Memorandum submitted by Centre for Regional
Economic and Social Research
Incapacity claimants are especially
concentrated in Britain's older industrial areas. The very high
numbers in these places should be understood as the consequence
of job losses over a long period.
The Incapacity Benefit problem
and the regional problem are two sides of the same coin. There
can be no solution to one without the other.
The Government's aspiration
to move a million IB claimants back into work is nevertheless
The intention to try to re-engage
IB claimants with the labour market is also appropriate now that
claimant unemployment numbers are so much lower, but a universal
requirement for the less severely disabled to prepare for work
There must be doubts about whether
existing regional development policies are up to the task of delivering
jobs on the scale required, and in the right places, to absorb
huge numbers of IB claimantsin which case efforts to reduce
claimant numbers are likely to founder.
The authors of this submission are two academic
commentators on Incapacity Benefit (IB). Our reputation is rooted
in extensive research into economic inactivity, incapacity and
unemployment across a range of localities in Britain. The more
recent publications from this research include a book on how men
become detached from the labour market
and a major report on the extent of hidden unemployment among
In particular, our research has led the way
in highlighting how incapacity claimants are highly concentrated
in Britain's older industrial areas. To illustrate this point,
Table 1 lists the top 30 GB districts in terms of the share of
the working age population claiming incapacity benefits in August
2004. The table also shows the bottom five districts. Table 2
shows the same incapacity figures by region, and contrasts them
with the claimant and ILO measures of unemployment.
Four points should be immediately apparent from
There are huge differences in
the incidence of incapacity claims across Britain. At the extremes,
the incapacity claimant rate in Easington (County Durham) and
Merthyr Tydfil (South Wales) is 10 times that in Wokingham (Berkshire)
or Hart (Hampshire).
In the worst affected areas
the rate is very high indeedup to one in five of all working
age men and women.
The list of areas with the highest
rates is virtually a roll call of older industrial Britain.
At the regional scale, the North,
Scotland and Wales are far ahead of southern England.
Data such as this and our detailed research,
which has included interviews with some 2,000 IB claimants, has
led us to a view on Incapacity Benefit which differs in important
respects from that put forward by the Department for Work and
Pensions (DWP). In particular, we have concluded that:
The big increase in incapacity
numbers, compared with 20-25 years ago, is the main way in which
the labour markets of northern Britain have adjusted to job loss.
Although a degree of ill health
or disability is quite widespread in the workforce, health problems
alone can explain neither the scale of the increase in IB claimants
through time nor the concentration of claimants in certain parts
of the country.
A substantial proportion of
IB claimants should be regarded as "hidden unemployed",
in that in spite of their health problems they could reasonably
be expected to have been in work in a genuinely fully employed
Interventions to re-engage IB
claimants with the labour market are necessary, but in the absence
of large-scale job generation in the older industrial areas of
the North they are unlikely to be effective.
The initial job losses in northern Britain often
fell on men, and male IB numbers were the first to rise sharply.
Most of the recent increase in IB numbers has been among women,
though in virtually the same areas where male IB claimant rate
were already high.
Our view is that the Incapacity Benefit problem
and the UK regional problem are inseparable. They are two sides
of the same coin. We acknowledge that previous Work and Pensions
Committee reports have flagged up the regional dimension of incapacity
claims but they have done so without recognising its full significance.
In our view, despite all its powers and responsibilities the DWP
can at best deliver only a small part of the solution. The key
to reducing incapacity numbers actually lies with regional economic
development, and therefore primarily with the Treasury, DTI, ODPM
and the devolved administrations. This perspective differs from
that of economic commentators who have never looked beyond national
data. However, the Committee should be aware that our understanding
of the incapacity benefit problem is widely accepted within the
academic community studying Britain's urban and regional problems.
What we do, below, is comment on the Government's
proposed IB reforms in the light of this interpretation of the
problem. In the absence of the Green Paper at the time of writing,
our understanding of the proposals is based mainly on press reports
and our comments address issues of principle rather than detail.
The aspiration to reduce incapacity claimant numbers
by one million
We think this is reasonable. The current headline
total of non-employed incapacity claimants of working age is 2.7
million. We have invested considerable effort in trying to disentangle
just how many of these men and women might have been in work in
a genuinely fully employed economy. Our preferred estimates
are based upon comparisons with the low rates already achieved
in the parts of southern England that are at or close to full
employment. We also make adjustments for underlying differences
in the extent of incapacitating ill-health. Our estimates point
to around 1.1 million "hidden unemployed" on incapacity
benefits. On the other hand we would make three observations.
First, we are talking about one million people
who do have health problems, even if they are not necessarily
incapable of all work in all circumstances. Their IB claims should
not be regarded as "fraudulent", and it is worth remembering
that all the claims will have been certified at some stage by
Second, even if one million IB claimants could
be brought back into work the remaining number on incapacity benefits
(around 1.7 million) would still be far greater than in 1979 (around
0.7 million). Even in the fully employed parts of southern England,
incapacity claimant rates are well ahead of what they were twenty
years ago. Given that there has been a gradual improvement in
general standards of health, albeit with the slowest improvements
amongst disadvantaged groups, the underlying increase suggests
that employers have generally become less accommodating of workers
with health problems.
Third, making sure that there are one million
extra jobs available is a daunting task, and one complicated by
the fact that a very large share of the new jobs need to be located
in the parts of Britain where incapacity claimants are most numerouswhich
also happens to be the areas where the economy is currently weakest.
Splitting Incapacity Benefit into two
We understand the logic behind this proposal.
The Government proposes to replace Incapacity Benefit with a new
"Rehabilitation Support Allowance" for those with some
prospect of returning to work and a "Disability and Sickness
Allowance" for those with greater health problems. The latter
will be paid at a higher rate.
Our research confirms that the existing binary
distinction between those who are deemed "incapacitated"
and the rest of the workforce is misleading and encourages labour
market detachment. Our survey work with male IB claimants, for
example, finds that only around a quarter say they can do no work
at all. The others report health limitations that affect what
sorts of jobs they can do, or how much, or problems that come
and go and therefore affect their reliability at work. Yet fewer
than one in ten male IB claimants look for work, not least because
Incapacity Benefit does not require them to do so.
There is a good case for developing benefit
structures that do not write off those who could be brought back
into work in the right circumstances. The practical problem is
in developing medical assessment procedures that are able to distinguish
between the two groups. This is a tall order, and one we suspect
will lead to a lot of disputes and appeals at the margins. If
our survey data on self-reported heath limitations is any guide,
then in the context of 2.7 million on incapacity benefits no more
than perhaps 0.7 million would be eligible for the new, higher
benefit. Moreover, because there is always a flow on and off incapacity
benefits among those with less severe problems, the appropriate
share of new claimants finding their way onto the higher benefit
might be as low as one in 10.
An end to the escalation in payments through time
This is probably a red herring. At present,
IB rates escalate after six and 12 months (though those coming
from Statutory Sickness Pay don't all join at the bottom). The
Government proposes to end this escalation, presumably because
it is thought to be a financial incentive to stay on benefit.
We suspect the escalation of rates is largely
irrelevant because the real incentive is the limited scope of
means-testing of IB compared to Jobseeker's Allowance (JSA). Whereas
JSA is means-tested for everyone after six months, and earlier
for most claimants, IB is only means-tested for recent claimants
with significant pension income. This creates an incentive for
non-employed adults in some circumstanceswith a partner
in work for exampleto claim IB rather than JSA if they
are able to access IB.
We would therefore not expect the removal of
escalation in itself to have much impact. However, it remains
unclear whether the Government's intention in linking the lower
of the new benefits to JSA is to also introduce JSA-style means
testing. If so, there could be a quite large diversion (among
new claimants at least) away from incapacity benefits to JSA and
thereby back into the claimant unemployment figures.
A requirement to prepare for work for those on
the lower benefit
At one level this is logical; at another it
is potentially harsh and a waste of time.
Our research indicates that in the right circumstances
a substantial proportion of IB claimants would be in work. The
low IB claimant rates in large parts of southern England confirm
that where the economy is run fast enough for long enough, relatively
few remain on IB. The Government proposes that all new claimants
except the most severely disabled would be required to prepare
for work, through re-training and rehabilitation for example,
and that failure to do so would be backed up by financial sanctions.
There are two groups for whom this is going to appear unjust.
One is a group of older workers approaching
state pension ageand it is worth bearing in mind that IB
claimants are heavily skewed towards the older age groups. Many
of these men and women have already had long and arduous working
lives, and they have the physical ailments that attest to age
and occupation. The reality is that for many of this group IB
presently serves as a "bridge" to their state pension.
They might have stayed in work longer if their old jobs had still
been there, but to ask them to re-train or contemplate new jobs
well below their previous status and earnings would be harsh.
In practice this group may be one of the hardest to help and,
bearing in mind that they would anyway have only a few years left
in the labour market, targeting older workers may not be the most
cost-effective use of resources.
The other threatened group comprise at least
a proportion of the claimants in the IB blackspots in Britain's
older industrial areas. Some of these are also older workers but
the group is wider. The economy in these areas has picked up a
lot since the depths of the early 1990s recession, and some IB
claimants might be expected to find work if they lookedbut
not all. In these places the numbers claiming IB are simply so
large that there is unlikely to be room in the local economy to
accommodate them all, or even a sizeable minority. There is a
danger here of forcing men and women onto a merry-go-round of
frustrated job searches and training courses that lead nowhere,
rather similar to the one that faced unemployed claimants in the
1980s and 1990s. For some individuals the stress of repeated failure
may actually add to existing health problems.
There is therefore at least a case for introducing
a degree of selectivity about the requirement to prepare for work
or face financial sanctionperhaps based on simple criteria
like age, location, and former occupation rather than on yet another
potentially contested medical assessment.
Rolling out Pathways to Work to the rest of the
This seems sensible, because it is hard to object
to greater advice and enhanced access to training and rehabilitation.
This is indeed likely to be what many new IB claimants would want
themselves. Our research shows that more than a quarter of male
IB claimants do initially look for work; only later do disillusion
and disengagement set in.
The provision of financial incentives to return
to work (presently a £40 a week top-up for the first year
for those entering low-paid work) is probably a useful part of
the package, but to lure IB claimants into trying a new job it
is at least as important that they have the opportunity to return
to their old rate of benefit if the job does not work out for
whatever reason. Employers too need to be encouraged to take on
workers with health problems.
We understand that the initial results of the
Pathways to Work initiative are encouraging in that more new IB
claimants are moving back into work. However, we would introduce
a few words of caution. First, the proper way to measure the impact
of Pathways to Work is not through the headline "return to
work" figure but as the excess over what was happening previously,
as quite a number of IB claimants do anyway return to work quickly.
Second, there is a likelihood that in weaker local labour markets,
such as those in older industrial Britain, IB claimants returning
to work will find jobs at the expense of other jobseekers, thereby
transferring unemployment from one person to another. Third, Pathways
to Work has so far had the good fortune to be introduced in the
context of a relatively strong national labour market.
Implementing the benefit changes for new claimants
We see sense in this. We understand that the
changes in benefit structures would be introduced from 2008 onwards
and would apply only to new claimants. The existing stock of IB
claimants would be unaffected. Implicitly, this means that the
Government is not expecting to move one million back into work
either in the next couple of years or very quickly thereafter.
A shift in the expectations placed on existing
long-term IB claimants would often be unwelcome, especially where
the claimant is approaching state pension age. Some of these claimants
have been on IB for so long that they must be considered far removed
from the labour market. New claimants, mostly with much more recent
experience of employment and often an aspiration to return, are
clearly a more propitious group to target.
More significantly, the economy would have to
grow very strongly in the areas where IB claimants are concentrated,
and this cannot be expected to occur overnight. The rise in IB
claims to present levels has taken a generation, prompted by two
decades of job destruction in Britain's older industrial areas
in particular. It is only reasonable to expect that even with
all the right policies in place it will take the best part of
another generation to get the numbers back down again.
One fallacy does however need de-bunking. This
is the assumption that because so many IB claimants are now in
their late 50s and early 60s, the problem will simply fade away
as this cohort reaches pension age. This misunderstands how labour
markets work. Crucially, as this cohort finally drops out onto
pensions they will not be freeing up jobs for the younger cohorts
behind them, including new entrants to the labour market. In the
absence of job creation (or out-migration or out-commuting) the
local imbalances between labour demand and supply that prompted
the rise in IB number will therefore persist. A new generation
of workers therefore runs the risk of being marginalized, and
if they have heath problems they too will access incapacity benefits.
As will be apparent from the comments above,
we support much of what the Government is proposing. However,
that is not the same as saying that these "labour supply
side" interventions will solve the IB problem. They are perhaps
necessary, but insufficient by themselves.
In the context of the national economy of ten
years ago, when claimant unemployment was still two or three million,
the most pressing problem was one of an inadequate demand for
labour, especially in the areas where IB claimants were concentrated.
But the economy has moved on. Claimant unemployment has fallen
everywhere, and even in Britain's older industrial areas is now
at historically low levels. As the economy has grown it has been
the active jobseekers, such as those on JSA, who have been brought
back into work first. In contrast, economic growth has so far
almost entirely by-passed IB claimants, who have nearly all given
up looking for work. Only since 2003 has there been evidence of
a fall in IB numbers, and then only on a modest scale. This is
a dichotomy we predicted.
Even in traditionally weaker local labour markets
there is therefore now evidence of recruitment difficulties alongside
continuing huge numbers on IB. This points to an absence of symmetry
in the way the economy and the benefits system interact: whereas
job loss ultimately lies at the root of much of the increase in
IB numbers, job creation does not automatically bring the IB numbers
We therefore agree that if IB numbers are to
be brought down, claimants will need to be re-motivated, re-skilled
and re-engaged with the labour market. In this respect the Government
is correct. However, there must also be jobs for these people
to go to. Indeed, in the absence of enhanced job creation in the
areas where IB claimants are concentrated the Government's efforts
are likely to make little headway.
If this new job creation in older industrial
Britain fails to occur, we would expect the Government's proposed
reforms to work out very differently across the country. In most
of the South:
Extra labour supply arising from
the re-engagement of IB claimants should find a ready labour demand
because many employers face recruitment difficulties.
But most IB claimants aren't in the
South, so the impact on headline totals will be modest.
And in the South, IB claimants are
probably a harder-to-help group, with greater disabilities, because
in this part of the country most people with lesser health problems
are already in work.
In contrast, in large parts of the North:
It is hard to see extra labour supply
being absorbed outside a few in-demand occupations.
In so far as IB claimants find work,
they will often do so at the expense of other jobseekers, including
JSA claimants. Total claimant numbers may therefore fall very
IB claimants returning to the labour
market will exert further downward pressure on pay and conditions
at the bottom end.
Long observation of the UK economy does not
suggest that wage levels across the regions adjust smoothly to
bring labour demand and supply into balance. Wage adjustments
are slow at best, and regional wage levels seem to have only a
modest impact on the location of economic activity. We do not
therefore subscribe to the view that additional labour supply,
arising from the re-engagement of IB claimants, would automatically
lead to an increase in labour demand, except in very limited circumstances.
So is Regional Policy up to the Task?
Our assessment of the incapacity benefit problem
emphasises the role of regional economic development as the essential
complement to the reform of Incapacity Benefit, without which
the reforms are unlikely to succeed. We recognise that regional
policy is beyond the scope of this Committee inquiry. However,
it is important that the Committee does not take it for granted
that the necessary policies are all in place. We would conclude
by making four points:
The present Government has been very
successful in overseeing the creation of large numbers of new
jobs, even in Britain's least prosperous areas, but this has been
founded on a sustained period of national economic growth driven
in particular by consumer spending and rising debt. This period
of economic growth now appears to be drawing to a close.
The enlargement of the European Union
means that after 2006 the UK's less prosperous areas will receive
much less from the EU Structural Funds to promote regional development,
as the funds shift eastwards.
At the same time, new EU State Aid
rules will come into force that will further restrict the ability
of the UK Government to provide financial assistance to firms
to create or protect jobs in less prosperous areas.
The Government's efforts to promote
economic growth across all the regions, through the Regional Development
Agencies for example, could end up widening regional disparities
in job opportunities by enhancing the successful areas rather
than pulling up the weaker performers.
SHARE OF ADULTS OF WORKING AGE CLAIMING INCAPACITY
BENEFITS, AUGUST 2004, GB DISTRICTS
|% of working age
|Easington (Co Durham)||20.5
|Merthyr Tydfil (S Wales)||20.5
|Blaenau Gwent (S Wales)||19.2
|Neath Port Talbot (S Wales)||16.5
|Rhondda Cynon Taff (S Wales)||16.2
|Caerphilly (S Wales)||15.6
|Barrow in Furness||14.6
|Stoke on Trent||13.8 |
|Bridgend (S Wales)||13.7
|N Lanarkshire (Scotland)||13.6
|Sedgefield (Co Durham)||13.5
|Torfaen (S Wales)||13.5
|St Helens||12.7 |
|Wear Valley (Co Durham)||12.5
|Derwentside (Co Durham)||11.9
|Forest Heath (Suffolk)||2.4
|Surrey Heath||2.2 |
Figures refer to Incapacity Benefit, NI credits for incapacity
and Severe Disablement Allowance
Sources: DWP, ONS
JOBLESSNESS BY REGION
|as % of working age population
|Claimant unemployed (1)
||ILO unemployed (2)||Incapacity claimants (3)
|Yorkshire & Humber||2.5
(1) April 2005
(2) January-March 2005
(3) August 2004
Sources: ONS, DWP
Christina Beatty and Professor Steve Fothergill
27 September 2005
P Alcock, C Beatty, S Fothergill, R Macmillan and S Yeandle (2003)
Work to Welfare: how men become detached from the labour market,
CUP, Cambridge. Back
C Beatty and S Fothergill (2004) The Diversion from "Unemployment"
to "Sickness" across British Regions and Districts,
CRESR, Sheffield Hallam University. (Also forthcoming in Regional
See C Beatty and S Fothergill (2004) op cit. Back
C Beatty, S Fothergill and R Macmillan (2000) "A theory
of employment, unemployment and sickness", Regional Studies,
vol 34, pp 617-630. Back