The UK government may need to expand its support for businesses and workers if it wants to bring more people with long-term health conditions back into employment, Bloomberg reported, citing two think tanks.
The Good Growth Foundation (GGF) has called on Chancellor Rachel Reeves to offer firms a temporary break from certain payroll taxes when they hire people receiving long-term sickness or disability benefits. The Institute for Fiscal Studies (IFS) separately urged the government to reduce the financial risks for benefit claimants considering a return to work.
Prime Minister Keir Starmer and Reeves have made tackling economic inactivity a priority, as the number of people not working due to ill health has reached 2.8 million. Last month, Reeves unveiled welfare reform plans aimed at boosting labour market participation and cutting public spending.
“We are writing off an entire generation,” she said, pointing to data showing one in eight young people are not in education, employment or training.
Under the government’s proposals, eligibility for Personal Independence Payments would be narrowed to cover only the most severely disabled, Bloomberg said.
Health-related top-up payments to universal credit claimants deemed unfit for work would also be scaled back. Several Labour MPs have pushed back against the plans, citing a government impact assessment suggesting they could push an additional 250,000 people into poverty.
“The welfare system we inherited is broken; it’s holding people back and it’s holding back growth,” the government said in a statement. “We have a proper plan to reform the welfare system so that it supports those in greatest need, while delivering a £1 billion employment support package and re-balancing Universal Credit payments to tackle perverse incentives that pull people away from the workforce.”
To mitigate potential financial strain on individuals affected by the reforms, the GGF proposed that employers hiring people on sickness or disability benefits be exempt from paying National Insurance contributions for one year. It estimates the measure would save the Treasury £1.1 billion by reducing welfare payments and increasing income tax revenue, according to the report.
The think-tank’s analysis assumes an additional 150,000 people would move into work, above the 16% already projected by the government. The proposal would break even if 67,000 people took up jobs. The GGF also assumes half of those returning to work would replace existing employees. Its recommendations have been shared with No. 10 and the Treasury.
The idea may appeal to employers concerned about the recent increase in National Insurance contributions for businesses, which came into effect this month after being announced in last year’s Budget, according to the report.
Meanwhile, Tom Waters, associate director at the IFS, questioned whether the current reforms would deliver the intended savings and argued that more needed to be done to encourage people on sickness and disability benefits back into work. He said many people are deterred from seeking employment because they risk losing their benefits if a job does not work out.
“If you are on incapacity benefits and out of work, you would very legitimately worry ‘if I get a job I’m going to lose my incapacity benefits, and then if the job doesn’t work out then I’m screwed,’” he said.
Breaking the automatic link between working and losing benefits, he added, could help more people return to the labour market.
