Read: Labour wants business to get people off benefit into jobs, but the state must do more too

After years in which the problem has received too little focus, it has been important to see both government and opposition pledge to increase growth and productivity by targeting the alarming growth in the number of people who have fallen out of the labour force in recent years. 

Chancellor Jeremy Hunt’s announcement of a review into the “issues holding back workforce participation” was largely  overshadowed by the avalanche of bad news in the Autumn Statement, while Labour Leader, Sir Keir Starmer, this week turned heads by warning businesses that a future Labour government would not heed the CBI’s call to loosen restrictions on immigration to aid the cripplingly tight labour market. Instead, Sir Keir signalled that Labour will expect firms to shoulder their responsibility to invest more in training workers already here in the UK. 

In fact, that approach is exactly what many members of the Purpose Coalition are already successfully delivering, using their community connections and existing partnerships to unlock personal and economic potential.  Recruitment specialists, Reed in Partnership, for example, has gone into overdrive through the pandemic - finding ways to make employment work for thousands of people, irrespective of their academic or personal background. Using a localised approach, they offer tailored action plans to help ensure employability as well as career longevity. Also using its understanding of the communities it works in to better meet their needs, food services and facilities company, Sodexo, adapts recruitment policies to meet area-specific skills shortages. It also reaches out to underrepresented groups who often find it difficult to join or re-join the workforce, including a commitment to fill five per cent of its vacancies with prison leavers. UK Power Networks works with local Jobcentres in the three regions it covers to help connect up those with an interest in the industry with opportunity and also runs a range of work experience programmes aimed specifically at young people not in education, employment or training.

Many will share Labour’s analysis that the incentive - for businesses and government alike - to make costly investments in helping British people get job-ready has sometimes been lessened in recent decades when many sectors found it easier to fill positions with recent arrivals from other countries in the EU single market. That is certainly one of my conclusions from my time as an adviser in the Department for Work and Pensions between 2005 and 2007, when we replaced incapacity benefit with more active back-to-work support through the employment and support allowance. We certainly felt a moral imperative to act to stop people being trapped on inactive benefits, but the economic imperative was never as great when foreign workers were always available to slot in and keep the economy growing.  

These are obviously very changed times, and all our members realise that more will be needed across the economy to help people access opportunities in future. Businesses, however, can only do so much. They need much more active help from government which is why it was important to see Shadow Work & Pensions Secretary, Jonathan Ashworth, making clear that Labour will prioritise helping people off benefit and back into work alongside the increased expectations on business spelt out by Sir Keir. Mr Ashworth was right to highlight the frightening estimate from the OBR that the increase in spend on health and disability benefits post-Covid could cost £7.5 billion. That figure is so high because of  a drop of nine million people in the workforce - that’s one in every five people of working age – and the most recent figures show a rise of 42% of 16–34-year-olds dropping out of the labour market. 

Mr Hunt’s announcement of a welfare review comes after the Conservative Government has been relatively quiet on welfare reform for many years. There have been important schemes, such as the introduction and rollout of Universal Credit or the Kickstart Scheme, but little either to capture the public’s imagination or to genuinely transform the lives of sufficient numbers of people, particularly given the scale of the problem.

Why so little progress given that the positive impact of employment programmes look like a no-brainer, greatly reducing the long-term cost to taxpayers as well as helping individuals being left behind? Getting people into work does not just cut the benefit bill, it also tends to reduce people’s dependency on the NHS - generating further savings. There is a clear link between being out of work and deteriorating mental and physical health.

But the key issue holding back the country from the welfare change so obviously needed is that programmes on the scale that really make a difference tend to require a substantial up-front investment, with savings only kicking in after a substantial outlay. So often over the years, the rhetoric from ministers of welfare overhaul and mass support to help people into jobs has not matched the rather modest reality. Take for example the press stories generated by the Autumn Statement announcement that 600,000 people receiving Universal Credit would be subject to a ‘welfare crackdown’ or ‘forced into work’ - headlines suggesting tough action that would probably have pleased the government’s media team. The reality is that those 600,000 are going to be offered an interview with a job coach - very welcome, but unlikely to be transformative on its own. 

Labour will need to think boldly in order to avoid falling into the same trap of failing to match their big ambition to boost productivity by helping people off welfare with the reality of a frighteningly tight fiscal climate.

So I hope that Sir Keir, Mr Ashworth and Shadow Chancellor, Rachel Reeves, will consider super-charging a radical way of bringing forward future welfare savings which Tony Blair was examining in his final years in office. Back then, we were pushing the Treasury to accept that if particular back-to-work support schemes were proven to save taxpayers money down the track by reducing benefit and health bills, those savings should be directly and immediately ploughed into expanding future programmes. In the technical discussions with the Treasury this was known as switching the Annual Managed Expenditure (AME) pot into which benefit spending falls to programme investment by the Department for Work and Pensions that was part of its Departmental Expenditure Limit (DEL). AME-DEL switching was seen as highly unorthodox and, while we eventually got the principle accepted, it was never expanded enough to change lives at scale. 

Treasury orthodoxy may now be all the rage after the wildfires caused by Trussonomics, but this is surely the kind of practical, grounded radicalism that a future Labour government could make its own, generating the investment needed to create a vital virtuous circle that can improve the nation’s finances and transform lives.

Either way, Labour or Tory, whichever party genuinely grasps the nettle of meaningful welfare reform at scale will find eager partners in a business community that is desperate to maximise productivity and growth to pull the country out of its current predicament.