Recent Trends In And The Outlook For Health-related Benefits

23rd April 2024

Recipients of and spending on health-related benefits have risen rapidly since the start of the pandemic, posing a serious challenge for policymakers.

Individuals in the UK with health conditions may be entitled to two types of benefits - incapacity benefits (for those whose condition prevents them from working) and disability benefits (to help with extra living costs arising from the disability).

Since the onset of the pandemic, there has been a substantial increase in the number of individuals claiming these ‘health-related' benefits - and official projections suggest that claimant numbers will rise further still.

Whoever wins the next election will have to come to terms with these trends and potentially provide a policy response. Indeed, the government has already announced a number of reforms to the health-related benefit system in the last year, including a consultation - announced by the Prime Minister in April 2024 - on tightening the disability benefit system.

This report sets out the latest data on health-related benefits in the UK and discusses the evidence on potential causes for the rise, before considering the policy options.

Key Findings
1. There are now 4.2 million working-age individuals (10.2% of the working-age population) receiving at least one health-related benefit. This is up from 3.2 million in 2019 (7.9%). The rise is driven by rapid increases in the number of people starting a new benefit claim. Prior to the pandemic, both incapacity and disability benefits saw about 20,000 new claims each month. By November 2022, there were 51,000 new claims for incapacity benefits and 43,000 new claims for disability benefits each month.

2. Calculations using forecasts from the Office for Budget Responsibility and the Scottish Fiscal Commission suggest that, by 2028-29, the health-related benefit caseload will have risen by another 1.2 million to 5.4 million (12.4% of all working-age individuals). This is based on a judgement that the rates of flow onto these benefits will fall back from their current high levels. If the pace of recent new claims persisted, we estimate that the number of claimants in 2028–29 would be 1.6 million higher than now (5.8 million). Conversely, if the rates of flow onto these benefits returned to their pre-pandemic levels, the increase would be just 200,000 (to 4.4 million).

3. As a result of these increases in caseloads, spending on disability benefits and incapacity benefits for working-age individuals rose by £12.8 billion between 2019–20 and 2023–24 (£35.6 billion to £48.3 billion) – including the standard universal credit allowance for those with health conditions. It is set to increase by a further £15.4 billion by 2028–29 (all in 2024–25 prices). This will take total health-related benefit expenditure on working-age individuals to £63.7 billion per year. These are substantial figures: total expenditure on all working-age benefits in 2028–29 is forecast to be £144 billion.

4. It is now the case that around 1 in 6 people aged 60–64 receive incapacity and/or disability benefits. However, increases since 2019 have been fastest in proportional terms for younger people. The share of 25-year-olds on these benefits has risen from 4.9% to 7.0% and the share of 55-year-olds from 11.4% to 13.4%. As a result of these increases, a 20-year-old today is about as likely to claim a health-related benefit as a 39-year-old was in 2019; a 35-year-old today is about as likely to claim as a 46-year-old in 2019; and a 55-year-old today is about as likely to claim as a 60-year-old in 2019.

5. Mental & behavioural disorders and musculoskeletal diseases are the primary types of condition, associated with nearly two-thirds of recent disability benefit awards. Mental & behavioural disorders alone accounted for 41%, up from 32% prior to the pandemic. These conditions are the most common among those applying for incapacity benefits as well. The conditions that claimants have are strongly related to age: 69% of new 25-year-old disability benefit claimants were primarily living with mental & behavioural disorders, while this was the case for only 22% of new 55-year-old claimants.

6. The causes of this worrying trend are yet to be fully understood. There is evidence that health is worsening among the population. But other possible – and as yet unconfirmed – hypotheses include the cost-of-living crisis, conditionality regimes and the shift towards telephone assessments.

7. Given the lack of clarity on the underlying cause, there are no obvious solutions to this growing problem. Tightening eligibility rules could get the caseload numbers down, but past reforms in this vein have often had less effect than anticipated. Straightforward cuts to the cash value of benefits would certainly save money but would create real difficulties for a significant fraction of the population. The government has outlined a number of reforms, which if implemented could result in fundamental changes to the system.

Read the full report from the Institute for Fiscal Studies HERE