Brexit and Covid led to exodus of 500,000 from workforce ‘putting economy at risk’

A huge wave of early retirement following the Covid pandemic is the biggest cause of labour shortages across the UK, according to a new report.

Brexit had also added to an acute shortage of workers in some industries – including hospitality, agriculture and care, according to the Lords’ economic affairs committee.

The committee warned that the labour outlook for the UK was “bleak”, finding that economic inactivity has increased by 565,000 people since the start of the pandemic.

Peers said it was critical for Rishi Sunak’s government to address inactivity in the labour market – warning that the problem puts the economy at risk of lower growth and higher inflation.

A report by the influential committee has examined the jump in economic inactivity – the number of people not in work or looking for work – and rising vacancies since 2020.

The report, named Where Have All The Workers Gone, highlighted that retirement, increased sickness, the post-Brexit migration and the UK’s ageing population have all contributed to the current tightness in the labour market.

“Over the last few years many EU workers, who filled these roles, have left the UK,” the report said on shortages in low-paid roles.

It added: “Counterbalancing their departure has been the arrival of non-EU workers granted visas under the new immigration system which prioritises skilled workers. This has contributed to a mismatch within the labour force, accentuating labour shortages in these sectors.”

However, Lord Bridges, chair of the committee, said that the report found that the Covid pandemic sparking an increase in early retirement was the biggest factor.

“We are unable to say exactly why, but a lot of people over 50 who left work or were furloughed during the pandemic did not come back,” he said.

“There are a number of reasons why people left the workforce, but as we kept looking it became clear that retirement was the biggest factor, the biggest change from the start of the pandemic.

He added: “We can’t hypothesise too much, but one potential explanation is that people experimented with different lifestyles during the pandemic … and then changed their working lives as a result, even when the pandemic restrictions changed back.”

There was also a stark increase in long-term sickness since the start of the pandemic, with the Office for National Statistics (ONS) finding that 217,000 people not in the labour market in the year to July reported long-Covid.

However, the report highlighted that most of the rise in sickness-related inactivity was among people who were already taking leave and those leaving the labour market were more likely to be ending their careers early.

It comes a week after the latest ONS figures found that economic activity dropped slightly in November as retirees returned to the workforce.

The ONS said there were 76,000 people considered economically inactive over the three months to November, adding that there was a fall of 49,000 in people citing retirement as a reason for inactivity.

Nevertheless, the committee said the government must do more to understand the current pressures facing labour supply across the UK.

Lord Bridges added: “Taken together these findings are, like mid-winter, bleak. The rise in economic inactivity makes it harder to control inflation; damages growth, and puts pressure on already stretched public finances.

“That’s why it’s critical the government does more to understand the causes of increased inactivity, and whether this trend is likely to persist.”

A spokesperson from the Department for Work and Pensions said: “Older workers are a huge asset to our economy and jobs market. That’s why we are investing an extra £22m in employment support for the over-50s – expanding our Jobcentre mid-life MOT service and providing tailored support through our older worker champions.

“As set out in the autumn statement, the Department for Work and Pensions will thoroughly review workforce participation to understand what action should be taken on increased economic inactivity. The recommendations from the Committee’s report will be considered as part of this work.”