There’s been lots of speculation over the Treasury’s plans on sickness benefit. The Times flagged up a proposal to “means test”, while the Observer has a letter pointing to £2.5bn of incapacity benefit savings from an unspecified reform.
No final decisions have been taken. But reading between the lines, it sounds like moves are afoot to scale back “contributory incapacity benefit” (which I’ll explain in a second).
If so, it blows a rather big hole in George Osborne’s claim that a he’ll be finding savings from ending the “lifestyle choice” of those determined to “pull down the blinds” and scrounge on benefits. These reforms largely take money from people who have worked and fallen ill, rather than those who’ve allegedly chosen a life on the “sickie”.
Here’s why. At present there are two broad categories of sickness benefit, which apply to those who’ve been employed for several years before falling ill (contributory), and those who have no significant earnings in recent years (income related).
Abolishing or time restricting contributory incapacity benefit effectively means all those eligible on health grounds would at some point take the means test for “income related” sickness benefit, which excludes those with big savings or a partner who works. When we put together the FT deficit buster, we put the saving at around £2bn from abolishing it altogether.
This makes big savings and gives the same support to the poor. The political downside is that it is seriously unfair to those who pay “national insurance” imagining it gives them a safety net should their health take a turn for the worse.
Cracking down on benefit scroungers always polls well. But I doubt people realise that the “clampdown” may involve withdrawing sickness benefit from a widow with more than £16,000 savings who left work because she was diagnosed with terminal cancer.
The chancellor would, in other words, be taking money from low and middle income households who’ve paid taxes and suffered a health setback. It is the opposite of the workshy, benefit dependent households Osborne targets in his rhetoric.
Given the state of the public finances, the reforms could well be necessary. But it’s probably worth tailoring the rhetoric to match the cut. The headlines look great at the moment, but attacking the workshy may not be as cost-free as Osborne imagines.