Three priorities for a Budget that boosts living standards

Blog posts

24 Nov 2025

Naomi Clayton, Chief Executive Officer

As speculation intensifies around how the Chancellor will close the fiscal gap, attention is also being paid to what measures will be included in Wednesday’s Budget to ease cost of living pressures. Alongside fiscal constraints, the backdrop for the Budget is one where living standards remain under pressure, economic inactivity is stubbornly high, and employers continue to struggle to recruit and retain the people they need. To raise living standards, the government should fast-track supply side reforms that support more people into work and to remain in work, create skills and reskilling pathways and boost economic growth.

This month’s labour market figures underscored the urgency of these reforms. Payrolled employment has fallen in 11 of the last 12 months and the unemployment rate has increased to 5%, the highest rate in four years. Economic inactivity remained largely unchanged in the last quarter, while the number of people who are economically inactive due to long-term sickness is a record high and the disability employment gap has increased. Overall, there are 2.1 million people who are outside the labour force but want to work. To boost employment and living standards, the Budget needs to focus on three key areas for action: youth employment, health and disability support, and employer engagement.

Ensuring every young person can access the support they need

Nearly a million 16-24-year-olds (946,000) – 1 in 8 young people – are out of work and not in any form of education or training. Young people have been disproportionately affected by the recent rise in employer National Insurance contributions, as they are overrepresented in low-paid, entry-level roles and sectors (namely retail and hospitality) where higher costs have hit hardest. Over the last year, the decline in payrolled employees aged under 25 has been nearly twice as fast as the overall average and, after an initial recovery, the number of young people in payrolled employment has dropped below pre-pandemic levels.

The longer-term picture is one where the proportion of young people who are NEET remains higher than pre-pandemic levels and there has been a significant increase in the proportion of young men who are NEET and economically inactive. The proportion of 18–24-year-old women who are NEET and economically inactive is at a similar level to where it was 10 years ago (having fallen and then increased) and the number of 18–24-year-old men who are economically inactive has risen by over two thirds. This means that there are now more young men who are NEET not participating in the labour market than there are seeking work (unemployed).

There has also been a significant shift in the reasons young people are not participating in the labour market over the past decade, with fewer citing caring responsibilities and an 80% increase in young people who are economically inactive due to long term ill health.

Economic activity status of young people who are NEET, 2001-2025

Source: IES analysis of Labour Force Survey, 2025

The last year has seen a welcome focus on youth employment, with the extension of the eight youth trailblazers as temporary 'test and learn' initiatives, along with the nationwide roll out of Youth Hubs and the more recent announcement of a job guarantee for young people who have been on Universal Credit for more than 18 months. 

The government now needs to widen and scale up support to ensure that every 16-24-year-old has access to quality job and training opportunities through the Youth Guarantee. The Guarantee is currently focused on 18-21-year-olds who are on Universal Credit but nearly half of young people who are NEET are not on benefits and many 22-24 -year-olds face similar challenges to younger people who are NEET. The government needs to work with employers to create more high-quality opportunities for young people, including through the Growth and Skills Levy. But it should take a cautious approach to minimum wage increases, given the current economic context and the disproportionate impact rising employment costs has had on young people over the past year.

Supporting more disabled people and people with long term health conditions towards and into work

A record 2.8 million people are out of work due to ill health and disabled people are more than twice as likely to be out of work compared to non-disabled people. Previous IES analysis has shown that growth in worklessness has been driven by people staying out of work rather than leaving it. Three quarters (74%) of the total increase in economic inactivity between 2019 and 2024 was accounted for by people who last worked four or more years ago or who have never worked.

The government must focus on providing more people with personalised employment support to address stubbornly high levels of worklessness and inequality. Earlier this year, the government committed to investing in additional employment, health and skills support from 2026-27 to help people start or stay in work, scaling up to £1 billion a year by 2029-30. The government should accelerate this investment, building on existing support from WorkWell, Connect to Work and economic inactivity trailblazers, and enabling local partners to roll out effective initiatives.  

Economic inactivity by reason, 2015-2025

Source: IES analysis of Labour Force Survey, 2025

Working with employers to create more inclusive and sustainable employment opportunities

Alongside stubbornly high levels of economic inactivity, sickness absence is at its highest level in 15 years, and it’s projected that a further 600,000 people in the UK could leave the workforce and become economically inactive by 2030. Our recent analysis also shows that there could be a 5% increase in cases of work-related ill-health by 2035, with 1.3 million more days lost each year. It is vital that the government works closely with employers to address these challenges.

The Keep Britain Working Review proposes to place employers at the heart of the solution with a focus on creating healthier and more inclusive workplaces, defining best practice, creating a system of affordable and effective workplace health support and establishing a new Workplace Health Intelligence Unit to support improvements across the system.

The government must commit funding and act swiftly to implement the Vanguard phase, leveraging the momentum and support secured from employers and building a strong evidence base and piloting Workplace Health Provision. The aim should be to scale rapidly with a focus on getting the incentives right, ensuring that expectations for employers are clear and support mechanisms effectively reach and engage them.

The government has set out some bold reforms. The Budget must accelerate progress, scale what works and give employers the confidence to invest – and create lasting improvements in living standards.

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Any views expressed are those of the author and not necessarily those of the Institute as a whole.