Analysis-UK faces hard choices over soaring disability costs

By David Milliken

LONDON (Reuters) - Britain's government wants to tame its ballooning bill for supporting people with disabilities and long-term health conditions which, despite the cost, leaves many claimants distressed or struggling to find work.

Annual spending on incapacity and disability benefits already exceeds the country's defence budget and is set to top 100 billion pounds ($129 billion) by 2030 according to official forecasts, up from 65 billion pounds now.

Prime Minister Keir Starmer warned this week that the welfare arrangements he inherited from the previous government were "indefensible economically and morally" and he wanted to see more people back in work. His government is expected to propose changes next week.

Broadcaster ITV has reported that the reform would include 6 billion pounds of cuts, alarming some lawmakers from Starmer's left-leaning Labour Party.

Finance minister Rachel Reeves is keen to find ways to reduce the benefits bill as official forecasts due on March 26 may otherwise show the government will miss its debt-reduction goals.

Welfare experts say the government will nevertheless struggle to ensure that a push for quick savings does not jeopardise longer-term efforts to boost employment.

"Trust is very low," said Louise Murphy, senior economist at the Resolution Foundation think tank, adding that many disabled people on benefits feared losing money or facing a tough time with a work coach if they considered employment.

Asked about potential cuts, a spokesperson for Britain's Department for Work and Pensions said it had "a duty to put welfare spending on a more sustainable path ... through meaningful, principled reforms rather than arbitrary cuts to spending".

FIRST STEPS

Chelsea Shubert, 23, is the type of person the government wants to encourage. 

Diagnosed with autism and living with anxiety, dyslexia and other conditions, she left school without key qualifications and received unemployment and disability benefits.

In 2021, a government employment adviser urged her to do an unpaid six-month stint at a charity shop, which did not lead to a job.

But she has now passed an English exam and began her first paid job as a school crossing guard in January.

"It's very rewarding and gets me out, even though it's only half an hour in the morning and half an hour in the evening," she said.

Eventually she hopes to work with children for longer hours so she is not so reliant on benefits.

"Being someone that's living with a disability and a health condition, this world that we live in is horrible. There's not enough support out there," she said.

Bad experiences with Britain's benefits system are common, said Ben Baumberg Geiger, professor of social science and health at King's College London.

His recent study based on a survey of nearly 4,000 claimants found two in five felt they would be better off dead or wished to commit an act of self-harm.

"We have a very dysfunctional benefit system that simultaneously is spending a lot of money ... and at the same time doesn't feel like it's providing support," he said.

While Britain's unemployment rate is low by European standards at 4.4% of the workforce, 10% of the working-age population claim incapacity or disability benefits, up from about 8% before the COVID-19 pandemic.

Other European countries have not seen the same rise, which analysts suggest may reflect the gap between the levels of unemployment and disability benefits in Britain.

Most single jobless people get 393 pounds a month plus some housing costs, while those deemed too sick to work receive 810 pounds.

In addition, disabled people - in work or not - can receive a separate benefit averaging 586 pounds a month to cover extra disability-related costs.

The Resolution Foundation's Murphy said the government was right to consider narrowing the gap between unemployment and incapacity benefits and whether regular lump-sum payments truly reflected extra costs caused by health conditions.

But she was concerned tighter eligibility rules for future claimants could see the brunt of cuts borne by an unlucky minority of disabled people.

Short-term budget pressures must not distract the government from getting more people back into work, Murphy said.

Geiger said Britain might learn from countries like the Netherlands, where employers are liable for initial costs if a staffer is no longer able to work due to ill health, increasing their incentive to retain the worker.

European countries with higher rates of employment for disabled people had achieved this through better working conditions rather than a benefits crackdown, he added.

In Britain, fewer than one in 100 people receiving the higher rate of incapacity benefit return to work each month - half the proportion in 2012, according to the Resolution Foundation.

One organisation which says it can help turn that round is the Shaw Trust, a charity which receives government contracts to prepare people with poor health to return to work or stay in their job by offering intensive, specialist support.

This costs more than 2,000 pounds per person and secures lasting employment for fewer than half those helped.

But the charity says it delivers an average return on investment for the taxpayer of 2.42 pounds per pound spent in the first year, rising to 9.22 pounds after three years.

The Shaw Trust's chief commercial officer, Richard Clifton, hopes these figures ensure its work is spared from any public spending cuts.

"In reality these programmes give you payback within the year," he said.

 ($1 = 0.7734 pounds)

(Reporting by David Milliken; Editing by Hugh Lawson)