New estimates for disability benefit spending from the OBR

The Office of Budget Responsibility – the official body responsible for ‘independent and authoritative analysis of the UK’s public finances’ – today published a new ‘welfare trends report’. This may not sound like the kind of news to get the pulse racing (even for people like me), but beneath the typically dry language there’s a couple of interesting updates about disability and incapacity benefits, as well as some slightly dubious international comparisons…

Public spending trends

The first thing to note is that the Office of Budget Responsibility (‘OBR’) have revised down their forecasts of welfare spending for 2018-9 compared to their March 2014 estimates, BOTH in real cash terms and as a share of GDP. But in most respects this is a mirage! By which I mean it doesn’t reflect real shifts in policy, for the following reasons.

The reduction in spending in cash terms is primarily because inflation is lower than expected – which is predicted to lead to £5bn less spending in 2018-19 (see Table 2.9). Unemployment is also lower than expected, expected to save a further £1.4bn.

Balanced against this, though, further delays for both disability benefits (the rollout of PIP) and incapacity benefits (the WCA backlog) have led to expectations of over £2bn of raised spending in 2018-9, even compared to the expectations just 12 months earlier – although there’s little change since the predictions in Dec 2014 (see Charts 2.4 and 2.5). This means the OBR are expecting us to spend 0.28% of GDP less on incapacity/disability benefits in 2018/19 than we do today, just under half of which is because they expect fewer people to be claiming them due to more stringent tests, with the rest due to a lower relative value of the benefits (Table 2.8).

The reduction in spending as a share of GDP would seem more telling – its a common way of comparing spending relative to the wealth of a country, which is far more meaningful than the bare £ – but here simply reflects that the way that GDP is calculated has changed (see section 2.6). The effect of the revision is that GDP is now over 6% larger than we thought (!), but the new way of  calculating things has little impact on trends in benefits spending over time:


Data Revised welfare spending



Incapacity benefits in international comparison

The OBR have also chosen to present some comparisons of the UK vs other countries in a series of respects, including incapacity benefits.  This includes some interesting material mainly drawn from the OECD databases/reports, including the following table which shows that the UK gives more in cash and less in kind (by providing services to disabled people) than the Nordic countries:


Data - Intel Comparisons


There’s huge amounts of caveats over data like this in terms of comparability, so these need to be taken with a little bit of a pinch of salt – but the fact that the UK is a bit unusual in having DLA rather than providing services directly is worth noting (and is noted by the OBR).

Some of the rest of the international comparisons, though, are the sorts of thing that gives international comparisons a bad name.  Chart 3.13, for example, purports to show how disability prevalence varies across countries (and how this compares to disability benefit recipiency).  This suggests that there is a relatively high rate of disability in the UK, and that in their words, “the number of disabled people relative to the population is an important driver of disability caseloads”:

Data - disability prevalence internationally

Despite the OBR’s best intentions, though, this chart should be thrown into a rubbish bin. It’s based on people’s self-reported disability status from a variety of different surveys, and (among several pretty major issues) requires the heroic assumption that people interpret these questions on disability in the same ways in different languages and cultures. Which we know they don’t. I’m producing some better estimates as part of the Rethinking Incapacity project, so more news on this in the coming months.

Incidentally, the graph also tries to compare disability benefit recipiency rates across countries, which is similarly fraught with difficulty – as I endlessly repeat to my students (and blogged about here), different countries classify people differently, so that someone who might be incapacitated in Sweden is instead unemployed in Germany. To be fair to the OBR, they do notice this in a footnote (referring to Declan Gaffney’s discussion of the issue in MacInnes et al 2014 among other things), but the chart itself is misleading.

Still – while I think the OBR should stay away from international comparisons, they do an excellent job of corralling the date on incapacity and disability benefits in the UK. The service they provide to the rest of us is something we can only be grateful for.