Early retirement driving labour shortages and stunting Britain’s growth, says Lord’s report 

An inquiry by a House of Lords committee into what’s causing labour shortages in the UK showed that early retirement among those aged between 50 and 64 was the main driver of the trend.

Other major factors were an increase in sickness levels; changes in the structure of migration after Brexit; and an ageing UK population, whose impact was previously concealed by other trends.

The report found that following years of declining economic inactivity, the number of people who left the workforce increased by 565,000 people since the start of the pandemic.

“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,” said the chairman of the influential committee, George Bridges.

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“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.

“We can’t hypothesise too much, but one potential explanation is that people experimented with different lifestyles during the pandemic — they were forced to stay at home or work fewer hours — and then changed their working lives as a result, even when the pandemic restrictions changed back”.

The number of people who are out of work because of long-term illness is at a record high. However, much of the rise has been among people who were already “inactive”, meaning they were neither working nor looking for work.

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Lord Bridges of Headley, Chair of the House of Lords Economic Affairs Committee, said: “Those who are already economically inactive are becoming sicker, meaning they’re less likely to return to work. So, while other factors were previously masking the impact of an ageing population on the size of the workforce, they are now reinforcing it.

He said it was “critical the government does more to understand the causes of increased inactivity, and whether this trend is likely to persist”.

“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.”

The committee, which titled its report “Where have all the workers gone?” gathered evidence from the Office for National Statistics (ONS), the Bank of England’s monetary policy committee and the Department for Work and Pensions.

However, the cost-of-living crisis might pull people from the 50-64 age group back into the workforce.

ONS figures showed that the proportion of people considered inactive fell by 0.2 percentage points to 21.5% of those aged 16 to 64. Vacancies also fell slightly by 65,000 compared to the previous quarter.