We have heard this week that the UK Government Chancellor Rachel Reeves intends to make cuts to the welfare bill to bring UK Government borrowing down in line with her fiscal rules ahead of the next OBR forecasts due at the end of the month (writes Fraser of Allander Institute’s EMMA CONGREVE).
Reports state that the axe is likely to fall on health and disability related benefits for working age people.
Here we produce a bit of an explainer to get people up to speed on the benefits in scope and what has been happening in recent years.
Which benefits could be in line for cuts?
There are two types of benefits in Great Britain (benefits in Northern Ireland are arranged differently) that working age people with disabilities and ill health can claim.
Incapacity Benefits
The first type is an income replacement benefit that tops up income for families where the disability or health condition limits their ability to work, commonly referred to as incapacity benefits. They are means tested so that the amount you receive depends on your household income and reduces as income (e.g. from a partner’s earnings) rises.
Chart: Caseload of incapacity benefits for working age adults, Scotland
Notes: Universal credit and ESA exclude those in the assessment phase in line with OBR Welfare Trends Report analysis. Northern Ireland not included.
Sources: DWP, ONS
Universal Credit (UC) has been slowly replacing Employment and Support Allowance (ESA) for this group of people since 2018 so the reduction in ESA over time reflects migration over to UC rather than a change in disability/health status.
Disability Benefits
The second type of support for those with disabilities and ill health comes from payments to cover additional costs, for example due to reduced mobility, and are commonly referred to as disability benefits. They are not means tested and people do work whilst they are on these benefits.
In Scotland this type of benefit is now devolved, with Adult Disability Payment (ADP) slowly replacing Personal Independent Payment (PIP). PIP itself was a replacement for Disability Living Allowance (DLA) which no longer takes new applications and has a caseload that is reducing over time.
Chart: Caseload of disability benefits for working age adults, Scotland
Note: Adult Disability Payment started to replace PIP in Scotland from 2022. In England and Wales, PIP remains the main payment.
Source: DWP, ONS, Social Security Scotland
Which benefits are devolved?
Incapacity benefits (UC and ESA) are reserved benefits which means they largely operate in the same way across Great Britian, with the cost of the benefit in Scotland met by the UK Government. Any cuts made by the UK Government would apply in Scotland.
Disability benefits (PIP. SDA and ADP) are devolved, and there are differences in how the benefits operate in Scotland. The Scottish Government meets the costs of the benefit. To offset this, an amount is paid from the UK Government in the block grant, equivalent to the UK Government’s spending in Scotland if the benefits hadn’t been devolved and if spending had grown at the same per capita rate as in England and Wales.
The Scottish Government has to find additional money if expenditure on Scotland starts to diverge from the rest of GB trend due to policy changes (or perhaps, if our population gets relatively sicker).
Any cuts to PIP or SDA made by the UK Government would not apply in Scotland, but the block grant from UK Government would fall. If the Scottish Government did not replicate the cuts, they would have to find additional money from elsewhere in the Scottish Budget to offset the fall.
What has changed since the pandemic and has it been the same in Scotland as the rest of Great Britain?
As the above charts show, the caseload (the number of people claiming these benefits) has been rising steadily in recent years for both these benefits across GB and is forecast to continue to do so.
The caseload in Scotland has long been higher than in England and Wales due to a higher prevalence of people with disabilities and long-term health conditions.
In recent years, incapacity benefits caseload growth has been slower (49% in Scotland compared to 59% in rGB between May 2019 and August 2024) but due to different levels of population growth caseload per capita (which is the caseload measure shown in the charts) has been slightly higher in Scotland (7% to 11% of working age population compared to 5 % to 8% for rGB).
For disability benefits, the introduction of Adult Disability Payment makes it difficult to compare like-with-like. Although eligibility has remained broadly the same, the application process has been made more accessible and this appears to have led to an increase in people applying following its introduction.
For more detail on this, see this paper from our sister organisation the Scottish Health Equity Research Unit (SHERU). It’s also possible that some people in Scotland delayed making a PIP application to DWP in anticipation of ADP opening for applications.
This may help to explain why, since 2019, the growth in the caseload in Scotland has been only slightly higher than rGB (63% increase in Scotland between May 2019 and Aug 2024 compared to 61% for rGB). In per-capita terms, due to lower population growth in Scotland, the growth has been a bit more significant (increase from 8% of the working age population to 14% in Scotland between May 2019 and Aug 2024, compared to 6% to 9% for rGB).
Do we know why rates have increased?
There are many theories as to why rates have increased but, for a number of reasons, it has been difficult to fully evidence exactly what is going on.
We know from IFS research that rates have increased more in Great Britain than they have in other countries. The IFS also looked at entry and exit rates for disability benefits England and Wales and concluded that around 2/3 of the increase is due to people starting claims and 1/3 is due to fewer people ending their claim.
There are likely to be a number of intersecting factors. We summarise some of these issues below but overall emphasise that we don’t fully know the extent to which these interact.
The working age population is getting older
On average, people’s health deteriorates as they age. With falling birth rates there are currently proportionally fewer younger working age people than older working age people. Coupled with this, pension age changes mean that more older people have become classified as ‘working age’ in recent years. The Resolution Foundation have calculated that an ageing working age population accounts for 1/5 of the rise in caseloads for health-related benefits since the pandemic.
The increases for younger people are concerning but the biggest impact on expenditure would come from tackling ill-health and disability in older age groups
For disability benefits, the growth has been highest in the older working age population, with then broadly comparable rises across other age groups. For incapacity benefits, after the 55-64 age group the second largest rise has come from 25-34 year olds. Growth in the number of young people out of work due to disability and ill health are concerning and needs attention, but if rates are going to come down, focussing on the older generation is key. Whilst we can’t fully attribute the rise to longer waiting times in the NHS, this is likely to be part of the explanation.
Some of the rise may be due to people struggling financially and needing to maximise benefit income
This rise in benefit caseloads has coincided with relatively high rates of inflation and the ‘cost of living crisis’. People struggling financially may have been more likely to make claims during this period compared to previous years when they did not feel they needed the extra income.
There is also some suggestion that people may have switched the type of claim they make for out-of-work benefits to benefit so they can receive a higher level of payment for disability and ill-health related claims. The fact that they are successful in these claims means that people are simply claiming what they are entitled to rather than somehow ‘gaming the system’.
Mental health related claims have grown, but so have claims related to other conditions
The largest absolute rise in claims for disability benefits has been related to mental health conditions, but across Great Britain, there have been rises in a range of physical conditions too (see IFS and SHERU work on this linked above). The extent to which this is due to an increased prevalence of health conditions versus an increased likelihood to claim a health-related benefit is difficult to disentangle.
There has been a rise in the in-work population reporting a disability as well and it may be that people are becoming more comfortable with disclosing mental health conditions. This could mean that people with multiple health conditions are more comfortable with citing mental health as their primary condition in benefit claims now than was previously the case.
We don’t know how much is due to long-covid or longer-term impacts of the pandemic
The extent of available data frustrates efforts to pin down the emergence of new or worsened conditions due to the pandemic and how this has changed people’s financial circumstances (for example, ability to work).
Issues with the official Labour Force Survey have limited the usefulness of the data collected there on reasons for ill health and inactivity (see SHERU blog on this issue here) and qualitative research that is able to produce more in-depth insights usually can’t be scaled up to population level.
As more longitudinal data is made available that tracks people through the period, alongside progress towards more routine data linkage of health records to other administrative data sources such as tax records, we might be able to get a better picture of the intersecting factors that have changed people’s health, benefit and work status in recent years.
What happens next?
The Spring Statement is due on the 26th March. When we know what the proposals are, we’ll be able to unpick what this will mean for people in Scotland and for Scottish Government budgets.
Whilst cuts to welfare spending may help in the short term, longer term solutions are tied up with efforts to improve both living standards and the ability of public services to support people further upstream (for example, through the NHS and employability services) which can reduce their need to recourse to the social security system.
Any decision to make cuts could come with fiscal risks. Cutting benefits for people already experiencing ill health and disability could make their conditions worse and increase demand for public services and/or lead to longer-term reliance on non-health related benefits.
A recent BBC verify article also provides a note of caution: reducing spending on the welfare bill is historically difficult and estimates of savings are often not achieved.
As well as looking at the details of the cuts, we’ll be looking at what the OBR say regarding their effectiveness of cutting UK Government spending with a keen eye.
