Tackling economic inactivity: How will a locally led approach work?

With the Get Britain Working white paper released late last year and rumours of a forthcoming Green Paper on economic inactivity, the debate over social security reform is gaining momentum. As the Treasury and DWP navigate competing priorities ahead of the Spring Budget, we explore a balanced approach to helping people stay in work and supporting those striving to return in this blog.

Before turning to solutions, let’s take a look at the problem.

The DWP’s analysis found that 30% of the increase in economic inactivity (240,000 people) is due to factors such as an ageing population, changes to the pension age and the way disability support is awarded under Universal Credit.

The remaining 70% increase (560,000 people) is large driven by a rise in applications for disability support, worsening health outcomes and a move toward a binary benefit system seen as the main drivers.

The Secretary of State may point the finger at the previous government, arguing that it would have been much easier and cheaper to prevent people from leaving the labour market in the first place. It’s certainly true that claimants and taxpayers would have been better off had more people had stayed in the workforce. But she is now left to tackle the problem and has promised to find £3 billion in savings in this parliament.

At the end of last year, Liz Kendall introduced the government’s first policies to address rising economic inactivity in the Get Britain Working white paper. Now she is set to follow up with a Green Paper next month, focusing on reforms to the disability benefit system that are likely to include a ‘duty to engage’ with employment support for many people who are not currently required to do so.

Get Britain Working focuses on youth employment as well as the 4.2 million people receiving health related benefits. It looks to local government for solutions, building on the approach set out in the English Devolution white paper.

When it comes to disability benefit reforms, Labour and the Conservatives may be more aligned in policy terms than expected. Looking at proposals under Mel Stride or the Improving Lives green paper offers a good indication of how the government will make the case for reform.

The challenge isn’t making the case for reform, it’s implementing reforms in a way that makes a genuine improvement to people’s lives.

To address this, the government is trailing a local approach, placing local areas at the heart of new funding worth £240 million.

This April, youth employment and economic inactivity trailblazers will be launched, led primarily by Mayors and combined authorities working with local authorities and other local partners. Meanwhile, the Connect to Work initiative will trial support in other parts of the UK. The government wants to put those who know local people and their area best at the centre of the response.

The Get Britain Working white paper highlights local success stories, like the South Yorkshire Mayoral Combined Authority (MCA) where areas such as Barnsley, through the pathways to work commission, have developed innovative models of incentivising engagement with support.

Now, eight MCAs will become trailblazers, backed by £125 million in funding to integrate health, employment and skills support. Their broad mission will be to reduce economic inactivity. Additionally, the North East, South and West Yorkshire trailblazers will also receive a share of £45 million from local NHS Integrated Care Systems to strengthen their efforts.

While the Mayors will lead these initiatives they must collaborate with local authorities to gather and use data effectively to identify those who are economically inactive and who could work, with the right support.

From 2025/26, funding for a new Connect to Work supported employment programme will be devolved into Integrated Settlements for Mayoral Combined Authorities, starting with Greater Manchester and the West Midlands. This will give Mayors greater control over shaping local support services.

In addition, Jobcentre reforms will bring their service areas into closer alignment with Mayoral authorities, improving coordination and making service design and delivery more effective.

The emphasis on Mayoral Authorities and their prominent role in delivering the trailblazer stage of a new Youth Guarantee aligns with the government’s broader emphasis on devolution.

The Get Britain Working white paper indicates a clear direction: greater integration of local services, boosted mental health funding and a focus on supporting those with health conditions to find work that suits their needs.

Proposals to reform the network of Jobcentres, the offer of a Youth Guarantee, and changes to how people access or are referred to support are bold and welcome steps forward from a previously centralised and often punitive system.

Local authorities are expected to play a key role in their areas, as they are best placed to understand and address regional disparities in health and economic inactivity.

But with a total investment of £240 million, the government will expect tangible results. Local areas will need to efficiently coordinate services and effectively engage residents who have previously been difficult to reach to make the best use of limited funds.

The Get Britain Working white paper identifies approximately 900,000 18-24 year olds not currently in education or employment (NEET). New approaches like the Youth Guarantee, with £40 million in extra funding for apprenticeships in key sectors, and support aimed at every 16-21 year old, must identify eligible young people in their area.

Haringey Council used its benefits data to identify NEETs. They contacted more than 460 households and moved an impressive 22% of their identified NEET cohort into employment. Read more

Policy in Practice contributed to a recent OBR roundtable on economic inactivity. One key opportunity identified to tackle economic inactivity was to address gaps in localised analysis and data. While the OBR’s excellent welfare trends report has lots of analysis on the drivers of inactivity it doesn’t break down the analysis at a local level.

Source: Welfare trends report, October 2024. Office for Budget Responsibility

The chart above from the OBR breaks down the drivers of the rise in incapacity benefit claims. It highlights changes in initial claims, changes in the drop out rate, and changes in the approval rate. While further national level analysis can be found in their welfare trends report it does not break the data down locally.

For the delivery of local support to be truly successful, better use of data is vital.

The chart below shows how local areas can use their administrative data to identify the different barriers to work their residents face.

In this sample comparing the drivers of economic inactivity across four local authorities, one in the North East, one in the South East, one in Scotland and one in London, we see that:

• The North East council has more economically inactive parent(s) without a disability
• The South East council has higher rates of disabled people aged 18-30
• The Scottish council has a higher rate of disability benefit recipients among people aged 30-50
• The London council has higher rates of disability among older workers, those aged 50-65

This analysis shows how regionally focused data can help combined authorities make better strategic decisions when deciding what support to commission.

Local data can be used to better target support too.

For example, our work with Haringey Council helped support working parents to overcome barriers to employment by encouraging the use of local childcare services. This initiative increased childcare support take up rates from 48% in February 2021 to 70% by June 2024, significantly boosting parents’ employment opportunities.

Similarly, proactive use of benefits data can help to identify and engage people in employment support initiatives. Kent County Council has led the way with data driven campaigns, merging their districts’ benefits datasets to identify £1.2 million in unclaimed extra income for their residents. This initiative engaged residents in a range of other initiatives, including employment support for younger people, and public health and social isolation initiatives for older residents.

Click here to find out how much of the £23 billion unclaimed support is being missed in your area

Tackling economic inactivity and reducing youth unemployment are core priorities of the government. However, initiatives like Get Britain Working will face fiscal pressures, so local trailblazers will need to deliver smartly and quickly to demonstrate they can deliver results.

The government clearly believes in devolution, but with more challenging reforms to disability benefits on the way, with a duty to engage, it’s critical that localised analysis helps design and deliver support that’s tailored to each area’s specific needs. Household level analysis can play a key role in reaching the right groups, helping local authorities to provide the targeted support needed. This is an important opportunity for local employment support initiatives to show they can deliver differently.

We encourage combined authorities to explore the examples shared in this blog and consider how to use data to identify residents who can benefit from localised employment support.

By using data to engage residents supportively, through income maximisation or by showing them how they can be better off in work, we can deliver improved outcomes. Data also allows us to track the outcomes and evaluate the impact of locally delivered support programmes.

One significant shift DWP can make is to provide more data at a local level, empowering local authorities and their combined authority partners to deliver improved outcomes.

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Join our upcoming webinar for local areas such as combined authorities, regions and county councils to learn how we’re helping groups or local authorities working together to implement these changes in practice.

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