In Chapter 4 of our December 2014 EFO, we discussed the fiscal outlook for 2014-15 to 2018-19. In this box, we discussed revisions we made to the forecast in light of reforms to incapacity and disability benefits. Spending on incapacity benefits was revised up by £0.7 billion a year on average between 2014-15 and 2018-19, largely reflecting a lower-than-expected number of Work Capability Assessments carried out by the Department for Work and Pension’s private contractors. On the basis of the latest evidence, spending on disability benefits was also revised up by £0.7 billion a year on average between 2014-15 and 2018-19. This was largely due to higher than expected success rates for new claims to the personal independence payment.
In recent reports we have highlighted the forecasting risks relating to reforms of incapacity and disability benefits. We have made a number of changes to our forecasts as a result of the evidence presented to us ahead of this Autumn Statement.
The key challenge in forecasting the impact of incapacity benefits reform on spending has been the lower-than-expected number of work capability assessments (WCAs) being carried out by the Department of Work and Pensions’ private contractor. This has led to a significant backlog of WCAs, with knock-on effects for the composition of the caseload following the outcomes of the WCAs and associated appeals. On the basis of the latest evidence, we have made the following judgements:
- under the terms of its contract with DWP, the new contractor (Maximus) has committed to deliver 1.1 million WCAs in the first contract year and 1.3 million a year thereafter, which, depending on policy and operational choices, would clear the WCA backlog in between 12 and 18 months. We have assumed it will take two years. Shifting from 18 months to two years increases spending by £0.3 billion a year on average between 2015-16 and 2018-19, with the largest effect (£1.1 billion) in 2016-17; and
- the caseload leaving the support group of ESA has been revised down, raising spending by £0.5 billion a year on average between 2014-15 and 2018-19. Together with other changes, this means that relative to March we expect spending on incapacity benefits to be £0.7 billion a year higher on average between 2014-15 and 2018-19.
The key challenge in forecasting the impact of disability benefits reform has been estimating the proportion of new personal independence payment (PIP) claims that are successful. The proportion has been higher than expected, which also affects the composition of the PIP caseload.
On the basis of the latest evidence, we have revised up the expected success rates for new claims to PIP across the forecast. In particular, we have assumed that, on the basis of existing policy, success rates will not fall as far as was consistent with the original costing of the savings from PIP relative to disability living allowance. This affects the speed at which average awards are forecast to reduce over time. Our new assumption raises spending by £0.4 billion a year on average between 2015-16 and 2018-19 with increasing effects in each year.
Together with other changes, this means that relative to March we expect spending on disability benefits to be by £0.7 billion a year higher on average between 2014-15 and 2018-19.