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Report Urges U.K. Government to Consider New Sickness and Disability Insurance Scheme

Author: Matthew Oakley - The Social Market Foundation (SMF) : Contact:

Published: 2016-10-28

Synopsis and Key Points:

Report calls on U.K. Government to launch major public consultation to design new system of social insurance that provides firms and employees access to expert advice and support when an employee experiences onset serious health condition or disability.

Main Digest

A new report from the Social Market Foundation think tank calls on the Government to launch a major public consultation to design a radical new system of social insurance that provides all firms and employees access to expert advice and support when an employee experiences the onset of a serious health condition or disability.

Striving for better: Welfare and a labour market that work for disabled people, has been written by the SMF's senior researcher Matthew Oakley, a former Treasury official and government social security adviser who led the Independent Review of Jobseeker's Allowance sanctions that reported to Parliament in 2014. The report comes ahead of new Green Paper on disability, employment and health.

The government has a commitment to halving the disability work gap - the different between employment rates of disabled and non-disabled people - by 2020. The report highlights the role that geography plays in disability employment and suggests that work is not always the answer to improving outcomes for many disabled people.

Matthew Oakley, report author and SMF senior researcher, said:

"Improving outcomes across the disability, health and work agendas is a complex issue. It's unhelpful to think of 'tackling the disability employment gap' as one distinct challenge. There are at least three broad types of individuals that might need support if goals to increase employment rates and reduce disadvantage amongst disabled people are to be achieved. A one-size-fits- all approach will not be effective and wide scale changes will be needed in a range of different areas of government policy, business practice and society.

"To achieve the Government's ambition to halve the disability employment gap, large scale changes to the labour market and welfare system will be needed. Importantly, unlike previous attempts at reform, these changes must deliver a welfare system and labour market that are supported by disabled people and the wider public, and are affordable over the long-term.

"If the Government truly wants to create 'an economy that works for everyone', it is no longer enough to focus on Beveridge's five giants of want, disease, squalor, ignorance and idleness. A sixth giant, disability and ill health, must be tackled. The need is clear: there are 1.3 million disabled people currently out of work who want to work and nearly one in three households with at least disabled member are living in income poverty.

"The vast majority of individuals and firms in the UK are not prepared for the impact of disability or serious illness and a private market solution is unlikely to provide the answer we need. A new model of social insurance that tackles the sixth giant is needed. Radical thinking and firmer commitment are the only way in which this will be achieved."

Key findings from Striving for better: Welfare and a labour market that work for disabled people:

It's not just disability - geography matters:

There are much wider issues than disability to consider. For example, the first report in this series demonstrated that out of work disabled people have, on average, far lower qualifications than both the non-disabled population and disabled people who are in work. Analysis in this report shows other factors that play a role, including geography. The report demonstrates that disability employment rates vary dramatically across the country. This chimes with previous studies that have shown clustering of disability in deprived and poor areas and areas with a history of industrial decline. Together this all suggests that areas with high rates of disability could be facing other significant disadvantages that might make entry into the labour market more difficult. These will need to be considered closely to ensure an effective policy response.

Work is not always the answer:

There are also questions over the extent to which work is the desired outcome for those disabled people not currently in work. Of the three million out of work disabled people in the UK, well over half say that they do not work. Of this group the vast majority say it is because of their illness or disability (77%) and one in five (18%) say that it is because of a caring responsibility.

This demonstrates that increasing employment amongst the group of disabled people that do not want to work will need more than a simple focus on the labour market. For many disabled people, the severity of their health condition or disability will make it extremely unlikely that work is a viable or attractive short (or even long)-term option.

For these groups, it should be recognised both that work is not always the appropriate objective to be targeting and that, where this is the case, a different approach to supporting these people, that focuses on improving health and wider outcomes, will need to be adopted.

Fundamental change in the labour market is needed:

Another consideration is whether significantly more people might be helped into work given what is known about the labour market experience of those disabled people who already work. Unsurprisingly, there are some differences. However, perhaps most importantly, many of the differences are not as large as might have been imagined.Data shows that (on average) those disabled people already in work are not working intermittently or working short hours. However, evidence from existing employment support programmes suggest that short-hours and / or temporary jobs are often the most effective in providing stepping stones into work for more disadvantaged disabled people. This suggests that, if large numbers of more disadvantaged disabled people are to move into work, employers are likely to need to employ a different approach to that which they use with existing employees with disabilities.

Key policy recommendations from Striving for better: Welfare and a labour market that work for disabled people:

A new social insurance system

Consult on a radical new system of social insurance for firms and employees:

The Government should launch a major public consultation to design a radical new system of social insurance that provides all firms and employees access to expert advice and support when an employee experiences the onset of a serious health condition or disability. Much like auto-enrolment, the scheme would be compulsory for all firms and would also compensate employers for the costs of Statutory Sick Pay.

Conditionality and sanctions

Work with disabled people to build evidence base for effects of benefit conditions and sanctions:

The Government should undertake urgent work with disabled people and groups that work with and provide services for them to build the evidence base on the effect of conditionality and sanctions on disabled people.Make employment support programmes voluntary for claimants of ESA: All employment support programmes provided through Jobcentre Plus and contracted providers should be voluntary for claimants of Employment and Support Allowance (ESA). Those choosing to take up the support available should be paid a Steps to Work Wage to reflect their engagement. This would be paid on top of the individual's standard benefit eligibility and would be contingent on them engaging in the support available (much like a wage in any job).6

Helping disabled people who are out of work but close (in terms of barriers to employment) to the labour market

Redesign and increase funding for the new Work and Health Programme:

The Government should take more time to design the new Work and Health Programme. It should roll-over existing contracts like has happened in Scotland and design an improved programme to be started in April 2018. As part of this re-design, and because of the significant financial savings that would be achieved through reducing the disability employment gap, the government should increase funding for the new Programme to ensure that expected numbers of people flowing through the programme do not fall.

Helping disabled people out of work and further away from the labour market (in terms of barriers to employment)

New local pilots to help disabled people with significant barriers into work:

A significant programme of voluntary pilots should be developed by local policy makers to attempt to support disabled people with significant barriers to work into employment. This should be provided on a voluntary basis for claimants of Employment and Support Allowance who are in the Support Group. It should be funded by bringing together the money already made available to the Work and Health Unit (£115 million) and through the support for ESA claimants outlined in the 2015 Summer Budget (£100 million).New £1bn 'Financing future health fund': These pilots should form part of a wider innovation scheme with a further £1 billion set aside over the course of the Parliament for a "Financing Future Health" fund. This should be used to trial approaches to providing better social, health and employment support for people in the Support Group of ESA. Local areas (City Regions, Combined Authorities, local authorities) should be encouraged to outline firm plans for the services they wish to deliver and bid for funding from the fund. Money would be provided upfront in the anticipation that improved services will reduce costs to the state in the long-term. Local areas should be encouraged to co-invest alongside central government and to seek social finance to increase the size of this. Again, part of the agreement to fund new projects should be a commitment to comprehensive evaluation so that lessons can be learned.

Non-disabled people at risk of experiencing on set of health condition or disability

Pilot a benefits guarantee:

On a pilot basis, the Government should guarantee a rate of benefit equivalent to the Support Group rate for ESA claimants who have recently left work and are likely to be able to return quickly. This rate of benefit would be guaranteed for a period of six months and on the condition that the claimant was actively engaged in a programme of support to help them return to work.

What is the disability employment gap and why does it matter?

The disability employment gap is the difference in employment rates between disabled and non-disabled people. The government has committed to halving the gap by 2020. Halving the disability employment gap would mean supporting over a million more disabled people into work than is the case today and improving a range of health and disability outcomes. Doing so could present a wide range of benefits to individuals, business and the state, as demonstrated by the costs of disability and worklessness:

The Report - Striving for better: Welfare and a labour market that work for disabled people - is available here:

Previous work on this issue was published in March 2016 by the Social Market Foundation and supported by Remploy. It is available here:

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