Consensus in Westminster is rare. Yet across government, policymakers and stakeholders, there is a growing recognition that the welfare state faces significant sustainability challenges.
Since the COVID-19 pandemic economic inactivity due to long-term sickness has surged to record highs. The figure now stands at 2.8m people, compared to 2.1m in Q4 2019. This trend is underscored by an increase in the rates of long-term sickness amongst younger people. The Darzi Report noted that the fastest growth demographic within this trend is 16 – 34-year-olds – i.e., people of working age.
The rise in long-term sickness is not just a public health challenge — it is a structural economic challenge, reducing the labour supply and weakening productivity. A study by Zurich UK and the Centre for Economics and Business Research (CEBR) found that long-term sickness cost the UK economy £32.7bn in lost productivity in 2023. If trends continue, this figure could reach £66.3bn annually by 2030.
The challenge of supporting those with long-term sickness and getting them back into employment was recognised under the previous Conservative Government. Amid mounting fiscal pressures and growing political momentum for reform, the Labour Government has made it a renewed priority.
Welfare reform is set to reflect the Government’s primary mission: growth. At the Autumn Budget, the Office for Budget Responsibility (OBR) forecasted that the cost of health-related welfare spending would rise to £100.7bn a year in 2030, up from £64.7bn in 2024. With the Spring Statement placing increased pressure on the Government to find savings and boost growth, welfare policy is expected to play a central role in the Government’s growth strategy.
This briefing will:
- Set out the case for reform.
- Review the previous Conservative Government’s approach.
- Examine the Labour Government’s proposals.
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