Small firms call for action as job vacancies driven by long-term sickness hits record high

The number of working-age adults in Britain who are not in the jobs market because they are long-term sick has increased to a record high, official figures show, amid concerns over shortages of workers in the UK economy.

The Office for National Statistics said unemployment in the UK fell to 3.5% in the three months to August from a previous level of 3.8%, dropping to the lowest level since February 1974.

However, the fall in the headline rate came amid a sharp rise in the number of working-age adults classified by statisticians as “economically inactive,” meaning they are neither employed nor looking for work.

While there are about 1.2 million people unemployed, it said the inactivity rate rose by 0.6 percentage points over the three-month period to 21.7%, with almost 9 million people aged 16-64 economically inactive.

The rise was driven by students, as well as long-term sickness which increased to a record high, with the biggest increases in inactivity rates among those aged 50-64 and among 16- to 24-year-olds. Almost 2.5 million people are inactive because of long-term health problems.

Economists said rising sickness rates would pose a serious challenge to the government’s economic growth agenda.

Ben Harrison, the director of the Work Foundation at Lancaster University, said: “The government is right to focus on driving growth in the economy, but it cannot do so without tackling the UK’s participation issue.

“If the prime minister is to be true to her word on ‘taking tough decisions’, her administration should drop the rhetoric on benefit claimants needing to work harder and instead focus the full power of government to support those who have dropped out of the labour market, including those not receiving universal credit.”

The figures come as employers said severe shortages of workers after the Covid pandemic and Brexit were holding back the British economy, with the number of job vacancies close to a record high at more than 1.2m.

Against a backdrop of inflation at the highest level in 40 years and shortages in key occupations, annual wage growth, including bonuses, strengthened to 6% over the three months to August. Excluding bonuses, pay growth was 5.4%.

While an increase on previous months, the annual growth in workers’ pay was still failing to keep pace with soaring inflation, currently running at 9.9% in the UK. The ONS said pay growth fell in real-terms by 2.4% when bonuses were taken into account, and by 2.9% for regular pay – slightly smaller than record falls seen in June, but still among the largest declines since records began in 2001.

Since comparable records began in 1971, the economic inactivity rate had generally been falling, before a rise during the Covid pandemic as students decided to stay in education for longer during lockdowns, and sickness levels rose among older adults.

Inactivity rates started to fall again earlier this year, although began rising sharply again in May in a trend that has sounded alarm bells among economists.

Experts have said that rising sickness levels preventing working-age adults from entering the jobs market has come as pressure mounts on the health service from Covid backlogs and after a decade of austerity across the public sector.

Analysts at Bank of America wrote in a note to clients last week: “There is considerable evidence that deteriorating health service performance is having a first-order effect on potential growth: rising workforce sickness has cut labour supply. Any return of austerity may make that sickness trend worse, while it may also damage other elements of potential supply, such as skills.”

Victoria Prentis, an employment minister, said the government had made changes to universal credit and its offer to older workers so that more claimants received support from a dedicated work coach.

“Today’s figures show the strength of our labour market; our unemployment rate remains at a near-record low and there are a high number of people on payrolls,” she said. To support economic growth it is vital we encourage workers into the labour market, making the most of the skills and experience this country holds while tackling the barriers jobseekers face.”

Responding to the job figures, Federation of Small Businesses (FSB) National Chair Martin McTague said: “It’s concerning to see that the number of those economically inactive due to long-term sickness is at a record-high – this is a stark reminder that more needs to be done to support people with long-term sickness into employment, which is crucial to our economic growth.

“Earlier this year, FSB published a report, Business without Barriers, which put forward a list of recommendations to close the disability employment gap. They include a ‘Kickstart’-style disability employment scheme to get more disabled people into employment for the first time and a Statutory Sick Pay rebate for small businesses to help with the costs of long-term sickness absence.

“Despite the number of job vacancies falling, we’re still seeing an extremely tight labour market with over 1.2 million unfilled jobs across the country.

“The widespread labour shortage is limiting small firms’ ability to grow, as they also wrestle with a worsening energy crisis in the winter, rising interest rates and rampant inflation.

“What small firms need now is a holistic approach to skills and training. Maintaining Skills Bootcamps in the long term and enabling small businesses to automate processes by continuing to ensure that R&D tax credits can be claimed without needless administrative hurdles should help.

“It’s vital to ensure small firms can access global talent, as they don’t have the same level of resources as big corporates to sponsor overseas workers – limiting visa fees to £1,000 for small employers will help us get there.”

Read more:
Small firms call for action as job vacancies driven by long-term sickness hits record high