“One in every 10 working-age people in Britain is now claiming at least one type of health or disability benefit. One in every 8 young people isn’t currently in work, education or training,” Work and Pensions Secretary Liz Kendall wrote this week.
The figures are a stark illustration of why ministers believe the significant reforms to disability and sickness benefits that they have just proposed are necessary.
The proportion of adults on either health-related benefits – receiving disability support such as personal independence payments (PIP), or out of work incapacity benefits such as the universal credit health top up, or both, increased from 7.5 per cent of the working-age population in 2019/20 to 10 per cent in 2023/24.
The Institute for Fiscal studies said this represents a 38 per cent growth in the number of claimants in just four years.
Meanwhile the number of new disability benefit awards made to under-40s has grown by 150 per cent and 37 per cent of new claims are now primarily for mental health conditions, up from 28 per cent before the pandemic.
And Office for National Statistics (ONS) figures show 2.8 million people were out of work and classed as long-term sick – one of the highest rates of any G7 country.
The cost of these increases is significant. Over the last four years, spending on working-age health-related benefits rose from £36 billion in 2019/20 to £48 billion in 2023/24.
Forecasts expect this to increase further – with estimates ranging from £63 billion in 2028/29 (OBR) to the Government’s own claim that it will hit over £70bn by 2030.
But why is the UK in this position? And is there anything that the experience of other countries can tell us?
How Covid set the UK apart
The levels of economic inactivity in the UK are not unusual. Other countries actually have a higher proportion of people who are not in work, education or training.
OECD data, measuring employment rates of 15 to 64-year-olds between 2006 and 2023 shows only four nations hit a target of 80 per cent: Iceland, The Netherlands, Switzerland and New Zealand.
The UK was ranked 14th at 75 per cent. And several of its European neighbours – such as Spain, Italy, Greece, Belgium and France, had significantly lower employment rates.
But what sets the UK apart is that levels of economic inactivity have significantly spiked since the Covid-19 pandemic.
The UK government itself has said the country is an “international outlier” when it comes to the increase in new sickness and disability claims.
In the Department for Work and Pensions policy Green Paper outlining the benefits plans, published this week, it stated: “We are the only major economy whose employment rate hasn’t recovered from the pandemic. We are also seeing a growing problem where young people are leaving school and not entering further education, an apprenticeship, or work.”
The government said that, while all comparable economies have seen rising prevalence in long-term health conditions and disability, the UK has seen a different pattern when it comes to the impact this has had on a rise in benefit claims.
According to the Office for Budget Responsibility (OBR), data shows a rise in inactivity across the G7 countries in the years leading up to the pandemic.
Afterwards, levels of inactivity continued to rise in the UK and United States while other countries saw a fall.
“Since the pandemic, the 15 to 64-year-old inactivity rate has increased in the UK by 0.5 percentage points and by 0.3 percentage points in the US – but fallen in the other five G7 economies,” the OBR analysis says
The UK is also an outlier in terms of the rise in the number of people who have started claiming health and sickness-related benefits between 2019/20 and 2023/24.
An Institute for Fiscal Studies report in September, concluded the “rapid growth in health-related benefits seems to be largely a UK phenomenon”.
The study compared the number of health-related benefit claimants in similar countries, with data available for analysis and most saw a fall.
They included Australia, Austria, Canada, Germany, Ireland, the Netherlands, Sweden and the US.
There was a small rise in claims in France and Norway. And Denmark saw a significant 13 per cent increase. But this was still less than half the 30 per cent increase in health-related benefit claimants in the UK over the same period.
Despite this, spending on health-related benefits is actually similar in the UK to that of other comparable countries.
The UK now spends 1.7 per cent of GDP on health-related welfare for working-age adults, which is around the OECD average of 1.6 per cent.
According to Eurostat, among EU countries disability benefits expenditure was on average 1.8 per cent in 2022.
But the IFS warned that recent trends suggest the UK was on track to become one of the top spenders across OECD countries if the figure rose, as forecast, to 2.1 per cent of GDP by 2028.
What is the cause?
The increase in working-age spending in the UK has been mostly driven by more people making claims for disability or health related benefits.
Experts agree that there is no single reason behind this unique rise in claims compared to other countries.
Some suggest the cause is a combination of the impact of the Covid-19 pandemic and the cost of living crisis and how these events interacted with the condition of the UK’s economy and our public services.
There is evidence to suggest the UK is not as good at ensuring people living with health conditions are able to remain in the workforce and the suggestion is that this issue was amplified by the pandemic.
The OBR reported in 2023 that ill health had “consistently been a bigger factor behind inactivity in the UK than in most other advanced economies”.
Eduin Latimer, a research economist on Income Work and Welfare at the IFS said: “We don’t know why there’s been such a large rise in claims in the UK. The fact that the rise is almost unique suggests that it is either UK-specific factors, or the interaction of international factors with UK specific circumstances.
“For example, the design of UK’s disability benefit system may make them more responsive to a cost of living shock than in other countries.”
Christopher Rocks, Lead Economist for the Commission for Healthier Working Lives at the Health Foundation said: “A longer-term trend of poorer working-age health outcomes and high work pressures – the UK has some of the highest levels of job strain in Europe – are likely factors. But international comparisons are difficult and influenced by cultural norms and the structure of welfare systems.”
The Government’s Green Paper suggested ministers believe there is a link between the generosity of disability and health related welfare claims and the rise in new claimants.
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While out of work benefits – universal credit – have been frozen or faced real-terms cuts in recent years, health-related benefits have consistently risen in line with inflation.
“Benefit changes over the last decade or so have had the effect of making the health element of universal credit (UC) relatively more attractive,” the Department for Work and Pensions document said.
“Independent experts, like the OBR and the IFS, suggest this been a factor in driving higher incapacity benefits claims. The rate of UC for those on the health element is now double that for those on the standard allowance.”
Will the measures announced this week make a difference?
Latimer said the proposals, announced by Kendall on Tuesday, would reduce the increase in claims.
“In terms of people claiming health-related benefits, these measures will likely substantively reduce the increase in claims as they involve a tightening in eligibility for disability benefits and a significant reduction in the amount available for new claimants to the health element of universal credit,” he said.
“There is much less certainty about how this will affect economic inactivity and employment. The Government clearly hopes that the announced measures will support health-related benefit claimants into employment, but many health-related benefit claimants have been out of work for some time so getting them back into work will be challenging.”
Rock agrees that “tighter eligibility rules will likely reduce new claims”. But, he warns: “Past experience suggests this won’t necessarily deliver the savings the government expects.
“There’s also a risk that costs will shift to the NHS and other services. A sustainable approach requires addressing the underlying causes of poor health and shifting support towards prevention, reducing the numbers of people moving onto health-related benefits in the first place.
“Prevention and early intervention are key… Countries like the Netherlands have built and maintained an approach over the long term, including clearer employer responsibilities for absence management – something the UK needs to do instead of relying on short-term fixes and changes in direction.
“A more proactive approach is needed, keeping people healthy and in work for longer, rather than intervening only once they have left the labour market.”
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