IFS responds to announced Govt. reforms to disability and incapacity benefits

The reforms that the work and pensions secretary, Liz Kendall, has announced to parliament today to be implemented or consulted on, represent a fundamental change to the way that the state supports people out-of-work, according to the Institute of Fiscal Studies (IFS).

The IFS has issued the following statement in the light of the measures announced today:

At its core, the decision is to tilt the welfare system away from those who are disabled and towards those who are unemployed without an assessed disability. The package as a whole is expected to save over £5 billion by 2029-30, which would make it a bigger cut to welfare than seen in any fiscal event since 2015. 

For decades the UK has had separate benefits for incapacity to work (currently the health element of universal credit (UC)) and higher costs of living resulting from a disability (currently Personal Independence Payment (PIP)). These are assessed separately. From 2028-29, getting PIP will be the factor that determines whether you get the health element of UC – meaning there will be no support specifically for disabilities that prevent work. Those who would otherwise qualify for the health element of UC – but not PIP (currently 900,000 people) – will therefore not get the element and be worse off by £2,400 per year (today’s prices). 

Kendall also announced an increase in the basic amount of UC that all claimants get, a freeze (until 2029–30) in the health element, and, for new claimants, a halving of the health element. These reforms imply substantial redistribution across benefit recipients. Families who receive the health element of UC– currently 2.4 million – will get £280 less a year in 2029-30, while the 4.5 million other families on UC will get £150 more a year in 2029-30. New claimants to the health element of UC will receive £2,500 less a year than they would have without these announcements. 

Cuts in the generosity of the UC health element weaken the financial incentive to it – part of the aim of this reform – but the long-term plan to scrap the work capability assessment and instead base eligibility on the PIP assessment will considerably strengthen the incentive to claim PIP. Currently, the average PIP recipient receives £7,200 per year. Under the reform, being awarded PIP would also get the claimant the UC health element (£2,400 per year in today’s prices). 

The other major saving – tightening PIP eligibility criteria – is by comparison relatively uncertain. The impact of reforms to assessment criteria are more difficult to predict than changes in amounts paid, as the way claimants approach the assessment is likely to change in response. Previous governments attempting similar reforms have found that they have saved much less than hoped.  

A key part of the motivation for these reforms is to strengthen incentives to work. But on this front the package is a mixed bag. For some people with health conditions work incentives will be strengthened. But the 4.5 million households who are on UC but do not get a health-related benefit will see a weakening in incentives. There’s a clear risk here: those whose incentives are weakened might be precisely the group that are most able to respond to financial incentives, while stronger incentives (and employment support) are targeted at those who often are unable to work.  

Tom Waters, an Associate Director at IFS said: “This package is a fundamental break from the past few decades of welfare policy. The increase in basic out-of-work support, while not very large, is the biggest permanent real terms rise since at least 1980. With it is promised even higher support in the period shortly after job loss in the form of contribution-based unemployment insurance. At the same time the health-related benefit system will be tightened, cut, and entitlement will no longer depend upon whether you can work or not. The hope is more employment and fewer people in the disability and incapacity benefit system. The risk is that it’s precisely the individuals receiving health-related benefits that are least responsive to financial incentives to work, and perhaps most in need of extra financial support.”