UK’s Chronic Labour Shortage – what has caused it, and should we ask the over 65s to help out ?

I first published this mini-review in July of last year - since the employment situation has worsened significantly since then, I've recently updated it to reflect recent developments and the prospects for our economic recovery. 

It's important for the sake of our economy and our children's futures that we address our poor productivity as a nation. We can only hope to do this if we make maximum use of our home-grown talent. It's important that we now include more of our older workers in our workforce, whether they have retired or not, and we can only tempt them out of their 'economic inactivity' by providing strong incentives. The following article will I hope provide some practical suggestions on how we might do this. UK Government has, somewhat belatedly, declared this as a priority - time will tell whether they (or indeed their successors!) are prepared to put their (i.e. our) money and resources where their mouths are...

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The UK is currently in the thick of yet another ‘crisis’ – this time precipitated by our dwindling workforce. At the last count we had well over a million job vacancies and nowhere near enough available workers to fill them….

Why has this happened, and what can we do about it ?

As for the majority of our other crises, this one has been some time in the making, and is to some extent a result of our own collective lack of foresight. It has come to a head now as a result of the ‘perfect storm’ engineered by the combined efforts of Putin, the Covid pandemic, and more recently, inflation and the cost of living crisis and the rapid increase in interest rates it has caused. 

Since we can’t effectively rid ourselves of any of these malevolent influences on our way of life, for the time being at least, we need to find effective work-rounds to limit the damage, and then start addressing the other long-term underlying causes….

The two key local factors that have contributed to our shortage of workers are demographics and Brexit.

Demographics: Our population is ageing rapidly, and in common with many 1^st world nations our birth rate is now declining. Although the world is already over-populated, and now already arguably well beyond the point of sustainability, net population growth in the 3rd world shows no signs of abating. The recent trend towards a slow decline of the birth rate in the first world, although welcome in this respect, is already having consequences for UK society, but actually contributes very little to reducing worldwide population growth. Any effect of the small decline in the UK birth rate we have seen since Brexit has in any case been more than outpaced by immigration, which continues to increase, contrary of course to what the Brexiteers promised us....

Thanks to the efforts of modern medicine over the last century, life expectancy in UK has also increased significantly, but without increasing quality of life or maintaining good health in the 'extra' years gained. The large increase in the over-80s with multiple health problems we've seen in the last decade has resulted in a disproportionate increase in demand on both the social care sector and the NHS, and there are now even fewer younger workers with the necessary skills and motivation to provide support.

Brexit: This has undoubtedly contributed in large part to the labour imbalance in UK. Employers in health and other key industries where a significant proportion of the jobs were done by EU migrants pre-Brexit are now also struggling to fill the gap they have left, and the UK ‘indigenous’ population either can’t, or won’t, take on these physically demanding, and often poorly paid, jobs themselves. 

All this is making us progressively less productive as a nation generally and steadily eroding our health services, leading to even more infirmity in the elderly population and much un-diagnosed and untreated disease in younger groups. This in turn reduces the available working population and increases the sickness benefits bill. 

Chronic under-productivity in our industrial sector, which has persisted since the wage spirals of the 1970s abolished our competitiveness on the world industrial stage, is also driving more expensive imports which we can now ill-afford due to the cost of living crisis. Our workforce has also generally become less mobile, due partly to the cost of living crisis putting a brake on travel, and is therefore more reluctant to commute long distances to work. 

Recently, another significant 'drag' on the economy has surfaced in the form of widespread and chronic strike action by the public sector unions, who are demanding above-inflation pay increases for their members across the board. Since these are plainly unaffordable without huge and unacceptable tax hikes, and there appears to be no solution in sight, our productivity is likely to remain woefully low for at least the next 2 years, and we will continue to become less competitive on the world stage. Although some progress has been made in negotiations, the doctors and consultants are still holding out for an unrealistic settlement, and the rail unions, as ever, are blocking any settlement that requires changes in working practices.

The ongoing pandemic has also made an important additional contribution to the problem by changing our attitude to work – notably amongst the over 50s, many of whom have decided on an early retirement rather than facing the uphill battle which older workers have traditionally encountered in the UK when trying to get back into employment.

To help find a solution to this dilemma, we should first recognise that we have a sizeable reservoir of talent and experience in our population which is largely untapped.

Many of our retired and so-called 'economically inactive' over 65s are still hale and hearty, and have a lifetime’s worth of experience in their chosen occupation(s) to offer, particularly in the professions. In many cases they would love to pass some of this on to their younger colleagues. They also have extensive general life experience and 'people skills' to call upon. Much of this knowledge bounty is currently going to waste through their effective exclusion from the jobs market. 

As a society we would do well to reconsider our attitude to our older workers generally, and think again about consigning them to the economic 'scrap heap' as soon as they reach their late 50s. It is no coincidence that many Asian societies place a far higher value on the experience and wisdom of their elders than we do in the West, and in my opinion we have a lot to learn from them in this respect.

Admittedly there are some jobs which are just not suitable for older workers due to physical constraints, but in our highly technical age, the majority of roles rely far more on people- and organisational-skills, at which older workers often excel as a result of a lifetime’s experience. This is likely to become even more relevant as AI eliminates the need for direct human involvement in many repetitive physical tasks.

Another argument that is often leveled at the over 65s by employers to justify their discriminatory recruiting policies is the view (unfortunately quite widely held) that the over 65s are not sufficiently computer-literate to cope with modern work practices, and are also more difficult to train for the 'new' jobs. 

These are quite frankly disingenuous and unsubstantiated myths – many of this group of our senior citizens ‘grew-up’ with personal computers from the 1980s onwards, and actually had to learn to write computer code themselves in order to get their primitive pcs to do anything useful. Some are even now teaching their own grandchildren the basics of coding in an attempt to help prepare them for life in a computer-driven world where there is already yet another policy-induced shortage......of programmers. Becoming super-proficient as a teenager at playing the latest 5G-connected computer games is all very well, but someone will actually have to write and maintain the code for the software and firmware which will drive our processor-controlled lives in the future....

The contention that over 65's are less 'trainable' in computing skills can be immediately dispatched to the dustbin of history by considering the proportion of 'silver surfers' who have taken to the net 'like ducks to water' in recent years.

How then do we solve the problem of our chronic labour shortage ? 

There is of course no easy solution, and a multifactorial approach will be necessary to ensure we have enough workers going forward to keep our ageing society afloat.  Immigration will obviously have to continue to some extent to help bolster the younger element of our workforce, but this must be selective and controlled to ensure we get the right people for the posts we need to fill, and can control how long they stay in UK. 

We should focus our efforts mainly on providing incentives for our home population to ensure our home-grown talents are fully used and developed. This will enhance our post-Brexit self-sufficiency, and increase productivity through the application of experience and local knowledge. Perhaps more importantly, it will also provide the self-respect in our 'economically inactives' that will come from being allowed to contribute fully once again. Above all else, it will provide our young people with some hope of decent jobs - and a future, as the economy improves. Britain has a well-deserved reputation for stepping up to the plate when it comes to innovation - let's make sure we don't lose it through inaction.

Although the current government are by and large politically of the same view, they have not yet really ‘grasped the nettle’ by offering the right incentives and support.

An obvious and largely untapped resource, as already discussed, is the indigenous healthy retired population. 

We will, however, need to provide powerful incentives to entice this group out of retirement, since many of them will have already grown used to their freedom and may be loth to part with it again. Some will also be relatively better off than younger age groups, have less need to supplement their incomes, and may actually be put off increasing their earnings by the tax implications. Last but not least, having been out of employment for a while, they may be concerned about having 'lost touch' with the working environment. How then might we persuade them to return to the world of work ?

There can of course be no question of compulsion. Those who have reached retirement age and contributed their labour (and NI contributions !) all their working lives have earned an absolute right to their freedom if they choose not to work. 

Neither will it be sufficient just to appeal to their sense of duty with a ‘Kitchener Wants You’ approach. The over 65s will need to be coaxed out of retirement with concrete incentives - and provided with any support in their jobs they may need to compensate for the effects of ageing. This must include any retraining / re-skilling required to allow for them being out of employment for a significant period.

The most obvious practical incentive is a financial one. Many ex-professional retirees will have savings and occupational pensions, but these are currently heavily over-taxed due to deliberate (and misguided) policy by the treasury of freezing tax thresholds across the board (see my blog on 'What's wrong with our UK Tax system' for more insight on why this particular mistake has been made). This iniquitous policy is unfortunately still being maintained by Hunt and Sunak, despite the hefty tax receipt increases that the recent wage rises and increases in savings income are expected to generate going forward. 

Just imposing, let alone stubbornly maintaining, historically high tax levels is also a distinctly 'unconservative' policy and is worrying many back-bench conservative MPs, who are already looking forward with some concern to their poor re-election prospects in Autumn 2024. Tax threshold freezes have resulted in even those on very moderate incomes being drawn into the 40% tax bracket. It is of note that specific action on raising the 40% threshold to help alleviate this tax 'penalty' on middle-income earners was actually promised by a previous prime minister during his 2019 leadership campaign, but this has apparently been consistently overruled by the Treasury.....

Powerful incentives to get retirees back to work could easily be engineered via the tax system with minimal impact on tax revenues -  for example, all earnings from new post-retirement work above the personal allowance threshold could be taxed at the basic rate only. The current tax rules ensure that many such pensioners are taxed at rates up to 45% on all such supplementary earnings, and on any savings income they might be fortunate enough to receive. Some working pensioners are now even required to pay NI contributions, even though their state pension is fixed at retirement age and they can't therefore benefit from the extra contributions they are obliged to make. To add insult to injury, anyone taking an income from their pension pot, either via draw-down or an annuity, is automatically disqualified from making further significant additions to their pot without incurring a hefty tax surcharge.

This tax regime is grossly unfair to our pensioners, and actually provides a strong deterrent to their taking on any paid post-retirement work. 

Why on earth would you want to spend any of your valuable and limited remaining 'quality' time in your declining years working, when the government has awarded  itself the right to take away nearly half of any earnings before you even see them ? 

Apart from tax changes, employers could also do their bit to encourage returnee pensioners by offering joining bonuses, and actively campaigning for older workers to join them, as they already have done for younger recruits.

Another important incentive would be recognition for their contribution at a time of need by society at large – and, dare I say it, even a measure of gratitude on the part of younger generations for the sacrifices they have already made in order to provide a stable society in which young people can grow up. It’s a sad truth that age-discrimination represents the last bastion of unchallenged inequality in the UK workplace – and is still rife. I have heard a number of news reports recently suggesting that early retirees are likely to be 'work shy' and should be 'written off' as a job creation resource. This attitude is common amongst employers and merely serves to perpetuate age-discrimination. Both government and business management need to outlaw this practice and penalise corporate offenders wherever it is identified. 

Where does this anitpathy to older workers come from ?  A significant clue may be in the marked reluctance of middle managers in their 30s and 40s to take on more senior workers. The only explanation that makes sense is that they feel their own position may be threatened by older and potentially more experienced professionals who have more specialist knowledge, and therefore could 'outshine' them in the workplace. 

If true, this would be a very short sighted view - in my experience, far from being interested in taking their manager's job, such individuals are likely to be happy sharing their knowledge and experience. Many will have been in management roles themselves, so will have '..been there, done that and got the tee-shirt..', and will probably be glad to be rid of the responsibility that wearing it entailed.

There is also a marked inter-generational 'attitude split' in the population at large to contend with. Sadly, some younger members of society seem to take the view that the 'older generation' have had it too easy, and are now merely a burden on them, rather than a resource to be valued. There is also a more extreme view (fortunately less prevalent) that their seniors are also actually depriving them of their rightful 'slice of the cake' by hanging on to their wealth for too long. This is a dangerous attitude, and actively threatens the cohesiveness of our society...and ultimately the well being of their own generation. If it is allowed to persist, it can only serve to promote existing inter-generational divisions. 

The sizeable proportion of our younger population currently reliant on the 'Bank of Mum & Dad' to prop up their finances would do well to remember this when giving vent to their discontent. An interesting statistic that emerged recently is that the over 50s still hold over 80% of the country's private wealth. You can be sure they will fight hard to keep it, particularly if they feel challenged in this way.

If our society wants to extract itself from its current predicament, it must recognise that it actually needs its elders to contribute more actively to its well-being – and not just as occasional unpaid child-minders.

How has the government responded so far ? 

In truth, painfully slowly. Although the state pension did keep up with inflation with a 10% increase in April, this will not be backdated to cover the inflated prices prevalent during most of 2022, and will still of course be subject to tax at up to 45%. 

There has been no give whatsoever on tax thresholds, let alone other more directed tax incentives promoting a return to work. On the employment side, apart from some vague promises of action 'to get the over 50s back to work', there have been no real actions that give grounds for any hope of success.

Viv

First Published July 2022