Curbing The £20 Billion Rise In Working-age Incapacity And Disability Benefit Spending Is A Task For The NHS And Employers, Not Just The Treasury And Dwp

20th June 2024

Addressing rising incapacity and disability benefit spending will be a key task for whoever wins the next election. But with the increase driven by Britain ageing, becoming less healthy and experiencing more disability, politicians will need to focus on the underlying causes of a rising caseload, not just on restricting the eligibility and generosity of claims, according to new Resolution Foundation research published today (Thursday 20 June 2024).

Under strain - the latest Resolution Foundation election briefing, funded by the Nuffield Foundation - examines past, present and future trends in incapacity benefits, which are largely means-tested, and disability benefits, which are assessed on people's needs irrespective of their income or employment status. These distinct benefits are often confused.

The report notes that real-terms spending on working-age incapacity benefits increased by a third over the past decade (2013-14 to 2022-23), and disability benefits by 89 per cent. As a result, total annual spending on working-age health-related benefits has increased from £28 billion to £43 billion over this period (in today's prices).

This rise is forecast to accelerate over the next six years, with total spending increasing by 48 per cent (or £20 billion) to £63 billion between 2022-23 and 2028-29.

But while there is clear consensus over the scale of the problem, the causes of rising health-related benefit spending are often misunderstood – making it harder to find the right policy solutions.

The report shows that the biggest spending pressure is about the number of claimants, not an increase in the generosity of benefits, with a rising caseload of working-age recipients as Britain gets older, less healthy and has a higher prevalence of disability that restricts the ability to work or requires additional support.

This rising caseload explains all of the expected increase in incapacity benefit spending between 2013-14 and 2028-29, as an additional 1.4 million people receive support, and two-fifths of the rise in working-age disability spending, as an additional 2.7 million people receive support.

This growing caseload has led some to claim that it has become too easy to receive support. But the authors caution that there is no evidence to support this claim – award rates for new Personal Independence Payments (PIP) claims have been stable since its introduction in 2013, as have awards rates for those moving from the predecessor benefit Disability Living Allowance (DLA) onto PIP.

Instead, they point to a more straightforward explanation – the number of working-age people reporting that they have a disability has increased from 5.9 million in 2012-13 to 8.9 million in 2022-23.

Rushed attempts to simply restrict benefit eligibility are therefore likely to result in people with acute needs having their support and living standards cut without improving their underlying health conditions and job prospects, the authors caution. They add that it could increase poverty too, given that more than four-in-ten PIP claimants are currently in the poorest fifth of the income distribution.

The report also notes that past policy changes, such as the introduction of PIP back in 2013, have had unintended consequences that have resulted in increased spending. For example, the lack of a lower ‘daily living’ component within PIP has meant that 30 per cent of people who would have received this lower level of support through DLA are now receiving a far higher PIP award. This should serve as a warning that reforms that are designed to cut costs can backfire if they are poorly designed.

Concluding, the Foundation says that the only sustainable way to reduce overall benefit spending is to tackle the underlying cause of why so many working-age people in Britain today have underlying health conditions or impairments that restrict their ability to work or incur additional costs. This is a task as much for the NHS, wider public services, and employers – who have a key role to play in boosting recruitment and retention of workers with a health condition – as it is for the Treasury and DWP.

Lindsay Judge, Research Director at the Resolution Foundation, said:

"Real-terms spending on working-age incapacity and disability benefits has increased by £15 billion over the past decade, despite several policy drives to reduce it. Spending is set to accelerate in the years ahead too, up by a further £20 billion a year by the end of the decade. The underlying increase in ill-health and disability poses a major challenge to policy makers, and to the millions of people whose living standards are affected by their conditions.

"There are no easy fixes to this problem. This isn’t down to people gaming the system, or support somehow being easier to claim. Nor is it the case that a so-called ‘benefits clampdown’ would produce easy, pain-free savings.

“Instead, the growing health-related benefit spend reflects the fact that Britain is becoming older, sicker and experiencing more disability, and that previous reforms have often been poorly designed. We therefore need to focus more on enabling people to enjoy longer, healthier working lives – a goal that requires an integrated strategy involving the NHS and employers, as much as the Treasury and DWP."

Notes
The Nuffield Foundation is an independent charitable trust with a mission to advance social well-being. It funds research that informs social policy, primarily in Education, Welfare, and Justice. The Nuffield Foundation is the founder and co-funder of the Nuffield Council on Bioethics, the Ada Lovelace Institute and the Nuffield Family Justice Observatory. The Foundation has funded this project, but the views expressed are those of the authors and not necessarily the Foundation. Website: nuffieldfoundation.org Twitter: @NuffieldFound

Incapacity benefits, such as Universal Credit Health and Employment and Support Allowance (ESA), are mostly means-tested, and are designed to provide additional income support for those with long-term conditions who are out of the labour market for an extended period of time. In contrast, disability benefits like Personal Independence Payment (PIP) and Disability Living Allowance (DLA) are awarded irrespective of income or work status to cover at least some of the extra costs that many with impairments or health conditions incur, to enable individuals with long-term sickness or disabilities to live full and active lives.