Incapacity Benefit is a British social security benefit that was introduced in 1995 in an attempt to control the rising number of people on out-of-work sickness benefits. In 2008, the government began to phase it out by making it unavailable to new claimants.
Between 2011 and 2016 a compulsory reassessment programme moved most pre-2008 Incapacity Benefit recipients onto Employment and Support Allowance, so that by May 2017 fewer than 3000 people were still receiving the full rate of the old benefit (another 70,000 were receiving National Insurance credits).
By rooting out weak claims and encouraging people with moderate disabilities to find suitable jobs, this reassessment programme was supposed to have saved seven billion pounds a year from the welfare budget by 2018. In practice, this major Whitehall project failed to generate any savings for the Exchequer.
- 1 History of Incapacity Benefit
- 2 Criticisms of Incapacity Benefit
- 3 Incapacity Benefit Reassessment
- 4 References
History of Incapacity Benefit
1911 and 1945
In Britain, sickness benefits were introduced by David Lloyd George, Winston Churchill and other reformers as one of a number of changes to social security brought about by the National Insurance Act 1911. These Edwardian-era reforms were incorporated into the Welfare State after the Second World War — although until the early 1970s, the post-war National Insurance scheme treated everyone who became eligible for benefits after losing their job in largely the same way, regardless of whether or not they were disabled.
The prime minister Edward Heath and his secretary of state at the DHSS, Keith Joseph, brought in a raft of new social security payments including Invalidity Benefit, which was introduced in 1971 to go some way towards replacing the wages of people who had been 'invalided out' of their occupation after developing a long-term illness or a disability. It was worth more than unemployment benefit that was paid to people without disabilities.
Tania Burchardt from the London School of Economics has described the 1970s and 1980s as decades that were notable for an "improvement of the coverage of earnings-replacement benefits".
In 1995, the Conservative Secretary of State for Social Security, Peter Lilley, abolished Invalidity Benefit and replaced it with Incapacity Benefit after the Prime Minister of the day, John Major, had complained about the burgeoning caseload, saying: "Frankly, it beggars belief that so many more people have suddenly become invalids, especially at a time when the health of the population has improved".
A new feature of Incapacity Benefit was that officials could ask for claimants' disabilities to be confirmed using a bespoke testing procedure – the All Work Test – carried out by doctors working for the government. Another feature was that claimants would be assessed on their ability to do any job, not just their old trade. And unlike its predecessor, Incapacity Benefit was taxable. Nevertheless, the caseload continued to rise.
After 2000, some recipients underwent a Personal Capability Assessment to establish whether their condition had improved: if it had, benefit payments could be withdrawn; otherwise, a Capability Report was drawn up by the examining doctor and used by Job Centre staff to plan ways to boost recipients' employability, in the hope of returning them to work. This new test was also used to assess some fresh claims for Incapacity Benefit.
In 2004, the caseload peaked at just under 2,500,000 then began to fall slowly.
In late 2008, New Labour replaced Incapacity Benefit with Employment and Support Allowance (ESA) for new claims and yet another eligibility test was introduced: the Work Capability Assessment. At the same time, capacity was boosted by bringing in nurses to carry out the bulk of the medical assessments using a new semi-structured interview technique, with the findings recorded in digital format. This meant that from 2008, most new claims were scrutinised by a healthcare professional; those whose claims reached the threshold for eligibility were granted ESA - either shortly after the initial assessment, following an internal review of the initial decision, or after an external appeal.
After the introduction of ESA, the number of remaining Incapacity Benefit recipients dwindled (largely as people came off the benefit for reasons such as reaching the State Pension age): by early 2011, the Incapacity Benefit caseload had shrunk by more than 500,000.
2011 to 2016
The Coalition government decided to implement the plan to reassess most remaining Incapacity Benefit recipients. This reassessment programme, which began in early 2011 and was effectively completed in 2016, used an updated version of the Work Capability Assessment. Recipients confirmed as having 'limited capability for work' – often colloquially, but not technically accurately, referred to as being 'unfit for work' – were transferred onto ESA; any found fully capable of work would, in theory, have had their Incapacity Benefit payments stopped and then been invited to consider applying for Jobseekers Allowance (JSA).
In practice, many Incapacity Benefit recipients declared 'fit for work' formally appealed against the decision, at which stage 40% of decisions challenged were overturned and the claimant moved onto ESA, not JSA. Furthermore, some people taken off Incapacity Benefit after their reassessment claimed ESA successfully at a later date when their illness worsened.
By May 2017, fewer than 3000 people were still receiving the old payment — although the number of people on Employment and Support Allowance had grown from zero to more than 2.4 million over the preceding nine years.
Criticisms of Incapacity Benefit
The number of claimants was "out of control"
The number of claimants of sickness benefits increased rapidly from the mid-1980s. The trend was investigated in a series of studies commissioned by the government in 1991 and published in 1993. Several possible causes were identified:
- A higher level of background unemployment; a decline in manual work; less accommodating workplaces
- An increased readiness by GPs to issue sick-notes; longer hospital waiting times; changing patterns of illness
- The relative generosity of the different out-of-work benefit payments
- Changes specific to Unemployment Benefit, with more conditions being attached to it
- More women working and paying National Insurance contributions, and so qualifying for benefits
- More claims being made by people who had not previously claimed, despite being entitled to
- Administrative changes to the benefits system in general, which tended to deter people from changing their status
The House of Commons research paper that summarised the studies' findings in the 1990s concluded that the number of new claims and their general pattern had not changed significantly; what had changed was the rate at which recipients were coming off the benefit to move back into work (after their illness had begun to improve, for instance, or by finding a job despite their disability) - it had fallen.
The bulk of the rise in the caseload occurred during the late 1980s, the 1990s and the first years of the 21st century. In 2004, the caseload began to fall slowly.
Eligibility testing procedures were lax
Ministers complained about a "sick-note culture" that allowed people to drift onto Incapacity Benefit. A medical certificate from a GP is the first step onto sickness benefits; although a government-run eligibility test was brought in alongside Incapacity Benefit in 1995, critics said that officials still accepted too many claims using information supplied by the claimants themselves and their GPs without asking for an All Work Test to be performed, partly because the pool of medical assessors was relatively small and partly because doctors' time was costly - which was why large numbers of nurses were brought in to perform the new test introduced in 2008.
Claimants were "trapped" on benefits
Welfare reformers said that once claimants had been granted Incapacity Benefit they became "trapped" in the system. In fact, there was nothing in the regulations that inherently trapped people on Incapacity Benefit: recipients were free to relinquish their payments and seek work if they felt able to, although the meagre gains from moving into a poorly paid and insecure job were thought to act as a deterrent to doing so - a phenomenon that Working Tax Credits and Universal Credit were designed to mitigate.
The cost was unaffordable
In 2011, out-of-work sickness benefits had an annual cost of £13 billion: the Chancellor, George Osborne, called this "a very large budget". The total annual budget of the Department for Work and Pensions in 2011 was £180 billion, with the largest slice by far - almost half - being spent on the State Pension, followed by Housing Benefit at slightly under £30 billion. Tax Credits, administered by the Treasury, cost roughly the same as Housing Benefit.
If out-of-work sickness benefits costs were combined with those of the other disability benefits - the bulk of which go to the elderly - the total would be around £33 billion.
People who could work were putting in claims
DWP data on the outcomes of new claims - not reassessments of existing Incapacity Benefit recipients - drawn from the first two years of ESA's availability showed the following:
- Only 7% of new claimants were found at assessment to be both severely disabled and unfit for work
- Another 17% were also found to be unfit for work after their assessment, but were less disabled and so were judged likely to work in the future, once they had received tailored support
- 39% were found to be able to work there and then, and so were not entitled to ESA
The remaining 37% ceased claiming for unspecified reasons in the course of the 13-week application and assessment process; some might have abandoned a weak claim as the assessment approached, others might have recovered from their illness, injury or recent surgery or found a new job - the proportions are unknown.
When the unassessed 37% are removed from the equation, the results were:
- 38% were assessed as being unfit for work at the time of their assessment
- 62% were assessed as being fit for work (before any appeal)
Some recipients were no longer incapacitated
Commentators and policy-makers suspected that a large chunk of people on Incapacity Benefit had got better but had kept this quiet and were still receiving payments. Another, more charitable, view was that recent disability legislation and changes in the workplace might have removed some of the barriers to disabled people returning to work.
In two pilot studies of the Work Capability Assessment as a tool for judging the fitness for work of long-term Incapacity Benefit recipients – when 1,347 disabled people living in Aberdeen and Burnley, who had been on their benefit for at least two years, were assessed in late 2010 – provisional results suggested that:
- 30% of existing Incapacity Benefit recipients were actually able to work, according to the new test's more stringent criteria
- 39% were unfit for work but, with extra help, were likely to return to the world of work at some point in the future
- 31% were both unfit for work and unlikely to benefit from rehabilitation or training.
The reliability of this provisional data has been challenged, since many of those categorised as 'fit for work' subsequently won their appeals against the initial decision, suggesting that the results of the pilot studies overstated the percentage of claimants who were capable of finding a job.
With the passage of time, experience showed that the vast majority of Incapacity Benefit recipients also met the more stringent criteria for ESA as well, and the combined total of people on these benefits hardly changed between 2008 and 2015. Furthermore, the generic rehabilitation programme for those on ESA who were considered to be able to work in the future – the Work Programme – proved largely ineffective in returning them to work.
Incapacity Benefit Reassessment
In February 2005, the BBC analysed New Labour's record on welfare reform:
Thinking the unthinkable on the welfare state has been one of the New Labour mantras since before the party was elected in 1997. So it has been a disappointment to many [...] on the Labour benches that, eight years later, the thinking has still to produce any concrete results.
The following year Tony Blair appointed David Freud, a former vice-chairman of investment banking at UBS, as an advisor on out-of-work benefit reform. Freud's 2007 report called for the greater use of private sector companies who would be paid by results, and for substantial resources to be made available to help people on Incapacity Benefit back into work.
In 2008 a Green Paper was published, which James Purnell said was "inspired by the reforms proposed by David Freud". It declared that "between 2009 and 2013, all Incapacity Benefit claimants will be reassessed using a medical assessment called the Work Capability Assessment (WCA)". However, a decision later that year to overhaul the test's criteria delayed the start of the reassessment programme.
In the autumn of 2010, with Freud now a government minister responsible for welfare reform, two pilot studies took place. 1347 people who had been on Incapacity Benefit for more than two years were assessed against the new criteria that would be used to gauge the fitness for work of more than two million such people from the spring of the following year.
Experts raise concerns
In 2010, the new Conservative Secretary of State for Work and Pensions asked Professor Malcolm Harrington, an occupational medicine specialist, to review the operation of the WCA. The Guardian summarised Professor Harrington's opinion as being that the test was "impersonal", it "lacked empathy" and it was too reliant on "computer systems and drop-down menus". In the executive summary of his report, he wrote that the "WCA is not working as well as it should. There are clear and consistent criticisms of the whole system and much negativity surrounding the process...[but] I do not believe the system is broken or beyond repair. I am proposing a substantial series of recommendations to improve the fairness and effectiveness of the WCA. If adopted, I believe these changes can have a positive impact on the process."
Shortly before the Incapacity Benefit reassessment programme began, Professor Paul Gregg, an economist and one of the original architects of ESA, warned that the WCA was "badly malfunctioning" and urged further pilot studies before the new version was used to retest existing sickness benefit recipients. Three months later, six experts in mental health — including the chief executive of MIND, who was already a senior advisor to the DWP on the WCA — wrote to The Guardian to say that the test was "deeply flawed".
Professor Harrington asked MIND, Mencap and the National Autistic Society to "provide recommendations on refining the mental, intellectual and cognitive descriptors" but the DWP's own doctors were not convinced by the evidence presented. The department decided to set up an 'evidence-based review' to look in more detail at the proposed changes, which concluded that the existing criteria "produced consistent results on the whole" and that the WCA was already "an accurate indicator of work capability as compared with expert opinion". DWP ministers replaced Professor Harrington once he had submitted his third annual report in 2012.  As his successor they appointed Paul Litchfield, a doctor who had played a key part in designing the WCA's mental and cognitive function descriptors in 2006.
In 2013, The Guardian quoted Professor Harrington as saying: "I would have preferred to do a roll-out [the IB reassessment] in the second year " and as having told the DWP this before the Incapacity Benefit reassessment programme began. The DWP told the newspaper it had no record of a warning of this kind being given by Professor Harrington. Furthermore, the minister who had formally initiated the 'roll out' had said in Parliament that beforehand Professor Harrington had told him: "I believe the system is in sufficient shape for you to proceed with Incapacity Benefit reassessment".
When asked later about this discrepancy, Professor Harrington replied:
Can I clarify this once and for all? In my first year — before the first report, that is — I said to [the minister] that, left to my own devices, I would prefer it if they would postpone the IB migration until I had got at least one review in, so they could just deal with the new claimants and would not be confused by another group of people coming in — a completely different group of people, as you well know. He did not say no; it was just obvious that it was a political done deal and they were going to go ahead and do the IB migration whatever.
Atos leaves prematurely
In June 2013, all established Atos WCA assessors were unexpectedly retrained as part of a "quality improvement plan" revealed by the DWP the following month, which resulted in longer assessments for the same fee and a shortage of assessors willing and able to carry them out. By July, Atos had decided not to bid for a contract to carry out the test on the Isle of Man.
In December 2013, the Minister for Disabled People told a parliamentary committee that top level talks had been taking place with Atos:
I can't go into too much detail [but] there are global contract negotiations going on with Atos to do with their contract...Certainly, the conversations I've had at board level with Atos, we've taken it to a level where they had to realise just how bad this was for their reputation in the UK — with other contracts and with other departments as well
In February 2014, The Guardian was sent a document that purported to outline the future of the DWP's relationship with Atos. The newspaper described the document in terms that suggested that ministers were preparing to "oust" Atos from the WCA contract. In response to this apparent leaking of confidential information to the press, Atos told the newspaper that the contract wasn't working for either party and it defended its employees in the face of the pressure they were under, saying the "constant flow of criticism" endured by the company "inevitably has an impact on our staff, who diligently endeavour to carry out assessments as laid out in DWP guidelines".
A few days later, as disabled people staged protests outside Atos assessment centres nationwide, the French contractor told The Financial Times that it had been trying to get out of the WCA contract since 2013. The firm said: "For several months now, we have been endeavouring to agree an early exit from the work capability assessment contract" and said that one reason it wanted to quit was that the WCA was "not working". The BBC said its Whitehall sources were "furious" that the company had unilaterally announced its intention to end the contract.
The following month, the Disabilities Minister confirmed in Parliament that the contract with Atos was in the process of being brought to a premature close, with Atos paying a "substantial financial settlement" to the DWP as part of a mutual agreement to terminate the WCA contract early (although it would be another year before a new company — Maximus — began to carry out WCAs). The DWP continued to employ the French firm to assess most claims for the Personal Independence Payment and Atos IT staff continued to run the computer system used in the WCA, even after Maximus had taken over the rest of the testing process.
In early 2014, the DWP called a halt to reassessments. In the summer, the BBC reported a backlog of more than half a million new ESA claims. Both were the result of a bottleneck caused by longer assessments and the departure (while Atos still held the WCA contract) of hundreds of medical assessors — unintended consequences of the "quality improvement programme" announced by the DWP the previous summer.
Maximus struggles to retain assessors
The DWP hoped that a new contract and a new outsourcing partner would mean the start of a new chapter for the reassessment process. However, executives from Atos complained that their firm had been lambasted for doing nothing other than "applying the legislation the government had laid out", adding that it was "massively over-simplistic" to think that choosing a different outsourcer would, in itself, deal with the flaws in the DWP-designed process.
Maximus said it would improve evidence-gathering prior to a face-to-face assessment, introduce specialist assessors for particular types of disability and communicate more effectively with claimants. The firm acknowledged that hundreds more healthcare professionals would have to be recruited again in order to clear the backlog of ESA claims and hit the contract's new target of one million assessments a year.
At the end of October 2015, the DWP's director-general of finance was bullish about hitting this higher target when he appeared before a parliamentary committee, saying: "We are confident that [Maximus] will over-achieve the amounts of work over and above the forecast that was set". But at the start of November, Maximus's senior management team warned its shareholders that volume targets were not being met. The company stated that although recruitment of healthcare professionals had improved, their training and retention was still a problem, with a shortfall of assessors expected to last until the autumn of 2016. On the same day, the price of shares in the company fell sharply, losing more than 20% of their value.
In January 2016, the National Audit Office (NAO) published its evaluation of the DWP's health and disability assessment contracts. It said the cost of each WCA had risen from £115 under Atos to £190 under Maximus. The report went on to say that Maximus was facing "significant challenges with staff failing to complete training requirements" and revealed that in July 2015 — less than six months into the new contract — the DWP had been obliged to draw up a 'performance improvement plan' with Maximus because "volume targets were not being met". The NAO also declared that the DWP had "allowed bidders to make assumptions about staff training that it knew were overly optimistic and difficult to achieve" and implied that the target set by the DWP of one million assessments a year was too ambitious, saying: "One experienced bidder withdrew from the process because it could not meet the required number of assessments".
In April 2016, sources close to the new Welfare Secretary, Stephen Crabb, told The Sunday Times that a contract with Maximus was "under scrutiny", which the newspaper implied was the WCA contract. In early May, Maximus senior executives admitted that the target of one million WCAs a year had been "very, very challenging" then revealed that government planners had lowered their expectations after a spending review. The executives said:
The contract was modified to put a greater emphasis on carrying out face-to-face assessments at a reduced level. This will achieve DWP's service goals, while at the same time delivering greater value for money overall.
There has also been speculation within the investment community that the contract was under review for cancellation or significant changes. I want to dispel that myth today...We've had personal reassurances from DWP that the Secretary of State has not expressed concern over the continuity of the contract. Further, there's no current plan on making substantial changes or terminating the contract.
At the beginning of October 2016, the recently appointed Work and Pensions Secretary, Damian Green, said it was "pointless" to reassess claimants if it was clear that their clinical condition had no realistic prospect of improvement or would only get worse.
Reforms fail to make savings
The Incapacity Benefit reassessment programme had originally been expected to save seven billion pounds a year from the welfare budget.
In 2015 the Office for Budget Responsibility (OBR) found that no savings had been made to date: the sickness benefit budget remained at more than £13billion a year. Furthermore, because many more claimants than forecast were being placed in the Support Group, the government's fiscal watchdog raised its estimate for spending on sickness benefits by one billion pounds a year.
In 2016 the OBR said that the reforms had still made no impact on the level of welfare spending — although a simple freezing of benefit payments, so that they did not rise with inflation, had made some savings for the Treasury.
Professor Jonathan Portes, formerly the chief economist at the DWP and later the director of the National Institute of Economic and Social Research, has described the Incapacity Benefit reassessment programme as "the biggest single social policy failure of the last fifteen years".
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