King's College London

Last week, the Conservative party announced that if they were to form the government after the next general election, they would seek to increase the army reserves by 18,000, to a total of 50,000. A key part of this pledge is to make the first 30 days that a reservist serves free from tax, in a bid to make being a reservist pay. They would fund this using part of the money they’d save reinstating the two-child benefit cap.

Is it likely to work? There are two ways of looking at this question – in economic terms, and in psychological terms. Let’s approach them in that order.

A reservist second lieutenant gets paid £99.60 per day, while a reservist private gets paid £63.27 per day. These are the most junior ranks as officers and soldiers respectively, and so are indicative of the pay that a new reservist would receive after training, and therefore the most salient figures for someone considering becoming a reservist for the first time. For the first 30 days of being a reserve, then, a subaltern would get paid £2,988, while a private would get paid £1,898. Making this tax-free would net a basic-rate taxpayer less than £600 if they are an officer, and less than £400 if they are a private, in total, per year.

This money isn’t nothing – but in the scheme of things, it’s pretty marginal. If you were to be a reservist purely for the money, you’d be better off doing literally any other job, as being a reservist pays less than the minimum wage. Although the incentive would be higher for someone paying tax at the higher rate, the compensation for those people is also considerably lower relative to the wage for their day job.

The Office for Budget Responsibility estimates that the extensive margin elasticity of labour – that is, the rate at which people opt in to working when the wage associated with that work goes up – at 0.1. That means this 25% increase in the effective wage for being a reservist should increase the number of reservists by about 2.5% – and this is generous, because of the fact that better-paying minimum-wage jobs already exist.

Based on this pretty liberal assumption, we’d expect this to generate perhaps an extra 800 reservists in total. It’s hard for this to be good value for money, because the policy has a lot of deadweight loss – it’s not just new reserves who will get the tax benefit. On that basis, depending on the make-up of the reserves, it could cost the government between £12 million and £30 million to get those extra 800 reserves, making each of them cost roughly the same as a full time corporal in the regular army.

That’s the economics, but what about the psychology. As reservists are paid less than minimum wage, we can say that people are very unlikely to be doing it solely for the money, meaning they must be driven by something else. Our research has shown that although young people (Gen Z) do place importance on pay in their career choices, the reasons for their not signing up to the armed forces have more to do with motivation, attitudes to service, and alignment with values.

Increasing recruitment – either to the regular army, or to the reserves – is going to depend on reaching out to these young people where they are, and either reframing or refashioning military service in a way that appeals to them. That will be a harder task than a tax break, but it might actually work.