New research from the CRESR estimates that 1 million people will be forced to find work due to changes to incapacity benefits. In a labour market short of several million jobs, these will increase poverty yet further. Moreover, they are fundamentally unfair.
Incapacity benefits, in the form of Employment Support Allowance (ESA) are set to change in the near future. All those who qualify for ESA are allocated to one of two groups – a Support Group or a Work Related Activity Group (WRAG). Those placed in the WRAG are expected to engage in work related activities. Those in the Support Group receive unconditional support. The changes include plans to implement stricter and tougher medical test to assess the claims and applying a time limit of 1 year to all contributory ESA claims who are placed in the WRAG.
The CRESR report, produced by Christina Beatty and Steve Fothergill, estimates that nearly 600,000 incapacity claimants will be pushed out of the benefits system entirely, either because they fall foul of the time-limit on non-means tested entitlement or because they fail to qualify for other means-tested benefits. Another 300,000 would be moved on to JSA. This means around 900,000 people will be forced to actively participate in the labour market.
But there is already a chronic shortage of jobs for those currently looking for work. Our analysis in the forthcoming Monitoring Poverty and Social Exclusion, 2011 estimates that by the first half of 2011, there were some six million people in the UK were underemployed and wanted to work . (i)
It is unclear how the labour market would cope with an additional influx of previously long-term sick individuals who lack any recent work experience actively seeking work. The forthcoming report suggests that, controlling for qualifications, those with disability or limiting illness find it more difficult to get a job, and even if they find a job, they are more likely to be low paid.
The CRESR report concentrates on the scale of the impacts on the labour market and concludes that policy changes should be made more cautiously. We agree but think there is another story to tell here, centered on what, in the first instance, looks like a technical change to the benefit – the introduction of a one year time limit to the contribution based element of ESA. According to the report, time limiting would remove 420,000 claimants by 2014.
This is incredibly damaging, both in terms of increased poverty and the complete disregard for the principal on which contributory benefits are based.
There are two forms of ESA: contribution based (ESA-C) and income based (ESA-I); both exist to support the long-term sick who are unable to work. ESA-C is provided on the basis that the individual has paid enough national insurance and is therefore entitled to financial support in the event of becoming long-term sick. ESA-I is a means-tested benefit.
Under the imminent changes, WRAG entitlement to ESA-C ceases after a year at which point the recipient can apply for ESA-I. As ESA-I is means tested, both savings and partner earnings will be taken into account. This represents a huge disincentive for a low paid partner to continue working – and huge disincentive too for people to save.
It could also increase the number of families in poverty or push those already on low incomes deeper into poverty. Consider a couple, Mr. And Mrs. Smith, where Mr. Smith has met with an accident and is claiming ESA-C. He is assessed as being in the WRAG. He is entitled to around £133 per week. His partner works 15 hours a week and earns £100. Their combined net family income is £243.As it is, this is pretty much on the poverty line for a couple with no children. After a year, Mr. Smith loses his contributory entitlement. He is still entitled to the ESA-I. But his entitlement would be reduced to only £53 per week, as Mrs. Smith’s earnings are now taken into account. The net family income would be £153 per week - well below the poverty threshold.
So the changes will make poor people poorer. But it also breaches the fundamental principal of contributory benefits. It would be a breach of contract for a private insurance company to withdraw payment in retrospect. Likewise it should be unacceptable for the state to renege on its contract of insurance by withdrawing the benefit from someone who was previously entitled to it on the basis of their national insurance contributions over many years.
Underemployed includes: (i) those aged 16 or over who are unemployed (wanting, actively seeking and immediately available for work), (ii) those aged between 16 and 64 and economically inactive but wanting work (those wanting work but either not actively seeking it or not available immediately), and (iii) those working part-time but wanting a full-time job