20 January 2025
Health benefits system is financially unsustainable and wasting human potential, Lords Economic Affairs Committee warns.
- Letter from the Chair of the Economic Affairs Committee to the Rt Hon Liz Kendall MP, Secretary of State for Work and Pensions (20 January 2025)
- Inquiry: Economic inactivity: welfare and long-term sickness
- Economic Affairs Committee
Overview
The cross-party House of Lords Economic Affairs Committee today calls for urgent reform to the health-related benefits system, having conducted an inquiry into the relationship between the welfare system and long-term sickness.
The Committee concluded that people without work have incentives to claim health-related benefits; and once in receipt of them they have neither the incentive nor support to find and accept a job – work doesn’t pay.
Given the Committee received no convincing evidence that deteriorating health or high NHS waiting lists have been the main driver of the rise in health-related benefit claims, it calls on the Government to set out how it intends to address the benefits system’s weaknesses. If the Government does not do so, this growing area of welfare spending will remain a challenge for the forthcoming Spending Review.
Key recommendations
The Committee’s key findings and conclusions include:
- Around 3.7 million people of working age receive health-related benefits – 1.2 million more than in February 2020. We are now spending more on incapacity and disability benefits (almost £65 billion) than defence – and that figure is set to rise.
- If 400,000 people who are out of work due to ill health were able to find work, this could save around £10 billion through higher tax revenue and lower benefit spending.
- GPs are unable to offer a sick individual the degree of support they may need. The fit note should be overhauled; GPs should be encouraged or enabled to refer an individual to an occupational health professional, while individuals who are signed off work for more than a month should undergo additional or ongoing assessments.
- The lower level of conditionality attached to health-related benefits creates an incentive to apply for these benefits. The Work Capability Assessment (WCA) is not rigorous enough and susceptible to error. The Government is right to plan to reform the WCA. The assessment should be face-to-face and seek to establish what work an individual can do rather than looking to corroborate what they cannot do.
- Once in receipt of these benefits there is a disincentive for claimants to apply for and accept work. The Government needs to review the conditions for those in receipt of health-related benefits so that, if people return to work, they are not at risk of immediately losing those benefits; or, if the job proves unsuitable, they are not immediately faced with having to reapply for these benefits.
- The Committee received no convincing evidence to support the claim that the Government’s targeting NHS waiting lists will have a material impact on the number of sickness-related benefit claims. This is not to deny that improving the health of the population will increase employment. But the DWP and the NHS must share and analyse health and benefits data in order to establish whether and how targeted intervention to cut NHS waiting lists could have a material impact in reducing labour market inactivity.
- We should have a system in which those who receive health-related benefits are proactively helped to overcome obstacles rather than remain on benefits and out of work indefinitely. The Committee urges the Government to consider providing enhanced support, prioritising those claimants where the returns and rewards for getting back into the labour force are high – for example, young people. The Committee recommends that, just as unemployed people have a work coach, so should those on incapacity benefit for the first two years of their period on benefits. Each caseworker’s aim would be to help the claimant overcome obstacles, both in terms of health and employment, and get back to work.
Overall, the Committee welcomes the Government’s intention to “take a whole new approach with fresh thinking” to welfare: reform is needed both to curb the increasing fiscal burden and to address the ever-growing social cost of hundreds of thousands of people dependent on benefits. The committee sees no reason to delay action. A wealth of analysis already exists on the issues it has raised and which offers credible solutions to the problems highlighted. It urges the Government to accelerate its plans to reform health-related benefits. If the Government does not set out how it intends to address these weaknesses, this growing area of welfare spending will remain a challenge for the forthcoming Spending Review.
