Ministers are drawing up plans to allow individuals on disability benefits to continue receiving them in employment, in an effort to reduce the number of economically inactive people in the labour market.
According to a report in The Times, the Treasury is considering plans to encourage people back to work by offering tax breaks.
The number of working-age people on long-term sick has increased by around a quarter since before the pandemic, from about 2 million people in 2019 to nearly 2.5 million, according to data from the Office for National Statistics.
The newspaper reported that a health and disability white paper due before the Budget on 15 March will recommend “reforming or scrapping” work capability assessments used to assess eligibility for benefits. Ministers want to replace the current system, described as a “perverse incentive to prove how sick you are”, with policy that encourages claimants to demonstrate the work they might be capable of doing.
Mel Stride, the work and pensions secretary, is understood to be planning to “rewire” the benefits system as the government attempts to reduce the number of people not looking for work since the pandemic.
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Data from the ONS report ‘Self-reported long COVID and labour market outcomes last month, showed that, as of July 2022, 23.3% of people aged 16 to 64 years with self-reported long Covid were economically inactive, or not working or looking for work.
But a House of Lords committee has found that early retirement is the biggest driver of rising economic inactivity and labour shortages in the UK.
The Times said that officials are being urged by senior ministers to consider exempting over-50s returning to work from income tax for six months to a year. “The biggest challenge we’re facing is how to get people back into the workforce,” a senior government source said. “There’s a discussion in the Treasury about how to use the tax system, whether people could be given a bigger tax allowance during the first few years they are back in work.”
On Tuesday, Labour pledged that disability benefit claimants who want to work will be immediately allowed back on unemployment benefits if they cannot do the job.
Shadow work and pensions secretary Jonathan Ashworth said: “Let’s take away that fear and distrust which prevent so many from engaging with employment support and attempting a move into work.
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“A Labour government would guarantee that people in this position who do move into employment with the help of employment support will be able to return to the benefits they were on without the need for another lengthy assessment process.”
