Incapacity benefit numbers boosted by job shortages

Government efforts to increase employment by reforming incapacity benefits are likely to have a limited impact unless accompanied by more effective regional policies to create new jobs in Britain’s older industrial areas, according to a new report published by the thinktank Catalyst, and authored by academics at Sheffield Hallam and Cambridge Universities.

The government believes that many of the 2.7 million people on incapacity benefits could take up work, and sees this as a key step towards its long-term goal of raising the UK employment rate. But the Catalyst report argues that high numbers on incapacity benefit are the result not of “malingering by the workshy” but the failure of government regional policies to reverse the decline of the UK’s manufacturing regions, where there is still a serious shortage of jobs.

Government plans to restrict benefits and require claimants to attend work-related interviews are expected to cause controversy and possible backbench rebellions in the new parliamentary session.

Mobilising Britain’s Missing Workforce: Unemployment, incapacity benefit and the regions, authored by Professor Steve Fothergill of Sheffield Hallam University’s Centre for Regional Economic and Social Research and Cambridge economist John Grieve Smith, says that the problems of incapacity benefit claims and regional regeneration are “two sides of the same coin”.

The report shows that “full employment” has only been achieved in the more prosperous areas of the South East, and that numbers claiming incapacity benefit are concentrated in areas of the North where there is still low demand for labour.

A list of the 30 districts with the highest share of people on such benefits “reads like a roll call of older industrial Britain”, it says.

The report presents data showing that:

• in the South East the proportion of the working population claiming incapacity benefits is typically three to four per cent, but in many parts of the older industrial North, including Scotland and Wales, the proportion is well over ten per cent
• the portion of the working age population claiming incapacity benefits varies from just two per cent in Wokingham (in Berkshire) and Hart (in Hampshire), to more than 20 per cent in Easington (County Durham) and Merthyr Tydfil (South Wales)
• “hidden unemployment” in disadvantaged areas accounts for around 1.1 million incapacity benefit recipients – around four in ten of all claims – who would be in paid work if full employment truly existed in across the country

The report is critical of the government’s reliance on “supply side” labour market measures and devolution to Regional Development Agencies, arguing that these deep imbalances can only be addressed by proactive policies that channel investment to disadvantaged regions. It warns that the problem may be exacerbated by new EU rules that will reduce European funds available to UK regions at the same time as restricting the government’s own investment incentives.

In response the authors outline a “seven-point strategy” for “mobilising Britain’s missing workforce”, making full use of the available resources and options and targeting them to maximise benefits to areas of low employment. John Grieve Smith, report co-author, said: “The problem of regional unemployment will not be solved by giving Regional Development Agencies their heads and leaving them to get on with it. This may merely widen present disparities. The government must adopt a policy of discriminating more actively in favour of the weaker areas, both in giving incentives, and in public expenditure on infrastructure and the location of public sector institutions.”

The report is being sent to government ministers, MPs, and Catalyst subscribers.