Amidst the UK's labour shortage, there has been a rise in part-time working. Why is full-time employment falling out of favour and how can the Chancellor address this?

It is well documented that the UK has a labour shortage. There is no agreed consensus on the cause of this shortage; with early retirement, post-pandemic economic inactivity and Brexit all floated as potential contributing factors. What is surprising is that, despite this labour shortage, the UK’s workforce is increasingly opting for part-time work.

There were almost 8.3 million part-time workers in the UK in the three months to December 2022 compared with 8.1 million in November 2021. Many of these part-time workers claim that working full-time is no longer a financially viable option.

The Chancellor’s current focus appears to be tempting retirees to return to work. However, there is an argument that looking into the reasons behind the growing uptick in part-time work might also prove to be a valuable exercise in addressing the labour shortage.  

Universal Credit

The cost of living crisis has seen more households relying on Universal Credit to supplement their income or assist with particular outgoings such as housing, fuel and bills. Earnings and other sources of income are taken into account when assessing Universal Credit eligibility which means that if monthly earnings or hours worked exceed a certain threshold, the Universal Credit award will be reduced. So, for some workers, the desire to work full-time does not outweigh the risk of losing or changing their Universal Credit eligibility.  

Parents of young children are amongst those claiming Universal Credit, with around 2.1 million households with children claiming Universal Credit as of November 2022. Generally speaking, the way Universal Credit payments for childcare are structured means that parents must pay their childcare costs upfront and then claim them back.  So, for cash-flow reasons, it is often more attractive to be in employment than not.

The question then arises, why not full-time employment?

One possible answer is that Universal Credit has a limit on the funds that are available for childcare (currently up to £646 per month for one child) which means that some parents reach a point where paying for childcare on top of the Universal Credit contribution exceeds the financial benefit of working additional hours. 

In the Spring Budget, the Chancellor announced that the £646 monthly cap on childcare for Universal Credit claimants is due to increase to £951 and that this funding will be provided upfront rather than parents needing to cover the costs themselves and claim the amount back. Whilst this additional  support may not be enough to encourage all parents into full-time employment, it is likely to make at least some difference and allow parents who claim Universal Credit to take on more hours. 

Childcare

Universal Credit is not the only support available to parents with young children. The Government offers various schemes to assist parents of young children, including 30 hours of free childcare per week for three and four year olds during term-time. 

So why are more working parents opting to work part-time?

As with Universal Credit, the other financial assistance schemes are limited so many parents get to a point where the cost of childcare outweighs the additional salary of full-time employment. 

The other issue is the administrative burden of applying for financial assistance with childcare. Some parents have complained that the schemes are needlessly complicated, which can make applying for support off-putting.

Charities and organisations that support working parents have been vocal about the need for more comprehensive and affordable childcare solutions and relief for those with caring responsibilities. Earlier this month PwC released its new findings in its annual Women in Work Index. The findings show a dramatic rise in childcare costs since 2015 alongside a trend of income growth slowing down. In the absence of affordable childcare many parents of young children (predominantly women) have found that working part-time and paying for partial childcare is the most cost-effective solution. 

In the Spring Budget, the Chancellor announced the Government’s plans to extend the weekly offering of 30 hours of free childcare to younger children. The first stage will see working parents of two-year olds eligible to access 15 hours of free care from April 2024, with an extension to nine-month olds from September 2024.  By 2025, parents of all children under five will be able to receive 30 hours of free childcare per week. 

The Chancellor’s hope is that this extension of free childcare will encourage more parents, especially women, back into full-time work. Whilst the additional free hours will not necessarily address the cost to childcare providers (many of which have been struggling since the start of the pandemic) it will assist working parents and enable them to return to work or take on more work. However, given that these changes are not immediate and will be rolled out in stages over the next couple of years, it is unlikely that we will see a noticeable difference in the short-term. 

Commute

Hybrid working has become the new normal but some employers are actively encouraging their staff to return to the office. This is even reflected in job listings which showed a definite increase in the number of fully remote roles in 2021. By January 2022 almost 20% of all UK jobs advertised were remote but in contrast, the percentage of fully remote jobs advertised now stands at just above 10% as workers are increasingly being enticed back to the office.

Given that the pandemic saw record numbers of workers leave cities in pursuit of homes in more rural areas, the commute to the office is now more important than ever. 

Over the past 12 months rail passengers have been affected by unreliable service as well as disruption due to industrial action. This month, despite the widespread dissatisfaction with rail services, train fares in England and Wales rose by up to 5.9% in what is the largest fare rise for a decade. 

Many workers are now weighing up whether commuting to the office multiple times a week is still the best option. With remote positions now more difficult to find, some workers are opting to work part-time so that they can limit the time and money spent on their commute.

The Government has not yet announced any plans to assist commuters with rising rail fare but steps are being made in other areas. The £2 bus fare cap on certain bus services has been extended until June 2023 and the fuel duty cut for both petrol and diesel of 5p per litre has been extended until April 2024. So even though commuting by train is not as attractive as it once was, there are alternatives that might encourage people back to the office more often.