Introduction
The UK government faces increasing pressure to broaden its support measures for businesses and workers, particularly in aiding the employment of individuals with long-term health issues. Two influential think tanks, The Good Growth Foundation (GGF) and the Institute for Fiscal Studies (IFS), have highlighted the necessity for policy adjustments to drive such changes.
Proposed Incentives for Businesses
The Good Growth Foundation has put forward a proposal to incentivize businesses by providing temporary relief from certain payroll taxes. This initiative targets firms that employ individuals currently receiving long-term sickness or disability benefits. The aim is to reduce financial burdens on employers, thereby encouraging the hiring of these workers.
Reforming Welfare for Greater Workforce Participation
Prime Minister Keir Starmer and Chancellor Rachel Reeves have prioritized the challenge of economic inactivity, as statistics reveal that 2.8 million people are not working due to health-related issues. In a bid to revamp this situation, Reeves recently introduced welfare reform plans that focus on increasing labor market participation while also curtailing public expenditure.
Reeves emphasized the urgency of addressing this issue, stating, “We are writing off an entire generation,” as she referred to data indicating that one in eight young individuals is neither in education, employment, nor training.
Specific Measures in Welfare Reform
Under the new government proposals, the criteria for receiving Personal Independence Payments would become more stringent, exclusively covering the severely disabled. Moreover, the government plans to reduce health-related top-up payments to Universal Credit claimants assessed as unfit for work. These proposals have met resistance from several Labour MPs, who cite concerns that the reforms could potentially push an estimated 250,000 people into poverty.
Government’s Plan and Think Tank Recommendations
The government asserts, “The welfare system we inherited is broken; it’s holding people back and it’s hindering growth.” They have outlined a comprehensive plan to reform welfare, focusing on supporting those in greatest need, introducing a £1 billion employment support package, and recalibrating Universal Credit payments to address existing disincentives for workforce participation.
The GGF has recommended a specific measure where employers hiring individuals on sickness or disability benefits would be exempt from National Insurance contributions for one year. This strategy is projected to save the Treasury £1.1 billion by minimizing welfare payments and boosting income tax revenue. The GGF estimates that this would encourage an additional 150,000 people to enter the workforce, over and above the government’s existing projections of a 16% increase.
Further Recommendations by the IFS
Tom Waters, an associate director at the IFS, questioned the effectiveness of the current reforms in achieving the desired savings. He argued for additional measures to encourage those on sickness and disability benefits to re-enter the labor market. He highlighted a common concern among benefit recipients: the potential financial risk of losing benefits if a new job doesn’t work out. Breaking the link between employment and the loss of benefits could offer a solution to this dilemma and facilitate reintegration into the workforce.
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