Britain’s rising benefits bill is due to a flawed welfare system that encourages people to claim long-term sickness benefits, a report from experts and peers has warned.
A House of Lords report claims that those eligible for health-related benefits could earn double their income by leaving their jobs.
Experts say the current system for determining who qualifies for incapacity benefits is “inadequate”, with the system seen as “financially unsustainable” and “wasting human potential”.
Lord Bridges of Headley, the chairman of the cross-party Economic Affairs Committee, has penned a letter to Liz Kendall, Work and Pensions Secretary, stressing that “urgent action is needed to address the rising social and financial cost”.
He emphasised that “tackling” this issue “must be a top priority for the Government”.
Last year, Liz Kendall MP, the Department for Work and Pensions (DWP) boss made Labour’s stance clear, stating that those who “can work, must work”, as she unveiled a “get Britain working again” initiative.
The new initiative aims to help some of the 2.8 million individuals out of work due to long-term sickness return to employment.
Currently, about 3.7 million working-age people are receiving health-related benefits, which is 1.2 million more than in February 2020. The cost to taxpayers for incapacity and disability benefits is nearly £65 billion, more than what is spent on defence.
By 2029-30, public spending on health-related benefits is expected to exceed £100billion, around three per cent of the country’s GDP. The total welfare bill is projected to rise to £370billion, according to the Bridges report.
Following a brief inquiry into the reasons behind the rise in spending on incapacity and disability benefits since 2013, Bridges warned of the risk that people are motivated to claim health-related benefits and that once they start receiving them, they lack both the incentive and support to seek and take up employment.
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The report is published after claims that officials in Downing Street are “pulling their hair out” how long Work and Pensions Secretary Liz Kendall is taking to reform the welfare system. Kendall has been accused of “dragging her feet” over her “radical” benefits overhaul.
In the report, peers highlighted a significant difference between health-related benefits in Universal Credit (UC) and unemployment benefits, as well as the different conditions attached to them. They pointed out that these differences encourage unemployed people to seek the health-related component of UC.
Eduin Latimer, Research Economist at the IFS, said that “if you move out of work, getting on to health-related benefits … would almost double your income. You would also have some of your housing costs covered”.
He claimed recipients could also get an additional £9,000 a year in personal independent payments on top.
Louise Murphy, Senior Economist at the Resolution Foundation, noted that for someone in receipt of UC, “their income can double if they are deemed to have limited capability for work-related activity. So there is an incentive to [pursue] that. The lower level of conditionality attached to health-related benefits creates an incentive to apply for these benefits”.
The authors also suggested that if 400,000 people who are out of work due to illness could find jobs, it could save around £10billion through higher tax revenue and reduced benefits costs.
However, they criticized the current system for determining eligibility, saying it needs to be more “rigorous” and is currently “inadequate”.
They also pointed out a rise in claims for mental health conditions rather than physical disabilities, which makes assessments more complicated.
Bridges called on the Government to “accelerate its plans to reform health-related benefits” and cautioned that without a clear plan to address the issue, this growing area of welfare spending will continue to pose a challenge for the upcoming Spending Review.
A Government spokesman said: “We are determined to get Britain Working again and have set out our first steps towards delivering an 80 per cent employment rate – by joining up local work, health and skills plans.
“We have been clear that the current welfare system needs reform, so it is fairer on the taxpayer and people get the support they need to move into work.
“Building on our Get Britain Working White Paper, we will bring forward proposals for reforming the health and disability benefits system in the Spring. This will be part of a proper plan to help disabled people who can work secure employment while ensuring support is provided for those who need it.”
