Incapacity Benefit: minor tinkering will not end a sick system

The Conservatives are proposing to clamp down on incapacity benefit claimants in order to deal with the large numbers they say should be in work. This is a laudable aim, of course, but it is highly unlikely that their initiative will work. This is at least the third initiative of its type. A previous programme of getting people off incapacity benefit and into work was undertaken by the last Conservative government and this government, to its credit, has announced initiatives in this regard too.

The question the Conservatives refuse to examine is whether it is possible for a government bureaucracy to manage such a system without large amounts of fraud and questionable claims. Nobody with any authority has any financial incentive to police the system properly – neither the claimant, the doctor nor the benefit office…The problems that exist within the system cannot be resolved by goodwill and the hounding of claimants.

What is needed is wholesale privatisation of the benefit for those who are fit and healthy when they leave full-time education. Frank Field has pointed out how small profit-making organisations and mutuals used to manage such insurance benefits very well. They developed mechanisms to assess claims which ensured that there were very few “dodgy” claims. Furthermore – and experience of microfinance projects confirms this – private organisations and mutual associations have the strongest possible incentive to ease people back into appropriate employment.

In 1999 a Royal Commission on long-term care for the elderly reported. There is an excellent minority report but the majority report is staunchly left wing, statist and strongly prejudiced against private health care. However, even this Royal Commission had to admit that the best practice in long-term care for the elderly was in the private sector. This is largely because the minimisation of claims (and the disabilities that lead to claims) is in the joint best interest of the insurer and recipient of the benefit.

So let’s privatise all disability insurance. Or better still, make it optional and just allow people to provide for life’s contingencies in their own way.

Academic and Research Director, IEA

Philip Booth is Senior Academic Fellow at the Institute of Economic Affairs. He is also Director of the Vinson Centre and Professor of Economics at the University of Buckingham and Professor of Finance, Public Policy and Ethics at St. Mary’s University, Twickenham. He also holds the position of (interim) Director of Catholic Mission at St. Mary’s having previously been Director of Research and Public Engagement and Dean of the Faculty of Education, Humanities and Social Sciences. From 2002-2016, Philip was Academic and Research Director (previously, Editorial and Programme Director) at the IEA. From 2002-2015 he was Professor of Insurance and Risk Management at Cass Business School. He is a Senior Research Fellow in the Centre for Federal Studies at the University of Kent and Adjunct Professor in the School of Law, University of Notre Dame, Australia. Previously, Philip Booth worked for the Bank of England as an adviser on financial stability issues and he was also Associate Dean of Cass Business School and held various other academic positions at City University. He has written widely, including a number of books, on investment, finance, social insurance and pensions as well as on the relationship between Catholic social teaching and economics. He is Deputy Editor of Economic Affairs. Philip is a Fellow of the Royal Statistical Society, a Fellow of the Institute of Actuaries and an honorary member of the Society of Actuaries of Poland. He has previously worked in the investment department of Axa Equity and Law and was been involved in a number of projects to help develop actuarial professions and actuarial, finance and investment professional teaching programmes in Central and Eastern Europe. Philip has a BA in Economics from the University of Durham and a PhD from City University.