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

Summary:

  • The UK introduced its first nationwide programme of sickness benefits in 1948. It initially cost around £2 billion per year in today’s prices. The UK now spends over £37 billion annually on various disability-related benefits, a figure which is still rising. More than 5 million people are in receipt of at least one such benefit.

  • The majority of disabled people are economically inactive, and only about one in three is in full-time work. This is a problem because inactivity has been shown to lead to further deteriorations in health status, particularly for mental health.

  • A lot of research has been conducted into the causes of the long-term increase in disability benefit claimant counts, but it has not come up with many conclusive findings. What is safe to say, though, is that genuine increases in disability prevalence have not been the main driver.

  • Local economic factors and socio-economic characteristics of recipients, on the other hand, have been shown to have a big impact. Receipt of disability benefits is more common in areas with high unemployment and among the low-skilled. This suggests that disability benefits often act as a substitute for long-term unemployment benefits.

  • The empirical evidence on ‘what works’ in helping disabled people into employment is even more inconclusive than the evidence on the drivers of disability benefit rolls. This calls for a trial-and-error process in which different approaches can be tried and tested – the exact opposite of the UK’s highly centralised approach. The current system is also overly complex, with too many different transfer instruments that serve overlapping purposes.

  • Disability policy should be decentralised, simplified, and where possible, outsourced to the independent sector. This would lead to a range of competing approaches, enabling learning from best practice.


This report featured in The Daily Mail and The Independent.

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Head of Health and Welfare

Dr Kristian Niemietz joined the IEA in 2008 as Poverty Research Fellow, becoming its Senior Research Fellow in 2013 and Head of Health and Welfare in 2015. Kristian is also a Fellow of the Age Endeavour Fellowship. He studied Economics at the Humboldt Universität zu Berlin and the Universidad de Salamanca, graduating in 2007 as Diplom-Volkswirt (≈MSc in Economics). During his studies, he interned at the Central Bank of Bolivia (2004), the National Statistics Office of Paraguay (2005), and at the IEA (2006). In 2013, he completed a PhD in Political Economy at King’s College London. Kristian previously worked as a Research Fellow at the Berlin-based Institute for Free Enterprise (IUF), and at King's College London, where he taught Economics throughout his postgraduate studies. He is a regular contributor to various journals in the UK, Germany and Switzerland.