Incapacity benefits changes strengthen work incentives for over a million, but hundreds of thousands left worse off

In March, the government proposed reforms aimed at supporting people with health conditions to get into, and remain in, paid work. The most radical proposal is to scrap the Work Capability Assessment (WCA), the assessment used to determine eligibility for incapacity benefits, which are targeted at individuals deemed too unwell to work. Instead, eligibility will be disconnected from work capability, and based on receipt of personal independence payment (PIP) – a benefit for those whose disability adds to the financial cost of daily tasks (such as dressing themselves) and mobility. 

A new report published today by IFS finds that:

• Before accounting for any change in behaviour, 520,000 individuals would see their benefit entitlements fall under the reform, typically by £390 per month. These are people who have a health condition that is deemed to limit their ability to work but is not deemed to add significant extra costs to daily living, such as those suffering from severe anxiety. 320,000 individuals – who have not been found to have an incapacity for work but who struggle with daily tasks – will see their benefit entitlements rise by the same amount. That is an overall annual saving to the government of £900 million. 
• Scrapping the WCA would strengthen the financial incentive to work for 1.8 million people, but it would weaken it for 440,000.
  The reform would ask more of work coaches – typically not health professionals – who would have to judge how to set work requirements for benefit recipients without their capability to work being formally assessed.
• Many people would have an increased incentive to apply for PIP as otherwise they would be left on a lower income, and there will be more money at stake. 
• Basing entitlement on the assessment used for PIP, spending on which has been rising even faster than spending on incapacity benefits, risks leading to greater spending in the long term.

This is one of two proposed changes to incapacity benefits announced just this year. The other, rather less fundamental, change proposes tightening the eligibility criteria in the WCA prior to it being abolished, reducing entitlements for new claimants of incapacity benefits and those being reassessed. This reform is due to be implemented in 2025 at the earliest, and will become irrelevant when the assessment is scrapped entirely a few years later. Previous reforms of a similar nature have often failed to deliver expected savings.

Sam Ray-Chaudhuri, a Research Economist at IFS and an author of the report, said: 

"The government proposes moving to a system where being unable to work will no longer directly confer any additional financial support from the benefits system. On the whole, this strengthens financial incentives to work, but getting the reform right will rely on work coaches’ ability to set personalised work requirements that take into account what recipients can reasonably be expected to do – despite there being no formal test of capacity to work and work coaches typically having no medical training."