Downing Street’s latest initiative to boost the workforce is a curious mix of good and bad ideas. In the past week Sunak has said he wants to reform the benefits system to get more disabled people into work. But he has also floated the idea of scrapping income tax for the over-fifties. And by combining largely sensible policies on workers with disabilities with an ill-thought-out plan to get the over-fifties back into work, he risks undermining his party’s image .
The Prime Minister is right to want to get Britain back to work. There is a labour shortage and a chunk of waiting workers that could be unlocked with the right incentives. Getting people into paid work would be good for the economy and potentially good for them too. This is why the first aspect of Sunak’s plan is worth considering.
Even if an over-fifties tax cut works, it would be deeply unfair
For those with disabilities, the government is proposing a radical shift in attitude. Work capability assessments would be ‘rewired’ around finding out what a person can do, and benefits tapered as a person increases their earnings. This would incentivise disabled workers to find jobs that fit them, without risking losing their benefits.
Before Covid, around half of disabled people were out of work. For some, a return to the workforce will always be impossible, but that’s not the case for everyone. There is potential here not just for an economic boost, but to lift people towards a greater level of independence. The proof of the scheme will be in the details, but it is certainly worth a try. But this is why it is so disheartening to see this policy paired with a proposed tax break for boomers.
Ministers have identified another group of the economically underactive, those over fifty but not in receipt of a state pension. To lure them back into work, the Treasury is proposing to give them up to a year of tax-free income if they return. It’s a misguided proposal which fails to understand why many older people have left the workforce, and will likely increase the intergenerational unfairness which is not only hammering the young but making Tories under fifty an endangered species.
During Covid, the number of economically inactive over-fifties increased as around 400,000 older people left their jobs and chose not to work. Yet this group is unlikely to be motivated by a tax cut. The older people who have left work are disproportionately wealthy. Around two-thirds own their homes outright and a similar number had no non-mortgage debts. Only around a quarter are ‘unconfident’ about their retirement provisions.
Many of the silver quitters will have, or will be in line for, generous defined benefit pensions and wealth derived from massive house price growth. They are easing into a comfortable life without work, not just getting by on benefits. A tax cut is unlikely to make much of a difference to someone who values their newly-acquired free time. Shrouds have no pockets, and if you have won the generational lottery, you might as well enjoy your retirement.
Equally, those who aren’t returning to work are often held back not by money, but by other government issues. Around a fifth of the over-fifties who became economically inactive did so because of their health. They are the ones stuck on ever-lengthening NHS waiting lists. Making sure they are treated would have a bigger impact than making bungalows a domestic tax haven.
Even if an over-fifties tax cut works, it would be deeply unfair. Young people with student loans are struggling with much higher effective tax rates, whilst young families are being hit hard by rising housing costs and childcare. Childcare in particular makes it unviable for many women to work, which has a similar economic impact as early retirees.
Younger workers have also been denied the chance to build wealth through housing and lack the generous pensions of yesteryear. They will already pay far more into the system, and receive far less out, than older workers across their lives. Unless cuts are found elsewhere, they will end up paying for tax breaks for those older, richer, and more supported by the state than them.
Workforce participation is an important issue. The Tories are right to see boosting it as a way to get growth. There is a big difference, however, between restructuring benefits to guide the disabled into work and using tax breaks to prop up the pensioned and propertied. The latter is unlikely to solve the issue and will only distance the Conservatives from younger voters.
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