British employers can find it cheaper to replace workers who fall sick than to invest in their retention, the former boss of John Lewis has said in a report that calls for stronger incentives for businesses to help tackle ill health.
Sir Charlie Mayfield, who the government appointed to lead its “Keep Britain Working” review, said “muddled” and “misaligned” financial incentives for both employers and employees were one reason economic inactivity had worsened in the UK in comparison with other countries.
In the UK, employers must cover statutory sick pay of £116.75 a week for up to 28 weeks — one of the lowest replacement rates of average earnings of any country in the OECD.
This contributed to situations “where the financial incentive to invest in retention is weaker than recruiting a replacement”, Mayfield’s report said.
The review found that while many UK employers felt strongly motivated to retain staff, in practice this often came second to “the immediate imperative to reorganise work and then to fill a vacancy” when line managers were faced with a sudden, unplanned absence.
In addition, it said: “The costs borne by employers for sickness absence are lower relative to some other European countries and may be worth paying versus the greater time and investment needed to pursue retention.”
The report’s publication on Thursday follows the Labour government’s announcement of £5bn in cuts to sickness and disability benefits — which could leave a million people £4,000 a year worse off, and lead some to lose as much as £9,600 a year, according to the Resolution Foundation think-tank.
Mayfield’s report argued that action to stop people leaving work when they first fell sick would make much more difference than reforms to the welfare system aimed at long-term benefits claimants.
It noted that people out of work for less than a year were five times more likely to return than those who had been inactive for longer.
“Our strong sense is that prevention, retention, early intervention and rapid rehabilitation . . . are likely to be more effective remedies over time,” the report said.
Stronger incentives for employers to invest in workforce health and retention should underpin a more effective system, the report said, drawing attention to the Netherlands — where employers have to pay at least 70 per cent of workers’ salaries for up to two years of sickness absence, and provide occupational health support as part of a back-to-work plan.
The stringent responsibilities placed on employers in the Netherlands contributed to a drop of eight percentage points in economic inactivity between 2010 and 2023, the review noted.
In the UK, as well as lower sick pay, both the provision and the take-up of occupational health schemes was patchy and managers who feared “doing the wrong thing” often lost contact with employees on extended sick leave entirely, the report added.
The UK government is legislating to broaden the coverage of sick pay, including low-paid workers who do not qualify at present, as part of a broader package of reforms to strength employment rights. However ministers are not raising the rate of sick pay.
The Health Foundation think-tank — which led a year-long enquiry into ways to improve working-age health — published research last week calling for a review of statutory sick pay, arguing the UK’s low rate pushed people to move too quickly on to long-term disability benefits.
It also called for better design of jobs, to address shift length, rostering and workload and flexibility for workers in sectors such as transport or healthcare where roles were often intense and inflexible.
However, ministers will be wary of endorsing any measures that pile extra costs on to businesses, which are already up in arms at planned tax and minimum wage increases, and the government’s sweeping agenda to strengthen workers’ and unions’ rights.
The government’s green paper on benefits reforms released on Tuesday pointed instead to changes to the “Access to Work” scheme that helps employers fund specialist aids and equipment for disabled workers.
Ministers want to broaden this scheme, potentially with employers footing more of the bill, but with the government playing a role to shape the market and lower the cost of specialist technology.
“We must do far more to help people stay in work and get back quickly if they fall out,” Liz Kendall, secretary of state for work and pensions, said in response to Mayfield’s findings.
Mayfield, who will publish detailed policy recommendations in the autumn, said the initial findings showed that “tackling this issue will not be achieved by small changes”.
