final logo red (RGB)


Economic Affairs Committee

Corrected oral evidence: UK labour supply

Tuesday 11 October 2022

4 pm


Watch the meeting

Members present: Lord Bridges of Headley (The Chair); Viscount Chandos; Lord Fox; Lord Griffiths of Fforestfach; Lord King of Lothbury; Baroness Kramer; Lord Layard; Lord Livingston of Parkhead; Lord Monks; Baroness Noakes; Lord Rooker; Lord Skidelsky.

Evidence Session No. 3              Heard in Public              Questions 33 - 40



I:  Jon Boys, Labour Market Economist, Chartered Institute of Personnel and Development; David Hale, Head of Public Affairs, Federation of Small Businesses.



  1. This is a corrected transcript of evidence taken in public and webcast on
  2. Any public use of, or reference to, the contents should make clear that neither Members nor witnesses have had the opportunity to correct the record. If in doubt as to the propriety of using the transcript, please contact the Clerk of the Committee.
  3. Members and witnesses are asked to send corrections to the Clerk of the Committee within 14 days of receipt.



Examination of witnesses

Jon Boys and David Hale.

Q33            The Chair: Welcome to this second panel of inquiry today. Would you like to introduce yourselves?

David Hale: I am from the Federation of Small Businesses.

Jon Boys: I am a labour market economist at the Chartered Institute of Personnel and Development, the professional body for HR and learning and development professionals.

The Chair: Thank you both very much for coming to this inquiry.

Q34            Lord Layard: I have a couple of questions. The first is the $65,000 question. What is your explanation for the rise in inactivity?

Jon Boys: There has been an unambiguous rise in inactivity. It is really interesting that we can group this into categories. You will have seen this chart before. It just tells you where it is. The most worrying rise, which I am sure you have just been talking about for an hour, is the increase in long-term sickness. There is also some increase in categories of students, but it is that growing category of long-term sickness.

There is another way of cutting this data, which is underlooked at but incredibly interesting, which is to look at people who are inactive. They asked the question, “Do you want to work? Do you not want to work?” Essentially, the entire net increase is in people who do not want to work. That is in the Labour Force Survey, and they distinguish it with that language. This is quite interesting because, if you are unemployed, you are counted as someone who wants to workyou are seeking work and available for work.

It is interesting that, even within inactivity, there are people who would like to work. As a good example of this, in 2017 the DWP wrote a report called Fuller Working Lives, which was about people working a bit longer into older age. They counted that there were a million people over the age of 50 who were not working but wanted to work. All they did was add “inactive but wants to work” to “unemployed”. What is really interesting is that they did not even count people who were inactive but did not want to work. Now it is that category, “inactive but does not want to work”, that we are really worried about.

Why are people becoming inactive but seemingly not wanting to work? That is one of the big questions. The policy implication is that you are working against a gradient. If the workforce was smaller, unemployment was 8% and we knew that was where they were, we could say that these are people who are looking for work and available for work. The problem is that there are far fewer available candidates because they are simply not looking, available or wanting work. That is my take on it.

David Hale: The biggest driver of the increase is people who have health conditions or disabilities. This was a situation that was coming before Covid. Covid has maybe exacerbated it, but it is entirely on trend for the worries we have had for at least the last five or six years. To a fair degree, it is explanatory of the falls in self-employment we are seeing. The financial crash did a huge amount to move people, who would otherwise have struggled to work for health reasons, into employment. It is partly explanatory of that. We have not got it right, either as a Government or as a society, in terms of how to make work available for people who are not well. We have to start thinking about the population that is ill and would like to work, and how best we can get those people into the labour market.

Lord Layard: Can I go from that to a question that is also a puzzle? Why, given the number of unemployed we have, do we also have an unprecedented number of vacancies? Why are there more vacancies at a given level of unemployment than we have ever seen before? Is this due to some sort of mismatch? Are the vacancies in areas or occupations that are different from those where the unemployed are?

Jon Boys: It is always key to think about the vacancies and the available candidates, the vacancies being the demand for candidates and the number of candidates being the supply. It is the mismatch between the two. Some of these labour shortages can be quite acute but at the margins. They might not necessarily look like big numbers, but if you have 1,000 people employed and you need five more people, and there are only three more available, you have a problem.

There was a time before Covid in which we were thinking, when we looked at the vacancy statistics, “Are these for real or is it just that people can post vacancies online? Can we trust these?” Then Covid came along. They fell through the floor and we thought, “Okay, they’re pretty responsive. We can trust these”. They were already at record-breaking levels. The labour market was tight pre pandemic.

On recovery, the vacancies shot past pre-pandemic levels to this record that we are at now. We had new labour market stats out this morning at 7 am, which show that vacancies are not growing as much. They are tailing off, but they remain at historically high levels. Combined with the even lower unemployment today, this means that the mismatch between the number of vacancies and the number of candidates is even tighter. There are 0.9 people available for every vacancy.

What is quite interesting is that, when we survey our members, this is pretty broad-based and across lots of sectors. The question, which is quite a difficult one, is essentially, “Where is that imbalance between supply and demand for workers most acute?” Like I say, when we survey, it is pretty broad-based. You cannot even necessarily look at wage growth. I saw a nice chart last week on the relationship between wage growth and vacancy growth, and there is just no relationship there. The takeaway point for me is that there is an imbalance. There are not many candidates for a lot of vacancies, and that imbalance is pretty broad-based across most sectors.

David Hale: It is important to recognise that there is increased churn. There are more people leaving, and some of that is delayed from the period of Covid. We are fairly confident that people delayed leaving their jobs due to the uncertainty of the pandemic, and then there was a rush of people leaving, so that adds somewhat to the short-term recruitment pressures.

Similarly, there are some shifts between sectors. The HGV shortage was mentioned earlier. There are other high-profile shortages such as chefing. A lot of the people who were doing that work are going into new work in terms of driving and delivery, sometimes for lower money but for better conditions. There are some shifts across that that are causing problems. There is the long-term sickness we have mentioned.

Then, in terms of the mismatch, we see remote areas having particular problems. Some sectors such as hospitality have had particular problems over the pandemic because of where the student population is. There have been changes in migration that have had an impact. Then there are the long-term issues that we have in terms of housing, care and transport, which are all making it harder for people to find work.

Baroness Kramer: I have a very tiny question just for clarification, Mr Hale. Did I understand you to say that in relation to long-term sickness, whether mental or physical, people shifted from employment to self-employment as a way to manage their health more effectively while still being in work, but that self-employment is now less attractive? There are either pressures to go back to full-time employment or a whole host of things that I do not need to explore now. That is now shifting people towards inactivity. Did I understand that correctly as the route you were describing?

David Hale: I am not sure that is what I meant to say, but it is true that, traditionally, people who struggle to remain in work, especially in that over-50s age group, especially in sectors such as construction, move to a self-employed role when their health condition makes it hard to maintain their previous employment. If people had previously worked on construction sites, then setting up their own construction business that might be based in more residential areas has been quite a common pattern.

What I at least meant to say before was that, after the financial crisis, self-employment played the biggest role in people moving from not working to working. Certainly within the private sector, the closest disability employment gets to non-disabled employment rates is in self-employment. The second closest is in working in a small business. The third closest is working in a large business, and medium businesses trail behind in terms of size. Long-term sickness does dictate where you work and in what form.

Q35            Lord Rooker: If a country’s greatest asset is the capacity and willingness of people to work, we should look at the capacity. If it is long-term illness, both before and since Covid—because it has to be separated—how much is it a factor that people are not getting the treatment so that they do not become sick in the first place, or are sick but cured and can carry on working? How much of a factor is that? Are there any particular illnesses that you would identify?

You have touched on the point about people who are long-term sick, are still in employment and are coping. The Bank of England gave evidence to the other place in May and said it is very uncertain about the reasons for the persistent trend in high levels of long-term sickness. It is one of the things that we ought to be exploring in relation to the missing workers. There might be too much there but, if there is a problem of long-term sickness, how did it arise and what do we do about it to get people back into work? Is that not a way of looking at it?

Jon Boys: What is interesting about the inactivity categories is that we are looking at the rise in long-term sickness, but these categories are mutually exclusive. You could say you were retired, and that could be your main reason for being inactive, but you could be retired due to long-term sickness. To an extent, we might even be understating the extent to which inactivity has increased because of long-term sickness.

The other really good point that you make is about the 10% of the workforce who have a long-term condition. Ideally, we would want to facilitate them to work and have them not drop out. That is where David’s point about self-employment is quite interesting, because, if you look at the economic activity of people by age, self-employment increases as a wedge as people get older. It is a much more popular thing. I think that is just because self-employment is a way to appropriate some of the flexibility that you cannot get in employment.

The big ask is what you do about this. How do you facilitate people to work longer? It is probably by making work better, suiting the preferences and needs of people who have long-term health conditions. The most obvious one is the need for flexibility. ONS has done quite a bit of surveying of older workers who have fallen out of the workforce, and one of the main things that they say would bring them back into work is increased flexibility.

I wrote a report on understanding older workers, and it was very inductive. I just looked at every way of working and cut it by age to see if there were any big differences. What really stood out to me was that the older you get, the more you value flexibility. Older workers were much more likely to work part-time, work from home and be self-employed—all these markers of flexibility. That is the big ask to keep people going, as well as an increased emphasis on the bit my organisation does, which is influencing organisations to have better occupational health and to look after people.

There is something policy could do, but it is interesting that the market is responding here. When we survey businesses and ask, “How are you responding to recruitment and retention challenges?” about a third of them say, “We’re now advertising more jobs as flexible”. Businesses are getting there and making work a bit better, but that is probably the best way to go.

When you ask people, “You are inactive—do you want a job or not want a job?” the only point of reference for those who say, “I don’t want a job” is the world of work that they have just left, which does not work for them. If the world of work was slightly different, that might not be the answer they give. They have just self-selected into that group that does not want to work because it did not work for them. There is definitely a role to create jobs that work for people with long-term conditions.

David Hale: This is absolutely the right question and worth looking at. If you look at conditions that mean people are less likely to be working in the 16-64 category, before Covid it tended to be 40% mental health, 40% MSK, so things such as back problems, and then about 20% other disabilities, from autism to people who were blind and had difficulty accessing the labour market. The two biggest were MSK and mental health, and they are often comorbid.

We have not been very good in this country at looking after the main working-age health conditions such as mental health. That was true even before the recent decline in the NHS targets. If you look at the NHS targets, there is a low representation of working-age conditions that keep people out of work. There is definitely a relationship between being in work and having positive mental health, or at least being able to cope positively with mental health. That is true, to an extent, for physical health as well.

You have to look at it on a number of fronts. How can the health service better reach people with those conditions and help them with work? One thing we have suggested is that the national institute for clinical excellence—NICE—guidelines are reviewed so that, when you look at conditions that are likely to leave people out of work, they are better able to advise primary care GPs and, through GPs, patients as well as employers when they interact with them.

At the moment, if you look at depression, anxiety and the menopause, the NICE guidelines do not even link to the sorts of help that the DWP has put in place to help people at work, such as the Access to Work scheme. That is a great scheme in formulation, because it is somewhere that somebody in work or trying to get into work can call. They can have a trained adviser who meets with them to advise them on how to manage their own mental health at the same time as being in work.

It is a great scheme, but the best way to get information about it to those who are becoming inactive now is through interaction with their GP, and it is not even in the NICE guidelines. There could be reforms, as well as better targets in general. How can they be better at the conditions that particularly affect people and their remaining in the labour market?

Lord Rooker: That was a very interesting and unexpected answer.

Q36            Lord Livingston of Parkhead: This follows on from a comment Jon Boys made about flexibility. With all of this, we are looking at what has happened in the last few years. We have seen a big change in the over-50s, who are becoming inactive. How do you get them back? Can you get them back? Maybe one of the answers is the flexibility point you made before.

Jon Boys: This may not be helpful, but to a large extent I think they are gone and they are not coming back. I found a nice line in a report the IFS had written about retirement in the 20th century, and they said that the recessions of the early 1980s and 1990s saw a big drop in the participation of older men in the labour force, so there is precedent. When there is a downturn, people can exit the labour market early, and they are generally quite difficult to get back in.

If the pandemic had not lasted the amount of time that it did, we may not have had this scarring, but we all lived through it. It kept going month after month. After 18 months there, habits have formed. It is much more difficult. Skills atrophy, so it is harder.

To an extent, I do not think it is there, but we have an ageing workforce and an ageing population. These are things that we want to work on anyway. Like I say, the DWP had written this report in 2017, Fuller Working Lives, because it was on the agenda. Before the pandemic, because the rates of employment for older workers were growing at a faster rate than the general workforce or those aged 16 to 50, it was seen as not really being a problem any more. The market was taking care of it.

Essentially, the labour market was just so tight that you were getting all these positive policy outcomes. Rates of employment for marginalised groups, such as the over-50s, workers with disabilities and women, were really increasing quickly, so maybe we took our eye off the ball. We need to think longer term about the ageing population and ageing workforce that we have, and do a bit more to get them back. There are two things: they are probably not coming back, but that does not mean we can rest on our laurels.

Lord Livingston of Parkhead: Do you think the burden falls on government, or do businesses have to do a lot more in terms of their offer? Businesses have tailored their offer to attract more people back from maternity or paternity leave. We think of this as being governmental, but is there a lot more that business needs to do?

Jon Boys: There is policy that probably influences people’s decisions or ability to exit the labour market early. Government has a role in thinking about how policy influences that, such as the freedoms on pensions in 2015 and the ability to draw that from 55. My organisation, whose members are in businesses, sees itself as having a humongous responsibility to help these people. For example, we have just set up a trust. The primary aim of the trust is to get better employment opportunities for marginalised groups, of which the over-50s is one. As the professional body for HR, we absolutely see this as the responsibility of business.

After the DWP’s 2017 Fuller Working Lives report, I remember that Business in the Community, a business-focused group, released at least three really good reports about how you can facilitate people to work longer. Obviously, government makes policies that influence, so it needs to think about that, but business is not shirking its responsibility. One of the positive things is that, because the labour market is so tight, businesses are having to think a bit harder about a better employment offer for non-traditional groups that they might not have recruited from before.

David Hale: I think businesses would be slightly taken aback by the view that government was interested in this question, at least until recently, and was taking a role, especially small businesses, which employ older workers, have done for a long time, and are often run by older workers themselves. They take the question incredibly seriously. I am not sure government has to date.

Flexibility is really important for long-term sick, those with caring responsibilities and older workers. There is no question any more, at least in small businesses, about whether you offer flexibility. The question is more the capacity from a management side to deal with fluctuating flexibility. It is one thing to say, “We now offer part-time working”; most small businesses will offer things such as part-time working. The question on long-term sickness is how you manage and cope day to day with somebody who may be in a large amount of pain which neither you nor they were expecting the day before. A lot of that can come back to line management, more than people management, capacity. That is true for larger businesses as well.

The flexibility question is in large part a line-management capability question. It is a job-design question as well, but people have got to grips with that. I am less pessimistic about whether we can get people back in work. There are reasons to not be pessimistic but there are things that are working, such as pre-employment training, self-employment, and especially job guarantee schemes. All of these things put together can move people back into the labour market, but it is going to take a big effort, and I think it should be business and government together.

Q37            Lord Monks: I think Mr Boys referred, in one of his opening remarks, to the fact that there are shortages and scarcity of workers across very many sectors. The health issues that we have been discussing so far this afternoon obviously apply pretty generally, but another cause of the shortages is the decline in European migration that we have seen since Brexit and, of course, the pandemic. We know that this has had disproportionate effects on particular sectors. Unlike the health issues, which are pretty general, these are rather more specifically targeted.

In your experiences, what has been the impact of changes to migration on the different sectors and occupations? Which ones would you highlight? As a supplementary, do you think, in fact, that there is any change taking place quite recently, and that a few might be coming back to the British economy, which is getting back to some sort of stability? “Stability” might be too strong a word but, as the Chair put it in his speech yesterday, it is not quite so chaotic as it perhaps has been in recent times.

Jon Boys: I anticipated this question. I used the Labour Force Survey and I looked, pre pandemic and post pandemic, at the proportion of every industry by different nationality. I thought that, if I did that, something would stand out. You asked me to highlight some industries. Looking at accommodation and food services, which is ONS-speak for hospitality, that was about 15% European national in January to March 2020, which is my pre-pandemic quarter. It is now about 10%, so that is a five percentage-point reduction in the proportion of EU nationals in that industry. Like I have said before, these labour shortages bite at the margins, so 5% is a large number. I have the chart and I will send it through. Nothing stood out too much in the other industries, but I could do with beefing it up using a bigger dataset.

Lord Monks: Did you cover care?

Jon Boys: Yes. It is quite a large industry. It lumps health and social care together. I have proportions here that I can send through. I did not see anything too different, but I could get a bigger dataset and tease out health from care and then get a better answer for you, so I will do that.

On the second question about whether people are coming back, I looked at some data on visas this morning, and I could see that that was taking off, but still at quite low numbers. About 300,000 work visas had been issued in the past year, but as a proportion of a workforce of 32 million that is not very much. The obvious policy solution is that, if you want to alleviate skills and labour shortages with immigration, you need to liberalise immigration policy, but it looks like, even in the absence of any particular legislation I can think of, the visa numbers are starting to go up. It looks like organisations are drawing more on non-UK nationals.

The Chair: What about the split of EU and non-EU nationals?

Jon Boys: I have not split, but I will try to do it if possible.

The Chair: That would be fantastic. That would be very useful.

Lord Monks: I was just interested in whether Mr Hale wanted to add anything from the point of view of small businesses in different sectors. The one that Mr Boys picked out was hospitality, and it was not so much of a problem in the other sectors. We talked about construction and care. Are these, in your experience, problem areas with migration?

David Hale: Construction and care certainly are. In fact, in our data, care is the most likely to report difficulties hiring in general as a barrier to growth. We asked this in early spring, I think. In terms of lower availability of non-UK workers, we came out very similar to Jon’s data. It was hospitality or food and drink services and then manufacturing. On our general numbers, about 13% of all firms we asked who had struggled to recruit cited lower availability of non-UK workers, and about 10% cited barriers in recruiting staff from overseas, such as cost and complexity. Hospitality was around 32% and manufacturing was 19%.

I would add that geography plays a huge role, which might explain the presence of hospitality. Both London and Scotland are very high in terms of citing the lower availability of non-UK workers. For example, we have many businesses in the Highlands that are really struggling to recruit. There are hotels that cannot serve anybody who is not staying there because they do not have the staff. That is geography interacting with their sector, so that is how I would put it.

Q38            Baroness Noakes: Mr Boys, you have referred a couple of times in your evidence to surveys that you have carried out of your members. I know the FSB carries out pretty regular surveys of its members. Of course, we have a lot of ONS data, and you have referenced quite a bit of it. I was really on a fishing expedition to see whether the surveys that you have been doing of your members have useful information that you can share with us for our inquiry. In particular, do those surveys shed any light on what is happening to businesses, and on the source and impact of labour shortages?

Jon Boys: We do a quarterly survey of HR professionals. There are about 2,000 people in the sample. The big problem, I suppose, is that 2,000 is not very big when you are used to playing with the Labour Force Survey, which is about 80,000, or the annual population survey, which is about 300,000. That means you can cut by everything. You can cut any of these charts by geographical region and industry, so it is broad-brush stuff.

The questions we ask are about recruitment and retention. We ask, “What are the challenges? What are the plans for the next three months?” For example, the ONS data that came out this morning at 7 am was for the year to August, but it is already October. We ask these questions to try to get slightly ahead of the curve and see if there are still going to be these shortages in the month ahead. The interesting thing is that, at the moment, everyone is always looking for the peak, and it just never seems to come. For example, today unemployment is getting even lower than it already was, and there is a mismatch between supply and demand for candidates.

We survey them. The most recent one does not add much more than the other data. Again, if we ask, “Are you going to increase or decrease headcount?” across all industries they say they are going to increase it. There are similar surveys at the Bank of England that say similar things. Some industries come out a bit higher than others on these measures of net employment balance. We also asked about hard-to-fill vacancies and it is not much more insightful. Education came out top last quarter, but that is probably partly to do with when that quarter was and recruitment to start the academic year. Transport and storage came up high, as well as administrative services, information and communication, and manufacturing, but, like I say, the differences between sectors are fairly marginal.

Baroness Noakes: I think we have seen those surveys. I was wondering if there were any other surveys that you did, or just that one.

Jon Boys: We did our survey quarterly. What is quite interesting is that a lot of other policy people say the data in the UK is really bad. Because it is all I have ever known, and because I make a living from doing it, I think it is quite good, but since the pandemic some quite interesting things have happened. We no longer want data that is three months old, because you are trying to drive an economy while looking in the rear-view mirror.

Some of the things I have seen that most excite me are, for example, companies that scrape data from jobs websites. They will scrape people’s CVs and job adverts to get an idea of the supply and demand for skills. Essentially, I am answering the question by saying I do not have much more, but there are definitely a few things in the market that provide more real-time data at the moment, which are quite interesting and I rely on a bit more. Another example is Google mobility data, where they are using data on people’s phones to work out how much economic activity is happening and how often people are going back to the office.

There are a few more interesting things. The ONS started using the real-time PAYE data, but our surveys are really good at just looking that little bit forward where the ONS data looks backwards, and giving the top-line take on that imbalance between supply and demand for candidates. That is all I can offer.

David Hale: To follow up on that point, I think we have quite good data in this country. It is just how much and how well we look at it. In terms of our data, we have a quarterly confidence survey, which looks at employment intentions and employment results from the next three months and the last three months.

In terms of the stuff we have been talking about today, we did a big 1,000-plus small business survey specifically on disability and health, both from a self-employment perspective and from the perspective of employers. That found a few interesting things, such as that disabled entrepreneurs who were employers were 30% more likely to be employing somebody who was disabled. Earlier in the year, we also surveyed quite extensively on skills, which was where some of the sector data came from. Whenever we survey, we always supplement it with focus groups or structured interviews. That sort of thing is what we usually do, and it sometimes teases out some of the detail.

If we look at the visa scheme, often the conversation is just about numbers, but there is also a usability question. We know that very few small firms are going through the cost and complexity of applying for what was tier 2 and what are now skilled worker visas. We know the official costs are more than £3,000, but the actual cost when you are a small employer and you are looking at taking on somebody from overseas can be much more, because you want to go to law to check you are not doing anything wrong and that sort of thing. We have a lot of survey data, and I hope you get it, but we always try to round it out by talking to people and working out what the actual issues behind some of the numbers are.

Baroness Noakes: Is there anything specific around labour shortages?

David Hale: Yes, a few things. On migration, it is a problem: 10% of firms cite cost and complexity in recruiting staff from overseas. That leads us to think that the actual costs of skilled worker visas should come down. It also leads to our interest in the youth mobility schemes that the Government were talking about a couple of years ago, because that takes out the administrative element. In terms of the skills that people are looking for, we know from our survey data that it is not necessarily the degree-level skills that take a lot of the conversation. It is the A-Level or T-Level skills or GCSE-level jobs. That all comes from our data.

On disability, we talk about the Kickstart scheme and doing that for health reasons to provide a job guarantee, if you will, for people who are inactive and unwell. That comes from the work we did looking at our data on disabled employment and what could make people be more likely to come into the workforce.

Finally, the reason we are keen to talk about self-employment for people with disabilities is partly that we are advocates of setting up your own business and we want people to do that, but also that our data shows that people who have health conditions or are disabled are much more likely to employ disabled people themselves. To an extent, that is intuitive, but that is the reason why we talk about having a 100,000 target for increasing disability entrepreneurship alongside disability employment.

Q39            Lord Skidelsky: Given that the labour force is so tight and the cost of living has increased, why have wages not grown more? We have had evidence from the TUC that a tight labour market is expected to drive wage growth: “In reality, we are seeing real wages plummeting, and no clear link between labour market tightness and wage growthReal wages in July 2022 were £87 a month less than at their peak in 2008”. Why?

Jon Boys: I think that pay is rising very quickly. That is having spent quite a few years as a pay researcher in national bargaining where we were fighting over 1% and 2% pay rises; this was in the university sector. According to new pay data this morning, we have high nominal rates of pay, with total pay up by 6% across the economy, but obviously, if you factor in CPI inflation at 8.5%, it is a real-terms pay cut of 2.9%. Actually, I think that pay is rising a lot; inflation is rising a lot more.

Lord Skidelsky: Real wages are going down.

Jon Boys: Yes. It is slightly unfair to say that wages are not rising a lot. The Bank of England tried to break down wage growth and what is driving it, and it says that inflation expectations are the bigger part, more than tightness, so there is something in that idea that the tightness is not driving it. I already mentioned that the IFS has a nice chart of the growth in vacancies against the growth in pay, and there is no relationship there. We would all expect a much tighter relationship between a really tight labour market and rising wages. It depends which way you look at it, but the shortfall between inflation, or the growth in prices, and the growth in pay suggests it is not growing enough.

The important thing to remember is that, as that gap between the two persists over time, the value of real pay starts falling, and that is what we saw after the financial crash. Even this morning, it was reported that the difference was 2.9%, and that was not as big as the difference last month, which was 3%. I thought, “Never mind the absolute difference month on month”, it is when you have six months of a 1.5% gap between prices and wages that you are in trouble. It is that sustained gap between the two that will do the damage over time.

Lord Skidelsky: Yes, and do you have an answer to that?

David Hale: Pay is certainly rising in nominal terms, but that does not mean it is keeping up. Pay is constrained by the other costs that we are seeing businesses deal with. Small firms feel they are at the limit of where they can raise prices to. Shortages are not helping firms’ abilities to raise wages.

Look at what is happening with a lot of restaurants at the moment. I do not know if people have noticed, but a lot of restaurants are opening for fewer hours. They might get into a cycle: it is more of a struggle to cover their overheads; they cannot open for as many hours; they cannot bring as much money in. Their energy bills are going up. Pay is going up in nominal terms and, from the perspective of the small business, people will not pay that much to go to a restaurant, so they cannot increase pay much.

That said, for the last three years increasing pay has been the biggest response to struggles in recruitment. You are starting to see businesses looking at other things, such as wider parts of the benefit package. You are starting to see people recruiting through new channels. There has been a lot of disruption to the normal channels of recruitment through Covid and through working from home and social distancing. There are new ways of recruiting, but pay is not going up any more than it is, in large part, because costs are going up. Shortages are making it more difficult for a business to keep its margins. We will see how that changes. It might change quite rapidly.

Lord Skidelsky: It is alleged that the big difference from the 1970s is that unions are much weaker, and you therefore do not have cost-push inflation. Would you accept that? Therefore, the decline in real wages is basically due to the labour laws that were passed in the 1980s.

David Hale: An interesting aspect of the churn we are seeing is that we are not necessarily seeing people move to higher-paid jobs. If you take chefing, which is often mentioned, a lot of chefs left to do lower-paid jobs that had different hours. Chefing has particularly antisocial hours because it is dinnertime every evening, often six days a week. A lot of people went from that to lower-paid work. That is true if you look at some professional services. I think there has been a preference change in a lot of people’s attitudes to work coming out of the pandemic, so I am not sure how pay-driven some of the job moves are. That might speak to part of it.

Lord Griffiths of Fforestfach: I take entirely the sympathy of Lord Skidelsky’s question. If you take, for example, the fact that everyone is now expecting a rebate on energy, and that food and energy are really key issues and are much more of some people’s budget than others, the consumer prices index is not necessarily a good indicator, if you are relating it to wages, of real wages. I just wonder about things such as the measurement problem or the non-wage benefits that you might have in employment, which an employer could give to make a job more attractive to you without it being an explicit increase in money wages. To what extent are these factors working? The market may be working in a way that we traditionally have not sought to get data on. Therefore, we have an apparent conundrum, but things are happening in reality.

Jon Boys: It is difficult for me to respond, because you have articulated it really well. I think that is exactly what is going on. That is from my point of view representing the HR profession, where people are telling me they are doing more on the job quality part to try to get people in.

When we survey people, we ask, “What are your responses to recruitment and retention challenges?” Raising wages has been falling down the rankings: 41% say they are upskilling existing staff; 35% say they are advertising more jobs as flexible. These are qualitative dimensions to the world of work. The interesting thing about some of the other perks and benefits you have is that, pound for pound, they put money in your pocket, where you are using your salary sacrifice more efficiently. Some of them are almost as good as pay rises. I agree. I think companies are working a lot harder.

I wrote a report last year on job insecurity. What was quite interesting was that, when the labour market is nice and tight, and unemployment is low, you see all sorts of really interesting benefits that you might not necessarily measure. You see people who are less likely to be in part-time work because they cannot find a full-time job. That is a really good example of a qualitative dimension of an increase to worker welfare in the economy that we are not necessarily registering. Pay is so fungible and you can count it, but I think there is something massive in that, and we should probably try to quantify that qualitative element of good-quality work.

At the CIPD we survey 5,000 workers every year and we have a good work index. We are trying to get our finger on that because, essentially, we cannot find any administrative data that does it, so we go out and survey ourselves, but I think you are on to something.

Q40            The Chair: I am going to ask the final question, if I may, and it actually begins with a point that Mr Boys started off with. I think I am right in saying that you said that, within those who are saying they are inactive, the greatest increase is in people who are not wanting to work. Are we seeing evidence of people re-joining the workforce because of rising cost of living pressures? Is there data to back that up and, if so, does that data reflect the socioeconomic background of those individuals?

Jon Boys: I will give a quick answer. No, I cannot really find any evidence of it. Someone said to me recently, “It looks like the number of people over the age of 65 in employment has increased”, and I am not sure if that is just demography. People who were 64 last month are now 65, and they still have their jobs. The important point to note is that the worst of the cost of living crisis is yet to hit, so it remains to be seen. That may suck more people into work.

David Hale: As of yet, we are not seeing any weighty indication that people are re-joining. I worry about inactivity, especially around health. At whatever age it happens, the big problem with it is that, once somebody is out of work, they can find it very difficult to get back into work. Again, that is why we talk about Kickstart for health and things like that, just because of the scarring possibilities. The longer someone is out of work, the harder they will find it.

The Chair: We have asked a lot of questions. That is it from us, so thank you very much indeed to both of you for your time. It would be great if there is anything you want to send in from the surveys to which you referred, in particular the work you have done, Mr Boys, on trying to encourage people over 50 back into the workforce. It would be really interesting to see that as well. Thank you both very much.