Austerity, low wages, and degradation of healthcare and public services are to blame

As the UK prepares for the general election later this year, major political parties claim that they can somehow significantly grow the economy. The challenge, as the British Chamber of Commerce puts it, is: “Businesses are crying out for people to fill job vacancies at all skill levels, and this must be the number one focus for government if it’s serious about economic growth”. Without a fundamental shift in policies governments can’t address labour shortages.

The UK has a population of around 67.7m and a workforce of 33.14m i.e. around 75% of the 16-64 year olds are in employment. Some 1.4m are unemployed, and for various reasons 9.25m are economically inactive. At the same time there are 934,000 vacancies.

The availability of workers is reduced by an ageing population. There is no statutory retirement age though the current age for receiving the state pension is 66. Currently, some 12.6 million people receive the state pension. The number of retirees is expected to rise to 15.5 million by 2030, and another 25% by 2050 . Nearly 1.5m people over the age of 65 are in employment, but majority of retirees may not be physically fit to work. Many may be dissuaded by unsuitable work environment. So the challenge is to find additional workers.

Since the Second World War, the UK has sought to address labour shortages through immigration. Immigrants often did jobs that the indigenous population didn’t want to do or were not qualified to do. This included nurses, care, transport and factory workers, and doctors. Such possibilities are now increasingly eroded. Brexit has resulted in the loss of some 460,000 EU workers though some 130,000 have been secured from other locations. In the current political climate political parties are unlikely to address labour shortages with mass immigration. Some childcare support is available to entice single parents to work and fill the gaps, but it is inadequate and expensive.

After the Covid pandemic, nearly 500,000 people did not return to paid employment though they may be economically active in other ways. Perhaps, they find the work environment to be too oppressive. A survey reported that 58% of UK workers aged 50 to 64 liked their job, compared with 74% in the USA and 73% in Germany. Or maybe, they had enough savings to live on. In April 2015, the Conservative Government introduced legislation which enabled people to access their pension pots from the age of 55. By June 2023, some £72.2bn was withdrawn from pension pots and may have persuaded some to withdraw from the labour market.

The economically inactive may be persuaded to work through higher wages, which can also reduce staff turnover and training costs. But businesses do not want to do that and urge governments to dilute workers’ rights and reduce real wages. Just this week, Capita and Brewdog have ended their commitment to pay the real living wage, which is slightly higher than the minimum wage. The average front line worker will be around £850 a year worse-off.

People in secure and well paid jobs are more likely to have a longer life expectancy and take less time off work due to sickness. This can swell the size of the work force, but the government has pushed real wage cuts with claims that wage increases for workers are inflationary though that logic is suspended for executives and bankers. The average real wage has remained mostly unchanged since 2007.

The annual UK median wage is around £29,669.  The Joseph Rowntree Foundation estimates that a single person needs to earn £29,500 a year to reach a minimum acceptable standard of living. A couple with two children need to earn £50,000 between them. This means that nearly half the working population does not reach the minimum standard of living though low incomes can be supplemented by means-tested social security systems. 17.8m adults have income of less than £12,570. Indeed, due to low pay more people in work are claiming social security benefits than those out of work.

The result is that some 14.4 million people live in poverty. Millions of people are deprived of good food, housing, education, clothing, skills and healthcare. Deprived people cannot work long hours or fulfil their potential. More workers report sick and have mental and physical health problems. More than 800,000 patients were admitted to hospital with malnutrition and nutritional deficiencies last year. Some 16m people have disabilities which may affect their participation in labour markets. The government is considering withdrawing benefits from the old, sick and disabled and force them to work, but it is hard to see how that will deal with systemic problems.

Rather than improving healthcare, the government has reduced access to healthcare. People struggle to get access to NHS dentists and family doctors. Some 6.39 million individuals in England alone are waiting for 7.6m hospital appointments. That is one-in-nine persons. Around 2.8 million people, roughly equivalent to the populations of Bournemouth, Cardiff, Coventry, Edinburgh Stoke-on-Trent and Middlesbrough, combined, are suffering from chronic health conditions and are unable to work. More than 500,000 under-35s in the prime of their life are out of work due to long-term illness.

A 2023 study reported in the 5 years to 2022 nearly 1.5 million people in England died whilst waiting for a NHS hospital appointment – that is nearly 300,000 a year.  A 2022 study reported that between 2012 and 2019, government imposed austerity caused 335,000 excess deaths in England and Scotland i.e. nearly 48,000 a year. One-third of these deaths were among people under 65. Another study estimated that between 2011 and 2020, 1.2m people in England died prematurely from a combination of poverty, austerity and Covid. The Government’s obsession with austerity, wage cuts and defunct economic theories has turned the state into a killing machine, and is a major cause of labour shortages.

Labour shortages could be addressed by reskilling people, but the situation is grim. Small businesses can’t afford to fund reskilling of labour. Apprenticeships have dwindled and people lack the resources to reskill themselves as graduates reel from the debt burden of £206bn. Unlike Austria, Belgium, Czech Republic, Denmark, Finland, France, Germany, Greece, Italy, Norway and Spain, England charges university fees. Indeed, the number of students from England entering universities is declining, especially for postgraduate and doctoral level of studies. Political parties can address the problems but abolishing university fees and writing of debt, but none have shown any foresight.

To some extent, some labour shortages can be alleviated by the adoption of new technology, but the UK has chronic levels of underinvestment in productive assets. Despite subsidies and tax incentives, the level of investment in productive assets has fallen from 23% of GDP in the late 1980s to around 17% from 2000 onwards, compared to 20-25% in major industrialised economies.

In the OECD league table of investment, the UK is ranked 35th out of 38 countries. The private sector does not invest enough because people don’t have sufficient purchasing power to buy the resulting goods and services. Instead of investing directly in new industries and public assets, the state hands cash and subsidies to footloose corporations. A significant proportion of this vanishes in profits. The investment problem, which also has a bearing on productivity, requires a radical restructuring of the state but no political party has shown willingness to look at the bigger picture.

The above are some pointers rather than a comprehensive analysis of the possible causes of labour shortages holding back the UK economy. Labour shortages are normally experienced in booming economies. In contrast, the UK economy is stagnant and is experiencing shortages. These are caused by short-sighted policies of austerity and low wages; degradation of healthcare and public services. Despite the negative outcomes all major political parties are promising more of the same. They are unlikely to be able to significantly reduce labour shortages.

Prem Sikka is an Emeritus Professor of Accounting at the University of Essex and the University of Sheffield, a Labour member of the House of Lords, and Contributing Editor at Left Foot Forward.

Image credit: Andrew Parsons – Creative Commons

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