Hidden Unemployment: Breaking the Cycle of Ill Health and Welfare

11 September 2025

The UK is facing a welfare and unemployment challenge that is rarely acknowledged in public debate, but the numbers from the Department for Work and Pensions (DWP) are sobering. The latest StatXplore update (August 2024, published with a six-month lag) shows:

1.67 million people are officially unemployed claimants.
When expanded to include sickness and incapacity benefits, the real total has surpassed 6.5 million for the first time in history (DWP StatXplore, Benefit Combinations Dataset, 2024).

This is not just a welfare issue. It is an economic and wellbeing crisis that threatens the sustainability of public services.

The Geography of Hidden Unemployment

Welfare dependency is not evenly spread—it clusters heavily in certain regions, with striking disparities:

Blackpool: 27% of working-age adults on out-of-work benefits.
Birmingham: 25% (one in four in our second city).
Liverpool: 23%—levels not far from the 28% seen during the Great Depression of the 1930s. Some parts of Glasgow, Blackpool, and Grimsby now record over 50% of residents on out-of-work benefits (DWP MSOA-level data, 2024).

A Generation at Risk

The latest update also highlights a record 235,000 under-25s now claiming out-of-work sickness benefits. Research shows that once an individual is signed off for a year or more, the likelihood of returning to the workforce is minimal (OECD, Sickness, Disability and Work: Breaking the Barriers, 2010).

The waste of talent is profound—especially when young people who have never worked are placed onto long-term sickness benefits after only a brief phone assessment.

Beyond Welfare: The Disability and Sickness Surge

If we include Personal Independence Payment (PIP) and other disability-related benefits, the scale widens further: 11% of the UK’s working-age population is now on disability or sickness support.

This is a straight upward trend with no signs of slowing. The fiscal implications are immense: the Office for Budget Responsibility (OBR) has already forecast rising expenditure on welfare without clear reform (OBR Welfare Trends Report, 2023).

Why It Matters: Health, the Labour Market, and Fiscal Sustainability

A shrinking labour market due to ill health doesn’t just mean fewer workers—it restricts the government’s ability to raise revenue. With a smaller tax base, government borrowing capacity is constrained. That, in turn, forces spending cuts to essential services such as the NHS, education, and social care.

This is the dangerous cycle we now face:

Ill health → reduced workforce participation → weaker economy → less fiscal headroom → cuts to services → further ill health. Unless we intervene, this self-reinforcing loop risks deepening inequalities for generations.

A Global – Not Just British – Challenge

The rise in hidden unemployment and long-term sickness is not unique to the UK. Across the G20, governments are grappling with shrinking labour market participation due to ill health, disability, and demographic change.

In the United States, labour force participation has not returned to pre-pandemic levels, with rising “long-COVID” and mental health-related claims contributing to workforce absence (U.S. Bureau of Labor Statistics, 2023).
In Germany, the number of people exiting the workforce early due to health conditions is increasing, with the Federal Employment Agency reporting a surge in incapacity claims.
The OECD has warned that across advanced economies, “once individuals enter disability or long-term sickness schemes, they rarely return to work” (Sickness, Disability and Work, OECD, 2010). This makes the challenge not just a welfare issue, but a core G20 economic resilience issue. A shrinking labour market in the world’s major economies means lower productivity, restricted government borrowing, and reduced fiscal space for investment in health, climate action, and social services.

Breaking the Cycle: Outcome-Based Contracts

One solution lies in outcome-based contracts for welfare, health, and employment support programmes. Instead of paying providers for activity (e.g., number of assessments completed), government can align funding with long-term, measurable outcomes such as:

Sustained return to work.
Improved health and wellbeing indicators.
Reduced repeat claims for sickness benefits. Evidence from Social Impact Bonds (SIBs) and outcome-based pilots shows that such approaches can deliver better value for taxpayers while focusing on human potential rather than passivity (UK National Audit Office, Outcome-Based Payment Schemes, 2015).

A WHIS Perspective

“We cannot continue with a system that pays to maintain dependency. If ill health shrinks the labour market, it undermines government revenues and forces cuts to public services. That’s a dangerous cycle we must break. Outcome-based contracts, prevention, and community-led health are not just options—they are necessities if we want to unlock potential and secure economic resilience.” — Gareth Presch, CEO, World Health Innovation Summit

At WHIS, we believe the way forward is clear:

Honesty about the scale: Parliament must cite the true 6.5 million figure as a starting point.
Prevention and precision health: Early interventions—social prescribing, community health programmes, skills development—reduce long-term dependency.
Outcome-based contracts: Reframe welfare and health provision around results that restore dignity, independence, and contribution.
Place-based innovation: Empower local areas like Blackpool, Birmingham, and Birkenhead to design tailored solutions for entrenched challenges.
International collaboration: The G20 must treat health-driven labour market decline as a systemic economic issue, sharing best practices and scaling successful innovations.

Conclusion

Behind the 6.5 million statistic lies a human story: communities left behind, young people signed off before they have a chance to begin, and services strained under the weight of untreated ill health.

If we continue with the “cheque-and-forget” model, the economic and human cost will spiral. But if we pivot towards outcome-based solutions that treat welfare as a pathway, not a dead-end, we can break the cycle and unlock the potential of millions.

At WHIS, we see this not only as a challenge, but as an opportunity to create thriving communities where health, work, and wellbeing reinforce one another.

References

Department for Work and Pensions (2024). StatXplore – Benefit Combinations Dataset.
Office for Budget Responsibility (2023). Welfare Trends Report.
OECD (2010). Sickness, Disability and Work: Breaking the Barriers.
National Audit Office (2015). Outcome-Based Payment Schemes.
U.S. Bureau of Labor Statistics (2023). Labor Force Participation Data.
Bundesagentur für Arbeit (Germany Federal Employment Agency, 2023). Incapacity Claims Report.