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It’s time to finally strip disability benefits of “perverse incentives”

It's not about cost-cutting

By Hannah Titley  

Iain Duncan Smith, Secretary of State for Work and Pensions, gives his speech on the third day of the Conservative party conference in Manchester. 4th October 2015

Read more: The truth about welfare 

Last year Work and Pensions Secretary Iain Duncan Smith argued that our welfare system is “parking” those with health conditions “forever beyond work.” Universal Credit—a monthly payment that will replace all other benefits—“opens the way for us to re-think the relationship between sickness benefits and work,” he claimed. To this end, he will bring forward a white paper on incapacity benefit reform. He is right to prioritise this key welfare challenge.

But this is not the first time that government has prioritised the issue. Only ten years ago, Labour brought forward a green paper on the topic, arguing that people were “trapped” on benefits. Announcing the introduction of Employment and Support Allowance (ESA) John Hutton, then Work and Pensions Secretary, claimed Labour’s reforms would lead to a million fewer people on the benefit within a decade. There were around 2.6 million people claiming incapacity benefits in 2007-08, there are around 2.5 million now. Less than one per cent of claimants leave the benefit each month, yet over half say they want to work.

These dire statistics show the need for a radically different approach. Osborne will not reach the “sustainable and affordable” welfare state he promised in the Autumn Statement unless he reduces demand for benefits, and to do this he must meet the government’s pledge to halve the disability employment gap. The forthcoming white paper will have to be bold, and Reform’s new paper provides a blueprint.

Firstly, the government should ensure that people with health conditions are paid the same level of benefits as jobseekers. Hutton talked about removing the “perverse incentives” created by paying more the longer a claimant stayed on incapacity benefit, but retained a higher rate. Excluding disability premia, the weekly payment for claimants in the ESA Work Related Activity Group is £102, and £109 for those in the support group. This compares to a basic rate of £73 for Jobseeker’s Allowance claimants. International evidence shows that for some people, a higher rate leads to more time spent on the benefit. Introducing a single out-of-work allowance with a single rate would remove the need for claimants to convey how “sick” they are.

Crucially, the government should fully reinvest the savings from reducing the rate—the reforms must not be about cost-cutting. Most of the savings should be recycled into the other key disability benefit—Personal Independence Payment—which contributes to significant extra costs incurred due to a health condition. This benefit can be kept if the claimant moves into work. The remainder should be reinvested into personalizing and improving employment support services.

Secondly, the much-hated Work Capability Assessment (WCA) should be scrapped. Currently it conflates two issues: whether a person is eligible for an out-of-work benefit and what their capacity for work is. A single rate removes the need to simultaneously assess these. Instead the government should have a single, online assessment for benefit eligibility and then a completely independent occupational health assessment for those who need one. The WCA forces a focus on what a claimant cannot do—a binary “fit” or “not fit”—for work whereas this new model would enable an open conversation focused on what a claimant could do with support. For those for whom any type of activity would be reasonable, the new model would continue to provide unconditional support.

Thirdly, there should be a greater requirement that those able to engage in some activity do so. When Labour introduced ESA it expected the “vast majority” of claimants to be subject to conditionality. Instead, around three quarters of ESA claimants who have taken the WCA have been assigned to the support group, with no conditionality and very little help to find work. This is despite over half of claimants saying that they want to work. Extending the role of conditionality for people with a health condition is an important next step for the government if they are to make good on their promise of halving the disability employment gap. And for some people with mild to moderate conditions, the government should look at applying conditionality to following a mutually agreed occupational health plan.

As the failure of ESA shows, piecemeal reforms will not work. Achieving radically different outcomes demands a radically different approach. Reform on the scale proposed will take political will, but the prize for succeeding is great. This should be the legacy of the government this Parliament.

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