Andy Burnham has inherited a British economy where the headline numbers appear stable — but beneath the surface lies a problem that could determine the success or failure of his premiership.
Unemployment may have settled at 4.9 per cent, but a far deeper challenge remains: millions of working-age people are still outside the labour market altogether.
The new Prime Minister has promised a government focused on growth, devolved power and improving living standards. Yet economists and business advisers warn that those ambitions will be difficult to achieve unless Britain can tackle the stubborn rise in economic inactivity, which remains at 21 per cent among people aged 16 to 64.
The warning from leading audit, tax and business advisory firm Blick Rothenberg is that the debate cannot be limited to welfare reform alone.
The tax system itself, they argue, has become part of the barrier preventing people from returning to work.
“Returning to work should always feel financially worthwhile and straightforward,” said Elisa Sofocli, a partner at the firm.
“But for too many people, uncertainty around tax, National Insurance, childcare costs and the interaction with benefits can act as a barrier.”
The challenge facing Downing Street is complex.
Those classed as economically inactive include students, carers, people with long-term health conditions and disabled people. Not everyone in this group is available or able to work.
But for those who could return to employment, the financial calculations involved can be daunting.
Moving into a job can mean navigating changes in benefits, childcare costs and tax obligations — creating what businesses describe as a “cliff edge” where taking employment does not always deliver the expected financial improvement.
For Burnham, who has placed economic renewal at the centre of his political project, this represents a major test.
A larger workforce would not only ease pressure on employers struggling to recruit but would also strengthen public finances through higher Income Tax, National Insurance contributions and consumer spending.
The stakes are particularly high among younger workers.
Youth unemployment has become one of the most worrying indicators in Britain’s labour market, with unemployment among 16 to 24-year-olds reaching 16.4 per cent, more than three times the rate of the wider workforce.
Periods of unemployment early in a career can have lasting consequences, reducing future earnings, limiting skills development and damaging productivity.
“The young are often the first to feel the effects of a slowing labour market,” Sofocli warned.
For businesses, the solution may require more than traditional employment schemes.
Targeted incentives to encourage companies to hire younger workers, including National Insurance relief or tax incentives linked to apprenticeships and training, could reduce recruitment costs while helping rebuild Britain’s skills base.
The new government’s devolution agenda could also offer an opportunity to experiment.
Regional leaders often have a clearer understanding of local labour shortages, skills gaps and barriers preventing people from entering work. Giving them greater control over employment support and tax education could create more tailored solutions than a one-size-fits-all national approach.
But the broader message for the Treasury is clear.
Britain cannot tax its way to growth while leaving millions of potential workers on the sidelines.
The challenge facing Burnham is not simply reducing welfare spending or increasing tax receipts. It is rebuilding the connection between work, reward and opportunity.
The Prime Minister’s economic model will ultimately be judged not by how much money the government collects, but by whether it can create an economy where more people feel able — and financially motivated — to participate.
For a government promising a new era of growth, the missing workforce may be the biggest opportunity hiding in plain sight.
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