How the Tories messed up the benefits system

This post is not about what you think it's going to be about.

With a title like ‘how the Tories messed up the benefits system’, you’re probably braced for this to an anti-Tory polemic about how mean-spirited the Conservatives were in office. You’re probably expecting me to justify by drawing attention to the two-child limit, the benefits cap, the Local Housing Allowance freeze, the bedroom tax, the five-week wait for UC, the planned cut in introducing PIP, the tidal wave of deductions faced by claimants, and particularly the below-inflation freeze in benefit levels (not to mention the roll-out of the WCA, the surge in sanctions under Osborne, and the wider context of austerity).

But that’s not what this post is about.

Or at least: not in this simple form. Because if all that happened under the Conservatives is that benefits were cut, then all that Labour needs to do is to increase spending back to previous levels, and hey presto, we have a functioning benefits system again. (We might be in a context where spending increases are hard-fought against the Treasury, but at least on paper it would be a simple solution). The problem is: this simple solution of just raising benefit levels does not easily exist, because the mess we’re in is deeper.

[A quick note: this post focuses on benefit payment levels. The experience of claiming benefits also matters enormously, and I’ll be returning to this lots in the coming months.]

The mess we’re in

If you look at the policies listed above - a litany of intended cuts - then you would expect welfare spending to be going down. Indeed, even if you ignore most of the cuts, if benefits were being uprated by inflation (or less), this should usually mean lower spending as a share of GDP. But this just hasn’t happened.

As I explained recently, welfare spending is not out-of-control - we’re spending less on non-pensioner welfare in 2024 than we were in 2010, and less even than in 2015. But put another way: it’s staggering that despite all of the cuts of the past decade, welfare spending in 2024 is greater than 2007¹. Let’s look again at the chart I presented in my recent post, which needs to be endlessly repeated until everyone is aware of what’s going on:

If we think through what this means for claimants, it seems likely that some claimants are seeing higher benefit payments than 2007, while others are seeing lower payments:

• Some people didn’t get disability-related additions (PIP, LCWRA) in either 2007 or 2024. These people are probably worse-off than before, and really struggling.

• Some people didn’t get disability-related additions in 2007, but do in 2024. (This is why disability-related spending is so much higher than before). These people are probably better-off than before.

• Some people got disability-related additions in both 2010 and 2024. Within this group there will be some gainers and some losers (probably more losers), but they’re not my focus here.

[Just to be clear - there’s a certain amount of guesswork here, so do let me know if your logic works differently to mine. I’m hoping to do some research to shed more light on this, but for the time being, let’s just assume my logic holds].

Compared to 2007, we therefore have a more dysfunctional system where people who do not get disability-related payments have wildly inadequate benefits; and where the people who do get them are often terrified of falling into the possible destitution that awaits if they fail badly-designed assessments. And where the Treasury is worried about where spending is going.

This mess is worse than people seem to imagine. We can’t easily go back to a 2007 world, because it’s not a matter of spending more money - it means taking money away from one group of people to give it to another. And this is hard - hard to sell politically, hard to deliver in practice, and hard to do in a way where the help outweighs the harm.

And this is how the Tories trashed the welfare system - by spending roughly the same as 2007, but with some people receiving much higher benefits (almost by accident), and others getting too little to live on. We have transformed the same level of spending into much wider destitution, and probably a much worse experience of claiming,² but in a way that we cannot easily undo. Before looking at potential solutions, let’s first understand how we got here.

Dissecting a welfare mess

But is this really the Tories’ fault?

On one level, yes, because it happened on their watch. Spending on extra cost disability benefits rose by only a bit from 1997/98→2010/11, but rose by a huge amount 2010/11→2023/24 (by 0.08% of GDP under New Labour, but by 0.40% of GDP under Conservative-led governments). But something can happen on your watch without it being completely your fault.

There’s one widely-known explanation that is the Conservatives’ fault: the intensification of conditionality is clearly one explanation for what’s been happening - the rise in sanctioning under Osborne undoubtedly pushed people towards the WCA (after which they might be exempt from sanctions) as well as to DLA/PIP (which provides a separate and non-conditional income). Even the OBR said as much.³

But as well as this, I think the structure of benefit payments has been driving this. I’m disagreeing with the OBR here [added 14th Oct: though see the comment below], who point out that the differential between unemployment and incapacity benefits hasn’t changed much over time⁴. This is true, but misses that:

• You can’t just look at incapacity vs. unemployment benefits - you need to look at disability extra cost benefits (PIP/DLA) too, which provide £1,500 to £9,610 a year for people who have disability-related extra costs of living, but which can be time-consuming and unpleasant to claim (if not worse).

• Non-disability benefits such as unemployment benefits have got less generous compared to earnings, so surviving on them has got increasingly hard.

• There are wider cuts and deductions that make surviving even more difficult (see the long list above, some of which disabled people are exempt from (e.g. the bedroom tax and the benefits cap). There’s also some further cuts within incapacity benefits.⁵

In other words - if you can’t survive without claiming disability extra cost benefits, you’re more likely to claim them. (Particularly as if you’re claiming benefits, you’re likely to have some mental and physical health problems, as I’ll come back to in the next few weeks). And surviving without them has become increasingly hard.

To be clear - I can’t point you to definitive evidence that payment levels are driving disability extra cost benefit claims (even if research shows that if you’re in destitution in Britain today, one of the best ways of escaping is to claim disability extra cost benefits⁶). And there’s obviously something going on with trends in health, which I’ll come back to in detail in future posts, although my short take is something like: ‘ill-health may have declined, but not on this scale’. (And lots of the evidence that people cite for health declines is pretty flimsy).

In summary, I think that this genuinely is the Tories’ fault, partly because of conditionality, and partly because it’s clear where payment pressures have been pushing people. But it’s probably not just the fault of Conservative-led governments, because there have been other things going on since 2010.

What are Labour’s options?

Let’s put this in perspective: welfare spending as a whole is not out of control, and our spending on disability-related benefits is - even now - pretty average compared to other countries.⁷ Indeed, a staggering 15% of working-age Norwegians claimed incapacity-related benefits in 2014, compared to 6% here.⁸ Given that lots of claimants have health problems, it makes sense to have a system that takes ill-health and disability seriously.

But the current Labour government are in a fiscal straightjacket (you can argue about whether it’s one of their own making, and their are signs that they might loosen it shortly, but even so: as far as Labour see it, finances are tight). I don’t think they can avoid putting a bit more money into working-age welfare, e.g. in getting rid of the two-child limit. But if they’re not going to invest significantly more into it, then this leaves them with two options when it comes to health-related benefits:

1. The same but meaner: leave the system as it is, and cut disability extra costs benefits (either the amounts, or how easy it is to claim, or both). Which doesn’t fix the problems we currently face, and indeed makes them worse.

2. Fixing a broken system: alternatively we move back closer to the system of 2007, where the basic rate of benefit was higher (if still low), and fewer people felt they needed to claim disability extra cost benefits.

As should be clear, I think the first option is terrible, and the (difficult) second option is probably better. There’s plenty of political room to describe the system as ‘broken’ (a phrase used by Liz Kendall repeatedly), and there’s therefore some political space to pursue more major reforms. But it’s a better option **only** if it is done carefully.

What does a ‘careful’ reallocation of benefits payments between groups look like? Well, it doesn’t look like this. As I put it in my recent report After the WCA:

The benefits system is at its most devastating when it suddenly and sharply cuts the amount that people have to live on, and this should be avoided at all costs, by (i) better transitional protections in moving between systems; (ii) changing benefits more gradually, for example by tapering down the amount that people receive after failing a PIP assessment (as suggested by SSAC, 2022). There is no point in building a benefits system to tackle insecurity and hardship, only for the system to itself create insecurity and hardship day-by-day.

Others may disagree with me here, arguing that we should keep the high number of claimants receiving incapacity- and disability-related payments, and simply invest extra money in raising the basic level of benefit. (Indeed, Z2K have an excellent report saying this, which shares some of my analysis here). This avoids saying that some groups should get lower payments in the medium-term. But as I said at the start of this section, while I agree that this might be best in principle (and we should keep saying - and saying again - what an ideal system looks like), I cannot see the Labour Government doing this any time soon.

The risk is that everyone shies away from a tricky debate, and then - in the face of overwhelming pressure from the Treasury to cut disability benefits spending - we get the ‘same-but-meaner’ option by default. So if you disagree, please do help move this debate forward by critically engaging with this post and putting forward your own proposals in its place - and do it quickly, because time is short, and by next Spring the die will probably have been cast.

1. I’m choosing the 2007/8 financial year because this is before the 2008 recession, and the temporary increase in welfare spending that resulted from it. Non-pensioner welfare spending was 4.6% of GDP then, compared to the 4.9% forecast for 2023/24 and 2024/25.

I’m simplifying a bit here, because it’s very difficult to say if the system is ‘more generous’ when people are shuffling between different categories, and the level of social need is changing. This is one of the things that I’m planning to come back to in the research that dives into this. But I do think that overall levels of welfare spending are a useful crude proxy, particularly outside of crises/recessions.

2. Obviously some people had bad experiences of claiming welfare in 2007 as well. We have no way of tracking this over time, but my guess is that it feels worse to claim now than it did then (though it was probably at its worst in about 2012).

3. See sections 2.23-2.30. Readers may also be interested in an IFS paper paper that showed this effect for single parents subject. (h/t to Andrew Phillips for making it easy for me to find these links!). But there’s other similar studies from diverse settings showing the same effect.

4. As the OBR show, the differential between unemployment and incapacity benefits was relatively stable other than the abolition of the extra money for the ESA Work-Related Group (which as I said at the time and since, was a counterproductive policy that drove more people into the Support Group/LCWRA).

5. The 2012 time-limiting of contributory ESA for people in the WRAG means that some disabled people are no longer eligible for incapacity benefits (if they have considerable-but-not-quite-as-severe disabilities, and a working partner or more than a few thousand in savings). My guess is that this group in particular was pushed towards DLA/PIP.

6. See Schmuecker 2023 and Fitzpatrick et al 2023.

7. I think that the IFS chart in the Appendix (rather than the main text) is more accurate, as it includes in-kind spending as well as cash. (In other countries, PIP/DLA don’t exist in that form - instead there’s a combination of cash and care provided). But these comparisons are tricky, and it’s unclear whether we need to combine care expenditure and social protection expenditure to account for the fact that different systems have a different balance in providing cash vs. care.

8. You can find the sources for this in my paper on public attitudes to incapacity benefit claimants in the UK and Norway, Appendix D. As the Appendix notes, there’s various complexities in what ‘incapacity benefits’ means in the two countries (these figures exclude sickness benefits in Norway, which are claimed by 8% of the population) - but if anything these other considerations make the difference even starker.