Nathan Baber, External Affairs Intern, Money and Mental Health Policy Institute

How the benefits system impedes people with mental health problems looking for work

27 March 2023

Economic inactivity has become a hot button topic amongst MPs across the political spectrum. With the share of people who are economically inactive remaining above pre-pandemic levels, the Chancellor pledged to get those who are economically inactive back to work. His budget on Wednesday included a range of announcements aimed at getting people back into work. Labour has also promised to reform job support to boost employment and tackle inactivity.

What needs to be highlighted, however, is the significant role that mental health problems are playing in the UK’s rate of economic inactivity. Our analysis of ONS data has shown that in 2022, 26% of people who were economically inactive due to long-term sickness had a mental health problem as their primary condition. This is not a new development. Our previous research has explored how people with mental health problems encounter a range of barriers to the labour market, many of which are long-standing.

For some people with long-standing mental health problems, regular work is simply not possible. For the benefits system to hastily push people back into work before they are healthy enough to do so is self-defeating and causes further damage.

“The focus the government provides for work support is very much ‘one size fits all’ and even when they talk about adjustments and considerations I feel their knowledge and experience is lacking.” Expert by experience

Sticks and carrots

Within the benefit system, many of us with mental health problems face more ‘sticks’ than ‘carrots’. This means that the risk of entering employment or increasing our current work hours outweighs the rewards offered. The system is designed in such a way that the how much we earn before our benefit award begins to reduce remains low. This low ‘work allowance’ threshold means the incentive to increase the hours we work, or to take on higher earning employment, is meagre. People have to manage their need to earn with managing their mental health stability, and this is often a fine balance. Risking this delicate balance by increasing the hours work, and thus losing benefits, is often not an option for many.

Accompanying this is the ‘taper rates’, the amount our benefit awards are reduced by once we enter employment. Currently there is a reduction of 55p for every £1 we earn, a welcome decline from the old reduction of 63p. However, this rate of 55% still leaves many claimants effectively paying very high rates of tax. 

For example, the BBC found that a working benefit claimant who earns less than the standard Personal Allowance can sometimes end up taking home a smaller proportion of every extra £1 earned then someone earning £150,000 a year. Similarly, an employee earning enough to pay income tax – at least £12,570 a year – is still eligible for Universal Credit. Yet, even with the lower taper rate such a person will still only take home 31p for every extra £1 they earn.

Sticks and carrots

All this means that for those of us who have mental health problems that make finding work especially difficult, there are few incentives for returning to work. Work is supposed to allow us to earn and become financially independent. Yet, if entering work means losing access to the safety net Universal Credit provides, while also in effect making us pay an extortionately high tax rate, then it is unlikely that we would risk our mental wellbeing by essentially taking a pay cut. Facing financial difficulties can have disastrous effects on our mental wellbeing and a cut in income is likely to increase our levels of anxiety.

Life on Universal Credit can be one of financial hardship. Yet, this benefit is often a lifeline for many. If this lifeline rapidly diminishes once we return to work, it will present further risk to our financial wellbeing. Therefore, this is preventing us from entering the workforce once we have our mental health condition under control. While financial hardship can negatively affect our mental health, so too can not being able to work. It has become a catch-22.  

Being out of work due to a mental health condition can cause further anxiety as people begin to rely on benefits. As it stands, the benefit system creates unworkable scenarios that see many unable to reenter the workforce after a period of mental illness for such reasons. Reform is thus needed to de-risk taking a job for people who are ready to return to work.

“Struggling financially while on benefits… put a huge amount of strain on me. Life was just so hard. All the time.”

What can be done?

We are recommending three primary reforms to the benefit system that will allow people to enter the workforce without facing unnecessary risk to their mental and financial wellbeing. 

  • First, people should be allowed to enter the workforce while retaining their benefits. The benefit award should be at the same level as prior to taking up work for up to a year. This will make it more appealing for people to try to find employment 
  • Second, the government should promote the use of Access to Work for people with mental health problems. This is a government support scheme for those with disabilities and mental health conditions to find and retain work. However, only 4% of claims relate to mental health purposes. If the government introduced more streamlined access to the scheme, as well as timescales for decisions and awards, more people would be willing to apply for the support they are entitled to
  • Finally, mental health specialists in Jobcentres should build a network of employers with a good track record of supporting employees with mental health problems. This would raise the odds of supporting people into a job that will stick.