The UK’s first nationwide programme of sickness benefits was introduced in 1948. It initially cost around £2bn per annum in today’s prices, despite the fact that this was less than a decade after World War 2. But costs soon began to rise steeply.

Today, the UK spends £37.3bn on various incapacity- and disability-related benefits, a figure which still shows a rising trend.[1] Over 5.2m people are in receipt of at least one disability-related benefit.

Of course, as a society becomes more prosperous, we would expect it to become more generous to its least fortunate members. The goals of disability policy have broadened from ensuring subsistence to enabling full social inclusion, and that, needless to say, is a good thing. But it remains a paradox that a society which is so much healthier overall classifies so many more people as disabled. Since 1948, average life expectancy at birth has increased from 68 years to 81 years. Measures of life expectancy adjusted for health status, such as Healthy Life Expectancy (HLE) or Disability-Free Life Expectancy (DFLE), show a similar if slightly slower trend. The employment rate of disabled people in the UK, meanwhile, is around 45%.

A lot of research into the causes of this long-term increase in disability benefit rolls has been conducted, but, as I show in my new IEA briefing on disability benefits, researchers have not come up with many conclusive findings. The truth is that we don’t really know what has driven the increase, and what to do about it.

In this narrative, attempts to get disabled people back into work and/or to halt the increase in the disability benefit rolls are presented as mean-spirited. After a financial collapse caused by greedy bankers and financiers, the story goes, politicians have tried to balance the books on the backs of the poor and the disabled. What we do know, however, is that the trend in disability rolls does not simply follow trends in disability prevalence. Nor are demographic changes the main driver.

Local economic factors such as local unemployment rates and local wage rates, on the other hand, have been shown to play an important role. The share of people receiving disability benefits tends to be higher in places with worse employment opportunities and/or lower wages. Recessions have also sometimes given rise to a ratchet effect: claimant counts increase during economic downturns, but do not fall again in the subsequent recovery. Changes in the generosity and accessibility of other benefits, which could act as potential substitutes for disability benefits, also seem to play a role, as do socio-economic characteristics of recipients: self-reported disability is much more prevalent among low-skilled individuals than among those with average or high skill levels.

None of this means that recipients ‘feign’ disabilities they do not really have. It does not mean that recipients take advantage of the system. Economic conditions matter, but responses to them do not have to indicate bad faith; they do not even have to be deliberate.

Firstly, policymakers have frequently instrumentalised the disability benefit system for other purposes, such as whitewashing the unemployment statistics. Perhaps more importantly, assessing an individual’s disability status and their remaining work capacity is anything but straightforward, including for the individual concerned themselves. It requires judgement calls, and it would be strange if benefit advisors, medical assessors and the individuals concerned would not, if only subconsciously, take into account what the alternatives are. The decision to classify an individual as ‘fit for work’ will come harder when that person is deemed to have limited employment prospects. The decision to classify an individual as ‘unable to work’ will come easier when that person is close to retirement age anyway.

Also, disability status is, to state the obvious, not a binary variable. Jobs and the demands they place on people, meanwhile, are idiosyncratic, and hard to assess in advance. Even perfectly healthy individuals can easily misjudge their ability to withstand the pressure associated with a particular job, and this must be a fortiori the case for people with complex long-term illnesses. In the face of such uncertainty, a degree of risk-aversion is not the same as free-riding.

In short, the cheap moralism of ‘scroungerphobia’ which is sometimes on display in the tabloid press is unfounded. But so is the cheap moralism of the high-status, ‘progressive’ variety, which is implicit in Ken Loach’s movie ‘I, Daniel Blake’ and the reactions to it. Even if it is fashionable to decry attempts to do so as mean-spirited, there is substantial scope for increasing employment rates among the disabled, and for decreasing the cost of disability benefit programmes. This cannot be achieved without policies that seek to activate recipients. It requires a system that combines support with demands and expectations.

Simply making the system ‘tougher’, however, is not the solution. ‘Toughness’ can backfire. In practice, making a disability benefit system tougher usually means making the assessment process more complex and time-consuming. This can give rise to an ‘endowment effect’. Once recipients have passed all these hurdles, they will understandably be reluctant to do anything which puts that entitlement at risk again. Re-entering the labour market and leaving the benefit rolls (the extreme case) means giving up a secure income source for an insecure one. A job offer may not work out as planned, or a disabled person may find that they had underestimated the extent to which their disability limits their work capacity. If they have already left the benefit rolls, they might have to start the whole application process all over again.

So what can be done? Unfortunately, we know little about what has driven the steady increase in disability benefit rolls, and we know even less about what works in getting disabled people back into work. So rather than relying on Whitehall to come up with a master plan, we should go for a polycentric system, and try several approaches on a smaller scale. We need a system that allows policy experimentation, trial-and-error, incremental learning and benchmarking. This is almost the exact opposite of how disability policy currently works in the UK.

The administration of most disability benefits and programmes could be delegated to the local level, and financed through a combination of local tax revenue and central government block grants. Economically weaker areas, which have a smaller tax base, also tend to have larger numbers of disability benefit recipients, which is why block grants would level the playing field a bit. But they should be awarded on the basis of some standardised economic and demographic variables, not ‘need’, because otherwise, local authorities would have an incentive to inflate the disability rolls in order to qualify for more central government funding. They would be able to retain surpluses, but as a flipside, they would also be responsible for financial shortfalls. An additional local revenue source would give local authorities – and, indeed, local electorates – some ‘skin in the game’.

Among other things, the decision to outsource particular functions to private contractors would then also become a local decision. There would be no DWP block contracts with a single provider, like Atos or Maximus, anymore. The current single-payer/single-provider model would be replaced with one of multiple commissioners and multiple service providers. There would be variation in the extent to which private providers are involved at all, and insofar as they would be involved, there would be variation in contracting techniques and payment formulas. For example, if one local authority found a new proxy measure for ‘output’ or ‘performance’ (concepts which are, of course, difficult to measure in this area), and wanted to pay providers on the basis of that measure, they would be free to do so.

One of the few reliable findings in the literature is that work can measurably improve the health of disabled people, and that economic inactivity can lead to further deteriorations in their health status, particularly mental health. Increasing work levels is therefore not just about balancing the books. It is about starting a virtuous cycle.

 

Read ‘Disability Benefits: A Briefing’ by Dr Kristian Niemietz here.

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[1] Some UK datasets distinguish between ‘incapacity benefits’ and ‘disability benefits’. Broadly speaking, the former are income-replacement benefits that compensate disabled people for their reduced ability to work, while the latter are meant to compensate them for the additional costs associated with disability. Here, we will use ‘disability benefits’ as a summary term.