LONDON—On Wednesday, British Finance Minister Jeremy Hunt unveiled a multibillion-pound package to increase access to childcare, reform pensions, and overhaul the welfare system in an effort to get people back to work.
Britain’s post-COVID labor market recovery has lagged behind that of its international peers due to a depleted pool of workers caused by factors such as an increase in early retirement, long-term illness, and migration trends.
It is believed by the government and the Bank of England that the tight labor market is contributing to rising prices and slowing economic growth.
“Today I bring forward reforms to remove the barriers that stop people who want to from working,” Hunt said in a budget statement to parliament.
Hunt announced a surprising decision to scrap a 1.1 million pound ($1.32 million) cap on the tax-free pension pot an individual can accumulate in an effort to deter older workers, particularly doctors, from retiring early to avoid pensions taxes.
He also increased the annual tax-free limit for pension contributions to 60,000 pounds.
Hunt stated that working parents with children older than nine months would be entitled to 30 hours of free childcare per week by September 2025, expanding the current scheme which only applies to children ages three and four. This is in recognition of the fact that high childcare costs — relative to other countries — were stifling economic growth.
It’s the “biggest change to our welfare system in a decade,” Hunt said, and it means people receiving disability benefits can look for work without worrying about losing their benefits.
Those who are eligible for benefits but refuse to work because they prefer to collect a check will be punished more severely, he warned.
The independent Office for Budget Responsibility estimates that the combined cost of pension, welfare, and childcare reforms will be 7.1 billion pounds by 2027/28, up from 1 billion pounds in 2023/24. The majority of this increase will be attributable to childcare costs.
The Conservative government has been accused of favoring its traditional support base—higher income earners—through the pensions reform. Keir Starmer, leader of the opposition Labour Party, argued that the proposed changes to the pension tax would amount to a permanent tax cut for the wealthiest 1 percent and questioned whether or not parents would be eligible for the free childcare hours.
“Our labor market is the living, breathing poster child for an economy on shaky ground,” he said. Our participation crisis is unique; nowhere else have we seen anything like it. Broader reforms are necessary.
It was announced that the government would make it easier for businesses to sponsor an overseas worker by expanding Britain’s business visa offer and adding five construction occupations to a shortage list. The value of one dollar in terms of pounds is $0.8319.
