Britain’s soaring benefits bill is down to a flawed welfare system which ‘incentivises’ claimants to declare themselves long-term sick, peers have warned.
Those eligible to claim health-related benefits could double their income by leaving the workforce, according to a scathing House of Lords report.
Experts and witnesses told peers that the current method of assessing whether people qualify for incapacity benefits is ‘inadequate’, with the system seen as ‘financially unsustainable’ and ‘wasting human potential.’
Currently, around 3.7 million people of working age receive health-related benefits – 1.2 million more than in February 2020, with the taxpayer liable for almost £65 billion on incapacity and disability benefits – more than what is spent on defence.
The report is published after claims Downing Street officials are ‘pulling their hair out’ over how long Work and Pensions Secretary Liz Kendall is taking to tighten up the welfare system.
In the report, peers noted the ‘stark financial disparity between the health-related component of UC (Universal Credit) and unemployment benefits and the differences in the conditions attached to them.’ They wrote: ‘Witnesses said that these create an incentive for those who are unemployed (and in receipt of income support) to seek this component of UC.
Eduin Latimer, Research Economist at the IFS, said that ‘if you move out of work, getting on to health-related benefits … would almost double your income. You would also have some of your housing costs covered.’ He claimed recipients could also get an additional £9,000 a year in personal independent payments on top.
Louise Murphy, Senior Economist at the Resolution Foundation, noted that for someone in receipt of UC, ‘their income can double if they are deemed to have limited capability for work-related activity. So there is an incentive to [pursue] that’.
Currently, around 3.7 million people of working age receive health-related benefits – 1.2 million more than in February 2020
A Job Centre. The authors also said that if 400,000 people who are out of work due to ill health were able to find employment, this could save around £10 billion through higher tax revenue and lower benefit spending
![Louise Murphy (pictured), Senior Economist at the Resolution Foundation, noted that for someone in receipt of UC, ¿their income can double if they are deemed to have limited capability for work-related activity. So there is an incentive to [pursue] that¿](https://i.dailymail.co.uk/1s/2025/01/19/22/94274673-14302851-image-a-10_1737325520941.jpg)
Louise Murphy (pictured), Senior Economist at the Resolution Foundation, noted that for someone in receipt of UC, ‘their income can double if they are deemed to have limited capability for work-related activity. So there is an incentive to [pursue] that’
‘The lower level of conditionality attached to health-related benefits creates an incentive to apply for these benefits,’ they concluded.
The authors also said that if 400,000 people who are out of work due to ill health were able to find employment, this could save around £10 billion through higher tax revenue and lower benefit spending.
But they blasted the current system for assessing eligibility, claiming it needed to be more ‘rigorous’ and that it was currently ‘inadequate’.
They also suggested there was a significant uptick in those claiming for mental health conditions rather than physical disabilities, making assessments even more complex.
Earlier this month former Labour Prime Minister Sir Tony Blair said Britons must stop ‘medicalising… the ups and downs of life. He added: ‘We need a proper conversation about this because you really cannot afford to be spending the amount of money we’re spending on mental health.’
Lord Bridges of Headley, Chair of the House of Lords Economic Affairs Committee, said: ‘The health benefits system is financially unsustainable, wastes human potential and – in the words of the Employment Minister – “does not work for anybody”. Given the pressure on the nation’s finances, tackling this must be a top priority for the Government.
‘Urgent action is needed to reform both the unemployment and health-related benefits system, and how they interact. There should be more support to help those who are able to find and accept work – and to ensure that those who cannot work for a period are not abandoned to a life on benefits.
‘Without a clear plan of action, growing welfare spending will remain a significant challenge for the forthcoming Spending Review.’
The report is published after claims Downing Street officials are ‘pulling their hair out’ over how long Work and Pensions Secretary Liz Kendall (pictured) is taking to tighten up the welfare system
Earlier this month former Labour Prime Minister Sir Tony Blair (pictured) said Britons must stop ‘medicalising… the ups and downs of life’
In the report, peers noted the ‘stark financial disparity between the health-related component of UC (Universal Credit) and unemployment benefits and the differences in the conditions attached to them’
The government has sought to take steps to crack down on the benefit bill, but some in No 10 are frustrated by the pace of Ms Kendall’s supposedly ‘radical’ reforms.
A blueprint setting out the reforms will not be published until March, with months of consultation to follow before proposals are laid out.
A senior Whitehall source told The Sun on Sunday: ‘No10 and No11 want her to go faster. They are pulling their hair out.’
A Government spokesman said: ‘We are determined to get Britain Working again and have set out our first steps towards delivering an 80 per cent employment rate – by joining up local work, health and skills plans.
‘We have been clear that the current welfare system needs reform, so it is fairer on the taxpayer and people get the support they need to move into work.
‘Building on our Get Britain Working White Paper, we will bring forward proposals for reforming the health and disability benefits system in the Spring. This will be part of a proper plan to help disabled people who can work secure employment while ensuring support is provided for those who need it.’
