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Britain’s broken welfare system is fuelling the “greatest unemployment challenge of a generation”, ministers have concluded as they draw up a root-and-branch overhaul designed to counter the spiralling numbers deemed too unwell to work.
Rules that force benefit claimants into an “all or nothing” choice between working and being deemed too sick to work are set to be redrawn, the Observer understands. It follows new evidence that thousands of people who want to work are worried about taking steps to return to the workplace out of fear that their benefits will be withdrawn.
“The Tories promised to get people off benefits and into work,” said a government source. “But instead they created a system that trapped and wrote people off and left them without help and support.
“This Labour government will fix the broken benefits system because getting more people into good jobs is crucial to improving their living standards and life chances, and getting the welfare bill on a more sustainable footing.”
Under the current system, those deemed too sick to work receive a higher payment than those deemed either able to work or able to do some work. Those unable to work at all receive an extra £416 a month. Those well enough to do at least some work used to receive an extra £156 a month, but that payment was scrapped for new claimants in 2017.
Meanwhile, the higher level of support has continued to increase during a long period in which basic benefits were frozen. Ministers believe that these two factors have driven more people into the group not working at all – and fear many of them have been left there without enough help.
The employment minister Alison McGovern described it recently as the “greatest unemployment challenge of a generation”.
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Government research found that, even accounting for changes in demographics and the benefits system, the number of people claiming the higher rates of health-related benefits increased by more than 500,000 people over the last five years.
However, the government faces a serious task in keeping welfare groups onside amid suspicions that it is planning to take billions out of the benefits bill to save money. Cuts eventually amounting to £1.3bn a year are set to be introduced from April, while many Labour MPs are suspicious of anything seen as a raid on welfare. Liz Kendall, the work and pensions secretary, is already understood to be meeting disability groups and other welfare experts in an attempt to build support for a fundamental redrawing of the benefits system. Proposals for an overhaul will be unveiled in the spring, when a lengthy consultation will begin.
Officials point to a new survey carried out by the government that found 200,000 people claiming health and disability benefits who said they would be ready to work if the right job or support were available. Half of those surveyed said that one of the barriers to finding a job was the worry that they would lose their benefits if they moved into work and it did not work out.
Insiders also think the work capability assessment, currently used to approve incapacity benefits, is “too broken” and needs to be scrapped. They also believe that there has been a complete failure to keep in touch with those currently deemed too sick to work and believe that there is mounting evidence that even the simplest conversations with work coaches can have a positive impact.
This comes with the Treasury desperate to make savings from the welfare bill as the chancellor Rachel Reeves tries to avoid breaching her own fiscal rules, which are already tight. The legal cap on welfare will be breached by more than £8bn this financial year.
While reforms are being welcomed, there are already warnings that they will take time and, done fairly, are unlikely to deliver big savings. “I don’t think anybody thinks that the health and disability benefits system works well at the moment,” said Lindsay Judge, research director at the Resolution Foundation. “It doesn’t work well for claimants. It’s costing the exchequer a lot of money.You can envisage a better system. But to make that kind of wholesale change is a long-term project, and it requires reconfiguring the relationship between the department and claimants. It’s really hard to see how the government could do that if its initial foray into this field is to make quite significant cuts.
“The basic rate of benefits is so low – it has been eroded away. So getting incapacity benefits is a significant boost and passports you into things like carers’ allowance and away from conditionality. As the system has become more restrictive, there have been more advantages for people to claim that benefit. It would be wrong to say that it’s the only reason we’re seeing more people on the higher rate of incapacity benefits, but it is clearly a contributory factor.”
