Reform of disability benefit system must be prioritised in face of an ageing population


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IEA releases report on the disability benefit system

Employment rates of the disabled are extremely low, with less than half of disabled people in the UK in work. Despite seeing large improvements in our population’s health, the UK is now spending £37 billion annually on disability-related benefits; just after World War II this figure was around £2 billion in today’s prices.

This is problematic not only given looming fiscal pressures and an ageing population, but also because employment has been proven to improve health. Neither an increase in the number of disabled people, nor an ageing population can explain the growing expenditure on disability benefits. Instead, a mix of local unemployment rates, changes in the level of other benefits and socio-economic characteristics of recipients has contributed. Therefore bringing more disabled people into work is possible.

A new briefing from the Institute of Economic Affairs looks into the problems with the current disability benefits system, identifying its complexity, and recommends decentralisation and a more polycentric approach to help disabled individuals enter the labour market.

Problems with the system

  • The system is too complicated – particularly when assessing disability status and an individual’s remaining work capacity.

  • The complexity also makes the assessment process time-consuming which can result in applicants being reluctant to re-enter the labour market and leave the security of benefit rolls.

  • Individuals are often faced with not knowing how their disability will affect their ability to do a particular job.

  • Anti-discrimination legislation & job protection for the disabled is a double-edged sword – benefitting those inside the labour market at the expense of those outside.

  • A restrictive disability benefit regime doesn’t help get the disabled into work or reduce the number of recipients.


While evidence on what policies are successful in helping more disabled people into work is inconclusive, this in itself suggests that a polycentric approach which allows policy experimentation and trial and error is the best way forward. In order to achieve this, the system must be decentralised:

  • The administration of most disability benefits and programmes should be delegated to the local level and financed through a combination of local tax revenue and central government block grants.

  • These block grants would go some way to level the playing field, because economically weaker areas which have smaller tax bases, tend to have more disability benefit recipients.

  • The decision to outsource would also become a local decision – the current single-payer/single-provider model would be replaced with one of multiple commissioners and multiple service providers.

  • People should be free to opt out of contributory Employment and Support Allowance, receive a refund in National Insurance contributions and use those refunds to take out private disability insurance instead.

  • Private insurers could then offer or commission rehabilitation services and reintegration into the labour market where possible & income replacement where it is not.

Commenting on the report, author Dr Kristian Niemietz, Head of Health and Welfare at the Institute of Economic Affairs said:

“Despite huge improvements in health, more and more people qualify for disability-related benefits. And with less than half of disabled people in work, this is a worrying state of affairs given that employment can hugely benefit them both in terms of their health and income.

 “While it is still unclear what kind of policy will best achieve this, decentralisation and involving independent insurers would facilitate more policy experimentation to identify the best way of getting the disabled back into work, while freeing up resources to provide intensive support for those most in need.”

Notes to editors: 

To arrange an interview about the report please contact Nerissa Chesterfield, Communications Officer: nchesterfield@iea.org.uk or 07791 390 268.

The full briefing by Dr Kristian Niemietz, Disability Benefits: A briefing can be downloaded here.

The mission of the Institute of Economic Affairs is to improve understanding of the fundamental institutions of a free society by analysing and expounding the role of markets in solving economic and social problems.

The IEA is a registered educational charity and independent of all political parties.