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Stephen  Bevan

Can tax breaks for employers improve the health and productivity of the workforce?

Authors: Stephen Bevan Professor Stephen Bevan

20 March 2013

So, the chancellor has bowed to pressure to offer tax relief to employers – up to a limit of £500 per head - who help employees back to work after a period of absence. Let’s take a look at what this might mean and how we’ll know if it’s effective.
By 2030, over 50% of the UK working age population will have at least one long-term health condition. The implications for productivity, competitiveness, welfare spending and social inclusion are considerable. Employers need to play a full part in promoting health & wellbeing in the workforce, by investing in practices and interventions which prevent work-related ill-health, promoting positive lifestyle choices and supporting job retention and return to work. However, only a minority of employers offer benefits which address this problem because low-skilled & low-paid employees (where the highest risk lies) are not covered by health insurance schemes. These employees are also less likely than other groups to take part in workplace health promotion initiatives. Therefore, the big challenge is to encourage more employers to do more for more employees.
So, will extending tax reliefs to a wider range of workplace health interventions encourage a significant and cost-effective increase in the number of employers who offer such interventions, and the number of employees in high risk demographic groups being covered by them? Many larger employers already provide health-related benefits to some employees as a ‘perk’. These may include critical illness cover, screening, subsidised gym membership and Employee Assistance Programmes (EAPs). There are two big questions which the Treasury should consider.
First, will tax incentives result in a net increase in employer investment in interventions aimed at improving workforce health? The problem here is ‘deadweight’. In other words, will tax breaks only go to those employers who are investing in these practices already? Or will they incentivise a whole new group of employers who have never invested in workforce health to spend new money. At present, there is no robust evidence that tax breaks will have a big additional impact and or that they risk becoming a subsidy to those employers who already invest.
Second, will any net increase in employer investment be spent on evidence-based interventions? Even if a tax measure could demonstrably increase net expenditure in workplace health interventions by a significant number of new employers, it would also be important that the bulk of this additional spending went on interventions where there is a credible evidence-base of effectiveness. For example, employer-sponsored access to complementary medicines such as Homeopathy would generally be regarded as lacking any evidence-base by bodies such as NICE or the BMA. However, well-designed workplace smoking cessation or weight loss programmes might be a better investment if improved health and reduced sickness absence was the outcome measure being used. It is reassuring that the interventions which will attract tax relief will be limited to those approved by the new Health and Work Assessment and Advisory Service. It remains to be seen how well this will work.
At the moment, The Work Foundation's judgement is that a large proportion of existing spend by employers are on health ‘benefits’ aimed at attracting and retaining employees, rather than on health ‘interventions’ which have health improvement as their core aim. As a result, we are not convinced that there is evidence that tax breaks would be used to invest in evidence-based interventions.
Also, will these interventions target high-risk employees? The Sickness Absence Review (SAR) identified that employees in low paid and low skill jobs are at the highest risk of having time away from work, or even leaving the labour market permanently, as a result of poor health. If tax breaks can be guaranteed to incentivise employers of this part of the workforce to engage them in healthy activity or lifestyle change then benefits would probably accrue to employers, to wider society (reduced healthcare costs, less welfare spend and increased or protected tax revenue) and to individual employees and their families. However, there is plenty of evidence that the ‘worried well’ are much more likely to take part in workplace health activity than those with multiple lifestyle risks (eg, heavy smokers, the morbidly obese, the sedentary, those with poor diets etc).

The Work Foundation is concerned that the business models of many private sector providers of (often ‘white-collar’) health-related benefits (e.g., health insurance) mean that services targeted at high risk (often blue-collar’) employees will not be profitable. We have seen no evidence that, left to itself, the market has moved to fill this gap. Nor do we anticipate that the proposed tax breaks for employers of low paid and low skilled workers will be enough of an incentive to generate a financial return - either to themselves or to the exchequer. As ever, the devil is in the detail.

Watch Stephen Bevan discuss whether offering tax breaks to employers is likely to improve the health and productivity of employees here.

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