The UK’s workforce is shrinking at the fastest rate in four decades, costing the economy £25 billion a year and adding £16 billion of fiscal pressure to the public finances, reports The Times (paywall), citing a study by the Commission on the Future of Employment Support and the Institute for Employment Studies.

The two-year analysis into the state of the workforce found that 800,000 people have fallen out of the labour market since the Covid-19 pandemic, the largest employment drop since the 1980s, marking out the UK as having one of the worst economic inactivity problems in the developed world. The findings also said the 1.5% decline in employment since the pandemic has cost the economy £25 billion a year and added fiscal pressures worth £16 billion a year on the public finances through lost tax revenues and higher welfare payments.

Tony Wilson, director of the Institute for Employment Studies, said about 90% of the UK’s missing workers were people who had not worked for the past four years or ever entered the labour market, rather than an exodus of people leaving the jobs market since 2020.

The cost of the reforms to change the role of job centres and help fund local employment services would amount to an additional £150 million a year throughout the parliament, the commission said. The potential benefits could reach £300 million for the public finances and £750 million a year for the economy as a whole if 5% more people end up accessing employment support and 3% more achieve outcomes.