Select Committee on Work and Pensions Third Report


2  BACKGROUND

The introduction and design of the incapacity benefits system

11. Incapacity Benefit (IB) is the main income-replacement benefit for ill or disabled people. It is a contributory benefit, that is, you have to have made sufficient National Insurance (NI) contributions to receive it. Those who are ill or disabled but with insufficient NI contributions for IB can claim Income Support with a disability premium. In addition, some disabled people still claim two benefits that have now been abolished for new claimants: the Severe Disablement Allowance (SDA), which was abolished for new claimants in 2001; and Invalidity Benefit which was the precursor to Incapacity Benefit, and abolished for new claimants in 1995.

12. All of the benefits outlined above are referred to as 'incapacity benefits.' References in this report to 'IB' refer only to Incapacity Benefit. It is important to note that the Welfare Reform Green Paper is concerned with all incapacity benefits, not just IB.[3]

13. IB was introduced in April 1995 replacing Invalidity Benefit and Sickness Benefit. To qualify for IB claimants must be unable to work due to sickness or disability.[4] IB is paid at several different levels. The rates for 2006/07 are:

  • Week 1-28 of the claim: short-term (lower) rate, £59.20 per week
  • Week 29-52: short-term (higher) rate, £70.05 per week
  • After 52 weeks: long-term rate, £78.50 per week.

14. Some claimants move more quickly onto the higher rate.[5] Additions are also available for those with adult dependants and for those who became disabled when they were aged under 45. SDA is also paid at varying rates depending upon the age of the claimant and whether there are adult or child dependants.

15. Some people who are recorded on the incapacity benefits caseload may only be claiming National Insurance credits - which help them to build up their pension entitlement. Others may be claiming the credits alongside receiving their entitlement to Income Support for disabled people. Currently, more than a third of those on the incapacity benefits caseload are claiming credits only.[6]

16. Income Support for disabled people has two premiums, paid in addition to the Income Support personal allowance, that are dependent on the severity of the individual's disability: disability premium is £24.50; and for those with more severe disabilities, severe disability premium is paid at a higher rate (currently £46.75).

The incapacity benefits caseload

17. There are currently more than 2.7 million people on incapacity benefits. Of this caseload, 58% are men and 42% are women. The caseload is concentrated among those aged over 50. At August 2005, 47% of incapacity benefits claimants were aged 50 or over, 47% were aged between 25 and 49 and 6% were aged under 25. [7]

18. People claiming incapacity benefits have a wide range of health conditions or disabilities. The statistics on the diagnosis groups of claimants show that the largest group (39%) are those with a mental or behavioural disorder. The next largest category (19%) is claimants with musculoskeletal or connective tissue diseases (this includes those with conditions such as arthritis and back problems).[8]

19. The Committee received a considerable amount of evidence on the issue of mental ill health. Consequently, the inquiry has focused particular attention upon it. Wherever relevant in this report we have considered the impact of the proposed reforms of incapacity benefits and the Pathways to Work pilots on those with mental health conditions.

REGIONAL VARIATIONS

20. As the Green Paper points out, there are incapacity benefits claimants everywhere, making this a national issue.[9] However, the caseload is concentrated in certain regions - hence the Government's decision to pilot Pathways to Work predominantly in the North East and North West of England, Scotland and Wales. In these regions, one in ten of the working-age population are claiming incapacity benefits and in certain districts within these regions, the claimant rate is as high as one in five.[10]

21. In addition, pockets of worklessness, including high incapacity benefits claimant rates, occur within large cities. The Green Paper proposes a 'city strategy' to improve the employment rates in cities across the UK.[11]

22. Regional and area-based variations in the caseload are further addressed in Chapter 7 of the report.

In-flow and off-flow rates

23. The Welfare Reform Green Paper states that between 1979 and the mid-1990s the incapacity benefits caseload increased from 0.7m to 2.6 million people. This increase is largely explained by a decline in the proportion of people leaving benefit within 18 months of their claim.[12] Since IB was introduced in 1995, the working-age population on incapacity benefits has increased, albeit at a reduced rate. In May 1995 there were 2.5 million claimants compared with 2.7 million claimants in May 2005. The most recent figures show a fall in the caseload since May 2004. See Chart 1 which shows the working-age incapacity benefits caseload from May 1995 to August 2005.

Chart 1: The number of working-age people claiming incapacity benefits — May 1995 to August 2005


24. The most recent statistics show that the total incapacity benefits caseload fell by 58,000 over the past year[13] and, in 2004, a total of 701,000 claimants ended their claim for IB or SDA.[14] The falling caseload may be partially due to the substantially lower number of claimants moving onto benefit. In 1996 there were more than a million new claimants but in 2004 (the last full year for which figures are available) there were 675,000 new claimants.[15] Furthermore, there are signs that the benefit off-flow rate is increasing, particularly in areas where the Pathways to Work pilots have been operating. Chart 2 (see para 202, Chapter 5) shows the comparative off-flow from incapacity benefits after six months of a claim starting. There is an increase in the off-flow rate of around eight percentage points in Pathways areas compared with the national figure. An outline of Pathways to Work is set out in paragraphs 29-31 below and will be further addressed in Chapter 5.


25. The length of time spent on incapacity benefits has become a central focus of Government concern. In his statement on the Welfare Reform Green Paper, the Secretary of State, the Rt Hon John Hutton MP, said:

    "Nine out of ten people who come on to incapacity benefit expect to get back into work, but if people have been on incapacity benefit for more than two years, they are more likely to retire or die than ever to get another job. That cannot be right."[16]

26. Current figures show that nearly 1.5 million claimants - 53% of the incapacity benefits caseload - have been on benefit for five or more years. The Green Paper states:

    "Almost 60% of people who started to receive incapacity benefits in 2004 left within a year. However, for the remaining 40% who do not return to work quickly, the prognosis is bleak - only 22% of claimants already claiming for a year will leave within the next year and 29% of them will still be receiving benefits after another eight years."[17]

27. The Green Paper outlines what the Government regards as the key problems that prevent incapacity benefits claimants from moving into work. These include:

  • a failure to prevent people from moving onto incapacity benefits;
  • a poorly managed gateway onto benefits, with claimants receiving incapacity benefits before a medical assessment is carried out;
  • benefits trapping people into dependency, with the likelihood of leaving benefits decreasing over time;
  • the fact that the longer a claim lasts, the more benefits are received;
  • claimants being viewed as incapable of work, offered little support to move into employment and risking losing benefits if they undertake activities such as training or volunteering; and
  • the name 'incapacity benefits' sending the wrong signal.[18]

Government action to reduce the incapacity benefits caseload

SUPPORT FOR DISABLED PEOPLE TO ENTER EMPLOYMENT

28. The Government has introduced a range of services in recent years, predominantly delivered through Jobcentre Plus, to help disabled people move into paid employment. These include services provided by Disability Employment Advisers, the New Deal for Disabled People (NDDP), Employment Zones, Workstep, Work Preparation and Access to Work. Although this report has not looked at all of these initiatives in detail, the Committee notes the contribution made by these schemes.[19] A principal aspect of this report is the support provided by, and the performance of, the new Pathways to Work initiative.

PATHWAYS TO WORK

29. Pathways to Work was introduced in 2003 and was assessed in much of the evidence we received as marking a significant step forward in providing appropriate support to help disabled people move into work.[20] The first phase of the Pathways pilots began in October 2003. A total of seven areas were included by April 2004: Renfrewshire, Derbyshire, Bridgend, Gateshead and South Tyneside, Essex, Somerset and East Lancashire. The 2004 Pre-Budget Report announced that Pathways to Work would be expanded to cover one third of the country. This expansion began in October 2005 and aims to be completed by October 2006.

30. In pilot areas, all those making a claim for an incapacity benefit are obliged to attend a work-focused interview (WFI), with a further five mandatory interviews at roughly monthly intervals. WFIs can be deferred or waived by a personal adviser, otherwise a benefit sanction may be imposed for a failure to attend. Other measures in the pilots include: early support from personal advisers; a 'Choices' package of interventions offering access to specialist programmes such as NDDP and the 'Condition Management Programme'; the 'Return to Work credit', worth £40 per week for up to 52 weeks; and in-work support. Any existing incapacity benefit claimant may also volunteer to take part in Pathways.

31. An expansion to the pilots began in February 2005 when those who had been claiming incapacity benefits for up to three years began to be called in for up to three compulsory WFIs. From April 2006, existing claimants who had been claiming benefit for up to eight years were included in the Pathways extension. In one pilot area - Somerset - Pathways was extended to cover all existing claimants. The extension to existing claimants also includes a discretionary Job Preparation Premium (JPP) of £20 per week for up to 26 weeks for those engaged in work-related activity.

32. An assessment of the performance of Pathways to Work follows in Chapter 5.

DISABILITY RIGHTS

33. A further aspect of the Government's approach to helping more disabled people into employment is the Disability Discrimination Act (DDA) 1995. Provisions in the Act give protection for disabled people in employment, education and in access to goods, facilities and services. This means employers cannot discriminate against employees or potential employees on grounds of disability and are required to make reasonable adjustments to the workplace. The employment provisions of the Act originally exempted employers with less than 20 employees. From October 2004 this exemption ended - along with the exemption for the police, fire and prison service professions.

34. The Disability Discrimination Act (DDA) 2005 further extended the rights of disabled people. Under this Act, from December 2006 there will be a new duty on public bodies - from local authorities, to healthcare and education providers - to promote equality of opportunity for disabled people, similar to the 'duty to promote' under the Race Relations (Amendment) Act 2000. Public authorities will need to:

35. The DDA 2005 also extends the coverage of the legislation to include an additional 175,000 disabled people with cancer, HIV and multiple sclerosis.[21]

36. Compliance with the DDA is closely monitored by the Disability Rights Commission (DRC). The DRC is an executive non-departmental public body sponsored and monitored by the DWP to promote the equality of opportunity for disabled people, prevent the occurrence of disability discrimination and promote good practice. In addition to providing advice to disabled people, employers, service providers and education providers on the DDA, the DRC has a range of functions and powers to: undertake formal investigations; provide legal support; arrange independent conciliation when disputes occur; and raise public awareness of disability issues.[22]

37. In January 2005, the Strategy Unit published the report 'Improving the Life Chances of Disabled People.' The report recommended establishing an Office for Disability Issues (ODI) to act as a focal point across government to improve outcomes and secure equal opportunities for disabled people and their families. The ODI was officially launched in December 2005. [23] It includes Ministers and officials from six Government departments and is led by the DWP's Minister for Disabled People. The ODI will report annually to the Prime Minister on cross-Government progress in implementing the Strategy Unit report.

38. Following another recommendation in the report, in February 2006 DWP formed an Advisory Group of 12 disabled people to help set up a national forum representing the interests of disabled people in policy and services. The aim of the forum is:

    "to ensure that disabled people have a direct channel of communication to the heart of the Government, enabling them to influence the development of policies and service delivery that affects all aspects of their lives."[24]

39. The issue of disability rights is further analysed in Chapter 7.

The Welfare Reform Green Paper

40. In January 2006, some months after it was initially promised, the Government published the Welfare Reform Green Paper. The Green Paper covers several key areas including: helping those who are ill or disabled, lone parents and older people into work; reforming Housing Benefit; delivering welfare reform; and long-term benefits reform. The issue that has probably received the greatest public and media attention is that of helping ill or disabled people move into employment.

GOVERNMENT TARGETS

41. The Government has had a rolling Public Service Agreement (PSA) target since 1998 to increase the employment rate of disabled people and significantly reduce the difference between their employment rate and the overall rate. The employment rate for disabled people has shown a gradual increase. In spring 1998, the employment rate of disabled people was 43.4%, and the gap between this and the overall employment rate was 29.8%. By spring 2005, the comparable figures were an employment rate of disabled people of 50.1% and a gap of 24.5%.

The aim of an 80% employment rate

42. In addition to this PSA target - and similar targets aimed at increasing the employment rate of lone parents, ethnic minorities, people aged over 50, those with the lowest qualifications and those living in the 30 poorest local authority districts - the Government has an overarching employment aim. The DWP Five Year Strategy, published in February 2005, announced the Government's "long-term aspiration of moving towards an employment rate equivalent to 80% of the working-age population"[25] and further detail was provided in the Welfare Reform Green Paper. The Green Paper specifies that to reach an overall employment rate of 80%, the Government will tackle economic inactivity and aim to:

  • reduce the number of people claiming incapacity benefits by one million;
  • increase the number of older workers by one million; and
  • get 300,000 more lone parents into work.[26]

43. The Government hopes to achieve these aims within 10 years.

The aim to reduce the incapacity benefits caseload by one million

44. Some of the evidence received by the Committee suggested that a number of organisations and individuals were confused about exactly what the aims actually intend to achieve.[27] In response, the Department clarified that the aim is to reduce the incapacity benefits caseload by one million rather than move one million disabled people into work.[28] The aim therefore includes reducing the number of people coming onto the benefits as well as increases in those flowing off. This was clarified for us by the Secretary of State in oral evidence:

    "…we are starting from 2.7-2.72 million. By 2015/2016 I would like to see that figure down to 1.72 million, so it is a net figure. We are not trying to do any clever statistical sleight of hand on this. The reduction will come principally from two sources. Certainly in the majority of cases the reductions will come from the roll-out of the Pathways to Work-type scheme, so we can do more in placing people who are currently on Incapacity Benefit and on the Employment and Support Allowance in the future back into work where they want to be, and that is where I think the majority will come, but I think there will be some who we can prevent coming into the benefit system altogether, through better occupational health, the work of the employment advisers, for example, whom we would like to see in GP surgeries as well. […] if we can be more successful at both ends of that curve, we have every prospect of realising that aspiration of getting a million people off Incapacity Benefit. […] If we are going to get the million off, primarily it will be because we are more successful in getting people off benefit and back into work."[29]

45. Another issue is the potential overlap of the target to reduce the incapacity benefits caseload by one million and the target to increase the number of older workers by one million. In evidence to the Committee, Age Concern expressed unease about the tension between the two targets and asked DWP to be more explicit about the interplay between them.[30] Age Concern also pointed out that the equalisation of the pension age for men and women would make the challenge of achieving the aim of one million fewer incapacity benefits claimants more difficult.[31] They estimated that by 2020 there could be up to 370,000 extra incapacity benefits claimants aged 60-64.[32] When questioned on the issue of the equalisation of the state pension age and its impact on the incapacity benefits caseload, the Secretary of State acknowledged that the target would have to take into account the resulting increased working age population.[33]

46. A further issue raised in evidence was the impact of the ageing incapacity benefits caseload on the off-flow rate over the next 10 years. Nearly a million claimants are aged between 50 and 60 years old.[34] Arguably, a substantial proportion of the reduced incapacity benefits caseload could simply come from people moving into retirement and claiming the State Pension. As the journal Working Brief (produced by the Centre for Economic and Social Inclusion (CESI)) pointed out:

    "While ministers comment on the fact that long-term claimants are more likely to die or retire than get a job, those dying or retiring also contribute to the one million total, as long as they are not replaced by new claimants."[35]

47. The Department estimates that 60,000 incapacity benefits claimants will transfer onto the State Pension in each of the next 10 years.[36] Additional claimants may leave the caseload before receiving the State Pension as a result of, for example, moving onto other benefits or entering work.[37]

48. Further analysis provided in Working Brief states that although around one million incapacity benefits claimants are within 10 years of retirement, there are 100,000 new claims made each year by those within 10 years of retirement. Consequently, the two effectively cancel each other out.[38] However, this assumes that none of the incapacity benefits claimants will move into work or onto another benefit before retirement which, as the Department suggests, is not the case.[39]

49. Taking this further, Working Brief provides some very helpful analysis on whether or not the aim to get one million people off incapacity benefits within 10 years is achievable. Job entry rates for incapacity benefits claimants in Pathways areas are currently double that of non-Pathways areas. Also, the number of new incapacity benefits claims has been falling by around 20,000 (3%) each year. If this reduction rate doubles and is combined with a sustained doubling of the job entry rate (as seen in Pathways areas), they estimate that the total caseload in 2016 will be under 1.7 million and the target will be achieved. This research was also summarised in an evidence session with Dave Simmonds from CESI.[40]

50. CESI's analysis reinforces the point made above by the Secretary of State: that the aim must be achieved through a combination of reducing the number of people flowing onto incapacity benefits and of increasing the number moving off.

51. Summing up, in evidence to the Committee, the Secretary of State described the aim to reduce the incapacity benefits caseload by one million as "incredibly challenging" and went on to say:

    "We do believe, based on the success of the Pathways to Work pilots, that it is an achievable objective for us to set, but I am certainly not going to try and pretend to the Committee today that it is going to be anything other than an incredibly tough challenge for us to realise."[41]

The Committee agrees with the Secretary of State's assessment.

52. We welcome the Government's laudable aim of reducing the incapacity benefits caseload by one million. However, it will be very challenging to do this by 2016. Success depends very much upon the effort and resources that are invested by the Government, particularly over the next few years. Clarification of the baseline by which the aim to reduce the number of people claiming incapacity benefits is also required and we recommend that the Department publish this in the immediate future.

53. In February 2006, the Department informed the Committee that it was currently working on producing baseline forecasts of the incapacity benefits caseload for the next ten years and that these would be completed at the time of 2006 Budget.[42] A similar commitment was made in response to several Parliamentary Questions in March 2006.[43] The forecasts were not available for the Budget (on 22 March 2006). The Committee is disappointed that the Department has not met its commitment to produce incapacity benefits caseload forecasts to 2016 and recommends that the Department does so as a matter of urgency.

INCAPACITY BENEFIT REFORMS

54. In order to achieve the aim of getting one million people off incapacity benefits, the Green Paper outlined proposals for a range of reforms to incapacity benefits beginning in 2008 for new claimants. The 'gateway' onto the benefits - the Personal Capability Assessment (PCA) - will be reformed so that it:

55. This issue will be explored in Chapter 3.

56. A new Employment and Support Allowance (ESA) will replace Incapacity Benefit and Income Support paid on the grounds of incapacity. The ESA will consist of, for the first 12 weeks, an allowance set at the basic Jobseeker's Allowance (JSA) level. Following completion of the new PCA claimants will either get the 'Employment Support Component' of ESA for taking part in work-related activity, which will be paid at a higher level than the current long-term IB rate, or the 'Support Component' - a higher payment for those deemed to be so limited by their illness or disability that it would be unreasonable to require them to undertake work-related activity. It is anticipated that those currently receiving Income Support with the Enhanced Disability Premium or Severe Disability Premium will continue to receive the additional payments currently provided through these premiums.[44]

57. To help claimants move into work increased support will be available, tailored to address the individual's capacity. Incapacity Benefit Personal Advisers (IBPAs) and the private and voluntary sector will help those engaged in work-related activity. This support will be informed by progress in the Pathways to Work areas which will roll out nationwide in 2008 alongside the introduction of the new benefit. Existing incapacity benefits claimants will remain on the current system but will be engaged with more proactively. Extensions to include existing claimants in Pathways to Work will be rolled out "as resources allow."[45] These issues will be further examined in Chapter 5.


3   DWP, A new deal for welfare: Empowering people to work, Cm 6730, January 2006, p 24 Back

4   Most claimants transfer to IB after claiming Statutory Sick Pay for 28 weeks. Back

5   For example, those receiving the highest rate of the care component of Disability Living Allowance Back

6   DWP, Work and Pensions Longitudinal Study, Incapacity Benefits Quarterly Statistics, August 2005 Back

7   DWP, Work and Pensions Longitudinal Study, Incapacity Benefits Quarterly Statistics, August 2005 Back

8   DWP, Work and Pensions Longitudinal Study, Incapacity Benefits Quarterly Statistics, August 2005 Back

9   DWP, A new deal for welfare: Empowering people to work, Cm 6730, January 2006, p 26 Back

10   DWP, Work and Pensions Longitudinal Study, Incapacity Benefits Quarterly Statistics, August 2005 Back

11   DWP, A new deal for welfare: Empowering people to work, Cm 6730, January 2006, p 76-78 Back

12   DWP, A new deal for welfare: Empowering people to work, Cm 6730, January 2006, p 25 Back

13   DWP, Work and Pensions Longitudinal Study, Incapacity Benefits Quarterly Statistics, August 2005  Back

14   HC Deb, 7 Nov 2005, col 439w. "Please note that this figure may increase slightly as additional late notified terminations are added for at least a year following the production of the final quarter statistics."  Back

15   HC Deb, 28 Feb 2005, col 687w Back

16   HC Deb, 24 January 20006, col 1305 Back

17   DWP, A new deal for welfare: Empowering people to work, Cm 6730, January 2006, p 25-6 Back

18   DWP, A new deal for welfare: Empowering people to work, Cm 6730, January 2006, p 4 Back

19   For further analysis of employment programmes for disabled people, see, NAO, Gaining and retaining a job: the Department for Work and Pensions' support for disabled people, HC 455, Session 2005-06, 13 October 2005 Back

20   See, for example, Vol 2: Ev 13; Ev 19; Ev 25; Ev 77; and Vol 3: Ev 48; Ev 65; Ev 75; Ev 85; Ev 113; Ev 122; Ev 125; Ev 127.  Back

21   Department for Work and Pensions Five Year Strategy: Opportunity and security throughout life, Cm 6447, February 2005, p 65 Back

22   See, www.drc-gb.org/whatwedo/aboutus.asp Back

23   'Office for Disability Issues launched today' See, www.officefordisability.gov.uk and DWP press notice 1 December 2005 Back

24   'Disabled people given key role in Government policy making,'DWP press notice, 27 February 2006 Back

25   DWP Five Year Strategy: Opportunity and security throughout life, Cm 6447, February 2005, p 22 Back

26   DWP, A new deal for welfare: Empowering people to work, Cm 6730, Jan 2006, p 18 Back

27   See, for example, Ev 132, vol 2; Qq 119, 120, 194 Back

28   Ev 256, vol 2 Back

29   Q 245 Back

30   Ev 119, vol 2 Back

31   Q 150 Back

32   Ev 119, vol 2 Back

33   Q 240 Back

34   DWP, Work and Pensions Longitudinal Study, Incapacity Benefits Quarterly Statistics, August 2005  Back

35   Centre for Economic and Social Inclusion, Working Brief, Issue 171, February 2006, p 13 Back

36   Ev 252, vol 2  Back

37   Ev 258, vol 2 Back

38   Centre for Economic and Social Inclusion, Working Brief, Issue 171, February 2006, p 14 Back

39   Ev 258, vol 2 Back

40   Q 105 Back

41   Q 239 Back

42   Ev 225, vol 2 Back

43   HC Deb, 7 March 2006, col 1350W and col 1351W Back

44   DWP, A new deal for welfare: Empowering people to work, Cm 6730, January 2006, p 42 Back

45   DWP, A new deal for welfare: Empowering people to work, Cm 6730, January 2006, p 48 Back


 
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