The problem with ’incentives’
An incentive is ‘an economic reward or punishment, which influences the benefits and costs of alternative courses of action’.
There are three elements to this. The first is that an incentive is a reward or punishment. The language of rewards and punishments has moral implications, not just economic ones, and there has been rather more emphasis on punishment than there has been on rewards. If governments wanted to deter people from claiming services, the way to do that would be to make the services unpleasant.
The second element is behavioural: the reward or punishment changes the way that people act. An inducement is not necessarily an incentive. To qualify as an incentive, a measure has to meet three criteria:
- There has to be a potential gain, sufficient to tilt the balance between costs and benefits.
- The incentive motivates people to choose differently – implying that people have a choice, that the new option is one that can be chosen, and that their choices will change.
- There has to be a marginal effect – a change in the calculation that people make.
When the UK government complains about the ‘structural incentives’ found in benefits for sickness and disability, they are taking it as read that people can be shepherded into choosing a long-term loss, and motivated to become inactive and to drop out of participation in society. This can only be taken so far. Disability benefits are not an incentive to become disabled, any more than funeral payments are an incentive to become dead.
The third element is that the effect of an incentive depends on the balance of costs and benefits. Economics has not always thought of incentives that way. A century ago, the effect of an incentive would have been considered as an aggregate: some people’s behaviours would be influenced; others would not. The idea of ‘elasticity’ referred to the degree of collective responsiveness. Then the field was hijacked by believers in ‘rational choice’, such as Charles Murray, who argued that incentives reliably predict the response of individuals to a change in circumstances. As a predictor of individual behaviour, abstract rationality largely misses the point: some rewards and punishments have little or no marginal influence. Some costs are too great to be borne.
The incentive to be disabled
‘Incentives to work’ used to be framed in terms of whether people would be better off on benefits than they would be in work. (Spoiler alert: they wouldn’t be.) In recent months, however, the arguments have taken on a different shape: the ‘incentives’ that matter seem to be found entirely within the benefit system. This is from the Daily Telegraph:
‘If you pay people to be disabled, you’ll find you have a lot more disabled people. This is particularly true when you’re squeezing every other benefit, and you can claim it while working; it’s economically rational to be unable to work, rather than out of work.’
The Pathways to Work green paper repeatedly condemns ‘perverse incentives’, claiming that the structure of benefits has driven claimants into inactivity. Keir Starmer has declared that “we’ve found ourselves in a worst-of-all-worlds situation – with the wrong incentives discouraging people from working”. The government has been arguing that the number of people claiming benefits for disability or incapacity has been increasing, and that this reflects the structure of benefits. The system rewards people, the argument goes, for claiming to be sick or disabled rather than being unemployed. Once they are classified as sick or disabled, support for seeing them into work largely disappears.
Why are more people on disability benefits?
The claims about numbers, even if the specific counts are all over the place, are more or less true: there are more sick people of working age. That might be, as The Daily Telegraph seems to think, that sick people are drawn to benefits like moths to a candle, but it might even more plausibly be the case that, following a devastating epidemic, more people are sick. And a third of the increase in claims consists of older people who have been reclassified as being of working age.
The next claim is true in part. Unemployed people who are sick or disabled have two advantages over other people who are unemployed. One gain is to have less pressure and fewer sanctions than other unemployed people; the other has been to have more money, because of a more liberal allowance on Universal Credit. The other side of that, of course, is that unemployed people are treated very badly: low benefits, arbitrary rules and petty sanctions on hundreds of thousands of claimants. If the government really wanted to relieve the impact of perverse incentives, they could start there.
The last claim, however, is where the argument goes haywire. Encouraging sick people into work assumes that sick people should work. People are sick when their state of health means ‘it is not reasonable to require them to work’. (Those words occur in the Welfare Reform Acts of 2007 – legislation by a Labour government – and 2012.) This overlaps with disability, but disability is something rather different. Rachel Reeves insists that disabled people will be better off if they move into work, and that the way to get them to work is to ‘support’ them. But people in low-paid work still need, and get, benefits; and in the long term, people with disabilities get less income from work than others – that was one of the original arguments for the introduction of non-means-tested benefits in the 1970s.
How do we get more people into work?
Moving into work is not, once we get to the big numbers, a matter of individual choice. The primary determinants are the state of the economy and the state of the labour market. Where are the opportunities for rehabilitative work, light work, therapeutic work or redeployment? Other countries create jobs, or contract employers to bring jobs into existence.
If the government were serious about considering ‘incentives to work’ and participation in the labour market, they’d focus on developing employment, not on the behaviour of people claiming benefits. The fact that they’re not doing that suggests that they’re not serious. This reform is not about needs, or helping people, or getting people into work. It’s about cutting benefits.
Paul Spicker is an Emeritus Professor of Public Policy in Robert Gordon University, Aberdeen and a writer and commentator on social policy. His books for Policy Press include What’s Wrong with Social Security Benefits? and How to Fix the Welfare State. His new book, What Is the Welfare State For?, comes out in June.
What Is the Welfare State For? by Paul Spicker is available to pre-order on Bristol University Press for £8.99 here.
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