Abolishing existing benefits system can help improve outcomes for people with health conditions

4 February 2016

Outcomes for people claiming out-of-work incapacity benefits are poor. As Reform explored in a recent report, caseloads are high, off-flow low, with receipt of these benefits becoming a ‘trap’ for many from which they never return to employment. There are many reasons for this, but the rate at which incapacity benefits are paid is one contributing factor. In the current system a person is paid a higher weekly rate the further they are from work. Excluding disability premia, the weekly payment for claimants in the Employment and Support Allowance (ESA) Work Related Activity Group (WRAG) is around £102 and £109 for those in the support group. This compares to a weekly rate of around £73 for Jobseeker’s Allowance (JSA) claimants.

For those with more severe conditions, the level of payment is unlikely to have a behavioural effect. This is not however, the case for everyone – international evidence shows that the rate does influence the behaviour of some benefit claimants with a health condition. The level of payment is linked to how long people claim benefits and therefore their likelihood of moving into work. Indeed, the then Secretary of State for Work and Pensions John Hutton recognised this when he introduced ESA, arguing that there were “perverse incentives to stay on the benefit [IB] – you get paid more the longer you claim”.

The higher rate of payment for people who are found ‘unfit for work’ has also driven the current, broken model of assessment – in which some claimants are inadvertently encouraged to be found ‘as sick as possible’. Around three quarters of ESA claimants are assessed unfit for work and assigned to the support group, with limited access to employment support and no work-related conditionality. Despite this, more than half of these claimants say that they want to work. Removing financial incentives is an important step to reforming the gateway to these benefits. Assessment for an out-of-work benefit can then focus on what a claimant can do rather than what they can’t do, and there would be no need for claimants to demonstrate how sick they are.

The payment rate for ESA has been under scrutiny in recent months. In the Summer Budget last year, the Chancellor proposed aligning the ESA WRAG rate with JSA. The proposal has since been rejected by the House of Lords and faced strong opposition from disability charities. Two main arguments have been advanced for retaining a higher ESA benefit level: that claimants are likely to be on the benefit for longer and that they may face additional costs due to living with a disability. Both these arguments have validity. However, compensating claimants through an out-of-work benefit has added complexity to the system. It has blurred the purpose of income-replacement benefits and those that contribute towards additional costs, and the design of the benefit itself means that claimants are likely to remain on it for longer.

In 2006, when the then Labour Government announced its intention to introduce ESA, Hutton argued that ESA would prevent people becoming “trapped” and move up to one million off the benefit. There were around 2.6 million people on incapacity benefits in 2007-08, there are 2.5 million now. ESA has replicated the problems of its predecessor.

Reform’s report, out today, argues for a radical overhaul of the system to tackle these problems. It proposes a single out-of-work benefit with a single payment rate for all claimants who are out of work, regardless of why. The reform is not about cost reduction. Instead, the ‘savings’ should be reinvested into providing additional support to the most severely disabled through Personal Independence Payment (PIP) or its predecessor Disability Living Allowance (DLA), and into more effective health and employment support. By providing additional support through higher rates of PIP or DLA, which a person can claim in or out of work, the financial incentive to be found unfit for work is removed. Under Reform’s single out-of-work allowance, claimants who incur significant costs due to living with their disability would receive a higher PIP/DLA payment. ESA claimants who do not incur significant additional costs, and therefore are not eligible for PIP/DLA, would benefit from better support services to help them move into work.

Reform of the rate is a necessary precursor for a fairer, more personalised system – something that has been argued with surprising frequency over the past decade. As part of a broad package of reforms, structural changes such as a single rate can contribute to the Government’s goal of halving the disability employment gap – a goal which everyone should get behind.



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