The 2015 Conservative manifesto outlined an ambition to halve the disability employment gap. Since being elected, the Government has begun a series of reforms intended to move them closer to achieving this ambition. This report presents findings from an in-depth analysis to outline the scale of the challenge facing the Government.
It uses lessons from past policy reforms to suggest a way forward in this Parliament and the ones that follow. It focuses on the role that the benefits system can play in providing the essential foundation of financial support. Future reports in this series will focus on the role that employment support and employers can play and the changes that will be needed in the UK’s labour market and societal views if the gap is to be halved.
The scale of the challenge
Based on analysis of the Labour Force Survey (LFS), around 5.5 million working age individuals have a work-limiting health condition or disability. Of this group, 44% are employed, compared to 87% of those who say they are not work-limited. The gap between the two, the disability employment gap as measured on this definition, is 43 percentage points, meaning that achieving the Government’s ambition would mean helping 1.2 million more work-limited individuals into work.
The last 15 years have seen some success in increasing employment of people in the work-limited group. Some 350,000 more of the group are now employed and the employment rate has risen from 39% to 44%. However, the scale of increases has slowed over the last four years. Between 2011 and 2015, the level of employment increased by 23,000.
The employment rate of the non-work-limited group has also increased over the same period, meaning that the employment rate gap has stayed relatively constant.
If trends in employment for the work-limited and non-work-limited groups from the last 15 years continued into the future the employment rate gap would not fall. Significantly faster progress will be needed for the work-limited group if the ambition is to be achieved. As shown in Figure A, halving the gap over a 20-year horizon would mean trebling the growth in the employment rate of the work-limited group while holding constant the non-work-limited employment rate. Any growth in the non-work-limited employment rate would require an even greater increase in the growth of the non-work-limited employment rate.
To understand what this means in practice, we can look at the current labour market behaviour of the workless work-limited group. Analysis of the LFS shows that 14% of the group are actively seeking work. There will be good reasons for this. Some disabled people will be permanently or temporarily unable to work, others will have caring responsibilities that preclude employment or family arrangements that mean they do not need to. However, while understandable, it leaves nearly a third of the group not wanting work and the remainder saying they want work, but not seeking it.
Figure B shows that halving the disability employment gap would mean helping all of those in the seeking work group and most of those wanting work but not currently seeking it, into work. However, in practice, this will require supporting far more individuals than this. Overall this means that to halve the disability employment gap, those in the two groups not seeking work will need to be supported into work. This will take a change in attitudes and ambitions and a more successful approach to support.
How feasible might this be?
To understand the feasibility of this, we can analyse the chance of these three groups moving into work, the characteristics of each group and how they compare to those who do move into work.
Analysis of the longitudinal LFS (that follows the same individuals over five quarters) shows that, of those in the workless work-limited group looking for work, around 30% move into work over a year. In contrast, less than 3% of those who do not want work end up finding work over the course of a year. This means that, overall, just 8% of the workless work-limited group move into work in any one year.
An analysis of those moving into work shows that, as well as actively seeking work, a range of characteristics are associated with increased chances of finding work. These include:
- Qualifications: compared to those with high qualifications (A-level and above), those with low or no qualifications are less likely (43% and 61% respectively) to enter work.
- Condition / disability type: those with a mental health condition are around 30% less likely to move into work than those with other conditions or disability.
- Improving condition: those with an improving condition are twice as likely to move into work.
- Age: the younger the person, the more likely they are to move into work.
- Time since last job: those who had been out of work for less than six months are eight times more likely to move into work than those who had been out of work for over five years.
An analysis of the characteristics of the work-limited group shows that, in terms of the characteristics that are linked with chances of employment, there are distinct differences between those in the work-limited group who are already in employment and all other groups. On average, those currently out of work in work-limited group will be harder to help into work than those who have already moved into work.
In turn, the analysis also demonstrates large differences between those not currently in work, but who are seeking and those who are not seeking work. Overall, from this analysis, it is clear that this challenge is a significant one. It will require a step change in performance in helping this group and potentially significant investment to ensure that their outcomes improve.
Principles of reform
On the basis of this evidence it is clear that, without significant reform, the ambition of halving the disability employment gap will not be achieved. There are two principles on which development of policy proposals should be taken forward.
- Setting realistic ambitions, taking enough time: past experience of significant reform has shown that rushing policy formation and implementation can lead to significant failures. To ensure this does not happen again, the Government should be clearer about its short-term ambitions. Based on trends over the last 15 years, around 90,000 more disabled people might be expected to enter work by the end of this Parliament. The Government should set the ambition to increase this number to 190,000. Doing so would signify a positive step in closing the disability employment gap, would improve outcomes for those 100,000 individuals and their families and modelling suggests that it would produce additional savings for the Exchequer of around £1 billion a year by the end of the Parliament.
- A commitment to consult and test: It is important to be clear that there is little evidence to guide policy reforms to achieve this goal. In practice, knowledge of what works at a national scale in helping those with a work-limiting health condition or disability into work is scant. The implication of this lack of knowledge for policymakers is that a silver-bullet solution will not be found at short-notice. Innovation will be needed, new ideas will need to be tested and promising results will need to be built upon and understood in terms of an approach that can be rolled out on a national scale.
For these reasons, it is essential that the Government commits to both properly consulting on proposals outlined in the upcoming White Paper and creating a framework within which testing, piloting and pathfinder approaches can be delivered through national, local government and private / third sector providers. Only then should they seek to roll out any interventions on a national scale.
A new system that helps
To build on these principles this report puts forward a set of options for reforms that could deliver a system that is both more supportive and more effective in closing the disability employment gap. It focuses on the role that the benefits system should have in providing the financial security and incentives on which interventions to help individuals move towards and into work can build.
Making benefits and conditionality work
A large number of reports have shown the inadequacies of the current system of benefits for disabled people and the requirements that are placed on them in return for their benefit. While well-intentioned, past reforms have failed to produce a system that provides adequate financial support to those who need it, alongside incentives to take on support to move towards work where that is feasible. The current system is unpopular with those who need it and, in practice, pushes people away from work in order for them to (understandably) receive a more certain and higher level of income. As a result, just 8% of the workless work-limited group move into work each year.
This view is supported by the last of the independent reviews of the Work Capability Assessment (WCA) and, commenting on a Paul Gregg lecture, Ben Baumberg summarises the argument succinctly:
“…it’s [the WCA] a self-defeating strategy because it makes people less likely to go back to work. Disabled people are more likely to ‘hunker down’ and cling onto their benefits rather than take the risk of working and then having to go through the claims process all over again.”
Significant reforms will be needed to improve the system and these should be properly consulted on. Four principles that should form the basis for reform of Employment and Support Allowance (ESA) and the WCA are outlined below. It is important to highlight that this would not be a cost-cutting exercise. The reforms proposed would combine existing money and aim to distribute it better on the basis of need.
- Splitting benefit eligibility from setting conditionality
As suggested in other reports, the assessment of eligibility for benefit should be split from the assessment of an individual’s ability to move towards and enter work. This would ensure that, no matter what the level of benefit an individual receives, they will still have an incentive to engage with the support available and move towards work if they are able to.
- Creating a common income-replacement element in Universal Credit
The most obvious way of delivering this would be to remove the WCA and create one aligned income replacement benefit within Universal Credit. Anyone out of work and claiming benefits would receive the same basic entitlement to Universal Credit.
- Accounting for the extra costs of disability
In effect, this would remove the Support Group element of ESA and align benefit rates for disabled and non-disabled claimants in Universal Credit. However, it is clear that those with a disability often face extra costs of living.To meet these extra costs, existing spending on Personal Independence Payment (PIP) / Disability Living Allowance (DLA) and the support Group element of ESA should be brought together to finance a new extra costs benefit. Eligibility for this benefit should be determined on the basis of need, with an assessment replacing the WCA and PIP assessment and designed with extensive consultation.Where individuals are unable to work, there should also be a principle that the level of benefit provided is sufficient to allow them to live comfortably and engage fully in society. In the longer-term, the Government should explore whether these benefits could be set to ensure that disabled claimants are lifted out of poverty with the income they receive.
- Out on limb – contributory ESA (ESA(c))
ESA(c) is currently expected to run alongside Universal Credit. However, these reforms will mean that the basis for determining eligibility (the WCA) to ESA(c) will be removed. This means that reform will be needed. Many reports have outlined arguments for strengthening the role of contributory benefits. Many of these have focussed on the role that a form of privately run social insurance could play in both increasing benefit generosity and improving the support that individuals get to manage their conditions and move back to work. These wider reforms of ESA would provide a much needed opportunity to revisit these arguments and build a benefit system that is both more supportive and more sustainable in the long term.
While conditionality is an important element of the system for many individuals (and, in particular, jobseekers) the reforms of the last two decades have shown that (as currently structured) it is not particularly effective for the work-limited group. To address this, a radical new approach needs to be tested.
With the removal of the WCA, Support Group and Work Related Activity Group, a new process for understanding the ability of individuals to engage with employment support and take steps back to work needs to be created. This should be conducted after benefit eligibility and levels have been determined and the results of this should not impact on the level of benefit received.
- A mandatory meeting to discuss support options
All claimants with a work-limiting health condition or disability should be required to attend a meeting with a specialised case worker. This meeting would outline the range of support available, reassure people that their benefit would not be affected by taking on support and discuss next steps. Failure to attend this meeting without good reason would result in a sanction being applied. However, compared to the existing system, this meeting would not place extra burdens on the individual.
- Voluntary support for those who want it
Following this mandatory meeting, further support would be voluntary. Individuals could choose whether or not to engage with the support. If they chose not to, they would be able to do so, without fear of their benefits being affected.
- Backed up with financial incentives
Those who choose to engage with the system of support, whether at Jobcentre Plus, the Work and Health Programme, or elsewhere would be financially compensated through a Steps to Work Wage. The payment and conditions involved would be agreed between the case worker, individual and support providers and written in a contract, much like an employment contract. Failure to adhere to the terms agreed of the contract would mean the Steps to Work Wage would not be paid.
Focus employment support where it will have most impact
Overall funding for employment support for disabled people is expected to rise over the course of this Parliament. However, the allocation of that funding has been changed substantially. For example, while the funding envelope for the Work and Health Programme will eventually rise to around £130 million a year, it is a significant cut to the envelope available under the current Work Programme. It is also still a relatively small and thinly spread budget.
As a basic example, assuming that helping 100,000 more disabled people into work would require working with 500,000 individuals (i.e. a 20% success rate), the combined support available through the Work and Health Programme (£130 million) and the £100 million support earmarked for those on ESA, would represent less than £500 a year for providers to invest in tackling the problems that each of these individuals faces.
This makes it clear that it will be impossible (and futile) to look to support all of those with a disability or ill health back to work. Instead, to ensure that the most impact is made with the available money, it should be targeted at those where the largest impact might be made. This will allow for better assessment of the interventions that work and more time to design more effective interventions that could be rolled out more broadly across the harder-to-help groups.
Focusing support on those closer to the labour market
The first of the groups where early attention should focus is those who are already seeking work. This will be the most effective way of boosting the disability employment rate within any budgetary envelope. Those whose last job was less than six months ago are also significantly more likely to find work within a year. Over half of all new claims of ESA are from those leaving work because of the onset of a health condition or disability. Focussing on stemming this flow into disability benefits would be an obvious way to try to close the disability employment gap.
Significant pilots to create the evidence base
Since those closest to work are more likely to engage in voluntary support, the recommendation for voluntary programmes should help to ensure that employment support is targeted at the groups outlined above. However, the Government should go further in supporting this principle. In particular, it must ensure that local variations adopted through devolution deals and European Social Fund (ESF) funding follow this principle. To do this, it must outline that these pilots should not focus on the very-hardest-to-help. Given the very severe barriers to employment that many of these individuals face and their lack of desire for employment, doing so would likely set up the programme to fail. Instead, the approach of targeting support at those closest to work should be a required part of each of the pilots and new interventions rolled out.
Halving the disability employment gap is a challenging ambition that should not be rushed. This report has set out a range of principles for how reform should progress and a number of areas where specific reforms should be considered. While they do not represent a blueprint for changes, if taken forward, they could provide the basis for an ongoing consultation on significant and wide scale changes to improve labour market outcomes of disabled people and those with a work-limiting health condition.