Post-pandemic economic growth: UK labour markets – Report Summary

This is a House of Commons Committee report, with recommendations to government. The Government has two months to respond.

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The UK has a tight labour market: the rate of unemployment remains close to a record low and the number of job vacancies, though lower than throughout 2022, still trends higher than pre-pandemic levels. A shortage of labour weighs heavily on the potential for economic growth. The Government’s Spring Budget, which announced employment incentives, ranging from support with childcare costs to more generous pension allowances, demonstrates the political priority given to widening the pool of available labour.

Rates of economic inactivity have risen, and the UK is the only country in the developed world where people have continued dropping out of the labour market in greater numbers beyond the acute phase of the Covid-19 pandemic. About 500,000 people have left the British workforce since the start of the pandemic, driven by those deciding to take early retirement. With an ageing population, and the average age of workers in many sectors already above 50, older workers must be supported to remain in the workplace and workers of all ages must be able to access the skills development they need to meet the needs of the changing labour market and economy.

The majority of the current workforce will still be in the workforce in 2030 and reskilling workers is a major challenge. Reskilling and upskilling is important in order to meet the demands from employers for skilled workers and for workers to adapt to the increasing adoption of new technology across all sectors. The Government has already announced that it will introduce a Lifelong Loan Entitlement to give people the opportunity to study, train and upskill throughout their lives to respond to changing skills needs and employment patterns. This is welcome, but it needs to be done in partnership with business. Government and business must together create the climate for investment in skills and technology.

The adoption of AI and new technology in the workplace is necessary, but it is all too often implemented without involving workers in how it is deployed, or what it is being deployed for. As a consequence, workers can end up feeling anxious when surveillance AI is increasingly used for setting targets and monitoring their performance. The recent advances in AI technology, most notably the creation of ChatGPT, present challenges for regulating responsible use of AI and technology in the workplace. We recognise that AI and technology offer enormous potential in the workplace and that innovation must be encouraged to deliver economic growth. However, while we welcome the Government’s most recent White Paper on its approach to regulating AI, public trust must be earned through transparent implementation in the workplace, ideally with worker consultation and input, and with adequate safeguards and rights of redress when it is demonstrated to impinge on workers’ rights and privacy.

The Taylor Review of Modern Working Practices looked at how employment law needed to adapt to keep pace with modern business practices in 2016. Driven by the rise in atypical forms of working, particularly in the ‘gig economy’, it set out recommendations around an explicit commitment for ‘good work’ for all through tackling exploitative employment practices, helping people to enforce their rights and aligning the incentives for driving labour market change with broader national objectives. Since that review was published, the labour market has changed considerably, partly driven by the pandemic, and also by the adoption of technology, that makes remote and hybrid working possible for many. For workers who do get to work more flexibly, however particularly those in the gig economy and in night-time work, they often do so without the proper rights and protections afforded to those who are employed. Enforcement of labour market rules in the UK is inadequate and results in unscrupulous employers getting away with bad practice. This is not because the existing regulators are not performing, it is because they are under-resourced and not given the priority they deserve for legislative reform.

Whilst this is a significant policy challenge, and a growing economic risk for the country, it is notable how dispersed Ministerial ownership of this policy area is across Whitehall. The Government must address this by improving the political leadership of labour market policy in government.

This report sets out positive actions the Government can take to shape economic growth by supporting employers to create the best working conditions to promote worker wellbeing and skills development and implement new technology in a fair and responsible way to contribute to a productive economy.

Machinery of Government

Ministerial responsibility for labour market policy is fragmented across Whitehall departments. We therefore call on the Government to consider the following:

a) establish a Ministry of Labour

b) appoint a new Minister of State for Labour in the Cabinet Office with the authority to convene and coordinate labour market policy across Whitehall

c) establish a Cabinet Committee on Labour, chaired by a Business and Trade Minister, which convenes each relevant Minister from each relevant Department on labour market policy.

Technology and skills development

  • The Government must introduce, whether by statute in the Data Protection and Digital Information (No. 2) Bill, or by other means, a requirement on businesses to conduct impact assessments to understand the scope and consequences of the use of new technologies in the workplace;
  • The Government must bring forward a new data poverty and digital skills strategy to set out how workers will be supported in the development of digital skills;
  • The Government must establish a taskforce of relevant enforcement bodies, alongside the Centre for Data Ethics and Innovation and the TUC, to assess the implications of technology in the workplace;
  • The Government must assess whether existing regulators have the expertise and capacity to perform the functions proposed in the recent White Paper on regulation of AI.

Workers’ rights and protection

  • The way in which the recommendations of the Taylor Review have been implemented has been fragmented and drawn-out. The Government must reconsider the need for an Employment Bill in the upcoming King’s Speech to address gaps in employment protections;
  • The desire to work flexibly has increased since the pandemic and its potential to make the labour market more inclusive for people who are excluded from traditional forms of work is transformative. Businesses must be more open to create more flexible constructions of work, and the Government must consider new legal structures for flexible work that include appropriate rights and protections for workers;
  • Working night-time shifts can be detrimental to health. The Government must provide more protection for workers from any damaging effects of night-time working and, as a first step, commission an investigation into the health and safety implications of night-time working;
  • The enforcement of labour market rules is under-resourced. The creation of the planned single enforcement body would clarify rights of redress for those most in need, but it must be resourced to at least the level of what is deemed appropriate by the International Labour Organisation.

Older workers

  • As economic inactivity has risen among people aged 50 to 64 years, older workers must be supported to remain in work to lessen the effect of an ageing population on the cost of pension provision and labour supply. The Government’s attention to this demographic in the Spring Budget is welcome, but what motivates people to continue working for longer must not be ignored;
  • Employers must offer more flexible working opportunities to benefit from a huge untapped pool of older workers and they must assess whether their recruitment practices and workplaces are ‘ageist’;
  • To improve upon the expansion of the mid-life MOT programme which will help more people make better-informed choices about work, health and retirement, the Government must also look at how and where employment support is delivered for people over 50 and improve the availability of career coaching.
  • The announcement of ‘returnerships’ for retaining older workers in the labour market is welcome. However, they must offer a decent package of training, value and recognise the skills that older workers already possess and offer flexible working opportunities to maximise take-up.
  • Ministers must consider expanding the eligibility for access to initiatives which prove successful in supporting older workers to return to work, especially to increase economic activity amongst workers aged under 24.