Post-Brexit, UK growth is sluggish, and its public finances are under pressure. The uncertain geopolitical situation means defence spending is being ramped up, at a time government borrowing needs to reduce.
To square the circle, the Labour government is seeking to cut spending in the rapidly-increasing area of disability-welfare payments. The aim is to achieve savings of £5 billion under this heading by 2029. Unsurprisingly, this is now highly controversial, and claimants across the spectrum of disability are worried.
The rise in numbers on disability schemes go back a decade, when the Conservative government cut the rate of unemployment benefit to less than £100 a week – not sufficient for anyone to live on. Not surprisingly, UK unemployment has remained very low since then, with the temporary exception of the Covid period when special top-up payments were made to those laid off.
Because it is not possible to live on the unemployment payment, an increasing number of people in the UK have registered as disabled, in which case much more generous payments are applicable – in addition to Universal Credit, there is also the Personal Independence Payment. The UK government plans to raise unemployment benefits over the coming years so that people are no longer forced to register as disabled to survive. At the same time, they want to reassess those who are on disability payments.
Before the cuts in unemployment payments, people who were temporarily incapacitated would typically have gone on welfare for a period, and returned to work when they recovered.
However, under the current system, once registered as disabled, any attempt to return to work could result in the loss of the more generous disability payments. If the return to work proved unsuccessful, then they could find themselves back on an unemployment payment of less than £100 a week. So people with a milder or temporary incapacity have become locked into the disability welfare system, and locked out of the labour market for much of their working years.
The result of this regime is that the numbers on the disability schemes have rocketed. The numbers of people of working age who are neither in work nor seeking work has risen substantially. Today in England and Wales, almost 5 million adults of working age are classified as being unable to work because of a disability – an eighth of the relevant population.
However, in Northern Ireland, this share is even higher – about a quarter of adults of working age get disability payments averaging £10,500 a year. It’s most unlikely that the underlying rate of disability is twice as high in Northern Ireland as on the island of Britain. Who pays and who assesses may be the key to the puzzle. While London pays the full cost of welfare benefits in the North, there is no incentive for the Northern Ireland administration to be equally rigorous as in England or Wales in assessing eligibility. A similar ‘London pays, Stormont sets the rules’ set-up led to the cash-for-ash scandal.
About a quarter of the targeted savings of £5 billion being sought by the UK government could be achieved by simply bringing the claims rate in the North down to the England and Wales rate, for example by applying the eligibility criteria in the same way.
The UK’s official assessment of the impact of the cuts to Personal Independence Payment, shows 370,000 current recipients will lose out, and a further 430,000 people by 2030, who would have qualified under current rules, now won’t get such a payment. Poverty rates are also set to rise. It will be painful for those affected, and Starmer’s government may pay the price.
While incentives to return to work are promised, international evidence from OECD countries is that once disability payment status has been awarded, exit to employment is minimal. Reducing the incentives to join the disability benefit system in the first place may have more impact on employment rates, but would take time.
Our Department of Social Protection has recently compared the benefit systems North and South. Generally speaking, the Republic’s welfare payments are a lot more generous. Our old-age pension in the South is 20 per cent higher, and working-age benefits are almost twice as generous. The one exception is the more generous disability payments regime, consisting of Universal Credit and the Personal Independence Payment. The cost of levelling up our disability payments, for a broadly similar share of the population as in Northern Ireland, would amount to an extra €4.5 billion a year, roughly 1.5 per cent of national income.
