Working for the future: five priorities for reforming employment support in the next parliament

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30 May 2024

Tony Wilson, Institute Director

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For an election that was called on the economy, there has been very little discussion so far from any party on what they would do to boost growth and raise living standards. That will of course change over the coming weeks, and when that happens a key question for anyone wanting to form the next government will be what they will do to fix Britain’s ailing labour market. In our view, this has been putting the brakes on our economic recovery and the case for reform is now unanswerable: to build a system that is focused on helping more people find better work, on what you can do not what you must do, and on building meaningful partnerships – with other public services, employers and local partners – so that it is more rather than less than the sum of its parts.

The state of the UK labour market

The state of the labour market has had more attention than usual recently, but the issues we’re facing bear repeating. There are 900,000 more people out of work than on the eve of the Covid-19 pandemic, virtually all of this is explained by more people outside of the labour force entirely (so-called ‘economic inactivity’), the number of people off work due to long-term health conditions is the highest that it has ever been, as is the number of young people neither in the labour force nor full-time education, while the proportion of older people in work has fallen for the first time in over thirty years. Remarkably, the share of people aged over 16 in the labour force is now falling at its fastest rate since the early 1990s recession and has reached its lowest point since 1998 (surely things can only get better).

Meanwhile none of this seems to be due to problems in the economy: there are 900,000 unfilled jobs, redundancies are back to pre-pandemic levels and the number of people actively looking for work is broadly at 2019 levels too. Nor either is this a global phenomenon, with the UK pretty much the only developed economy that has seen employment fall since the pandemic. Indeed, the UK has fallen from having the eighth highest employment rate in the OECD group of 38 developed economies to now ranking fifteenth – in this post pandemic, post Brexit world our labour market is going backwards while others press ahead.

If this wasn’t all depressing enough for a Friday afternoon, the problems in the labour market run far deeper than the last few years – with for example disabled people more than twice as likely to be out of work than non-disabled people even before the pandemic began, those with low qualifications also twice as likely, wide disparities in access to employment and the sorts of jobs you can do based on where you live, and chronically weak productivity growth meaning that economic growth has largely come from more people in work rather than being more productive at work. So when employment growth comes to a stuttering halt, as it has done over the last four years, economic growth stops too.

For all of this doom and gloom, though, the good news is that we can do something about it. A wealth of evidence shows us that effective active labour market policies can support higher employment and more inclusive labour markets, and in the next parliament – whoever wins – we have a once-in-a-generation opportunity for reform. This was why we set up our Commission on the Future of Employment Support back in the autumn of 2022, in partnership with abrdn Financial Fairness Trust, and since then have heard from hundreds of people and employers with expertise and/ or personal experience of employment support, run dozens of events and workshops, and reviewed over 400 different pieces of evidence on what’s worked, what could work and what needs to improve. We’ve set out in our reports what we think is going wrong with the system but also what has gone right and what we can build on. When the election was called, we were in the final stages of testing and discussing draft proposals for reform (with the public, service users, experts and policy makers,) with the aim of publishing these in the early summer. This will now wait until after the election, but in the meantime there are five key priorities coming out from our work which we think should form the basis for major reform in the next parliament.

Five priorities for the next parliament

First, we need ambitious objectives that can drive improvement in all parts of the system. We noted in our interim report last summer that not one of DWP’s five public priorities related to employment. This has since been rectified by the Department, but as a broad ambition to maximise employment, reduce economic inactivity and support progression. As a minimum, we think that we should set an objective for the UK to get back into the group of higher performers in the developed world. For example, getting back to eighth in the OECD would mean an employment rate of around 77% (compared with 74.5% now), or 1.2 million more people in work. This alone would improve the public finances by more than £10 billion, but the prize would be greater still if we could make work better and fairer. So we should also set clear objectives for better work – for example to achieved sustained growth in real earnings, sustained falls in the number in working poverty, and more people having the hours and forms of employment that they want – and to substantially narrow the gaps in employment and earnings for those who are more disadvantaged (for example because of their health or a disability, their age, caring responsibilities or where they live).

Secondly, we think that these objectives should be matched with clear and unambiguous guarantees – for those who want a job, want a new job or want to fill a job – that if you want help you will get it. We have heard again and again that the narrow focus, limited offer and often stigmatising approach to employment support pushes people away and undermines efforts to reach and engage those who would most benefit from support. Setting clear entitlements, which is common in other countries and has been the case in the UK in the past too, would help address that. For most of us most of the time, this would be a straightforward offer of access to information and signposting to further support (for example online, from recruiters or local services), similar to what happens now through the National Careers Service. However, for those with greater needs – the long-term unemployed, disabled people, disadvantaged younger and older people, those in working poverty – there needs to be a clear and meaningful guarantee that you can get specialist advice, support and services if you want help.

Thirdly, there should continue to be mutual obligations for people who claim unemployment-related benefits (ie are ready and able to work), but we need a fundamental shift from a system based on what you must do to one based on what you can do: so focused less on monitoring people and more on empowering them. The most important and straightforward administrative change that we could make here would be to remove the requirement to demonstrate that you have spent 35 hours a week searching for work, which was implemented without any evidence and which means that advisers have to spend their time monitoring what people did last week rather than looking forward to next week (while keeping rules around being available for work, looking for work and to attend regular meetings). But it will require a cultural change too, and different skills and capabilities at the frontline. And we also need to get better at the day-to-day delivery of services for people seeking work, so that we can reduce the impacts on people, and costs in time and money, of having a system that sanctions half a million people every single year just for missing a scheduled appointment.

Fourthly, we need to build a one-stop service that can draw together employment, careers and skills support, and that joins up effectively with health and wider services too. As the Local Government Association and others have called for, this should be an ‘on the high street’ service that integrates employment, careers and skills support in one place, and with 14,000 work coaches, over 1,000 staff employed through the National Careers Service and around 600 Jobcentre Plus offices (plus hundreds of locally run services) we would be more than capable of delivering this within existing and planned resources. This also needs to be an online/ in your pocket service, where the UK is at the leading edge in doing social security online, but a million miles behind other countries on online delivery of employment services. And we need to get better at delivering employment support ‘on the doorstep’ too: as reaching many of those outside the labour force means delivering employment support closer to where people live, through services they use and from people that they can trust. Which means building on efforts to co-locate employment advice and services in other settings, and in particular working better through health services and in local partnerships.

This leads on to our final priority, which is for a step change in our approach to devolution and local partnership working. The UK has one of the most centralised employment services in the world, but also one of the most fragmented systems – which leads to complexity for those using and delivering services, confused accountabilities, and both gaps in provision and duplication of effort. So we want to see in England (with full devolution to the UK nations) a national network of Labour Market Partnerships, organised at Combined Authority or sub-regional level, with clear powers and funding to develop local plans, commission employment support (the successors both to current national programmes and to the UK Shared Prosperity Fund), and join up delivery across employment, skills and wider services. These partnerships would have a statutory footing, and they would be accountable for contributing to the national objectives set out above as well as their own local priorities, and ensuring that service guarantees are being met and that one-stop services effectively delivered.

These five proposals are fairly ambitious and would take time to get right and would need careful design in partnership with people in local and national government, wider public services, and with employers and social partners. However everything here has been done before – in the UK or overseas – and are things that can make a meaningful difference and impact. We have a great opportunity for reform in the next parliament, but this is increasingly a necessity too – so that our labour market can drive economic growth rather than hold it back, and can support a stronger and fairer society.

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Any views expressed are those of the author and not necessarily those of the Institute as a whole.