IDS’s ‘Reforms’ ~ THE TRUTH: Impact assessment on the abolition of working age disability living allowance (DLA)

Impact assessing the abolition of working age DLA

Disability Rights UK and this analysis

Disability Rights UK is a new charity, formed through the merger of Disability Alliance, NCIL and Radar. In February 2011 our former charities raised concerns with the Department for Work and Pensions (DWP) that government proposals for abolishing Disability Living Allowance (DLA) for people 16-64 years of age needed properly assessing¹. We attempt to provide some further analysis of government plans in this document.

The purpose of our analysis is to examine what disabled people predict is likely to happen if government changes mean they are no longer eligible for support. We use DWP estimates as far as possible to examine potential costs to government.

Our fear is that the full impact on disabled people and the associated costs to government are being ignored in the rush to deliver a 20% saving in overall DLA expenditure by 2015/16² by introducing a new benefit. The government aims to achieve this by abolishing working age DLA and introducing a Personal Independence Payment benefit (PIP) with lower numbers of disabled people eligible for support.

The government’s approach to abolishing DLA has appeared to assume expenditure is ‘deadweight’ and achievable without any knock on effects to other government revenue or expenditure. This is a falsehood.

Our fears over the lack of adequate assessment of the impact of losing support are shared by our members and other organisations. The Joint Committee on Human Rights (JCHR) also raised similar fears in March 2012³. The JCHR reported that its inquiry into disabled people’s right to independent living:

“received evidence that impact assessments of current reforms were not adequately carried out, and did not take into account the likely cumulative impact of reforms on disabled people. We therefore argue that the Government should publish a unified assessment of the likely cumulative impact of the proposals on independent living.”

The JCHR report substantiates our view that the government must properly assess proposals which disproportionately affect disabled people and could undermine rights to equality of opportunity.

The absence of adequate government analysis despite legitimate questions posed by us, other disabled people and organisations about the impact of losing DLA is worse than disappointing; it is irresponsible. The potential costs to government are significant and must not be ignored, especially in the context of a fragile UK economy.

There are further risks the government should not ignore. In July 2011 Disability Alliance outlined the clear case for a legal challenge of government plans if adequate impact assessments were not provided⁴.

In light of the government’s failure to demonstrate full analysis of the impact of proposals and the conclusions of the JCHR, we are examining our options to pursue full action now welfare reform legislation has been enacted.

Potential costs of 500,000 disabled people losing eligibility for support

In the absence of adequate government analysis, we have reviewed DWP estimates for the number of disabled people who will lose eligibility for help⁵. Under the abolition of DLA for working age disabled people and the introduction of Personal Independence Payments, DWP have revealed half a million less disabled people will be eligible for support.

In the largest recent survey of disabled people and use of DLA⁶ more than 1,700 responses were received. 82% were from disabled people using DLA or carers supporting disabled people using DLA. In open questions, respondents highlighted the risks of losing DLA to three areas we examine in more detail below: 

• 56% of the people in work said they would have to stop or reduce work if they lost DLA;

• 16% suggested cuts to DLA will result in higher NHS use; and

• 14% suggested a likely need for more use of council services. 

Using these estimates of how disabled people they might be affected if they lost DLA and the DWP estimate that 500,000 less disabled people will be eligible for support, we have split our analysis into potential: work; NHS; and council costs. 

1. Potential impact of DLA plans on disabled people’s ability to work

DLA is not an out of work benefit. It was introduced from 1992, under the last Conservative government, to help with disabled people’s routine higher living costs⁷. Disabled people in work can experience higher living costs than other workers and disabled people out of work due to additional travel in particular.

DLA supports many disabled people in work. This is despite estimates for the government that 56% of the people receiving DLA have four or more health conditions (and 93% two or more health conditions)⁸.

DWP estimates about 9% of the people receiving DLA are in work⁹. However, if all DLA recipients are included (i.e. children and people over retirement age) the in-work figure is necessarily smaller as a percentage than if just analysing the working age group affected by the initial phase of DLA abolition¹⁰.

The figures for disabled people in work and receiving DLA vary. In one study, 20% of the disabled people receiving DLA and no other benefits were in work and 40% of the single, disabled people living with their parents were also in work¹¹. Some of the research distortion on work is caused by a failure to record part time work (especially under 16 hours). In the Disability Alliance survey 27% of respondents were working either full or part time and 12.5% were receiving working tax credit.

However, for the purposes of our analysis we have deliberately selected the low 9% estimate of how many disabled people using DLA are in work to ensure we do not exaggerate potential costs. But it should be noted that the final figure affected is likely to be higher.

The total loss is likely to be higher partly due to the low estimate of in-work disabled people using DLA. But the nature of the proposed assessment system for PIP under government plans and the policy aspiration of ‘targeting PIP at disabled people with the highest needs’¹² means it is more likely disabled people in work are at risk of being made ineligible for support.

Using the largest recent survey of people receiving DLA, 56% said they may have to leave work if they lost support¹³. DWP suggests 500,000 disabled people will lose eligibility for support from 2013. If 9% of the 500,000 disabled people losing eligibility were in work this would be 45,000 people.

If 56% of the 45,000 affected did lose work this would represent 25,200 disabled people unable to retain employment; the risk to disabled people’s opportunities to retain or acquire employment is very real.

This would massively increase the bill for abolishing DLA with losses to government coming immediately from lost National Insurance and Income Tax contributions.

According to the National Statistics Office 2012 figures, average UK earnings are £26,100 per year¹⁴. Whilst disabled people in work earn less than non-disabled colleagues on average, disabled earners’ income is not provided in one credible source so we have had to use the national average to estimate National Insurance (NI)/income tax losses to the Treasury.

The 2012/13 income tax rate on the average salary would be £3,599 and the NI contribution would be £2,220.96 (i.e. a ‘take home’ pay of £20,280.24). The total potential Treasury contribution on the average wage is currently £5,819.96 from a single disabled earner. Multiplied by the number of disabled people possibly leaving work (25,200) the Treasury loss could be as much as £146.7 million a year.

Many disabled people will not earn the national average and the Treasury is also likely to recoup savings from non-payment of tax credits to disabled people no longer in work. But our analysis does not aim to present absolutes; we simply intend to highlight potential failures and risks of the government’s lack of assessments. DWP have provided no better figures to use at this stage for analysing government plans.

Our 25,200 figure for disabled people possibly leaving work is also potentially a very conservative estimate. Using an 18% halfway figure of the 9% DWP estimate and the 27% of respondents in the Disability Alliance survey including part time workers, 90,000 disabled people in work could be affected. The total number of disabled people possibly losing work could be 50,400. This could mean the Treasury loses (based on average income) up to £293.3 million per year in NI and income tax payments.

There are also potential longer-term losses that are more difficult to estimate. DLA has also been viewed by some disabled people as a useful ‘top up’ for low paid work and supported some disabled people to stay in work but reduce hours after developing a health condition and/or impairment, helping replace income from lost hours of work¹⁵. DWP reported in 2010 that many disabled people also use DLA to retain connections to employment opportunities¹⁶. In the recent Disability Alliance survey disabled people reported using DLA to help participate in volunteering, or supporting a partner/carer to stay in work. Many also suggested that DLA helped pay for rising fuel costs for work for example – which low salaries and other support might not otherwise meet¹⁷.

This linkage could also be broken under PIP plans but is unquantifiable as a cost for the purposes of our analysis.

The potential for the government to miscalculate savings from such a large group of people being prevented from retaining current employment, maintaining work-related activities and current productivity levels is high. It is inexplicable that DWP have failed to provide data on this potential risk. But DWP has repeatedly ignored the issue of ensuring government plans to not prevent disabled people retaining work.

Lost Treasury revenue is not the only cost if disabled people lose work under the diminishing eligibility for DLA/PIP support. A further cost of disabled people being prevented from retaining employment is out of work benefits.

Other potential costs of losing work: out of work benefits

The government would not just lose NI/income tax contributions from disabled people unable to retain employment. The same disabled people would be entitled to out of work benefits. This makes costs to government higher.

If all those losing work were placed on Jobseeker’s Allowance (JSA) it would cost £71 for people over 25 a week and £56.25 per week for the disabled people under 25 years of age at current benefit rates.

Of the 1.83 million working age people receiving DLA in August 2011 just 207,840 were under 25¹⁸. This represents 11.4% of the total working age caseload. If the age group losing eligibility to PIP from 2013 is evenly distributed then 25,200 losing payments would mean 2,873 under 25 years of age. This would cost £8.4 million per year in out of work benefits. Obviously, as this group gets older their benefit payment rate will increase.

The cost of the people over 25 years of age (22,327 disabled people) would be far greater at £82.4 million per year (£71 per week).

As a minimum, the out of work benefits bill could be £90.8 million a year if 25,200 disabled people lost work as a result of DLA plans. We believe the total figure for disabled people losing work could be higher and that many disabled people would qualify for higher levels of out of work benefits.

If the 18% losing work estimate were realised under government plans, the total JSA cost would be higher. If 50,400 lost work and 11.4% were under 25 years of age this would represent 5,746 under 25 and 44,654 over 25. The JSA payments would cost £16.8 million and £164.9 million respectively; £181.7 million in total. 

– ESA payments

But these figures are based on JSA. Disabled people could be entitled to Employment and Support Allowance (ESA). ESA is paid at a higher rate than JSA: £99.15 per week for people over 25 years of age (£5,155.80 per year) and £84.40 for the under 25 age group (£4,388.80 a year)¹⁹.

If all 25,200 possibly losing work received ESA and 11.4% of the people affected were under 25, this could increase the out of work benefits cost to £12.6 million a year for the under 25s and £115.1 million for people over 25 years of age. This total reaches potentially £127.7 million in out of work benefits unaccounted for by DWP.

Using 18% to estimate the number of disabled people in work that could be affected this rises further. If 5,746 were to lose employment under 25 years of age and 44,654 over 25 and all were to access ESA the cost to DWP would be £25.2 million and £230.2 million respectively; £255.4 million in total.

– Other out of work costs

Other benefit costs include the changes to housing benefit that could occur through lost employment. A single disabled person over 35 earning £26,000 a year and renting privately in Islington would get about £55 per week housing benefit currently. This would rise to £250 a week if unemployed. A typical example outside London could mean a similar disabled person in Loughborough currently receiving no housing benefit in work (due to lower rent) could be eligible for £86 per week unemployed.

Also, if disabled people have mortgages, there may be no help available whilst working full-time, but there would be entitlements for financial support if made unemployed as a result of DLA losses (after waiting periods and for 2 years only). These costs are important but have also been ignored in the rush to deliver a 20% reduction in DLA expenditure.

The costs to government of failing to retain support for disabled people in work are substantial. But, despite numerous requests on this issue from disabled people and organisations²⁰, these figures were not made available to Parliament during the passage of the Welfare Reform Bill and do not appear to have been adequately analysed by DWP.

Paying to assess benefit eligibility

Accessing out of work benefits is not free. Just paying benefits to people ignores the new gateway to accessing out of work payments. The Work Capability Assessment (WCA) is the route for new claimants. It currently costs £100 million per year to run by Atos Healthcare²¹.

Atos are supposed to see 15,000 people per week. They do not hit this target but the £100 million per year figure is worth £128 per assessment (using 780,000 maximum assessments per year). Assessing 25,200 people being moved out of work as a result of losing DLA would then cost an additional £3.2 million.

If 50,400 disabled people lost work the cost for assessments for out of work benefits rises to £6.5 million.

It is estimated that 40% of initial WCA decisions are appealed (due to inaccurate assessment processes which fail to identify disabled people’s genuine needs adequately). This is relevant expenditure, but we are excluding appeals costs for the purposes of this analysis.

However, a further essential cost to include is the price of the new assessment for PIP eligibility. DWP is proposing a new face to face PIP assessment to examine eligibility. The contracts to deliver this assessment are not yet awarded but the impact assessment for the Welfare Reform Bill included £675 million to assess up to 2.2 million people²².

2) Potential impact of DLA plans on the NHS

The new assessment process, measuring eligibility for about 2.2 million no longer able to access DLA, not only costs government to deliver. It also requires the disabled people being assessed to provide independent medical evidence. For most disabled people this will be accessed via a GP.

Estimates for the cost of a GP appointment vary. The BBC have suggested £18²³ based on an estimated £180 million loss to the NHS from 10 million missed GP appointments and 5 million missed practice nurse appointments. If the new assessment process resulted in 2.2 million people receiving just one £18 appointment the total cost would be £39.6 million.

But a more credible costing for a GP appointment is £60 provided by the Royal College of Nursing using 2009 NAO statistics²⁴. This would mean a total cost of £132 million to the NHS alone for the 2013-16 period.

Many disabled people will require more than one appointment and many more will need to see a more specialised consultant to access the information required. These substantial costs are unaccounted for in the figures made public by DWP and were not available to parliament during the passage of the Welfare Reform Act.

Furthermore, the Disability Alliance survey of disabled people published last year suggested 16% would be more reliant on the NHS. If this group has just one further appointment with a GP this is the equivalent of 80,000 additional appointments (using 500,000 as the group worst affected by being made ineligible for further support). This would cost £4.8 million a year to the NHS using the £60 costing per appointment.

This does not account for people hospitalised as a result of losing support. Many disabled people told Disability Alliance that hospitalisation would be required due to an inability to manage health needs (eg through not being able to afford prescriptions, attend routine appointments or cover other health-related costs).

The average hospitalisation period in England is six days²⁵. The weekly cost of using a hospital bed is estimated to be £1,750-£2,100²⁶. Prices vary depending on condition and acute beds cost more. One estimate suggests a £400 per day cost for bed use (£2,800 per week) but we use the lower average range for the purposes of this analysis to avoid inflating costs.

If a bed costs £1,750 per week a six day stay would be £1,500. If the bed was £2,100 a week then a six day treatment period would cost £1,800. The number of disabled people who reported to Disability Alliance being more likely to use NHS services if they lost DLA was 16%. Using the DWP 500,000 estimate for lost eligibility this could mean 80,000 disabled people requiring an average hospital stay and could cost between £120 million and £144 million a year.

This cost was not identified by DWP in DLA documents made public during the course of welfare reform plans despite requests. Even if the total estimated number of hospitalisations is high, the figures reveal that if even 10% of the disabled people are accurate in requiring an in-stay, this could cost at least £12 million per year.

The Commons Public Accounts Committee has also estimated that ‘bed blocking’ costs the NHS £170 million per year. If more people need treatment, there is a lower ability to self-manage conditions (as a result of losing financial support under DLA plans), and if less support is available from councils the risk is also that delayed discharges will rise resulting in even greater costs for hospitals as a result of DLA plans.

Despite requests, DWP have not outlined how the government has worked to ensure one department does not act in a silo and ignore costs to the Department of Health budget as a result of DLA plans.

3) Potential impact of DLA plans on councils

In the Disability Alliance survey, 14% of respondents suggested an increase in need for council support would be the outcome of losing DLA. At that time, the government had not published estimates for how many disabled people would be made ineligible for support. DWP now estimate 500,000 disabled people will lose eligibility. If 14% sought council help the most likely source of help would be social services and this would represent 70,000 people.

The NHS Information Centre recently published its latest report on the costs of personal social service expenditure²⁷ which provides useful evidence for analysing the potential impact of the government plans. 

Many families reported, in the Disability Alliance survey, that they would need residential care placements for loved ones if they lost the financial means to support people at home. Disabled people also suggested moving to care homes to avoid being ‘burdens’ on families. This raises essential Human Rights issues about families losing the ability to live together. But, in solely financial terms for this analysis, 70,000 disabled people needing residential care is not inexpensive and should have been considered by government in developing PIP plans.

The average cost of adult care in 2010/11 was £623 per week; this compares economically unfavourably with the £70 average weekly DLA payment.

One person needing a council funded care home placement would cost £32,396 per year. If all 70,000 needed such financial support as a result of no longer being able to manage at home, the total is up to £2.3 billion per year. It is an incredible oversight by DWP to exclude any analysis of this issue. Whilst not all these people will seek and/or receive residential care placements funded by councils, if just 10% of this figure was realised the additional costs to local authorities would be £226.8 million a year. 

If people were supported in their own homes by councils the cost would fall dramatically, with the average being £204 a week (£10,608 a year). Even if all 70,000 were able to be supported in their own home this would still represent a new cost to councils of £742.6 million a year. This would also contradict the responses from disabled people and their families highlighting care home needs if DLA or an alternative financial payment was no longer available.

In the context of councils reducing support through social services and facing significantly reduced budgets from central government, it seems very unlikely disabled people would be able to access alternative support to this scale from local authorities.

24% of DLA (and the older people’s equivalent Attendance Allowance) recipients already pay for care services according to DWP²⁸. It seems even more unlikely that families will, with lower incomes, be able to pay more for services. This presents a further dilemma for councils as potentially less income is available to provide support at local level. In the context of diminished central government funding for councils and rising demand for support, a further outcome of DLA abolition for working age disabled people will be even further restrictions on social services.

This potential demand for council support comes on top of the existing social care crisis²⁹. The restrictions on care services disproportionately affect disabled people. Restrictions also disproportionately affect women, due to higher employment levels of women in care sector (82% of the adult social care workforce are women³⁰ and the informal care pressure resulting from a lack of social services that falls to women³¹.

 The UK has a high rate of economic inactivity due to informal care provision³². This issue is also one of growing national importance, especially in the context of struggling economic performance. A social care white paper is due in May 2012 and we hope it will include estimates for the rising cost to meet demands individual disabled people and families can no longer manage due to lost DLA support.

It is no coincidence that the Dilnot Commission into funding care and support recommended retaining universal benefit payments³³. The Commission received evidence from disabled people, carers and older people and their representative organisations on the issue of DLA, Attendance Allowance and the ability to manage care needs without formal service support. 

Total potential costs

This report is not meant as an exact estimate of total costs, we are purely demonstrating the need to ensure government and others consider the full implications of welfare cuts before viewing DLA as deadweight expenditure and suggesting a 20% cut in expenditure will not result in other government costs.

This is especially relevant given the Chancellor’s statement during the 2012 Budget announcement in the House of Commons that a further £10 billion may need to be cut from welfare spending if the economy doesn’t improve.

Using the conservative estimate of 25,200 disabled people losing work (as a result of 500,000 less disabled people being eligible for DLA/PIP) and using the average annual income in the UK:

• the Treasury loses £146.7 million annually in NI/income tax;

• out of work benefits cost DWP between £90.8 million (at JSA rates) and £127.7 million (at lower ESA rates) annually;

• additional out of work benefit assessments cost £3.2 million (over three years); and

• PIP assessments cost £675 million (to 2015/16).

 Using the higher 50,400 estimate for disabled people potentially leaving work through losing eligibility for DLA: 

• the Treasury loses £293.3 million annually in NI/income tax;

• out of work benefits cost DWP between £181.7 million (at JSA rates) and £255.4 million (at lower ESA rates) annually;

• additional out of work benefit assessments cost £6.5 million (over three years); and

• PIP assessments cost £675 million (to 2015/16).

These are purely the work and assessment costs. NHS and council social care costs are also relevant:

• the cost of one GP appointment per person going through the PIP assessment process could be £132 million (over three years);

• if just 16% of the 500,000 losing eligibility required just one further appointment with a GP this is the equivalent of 80,000 additional appointments and a further £4.8 million cost a year to the NHS;

• one average hospital stay for 16% of the people losing support could see an additional £120-£144 million annual cost to the NHS;

• if 14% of the disabled people losing DLA required help from council social care services this is 70,000 people and the annual cost could be between £742.6 million and £2.3 billion a year (a large variance as a result of the wide difference between homecare and residential care costs to councils). 

These figures are estimates but reveal some potentially very high costs of abolishing DLA for working age disabled people. The lowest annual costs using the figures above could be £1.4 billion – or two thirds of the total expected reduction in DLA expenditure. It includes 70,000 disabled people going on to access local authority social homecare services; without this social care cost the low end estimate is still £629.2 million a year (almost a third of the targeted reduction in expenditure).

But our lowest estimates requires disabled people losing work to access JSA (an unlikely outcome for many thousands of disabled people), excludes other potential benefit costs (housing benefit in particular), uses low healthcare expectations, and excludes care assessment costs at local level.

If 50,400 disabled people lose work and access ESA (work-related activity group) this could result in costs to government of as much as £965.5 million annually. This excludes additional likely health and social care costs caused by losing access to DLA/PIP.

The worst case scenario outlined above being actualised could result in highest possible costs to government including an additional 70,000 disabled people requiring council-funded residential care placements at £2.3 billion (i.e. above the benefits, Treasury NI/income tax losses, NHS and assessment costs outlined above).

Because these figures are not all DWP costs (reaching into the NHS and councils) we believe they have been overlooked in the pressure to reduce welfare expenditure. But consideration of cutting welfare has appeared to view DLA payments as deadweight expenditure. The idea that DLA represents a ‘nil return’ means of supporting disabled people is inaccurate and it is essential discussions occur in the context of facts and strong analysis.

An estimated £9 billion is already set to be cut from disabled people’s support in this Parliament³⁴. Disabled people feel ‘Hardest Hit’ by current reductions in support³⁵ but the Chancellor has warned of a potential further £10 billion to be axed from welfare spending if economic recovery is slower than anticipated.

With disabled people potentially prevented from contributing to the economy through lost work, this fear may be realised unless DWP ensure reductions in support are closely monitored and reviewed. 

1 Disability Rights Partnership: ‘End of a Lifeline?’, 2011. See: http://www.disabilityalliance.org/r68.pdf