This year’s Budget was designed with a focus on economic growth, and within it, various schemes were announced to encourage groups of people who have been adversely impacted, by various reasons, to start or return to the workforce.
With contributions from Simon Blake, Head of SCF and Partner at Price Bailey, and Claire Berry, an Employment Solicitor at Price Bailey, we outline why reforms to the UK labour market are welcomed and analyse how far we anticipate the measures announced will positively impact the economic growth that the 2023 Budget set out to achieve. Our first Budget article outlines the effect the tax changes will have on economic growth.
Does the UK labour market need to change?
For the first time in 30 years, UK labour market growth has stalled – primarily because of economic inactivity caused by the COVID-19 pandemic. Others reasons, such as Brexit, have caused a decline in non-UK born workers, and an uptake in further education has also meant that there are fewer younger people working in the UK labour market.
The COVID-19 pandemic also saw more people choose to leave the workforce at that time, with fewer making the decision to return to it. Many saw the pandemic as an opportunity to take early retirement as they were already financially secure.
The UK labour market has been up against a number of challenges over recent years. For example, many people are suffering with long-term health conditions that are adversely impacting them. Disabled people are also 2.5x (ONS) more likely to be out of work compared to non-disabled people – even though some disabled people are still able to re-join the workforce despite their disabilities. Additionally, whilst the gender pay gap is decreasing, the gap was still as high as 14.9% (ONS) in 2021.
Furthermore, increasing automation within many sectors such as manufacturing, agri-tech and even hospitality, means that there are less manual labour jobs within the UK labour market. Many jobs on offer are highly skilled jobs, presenting narrower employment opportunities to those looking for work.
All of these issues have been occurring over a longer period of time, however, the disruption from the COVID-19 pandemic has highlighted the extent of these issues and made them increasingly urgent to address. It was important that our Government addressed these issues within the 2023 Spring Budget by determining the underlying causes for these matters, helping those who want to get back to work, encouraging people to stay in work, and making the rewards of working greater.
What was announced in the Budget that will help bring about this change?
Perhaps one of the most significant decisions to come out of the Spring Budget 2023 in order to support a growing labour market is that the UK Government have announced they are extending free childcare support to parents who work more than 16 hours a week and earn less than £100,000.
This is a positive step forward for parents, but arguably a tough target for the Government to deliver successfully due to the demand that will be placed on providers, some of whom lack the appropriate resources to meet the planned changes.
Parents who fall into the category to benefit from this announcement will be entitled to 30 hours free childcare a week. However, this support will be phased in:
- From April 2024, working parents of two-year-olds will be able to access 15 hours of free childcare.
- From September 2024, 15 hours of free childcare will be extended to all children from the age of nine months.
- From September 2025, working parents of children under the age of five will be entitled to 30 hours free childcare per week.
Hopefully, the phasing in of additional support should assist nurseries and child day-care centres to adapt and embrace the additional growth opportunity presented through increased occupancy.
Even with a myriad of parents making use of the childcare support, it is still a significant impact for our labour market. It should enable those parents wanting to, to either return to work after a period as sole care giver, or to move from part-time work back in to full-time employment. This should, in turn, bring greater levels of income tax into the system as a result of increased levels of employment. Parents will also have more disposable income to spend, which consequently will feed back into the economy. It is worth noting, however, that these reforms will not come into play for another 12 months, so the immediate impact on employment is uncertain.
It is, however, anticipated that the introduction of phased childcare funding from 2024 will provide welcome reductions in the proportion of household income that is spent on childcare. To put it in perspective, according to the data from Family and Childcare Trust and Statista, in 2021 earners on National Living Wage (NLW) spent, on average, 60.1% of their hourly wage on full-time childcare support for children under 2 years old. This percentage will reduce to 54.8% in April 2023 due to the increase in NLW. If we take, for example, mothers aged between 30 and 39 with a child younger than 2 years, they earn on average £638.2 a week (£13.30 an hour), and currently spend 42.9% of their weekly wage on full-time childcare for children under 2 years old. By September 2025, they will be eligible to access the 30 hours free childcare for their child, resulting in a weekly saving of £274 per week. Please note, these figures do not take into account any extra childcare support hours over the 30 hours free funding that parents may wish to utilise or the likely change in average wage and NLW.
Disabled people and people with health conditions
The Government wants to ‘shift the dial onto what people can achieve and remove barriers to work’. The removal of the Work Capability Assessment will give many the confidence to move into work while reducing the burden of unnecessary assessments. The Chancellor also announced that a new Universal Support programme would support disabled people and people with health conditions to find sustainable work placements; offering those who are eligible up to 12 months provision and support in seeking work.
A new digital Mid-life MOT check will be introduced to help older workers understand what their employment choices now mean for the longer-term – reaching 40,000 people a year.
They will also benefit from a boost to skills and better access to training through the Sector-based Work Academy Programme (SWAP), Train and Progress and the new ‘Returnerships’ programme.
So, what can employers be doing to support workers returning to the workplace?
Can we expect to see labour market growth as a result of the announcement?
On the face of it, some of the changes announced in terms of encouraging people back into the workplace are indeed ‘game changing’. Many of the improvements planned will enable many more people to join or return back to work, and will also help avoid the loss of valuable skills and confidence, once someone has left the workplace for some time.
However, it is clear that the schemes are in need of thorough planning and funding in order to succeed. Whilst the Government are taking a step in the right direction regarding childcare, some reports following the budget indicated feelings that their plans fall short of delivering on the promise of a fully supported system from nine-months to four-year olds. There is also a need practically for childcare provision to be expanded relatively quickly in order to cope with the additional demand. It’s yet to be seen if the Government have fully thought through the process of encouraging more staff into the childcare sector, training them and expanding their facilities.
It’s important that the Government’s strategy is coupled with support from employers too. Business owners and managers should, as far as is possible, consider offering more flexible work schedules for those with caring responsibilities who feel that leaving work is the only option. Continued and increasing focus on employee’s physical and mental health is needed in order to retain and appeal to workers.
Perhaps only when Government and employer support are fully synchronised regarding labour market opportunities will the UK economy begin to see labour market growth.
At Price Bailey, we have long-standing experience supporting clients in developing their business models and employment policies and practices that has resulted in improving the attraction and retention of highly-skilled employees. If you have any questions regarding this post or how we can support you in understanding how to attract those returning to the workforce, you can contact us using the form below.
We always recommend that you seek advice from a suitably qualified adviser before taking any action. The information in this article only serves as a guide and no responsibility for loss occasioned by any person acting or refraining from action as a result of this material can be accepted by the authors or the firm.
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