Let’s cut to the chase. The Budget has arrived and we need solutions to Britain’s spiralling unemployment levels — fast.
Incentivise Hiring
One way to reduce unemployment is to incentivise businesses to hire new staff. The theory goes that the more candidates firms employ, the fewer the people who are out of work. Sounds reasonable. Arguably, the most obvious way to do this would be to reverse Labour’s recent hike in employers’ National Insurance contributions. Reeves’ £25bn jobs tax has effectively made it more expensive for businesses to hire people, forcing firms of all sizes to make staff cuts or accept fewer candidates. No wonder the jobs market is shrinking.
The Office for National Statistics reported that the number of job vacancies in the UK fell for the 39th consecutive period this Autumn. I have certainly noticed a steep decline in the number of vacancies in the journalism sector, whilst 90,000 hospitality jobs have been lost since the NIC rise. How can people searching for work even begin to hope to find a job if there aren’t enough roles to apply for? In a world where AI is already replacing thousands of workers and causing noticeable layoffs, the chancellor’s decision has simply driven more people into unemployment.
‘Everyone except Rachel Reeves seems to have woken up to the fact that forcing small businesses to pay more in tax for giving people jobs would damage job opportunities,’ said Lib Dem Treasury spokesperson Daisy Cooper.
Carrot or Stick?
Another solution to rising unemployment is often referred to as the ‘carrot or stick’ approach in Economics. Instead of targeting businesses, policies focus on the working-age population, chiefly how employment can be made more attractive to them, or unemployment less attractive. A potential ‘carrot,’ or reward, for those joining the workforce would be to increase wages. But since Starmer’s government recently raised the National Minimum Wage to £12.21 an hour, and introduced 30 hours a week of free childcare for parents looking to return to work, much of the public discourse now revolves around ‘sticks.’
The main stick, or punishment, for those who are unemployed is to cut benefits. This method would essentially make it less affordable for people to survive on Universal Credit or Personal Independence Payments alone, forcing claimants to search for work and, in theory, bag a job. But the reality isn’t quite so simple. A few months back, the government proposed welfare reforms that would tighten the eligibility criteria for certain benefits and save £5bn a year by 2030.
This may encourage some claimants to return to the workforce — those who are likely to settle for low-paid, part-time roles with little job security and a high risk of being laid off. However, what about those who are furthest from the workforce, or people with debilitating conditions, who, no matter how much you cut their benefits, would still be unable to work? They are immune to both the carrot and the stick.
Welfare Conundrum
You’ve likely already encountered numerous articles either in favour of or staunchly against reforming the welfare system. One thing we can all agree on, however, is that the UK’s benefits bill is ballooning. The welfare system is forecast to cost the state £316bn in 2025/26, making up nearly 24 per cent of the government’s total expenditure. The number of people claiming benefits without having to look for work reached a record high of 4 million earlier this month. Simultaneously, the UK’s sickness bill is costing employers £85bn a year because 2.8 million people are off work due to long-term illness.
With reports predicting an impending welfare crisis, it is easy to see why there has been so much uproar on both sides of the debate. Some argue that refusing benefits to those with the mildest forms of ADHD, anxiety and depression would save £7.4bn by 2029/30. Others assert that denying access to life-saving benefits would simply push more people into destitution, not into a job. It is a conundrum. However, new research could help us to better navigate this complex matter.
A 2025 study by the Joseph Rowntree Foundation (JRF) found that ‘carrot or stick’ policies are largely ineffective for people with disabilities, musculoskeletal issues, mental disorders and little to no educational attainment. It also acknowledges that those who have been exposed to Adverse Childhood Experiences, such as the homeless, care leavers or victims of domestic abuse, will be further from the workforce than others. With that in mind, the JRF suggests several passive and active labour market policies to reduce unemployment:
- Ensure that everyone is equipped with the right skills or qualifications needed to get a job
- Look to countries like Australia, Japan and the Netherlands, which incentivise their firms to adopt health and well-being initiatives, to tackle Britain’s sickness bill
- Work closely with local businesses and communities to assess the causes of unemployment unique to that region, instead of adopting a nationwide, one-size-fits-all strategy to tackle joblessness
- Offer personalised, tailored support to jobseekers, so that barriers to work can be dealt with head-on
- Improve digital and physical infrastructure to facilitate connectivity. Make sure that every town or city has somewhere to host jobs fairs, networking events and meetings between jobseekers and work coaches. Otherwise, it will be difficult to reach those most at risk from disengagement in the workforce
- Don’t freeze or cut benefits for young people. This could increase their risk of becoming homeless, which pushes them further into hardship and further from the workforce
- Introduce schemes such as Connect to Work, which aims to place work coaches in GP surgeries to get 300,000 people with poor health back to work, and Trailblazers, which would allocate £45m in funding to eight mayoral authorities to support young people not in employment, education or training
Truth Hurts
Tackling unemployment will require us to confront some hard truths. Mainly, the fact that it is going to cost money. But as the JRF highlights, our ‘current political and fiscal climate suggests a limited appetite for policies with high total costs,’ even though they will be more successful and cost-effective in the long run.
Politicians are too scared to increase taxes and spending for fear of infuriating voters. And voters feel betrayed by politicians because taxes are already at their highest rate in 70 years, and the cost-of-living continues to bite. Regardless, combating joblessness will require funds. And the funds are going to have to come out of someone’s pocket, and soon. The only question is: whose?
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