Publication Health and Care Social security 4 February, 2016

Working welfare: a radically new approach to sickness and disability benefits

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The out-of-work benefits system for people with a health condition or disability is broken. In 2006 the then Labour Government saw the need for reform and announced its intention to tackle the “passive” system of Incapacity Benefit (IB) by introducing Employment and Support Allowance (ESA), believing that within a decade there could be a million fewer claimants. Instead, ESA replicated many of the problems of IB and has failed to achieve its objective of moving more disabled people into work.

When ESA was introduced there were around 2.6 million people dependent on sickness benefits, today there are 2.5 million. In the quarter to May 2015, just 1 per cent of claimants in the ESA Work Related Activity Group (WRAG) – those deemed able to carry out activity to help them move towards work – left the benefit. The employment rate for disabled people in the UK is just 48 per cent, compared to 81 per cent for the rest of the working-age population.

Governments across developed nations are facing the same challenge and looking at ways of redesigning their systems to deliver better outcomes. Evidence shows that work is good for people’s health and wellbeing and being out of work is detrimental to it, including for many people with mental and physical disabilities. In the UK many disabled people want to work but are trapped on what remains a broadly passive system – almost three quarters of claimants who have had their Work Capability Assessment (WCA) are in the support group with no requirement to engage with, and little access to, support services. As the Organisation for Economic Cooperation and Development has argued: “what is needed is to bring the disability benefit scheme closer in all its aspects to existing unemployment benefit schemes”.

Shortly after becoming Secretary of State for Work and Pensions in 2010, Iain Duncan Smith announced his ambition to create “[a] welfare system that is fit for the 21st Century.” In 2015 he argued that Universal Credit (UC) “opens the way for us to re-think the relationship between sickness benefits and work.” This paper outlines the structural reforms that would maximise UC’s impact for people with health conditions. The package of reforms cover the benefit rate, gateway and conditionality. They are not about cost-saving, but building a more coherent, effective and personalised benefit system.

The difference in the benefit level for unemployed people compared to that for people with significant health conditions is sizeable – and under UC the gap will widen. For claimants with severely limiting health conditions the level of payment will not affect their chance of moving into work; for others non-financial incentives may be more powerful. Nonetheless, international evidence does show that the rate at which sickness benefits are set can have behavioural effects – particularly on claim duration. The Government should therefore set a single rate for out-of-work benefit. The savings from this rate reduction should be reinvested into Personal Independence Payment – which contributes to the additional costs incurred by someone with a long-term condition – and into support services.

Moving to a single out-of-work allowance is also a key precursor to a more personalised system focused on what a claimant can do. The current WCA combines an assessment  of eligibility for benefits with an assessment of a claimant’s capacity for work. This much criticised model inadvertently encourages claimants to focus on demonstrating how sick they are, rather than engaging in an open conversation about what they might do with support. A single allowance enables the separation of these two things. Building on UC, the Government should implement a single online application for the benefit, including a ‘Proximity to the Labour Market Diagnostic’ to determine a claimant’s distance from work and a health questionnaire.

This questionnaire should determine whether a separate occupational health assessment is needed. If it is, this should be carried out by an appropriate health professional, with oversight from an occupational health specialist. Unlike the ‘pass/fail’ WCA model, the assessment should take a broad view of a claimant’s multiple health-related barriers to work, including ‘biopsychosocial’ factors. The claimant and health adviser should, where appropriate, jointly produce a rehabilitation plan, and this should come with a personal budget. Those with mild or moderate health conditions that, with support, could be managed should be expected to take reasonable rehabilitative steps – some level of conditionality should therefore be applied. Employment advisers must be appropriately trained to support those claimants, and given a high degree of discretion in how they apply that conditionality.

Achieving the radically different employment outcomes desired by the Government demands a radically different approach. The model proposed in this paper provides just that.

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