Welfare reform: impact report on benefits for disabled people

5. The replacement of Employment and Support Allowance

The previous sections of the report have focused on the non-means tested disability benefits over which control is being devolved to the Scottish Government. However, working-age disabled people can also claim means-tested benefits, which are not devolved. The first of these, income-related Employment and Support Allowance (IR ESA) is gradually being replaced by Universal Credit (UC). People can still make a new claim to IR ESA, however only if they have recently been entitled to the severe disability premium (SDP) through IR ESA or another means-tested benefit^[53].

When applying for ESA, claimants undergo a Work Capability Assessment which determines what barriers to work they face. Depending on the outcome of this assessment, successful claimants can be placed in either the Work Related Activity Group (WRAG) or the Support Group. The Support Group provides a higher benefit award to claimants who are determined to not be able to undergo any work-related activity. The DWP’s most recent estimates suggest that, as of 2016/17, around 84% of households who were entitled to claim income-related ESA or Income Support did so^[54].

However, the Full Service of UC, which is replacing ESA, is now live across Scotland. This means that people who are disabled, but have not recently qualified for the SDP, are now redirected to claim UC instead of ESA. When applying for UC, disabled people will undergo a similar assessment process to that used in ESA. They will either be declared fit for work, allocated into the Limited Capability for Work group (LCWG) where they may be expected to prepare to work in the future, or into the Limited Capability for Work and Work-Related Activity Group (LCWRAG). If assigned to the LCWRAG they will not be expected to take part in any work related activity, and will receive an additional element of UC of £336.20 per month.

People who are allocated to the ESA WRAG may or may not qualify for the work-related activity component of ESA, depending on whether they claimed before or after 3 April 2017. ESA recipients in the WRAG who claimed before that date will receive a £29.05 per week addition to their ESA award, which is no longer provided to those who claimed after. Disabled claimants of UC can be similarly disadvantaged if they claimed after April 2017 – only those who claimed before April 2017 are entitled to the limited capability for work element, which has the same value as the work-related activity component.

The rollout of UC is still at an early stage for disabled people, with the vast majority of means-tested disability benefit claimants still on ESA. This is shown in Figure 15.

Figure 15 – Number of ESA and Universal Credit cases (with entitlement to the Limited Capability for Work element) from November 2008 - May 2019, Scotland

Source: DWP Stat-Xplore^[55]

Disabled people currently represent a small proportion of the UC cases, however, the number of disabled UC claimants is increasing quickly. Between May 2018 and May 2019 the share of UC Limited Capability for Work (LCW) claimants in the combined UC LCW and ESA caseload increased from 2% to 8%. Disabled people are also increasing as a share of the UC caseload over time, going from 3% of the caseload in May 2017 to 14% in May 2019.

5.1 Underpayment of Employment and Support Allowance

In 2018, the National Audit Office (NAO) reported that the DWP had underpaid an estimated 70,000 people since 2011 when they transferred onto ESA from other benefits. Because the DWP placed these people transferring over into contribution-based ESA, where additional disability premiums are not payable, rather than IR ESA, these people lost out on an average of £5,000 per person^[56].

A UK parliamentary inquiry into the DWP’s response to their error criticised the DWP’s decision to take six years to start addressing the error, stating that this “indicates its culture of indifference to underpayments”^[57]. Front line staff raised the error as early as 2013, however, the DWP continued to underpay claimants. It took until 2017 for the DWP to recognise that they were legally required to identify and compensate the people affected.

In December 2017, the DWP decided that they would repay claimant arrears back, but only those that incurred since October 2014^[58]. This would have saved the DWP from repaying an estimated £100 to £150 million of underpayments to claimants. However, this decision underwent legal challenge by the Child Poverty Action Group, who successfully argued that the DWP should attempt to repay all claimants who were underpaid due to their error, dating back to 2011^[59].

The exercise to identify and repay these claimants is still underway. The latest management information data, which are only available at Great Britain level, show that more than the initially estimated 70,000 people were due further payment^[60]. Of the 600,000 cases to be checked, 371,000 or 62% have completed the reassessment. And, of these 371,000 cases, 88,000 or 24% have been found eligible for repayment. Given the average arrears repayment has been £6,000, this means that £528 million of arrears have been paid across Great Britain. In February 2019, DWP statistics showed that around 11.3% of ESA claimants in Great Britain lived in Scotland. If we assume that this share approximates the Scottish share of people repaid, we estimate that around 10,000 Scottish people have now been paid back DWP underpayments accrued since 2011, with a total value of around £60 million^[61].

The DWP also confirmed that 50,000 of the original 600,000 people who were transferred onto ESA are deceased. Progress on checking these cases is only 20% complete, but thus far it appears that only 10% of these cases have been identified as eligible for arrears repayments. So far, the DWP has paid a total of £5 million to the affected people’s next of kin.