s College London, calls it a “rare Brexit success story”. “The biggest shakeup in our immigration system in a generation has taken place remarkably smoothly,” he says.

There have been shortfalls in lower-skilled areas that rely on short-term and flexible labour, including hospitality and construction. But that is a feature, not a bug, of the end of freedom of movement, which some politicians argued was preventing businesses from investing in domestic workers. 

The exception to this is public services, particularly the NHS and social care, where the government is still very reliant on a huge number of foreign workers to plug gaps in ever-more creaky systems. Around 15% of nurses are trained abroad, while the government issued around 50,000 nurse visas last year.

Portes argues this is deeply hypocritical: “The government is saying to someone who runs a pub ‘tough if you can’t staff the bar, that’s what happens when you rely on cheap labour from Europe and don’t invest,’ but when it comes to the workforce it’s responsible for, it’s quite happy to rely on other countries to train and supply our workforce.”

Looking ahead, the big question is whether the government has a plan. The current approach – a hard-line policy towards asylum seekers creating cover for a much more liberal approach to overall immigration – is reminiscent of New Labour’s policy in the 2000s. 

But if that is the plan, the government has not been upfront about it. Its 2019 manifesto promised that “overall numbers will come down”. Suella Braverman, the home secretary, still claims this is her “ultimate aspiration” – an aspiration she previously proved willing to resign over. 

Having taken the decision to end freedom of movement, the government may need to be prepared to be more willing to intervene to support employment. “There is always a tension between controlling welfare and ensuring you have an efficient labour market where people can quickly find jobs they are suited to,” Wilson says. But focusing on the former is questionable, he argues, given there is “huge demand for labour and fewer people competing for more jobs”. 

There are also signs of Whitehall dysfunction. Employment and skills is a classic area where “lots of people are responsible but no one is really accountable”, says Wilson. While DWP, DfE, DLUHC, the Treasury, the Cabinet Office and local authorities all have a role, it is not clear that anyone has a clear vision for supporting the workforce the UK needs. 

Portes describes how short-termism drives decisions about the public sector workforce: “The health department says it needs more nurses or doctors, the Treasury says it won’t provide the money, so the health department has to get the Treasury to overrule the Home Office to agree to lots more visas.” Decisions about higher-education funding similarly drive decision making about student visas. 

Since freedom of movement ended in 2021, the UK has faced a pandemic, an energy crisis and rampant inflation. But as the government emerges from crisis mode, it will need to settle on a long-term approach to immigration and the workforce. 

This article first appeared in CSW's summer 2023 issue. Read the digital magazine here


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