The Chancellor, Jeremy Hunt MP, today set himself the task of delivering a ‘back to work’ Budget capable of returning the UK economy to long-term growth by tackling workforce shortages via substantial reforms to employment policies. As expected, the big headline grabbing announcements included an expansion in free childcare provision to enable more parents to return to the labour market, major reforms to support for those with long-term health conditions and steps to further ‘toughen up’ welfare sanctions for those out of work and in part-time work.

Although many of these steps had been leaked to the media over the weekend, now that we are armed with the Treasury Red Book we can see more of the detail as to what they entail, and where some of the big outstanding questions lie.

Significant expansion of childcare support by 2025

The major announcement in today’s Budget was the expansion of 30 hours of free childcare to children older than nine months if both parents are in work. This is a welcome extension of childcare support because it eliminates the existing gap between the end of parental leave and the start of subsidised provision that currently begins for some children aged two and for all children from age three. It will enable women in particular to take up longer hours upon their return to work. However, the full rollout of these changes will only be complete by September 2025. Parents are already facing financial pressure due to childcare costs and this announcement will do little to boost parental employment in the short-run.

For parents on Universal Credit who are moving back into work or looking to increase their hours, the Government raised the maximum amount of childcare support that can be provided while also announcing that these payments will now be made up-front. Under the current system, parents often enter into a cycle of debt to cover childcare costs upfront or avoid taking up the support altogether. Therefore, this change should boost take-up of Universal Credit childcare support and help support parents in work.

The major announcement in today’s Budget was the expansion of 30 hours of free childcare to children older than nine months if both parents are in work. This is a welcome extension of childcare support because it eliminates the existing gap between the end of parental leave and the start of subsidised provision that currently begins for some children aged two and for all children from age three. It will enable women in particular to take up longer hours of employment upon their return to work.

Parents on Universal Credit who are moving back to work or looking to increase their hours, the Government raised the maximum amount of childcare support that can be provided while also announcing that these payments will now be made upfront. Under the current system, parents often enter into a cycle of debt to cover childcare costs upfront or avoid taking up the support altogether. Therefore, this change should boost take-up of Universal Credit childcare support and help support parents in work.

While these changes will undoubtedly ease the financial burden on parents, the impact on childcare providers remains to be seen. Providers face significant financial pressures and workforce challenges as current Government funding does not reflect the actual costs of providing free hours. The Government has announced an increase in funding to providers of about 30% (£24 million this year) and introduced a £600 incentive payment for those who sign up to be childminders.

It is unclear at this stage whether these measures will be adequate to put the sector on a more sustainable financial footing. If the additional funding fails to reflect the increased costs of the expanded provision, then providers will face worsening cost pressures which can end up restricting the supply of places even further. In light of these pressures, the Government’s plan to stagger the rollout of the extended offer is sensible.

Major reforms for those with disabilities and long-term health conditions

The Health and Disability White Paper published at the Budget today sets out the Government’s intention to scrap the Work Capability Assessment, which has proven an ineffective way of gauging eligibility for disability related benefits payments. It confirms that the existing regime will be scrapped, but that legislation to do so won’t be introduced until the next Parliament, with reforms then rolled out to new claimants only from 2026/27 onwards.

Although the prospect of reform in this area presents opportunities, serious questions remain about how eligibility for additional financial support for disabled people will be determined without a WCA, given it plays a valuable role in helping to cover disability related costs for those out of work, and ensuring that work pays for disabled people who need to work part-time.

In addition, as currently framed in the White Paper, conditionality for those on out of work Universal Credit risks being left at the discretion of the Work Coach, without sufficient involvement from health professionals.

It is welcome though that alongside these changes the Government intends to introduce a new voluntary employment support scheme for those with disabilities to provide up to £4,000 per year, per person in terms of training and support for those with long-term conditions who want to work.

A host of other employment support measures were announced

Alongside the reforms targeted at those with disability and ill-health, the Chancellor focussed on boosting occupational health support in general. He unveiled a package of £400 million to increase the availability of mental health and musculoskeletal support to those in work and aims to expand funding towards the small business subsidy pilot for occupational health services.

Finally, the Government focused on boosting employment of older people through a series of measures. These include enhancing the Job Centre Plus midlife MOT offer which provides financial health career guidance for Universal Credit claimants aged 55 and over, expanding Skills Bootcamp places and introducing “Returnerships”.

Increased threat of sanctions for those on Universal Credit who are out of work or working low hours

Alongside these reforms the Chancellor promised to further ‘toughen up’ welfare sanctions for those out of work and working part-time. Specific changes include increasing work search requirements for a greater number of Universal Credit (UC) claimants, introducing Work Coach interaction with second earners, and raising the requirement for working hours from the equivalent of 15 hours at the national minimum wage level, to 18 hours.

This means that those on UC without health conditions who are looking for work or a working a low number of hours will be subject to greater conditionality and potentially sanctions over the coming period, despite evidence that sanctions can have adverse effects. Before introducing any further welfare sanctions, the Government should follow the instruction of the Information Commissioner and publish its own long overdue review into whether such measures are effective in encouraging people back in to sustained employment.

Expected impact of the Budget on inactivity

So, will these measures add up to a significant increase in labour market participation?

Ultimately many of the long-term reforms announced today will have a significant bearing on the future of the UK labour market. However, given the projected population growth over this period, the OBR’s forecast of an additional 110,000 people in employment by 2027 suggests that the Budget will have only a marginal impact on getting those over 16 back into the labour market. This is compounded by the length of time it will take for interventions announced today to be introduced, while increases to welfare sanctions could cause significant additional harm to vulnerable households in the meantime.

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