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Saturday, Jul 05, 2025

UK launches multi-billion pound package to coax people back to work

UK launches multi-billion pound package to coax people back to work

British finance minister Jeremy Hunt on Wednesday launched a multi-billion pound package aimed at getting people back into work by expanding access to childcare, reforming pensions and overhauling the welfare system.
A depleted pool of workers, the result of a combination of factors including a rise in early retirement, long-term illness and migration trends, means Britain's post-COVID labour market recovery is trailing that of international peers.

The government and the Bank of England fear the tight jobs market is in turn fuelling inflation and holding back growth.

"Today, I bring forward reforms to remove the barriers that stop people who want to from working," Hunt told parliament in a budget statement.

In an attempt to keep older workers - primarily doctors - from retiring early to avoid pensions taxes, Hunt announced a surprise decision to scrap a 1.1 million pound ($1.32 million) cap on the tax-free pension pot an individual can accumulate.

He also raised to 60,000 pounds the amount people can save tax-free each year in their pension pots.

Acknowledging that childcare costs - high by international standards - were holding the economy back, Hunt said working parents with children over nine months old would be entitled to 30 hours of free childcare a week by Sept. 2025, expanding the current scheme which only applies to three- and four-year-olds.

In what he described as "the biggest change to our welfare system in a decade", Hunt also said disabled benefit claimants would be able to seek work without losing financial support.

But benefit claimants able to work but choosing not to would face more rigorous sanctions, he said.

Taken together, the cost of the pensions, welfare and childcare reforms would rise from 1 billion pounds in 2023/24 to 7.1 billion pounds by 2027/28, according to the independent Office for Budget Responsibility, with childcare making up the large majority of that total.

The pensions reform has led to accusations that the Conservative government is primarily helping higher earners, who make up the party's traditional support base.

The opposition Labour Party leader Keir Starmer said the pension tax change would be a permanent tax cut for the richest 1% and queried whether parents would be able to access the free childcare hours.

"The truth is our labour market is the cast-iron example of an economy with weak foundations," he said. "Our crisis in participation simply hasn't happened elsewhere – not to this extent ... We need a wider reform agenda."

The government said that to help tackle labour shortages it would expand Britain's business visa offer and add five construction occupations to a shortage list, making it easier for businesses to sponsor an overseas worker.

($1 = 0.8319 pounds)
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