Plugging the ‘Fiscal Black Hole’
How Investing in Disabled People and Carers can solve the UK’s Economic Challenges
As the Chancellor heads towards the Autumn Statement, our new analysis highlights that not supporting disabled people, carers and those with long-term health conditions into rewarding work is costing the Treasury £38bn annually - nearly twice the size of the ‘fiscal black hole’.
However, even by conservative estimates, investing in disabled people and carers could reveal a potential £20bn cumulative gain to the Exchequer by 2029.
Through newly analysed data, we highlight that ‘economic inactivity’ is primarily a disability policy problem, and supporting those who want to work, whether they are disabled people, carers or those with long term health conditions, can solve the economic challenges that the country currently faces.
Through our ‘Non-Friction Jobs Package’, we propose three policies to incentivise employers and reform the way job centres provide support:
1) The workplace: Super-deduct occupational health
We propose a 110% tax relief on occupational health services for two years, to drive investments into workers’ health and improve uptake in the sector.
Super-deductions will make the delivery of reasonable adjustments into a direct incentive for action.
We estimate £4.7bn annual spend in 2025 and 2026, including a subsidy for public sector employers, to generate a fiscal return of £2.50 to the Exchequer for every £1 spent over the program’s lifetime.
2) The tax system: Employer National Insurance incentives
Running from 2025 to 2027, this offers either a 50% deduction in Year 1 and a 100% deduction in Year 2 in employer NI contributions, or an exemption similar to the £5,000 Employment Allowance, for businesses hiring people who have been out of work for at least 6-8 months.
While we expect relatively low uptake due to existing skill gaps, we estimate that if 15% of the 700,000 - 1 million who are disabled or long-term sick and want a job are able to secure part-time or full-time roles during this period, the scheme could cost £0.5bn annually.
We project this incentive will deliver returns of at least £3.90 for every £1 spent, primarily through income tax and welfare savings.
3) The job hunt: The Social Outcomes Fund
We propose an £800 million fund to improve job searching and help up to 100,000 into work.
Current approaches provide no guarantees, and can often have a negative impact on the job seeker, despite huge taxpayer costs. Instead we propose that social impact investors provide upfront funding and only receive a return if more people are supported into long-term work.
This would transform the current system at job centres, which offer limited incentives to assist people with complex disabilities.
We estimate a 4-5 year program could yield £2.7 billion, with a return of around £4.30 for every £1 spent.
Carers, on average, face a sharper drop off when they leave the workforce. Disabled people, unfortunately, are often held back in their earning potential throughout their life.
In addition, health and social care is the sector where most of those who are long-term sick have worked (18%), suggesting a potential additional boost to the UK’s health workforce at a time of severe need.
Supporting disabled people and carers in work is not just a social justice issue, providing equality of opportunity and raising living standards, but it makes economic sense to improve the country’s finances.
These proposals outlined provide incentives for employers, and a new model for spending in the Department of Work and Pensions. We hope that they provide an opportunity to address the disability employment gap, to create a fairer, more prosperous society for all.