Crunching data on our benefits claimants

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TOM CALVER | GO FIGURE

How many UK benefits claimants have never worked?

Labour hopes its welfare reforms will persuade thousands to rejoin the workforce but there are problems with that logic

Tom Calver

, Data Editor

Sunday March 16 2025, 12.01am, The Sunday Times

Whatever arrives in Labour’s welfare reform package this week, any tightening of the benefits system will no doubt prove popular. According to a rolling YouGov tracker, 53 per cent of the British public think qualifications for benefits are not strict enough, versus just 25 per cent who say they are too tough. Even Labour voters are now more in favour of tougher benefit rules than looser ones, something unimaginable five years ago.

Writing in The Sunday Times today, the work and pensions secretary, Liz Kendall, says people who spend their lives on benefits are condemned to an existence in which “living standards aren’t improved”. But just how many lifelong claimants are there in Britain?

Lest we forget, an extra 840,000 people have become economically inactive since the pandemic, including 650,000 through long-term sickness, which is costing the taxpayer an additional £20 billion in health-related working-age benefits. And, according to the ONS, of the 2.8 million people who are inactive through poor health, a fifth — 580,000 — have never worked at all.

• Liz Kendall: ‘A life on benefits is bad for your dignity and health’

What do we know about them? These cases stand out for the high prevalence of mental health problems. Half of these inactive never-workers list conditions like autism (114,000), mental illnesses including phobias (85,000) and depression or anxiety (77,000) as the main thing keeping them out of work — a far higher share than among people who have worked before.

The age breakdown is revealing. For obvious reasons, the number of people who have never had a job is highest among the young. But in the past eight years the number in their twenties who have never worked, and blame it on sickness, has almost doubled.

Sceptical? In financial terms there are incentives to claim sickness benefits over basic unemployment payments. As I’ve written before, unemployment benefits in Britain are remarkably low by international standards: the average worker, upon losing their job, earns just a third of their previous salary, or about £12,000 in Britain (and that includes housing support). Add incapacity benefits and that figure rises to £17,000. Ministers want to close the gap between disability and out-of-work benefits to persuade more people into work. But how likely is it to be effective?

Let us return again to the chart on inactivity due to ill-health. While 580,000 people who are too sick to join the workforce have never worked, a far larger group — 1.4 million people, up from 1.1 million five years ago — have not worked for at least five years. A further 410,000 last worked between two and five years ago. In other words, nearly 90 per cent of this economically inactive group have not worked for at least two years. The same is true of incapacity claimants: although their number has soared since the pandemic, most have not worked for more than five years.

This makes no sense! If they weren’t all working, what were all of those new disability claimants doing beforehand?

Actually, of those people who first started being inactive due to ill health since 2021, only 14 per cent were actually working immediately beforehand: instead, 25 per cent were claiming unemployment benefits, while the majority were inactive for different reasons, like looking after the family (20 per cent), being temporarily sick (9 per cent) or being a student (7 per cent).

We talk a lot about getting those on disability benefits back into work, but the reality is that most have not worked for some time. And the longer you leave it, the harder it gets to rejoin the workforce. If you’re unemployed and you left your job in the past six months, by my calculations you have about a 32 per cent chance of moving into employment within the next three months. By the time you have been unemployed more than five years, it falls to a depressing 2.4 per cent.

For those classed as economically inactive through sickness, the rates of re-entry are even worse. Those who were working less than six months ago have just an 8.2 per cent chance of rejoining the workforce in the next quarter. Leave it a few years and it falls below 1 per cent.

In other words, data shows our welfare system is particularly shoddy at returning people to work once they have been out of it for some time.

When it comes to getting people back into work, some methods are better than others. A University of California study from the 2000s compared two welfare programmes that ran in the state. One, which focused on job-searching, writing CVs and making benefits conditional on spending time looking for work, slightly boosted employment in the short term but fell down later because skills didn’t progress. The other, which focused on development — education, vocational training in specific jobs and language programmes — was much better at boosting employment in the long run.

Ministers should take note. There are 200,000 twentysomethings who have never worked because they are deemed too sick: only with the right investment in their long-term skills, rather than using them to plug short-term gaps in the workforce, will they be able to reach their potential.

A bit of supply side policy to cure Germany's ills?

 

Friedrich Merz’s economic cure for Germany, the sick man of Europe

The CDU leader’s prescription is tax cuts, slashing benefits for refugees and less bureaucracy — but economists say Agenda 30 doesn’t add up

Friedrich Merz, the CDU leader, has promised to turn Germany’s economic prospects around with an Agenda 2030

David Crossland

, Berlin

Sunday January 12 2025, 6.35pm, The Times

The last time a German government enacted “get on your bike” economic reforms was more than 20 years ago when Chancellor Gerhard Schröder, now vilified for his friendship with Vladimir Putin, cajoled his Social Democrats into accepting his Agenda 2010 package of radical benefit cuts.

The agenda cost him his job because SPD voters never forgave him for it, but it worked, hauling Europe’s largest economy out of recession and temporarily restoring its “Vorsprung durch Technik” prowess in Europe and the world.

Angela Merkel reaped the rewards, taking credit for solid economic growth that endured for most of her 16 years in power. With tax revenues pouring in, she put reforms on hold, keeping the ageing population happy with pension increases while blue-chips like VW and Siemens raked in profits from surging sales to China and cheap Russian energy.

• Angela Merkel exclusive: Donald Trump, Vladimir Putin and me

Those days are over. The title of sick man of Europe is back again for the first time since 2003, when it spurred Schröder into action.

In the past two years, Germany’s performance has been the worst among the G7 top economies, with a contraction in GDP in 2023 and zero growth in 2024. It is expected to remain at the bottom of the ranking in 2025 with 0.8 per cent growth, according to the International Monetary Fund.

Surging costs, paralysing bureaucracy and years of underinvestment have made a mockery of clichés about Teutonic efficiency and the trains running on time.

The word “agenda” in a campaign manifest remains a red rag to the left but the CDU leader, Friedrich Merz, the contender most likely to become chancellor in the February 23 election, has embraced it, promising to turn Germany around with an Agenda 2030.

Formally agreed in Hamburg at a weekend conference of CDU leaders, the 12-page plan pledges to restore Germany to annual growth of at least 2 per cent with a four-year series of tax cuts for low and middle-income households and for companies. The top tax rate on corporate earnings is to be slashed from 40 per cent to 25 per cent. The CDU has remained vague on how it plans to fund the relief and is pinning its hopes on rising growth to do the job.

Merz, centre, in Hamburg. The CDU leader has promised to turn Germany around with an Agenda 2030

MARCUS BRANDT/GETTY IMAGES

In an attempt to clip the wings of the hard-right AfD, which is in second place at 21 per cent according to the latest poll, the agenda includes cuts in benefits for refugees, as well as for the long-term unemployed. Anyone refusing reasonable offers of work will risk a complete loss of state support, Merz told a news conference on Saturday.

“We’ve got to restore our economic performance. The objective state of our economy is much worse than 20 years ago because we’re losing competitiveness on a large scale,” Merz said.

Germany’s manufacturing sector remained the core of its prosperity and would suffer “irreparable damage” without fundamental change. “We don’t have much time to correct this,” said Merz, whose CDU/CSU bloc is polling at 30 per cent.

Agenda 2030 will introduce tax breaks for overtime and for pensioners who want to top up their income in an attempt to get Germans to work more; recent OECD data showed that Germans put in significantly fewer working hours per year than the EU average or UK workers.

Merz said immigration had led to an “objective overburdening of the capacities of our country”

MARCUS BRANDT/GETTY IMAGES

Merz also plans to spur investment through “deep cutbacks” in German and EU bureaucracy. Planning approval for building projects is to be sped up and start-up companies are to be spared much of Germany’s notorious red tape. There are plans for a digital affairs ministry to help cut bureaucracy.

The agenda also aims to reverse the planned EU ban on the sale of new petrol and diesel cars from 2035.

Merz said immigration had led to an “objective overburdening of the capacities of our country” after more than three million people from non-EU countries had entered Germany in the past four years.

The message was similar, but less blunt, to that of his rival Alice Weidel, whose AfD has been endorsed by Elon Musk as Germany’s “last spark of hope”.

Alice Weidel, co-leader of the AfD, has radical plans for Germany’s green policy, including tearing down wind turbines

KAY NIETFELD/REUTERS

“Cut social benefits for people without residence entitlement and carry out deportation on a large scale,” she told a party conference in Riesa where she was anointed as its candidate for chancellor. “I must honestly tell you, if that’s supposed to be called remigration, then it’s called remigration,” she told delegates to applause.

She described the 10,000 protesters who had delayed the start of the conference by two hours as “red painted Nazis”, echoing her remarks last week in an online conversation with Musk that Adolf Hitler was a communist.

She also had a radical plan on green policy, promising: “We will tear down all wind turbines, down with these windmills of shame!”

Economists are questioning how Merz plans to fund the tax cuts and other measures given that they will cost an estimated €89 billion.

Marcel Fratzscher, the president of the German Institute for Economic Research, said: “Economic growth of 2 per cent is illusory. The combination of lower taxes, higher investment and less debt is a contradiction in terms and like squaring the circle.”

Comparing our benefits payouts to other countries'

 

TOM CALVER | GO FIGURE

Have people stopped working because benefits are too generous?

Tom Calver

, Data Editor

Sunday November 17 2024, 12.01am, The Sunday Times

How tough is Britain’s benefits regime? Not tough enough, according to the British public, by a growing majority — or so we have told YouGov. Soaring economic inactivity plus attempts by successive governments to trim the welfare bill have hardened attitudes.

An extra 671,000 people have become “economically inactive” since the pandemic, costing the taxpayer an extra £12 billion in health-related working-age benefits. The bill could reach £63 billion by 2029, according to the IFS.

Labour, as well as clamping down on benefit fraud, made tackling worklessness a key manifesto pledge. But how well does it actually pay to be out of work in Britain?

In a word: poorly. Let’s start with unemployment benefits. If you’re a single person on an average wage and you lose your job, in most rich countries the state will help you keep most of your salary while you get back on your feet.

In Luxembourg this “replacement ratio” is a miraculous 86 per cent of the average salary. Portuguese workers keep 75 per cent of their pay, the French keep 68 per cent and the Germans keep 59 per cent.

Things are less rosy in the US, where median-wage workers keep 35 per cent of their working salary. But in Britain? A measly 12 per cent — the lowest in the developed world. Even if we include housing benefit, the UK still ranks 39th out of 42 rich countries, according to the OECD — ahead of only Australia, Romania and Russia.

Apart from being low, there are two main ways Britain’s unemployment pay differs from that of comparable nations.

First, our system offers universal welfare, with more assistance given to the neediest, funded through general taxes. Many European nations, by contrast, use social insurance models, in which workers pay into schemes while employed, and are given unemployment pay based on the salary they were on. High-earners get more benefits.

Second, generous though many of those European benefits systems appear, they are time-limited. Unemployed Italians enjoy 62 per cent of their wages immediately, but that falls to nothing after two years. In Britain, assuming none of your economic circumstances change, your (modest) universal credit allowance stays the same for ever.

So Britain’s unemployment pay lags behind most of the world. What about sick and disability benefits? In the UK health-related benefits fall into two categories: means-tested incapacity benefits — mostly via the health part of universal credit, which is designed to compensate for the fact that earning is harder when you have health problems — and disability benefits, given to disabled people regardless of income.

Recent international comparisons are hard to come by. But a 2020 paper by the OECD suggested that British claimants with the lowest level of incapacity get the equivalent of just over half the average wage — placing us roughly in the middle of the pack.

By international standards, then, Britain treats those on sickness benefits much better than the unemployed. This is the reverse of public opinion: people are more likely to think those with disabilities have too little support (48 per cent agree with that statement) than those who are out of work (26 per cent).

For the past three years the government has been trying to work out why so many more people are claiming disability benefits. It cannot all be down to the pandemic. Virtually every country in the rich world has seen a rise in sickness since 2019, yet Britain is, with Denmark, one of the only rich countries to see a rise in health-related benefits.

A recent report by three Institute for Fiscal Studies economists ends with this compelling suggestion. Because the level of basic unemployment support is so low, they say, it’s possible that “following a shock to real incomes, more people with health conditions in the UK apply for health-related benefits than in other countries”. In other words, as inflation starts to bite and budgets are stretched, some people with conditions who did not claim health benefits previously are now choosing to do so.

Since the pandemic, the number of people claiming incapacity or disability benefit has jumped from 2.8 million to 3.9 million. But it is not true that many of those extra 1.1 million claimants came from the workforce; in fact, nearly two thirds left their last job more than two years ago or had never had one.

Furthermore, the option to fill out health-related claims forms online has made it easier for those who start an assessment form to finish it — completion rates have gone from 72 per cent to 86 per cent.

Rising ill health did not begin with the pandemic: Britain was getting sicker throughout the 2010s. But to understand why so many more people are claiming sickness benefits now, we must look at the wider welfare safety net — which, if you fall on hard economic times, can be surprisingly porous.

A quick look at economic inactivity

 

Britain is on the sick

More Britons are out of work and claiming incapacity benefits than ever before – and it has little to do with Covid or waiting lists. What’s the problem? Simon Wilson reports

WHAT’S HAPPENED?

New official data, published last week, shows that the number of working-age Britons who are “economically inactive” due to sickness – that is, out of work and not looking for a job – stands at an all-time record of 2.6 million. That’s almost half a million more people than at the start of 2020, before the Covid pandemic, and 600,000 more than the figure in the late 2010s. This mass withdrawal from the workforce has helped fuel the UK’s labour shortages. It is also proving an expensive business in other ways. According to the Office for Budget Responsibility (OBR), the rise in long-term sickness has added £15.7bn (0.6% of GDP) to annual government borrowing because of lost tax receipts and higher welfare spending.

IS THIS ABOUT COVID?

No. The contribution of ill-health towards overall economic inactivity is at an all-time high – accounting for 29% of the total earlier this year, compared with 25% before the pandemic (according to the official Labour Force Survey). However, the largest percentage increases in inactivity due to sickness since the start of the pandemic have been among younger people, who were much less affected by Covid. The Office for National Statistics (ONS) says that the rise in work-limiting health problems predates the pandemic. In 2016, the proportion of 16- to 64-year-olds reporting these was 15.4%, which rose to 16.4% in 2019, and 18.1% of the population in 2022. 

HOW DO OTHER COUNTRIES COMPARE?

Since the turn of the century, the UK has had impressively low inactivity rates compared with similar countries. But today it is an outlier in that its inactivity rate has failed to bounce back following the pandemic. In the OECD group of richer developed countries, we are in the small minority of countries (about 20%) where that’s the case. In the OECD on average the rate of inactivity has actually fallen since 2020 by an average of 0.4 percentage points.  In the UK, like other countries, it surged in 2020. But unlike in most other countries, inactivity has continued to climb, and since 2020 overall it is up by 0.5 points. Some have ascribed the rise since 2021 to poorer mental health post-pandemic, and to those patients suffering from ongoing complications (“long Covid”). But this is an unsatisfactory explanation, since these conditions are not unique to the UK, and don’t explain why this country might be an outlier. Nor, argues The Economist, does the poor condition of the NHS, and long waiting lists, explain it. 

“THE RISE IN LONG-TERM SICKNESS HAS ADDED £15.7BN TO ANNUAL GOVERNMENT BORROWING”

WHY NOT?

Waiting lists for elective treatment have soared from 4.6 million in February 2020 to 7.6 million this summer. But more than half of those waiting for care are not of working age. And the treatments most in demand (for example, musculoskeletal issues) don’t match the reported conditions of the long-term sick. Here, mental health is a big contributory factor. According to analysis last year by the ONS, 60% of the long-term sick had a mental health condition as at least one of their health needs (it’s common for long-term illness to have more than one contributory cause). Moreover, according to data from the OBR, only around a quarter of the long-term sick are inactive because they are awaiting treatment. In other words, “problems in the NHS may be behind some of the rise in inactivity, but they are not the predominant cause”.

SO WHAT IS?

There may well be an element of hidden unemployment, says Sarah Neville in the Financial Times, in that claimants are better off claiming sickness benefit than they would be on unemployment benefits. Of the 34 OECD countries surveyed this spring (a fifth of which still had higher rates of inactivity than before the pandemic), the UK  had the least-generous benefits for the jobless after two months as a proportion  of previous in-work income. Even after  a year of unemployment, only four countries are less generous. “Basically  it’s quite hard to be out of the labour market in Britain, unless you’re disabled, because you won’t have enough money to live on,” reckons Torsten Bell of the Resolution Foundation. 

IS IT EASY TO GET SICKNESS BENEFITS?

It has got much easier in recent years, and there are a number of perverse incentives in the system that have boosted numbers. The number of people claiming incapacity surged in the 1990s, but since the early 2000s it had fallen gradually, as governments (Labour and then Conservative-led) made it harder to claim. Then, in the late 2010s, policy changes resulted in claims surging once more. The key change is that in 2019 the government made it far easier to claim sickness benefit. In the fiscal year 2019-2020, over 80% of claims were successful, compared with just 35% in the decade before. When the pandemic hit, the wider benefit system was swamped, and incapacity claims were waved through. If the approval rate had stayed at 2016-2017 levels, there would have been 670,000 fewer approved claims since.

WHY ARE MORE CLAIMS BEING PASSED?

The old system “did a fair job of nudging those who were temporarily incapacitated back into work as soon as they were better”, argues The Economist. The new one “has sharply raised the relative rewards of claiming to be permanently incapacitated”. If you are deemed incapable of working again, you now get twice as much benefit as those expected to return to work one day. Obviously, that creates a strong incentive for some to overstate their conditions – and it’s a big contrast with the situation as recently as 2017. Before then, the short-term sick were given benefits at a slightly higher rate than the unemployed. The government faces a tough task in readdressing this debate in the run-up to an election. But ignoring the welfare system’s increasingly clear flaws comes with a large and growing cost. The system needs recalibrating. Politicians “must not shirk or dodge” this urgent task.

MONEYWEEK