New Labour and the end of welfare by Jonathan Rutherford
Between 1979 and 2005 the numbers of working age individuals claiming IB increased from 0.7m to 2.7m. In 1995, 21 per cent were recorded as having a mental health problem, by 2005 the proportion had risen to 39 per cent, or just under 1 million. 10 million working days are lost due to stress, depression and anxiety. The biggest loss occurring in what was once the heartland of New Labour’s electoral support, the professional occupations and the public sector. Despite these statistics, Britain has one of the highest work participation rates of OECD countries. Benefit levels are amongst the lowest and Benefit claims are on a par with other countries. The system is not in crisis.
In 1994 Peter Lilley, Secretary of State for Social Security hired John LoCascio to advise on ‘claims management’. LoCascio was second vice president of Unum, the leading US disability insurance company. He joined the ‘medical evaluation group’. Another key figure in the group was Mansel Aylward. They devised a more stringent All Work Test. Approved doctors were trained in Unum’s approach to claims management. The rise in IB claimants came to a halt. Chairman, Ward E Graffam recognised the ‘exciting developments’ in Britain: ‘The impending changes to the State ill-health benefits system will create unique sales opportunities across the entire disability market and we will be launching a concerted effort to harness the potential in these.’ Despite Graffam’s upbeat comments, the company was in financial difficulties.
In the 1980s Unum, along with the two other major life and accident insurance companies, Provident and Paul Revere were enjoying high levels of profitability. Profit for insurance companies lies in the revenue generated by investing the monthly insurance premiums. But by the 1990s falling interest rates and the growth in new kinds of illness were causing a collapse in profits. The old industrial injuries were giving way to illnesses like Myalgic Encephalomyelitis (ME) or Chronic Fatigue Syndrome (CFS), Fibromyalgia, Multiple Sclerosis.
Provident introduced an aggressive system of ‘claims management’. Specific illnesses were targeted in order to discredit the legitimacy of claims. In the UK, two Woodstock participants, Professor Simon Wessely and Professor Michael Sharpe were working on reclassifying ME/CFS as a psychiatric disorder. A change in classification would trigger the twenty four month pay out limit on psychological claims and would save the industry millions of dollars. In 1997 Provident acquired Paul Revere, and then in 1999 merged with Unum under the name UnumProvident.
That year New Labour introduced the Welfare Reform Act. All new claimants had to attend a compulsory work focused interview. The All Work Test had failed to reduce the inflow of claimants with mental health disorders. The gateway to benefits needed tightening up. Mansel Aylward, now Chief Medical Officer of the DWP, devised a new Personal Capability Assessment (PCA). The task of administrating the PCA was contracted out to SchlumbergerSema which was then taken over (along with its DWP assets) by the US corporation Atos Origin. In 2005, Atos won a new £500m contract. Its computerised evaluation of claims driven by clearance time targets resulted in significant numbers of rejected claims, particularly for those with mental illness.
In 2003 the DWP launched its Pathways to Work pilot projects. They would be the forerunners of the kind of ‘active welfare’ system promoted by UnumProvident and the Woodstock academics. At the Labour Party conference that year UnumProvident organised a fringe meeting with employment minister Andrew Smith and health minister Rosie Winterton. In her speech, Joanne Hindle, corporate services director for UnumProvident, spelt out the future direction of Pathways :
Although we can say that we are 90 per cent of the way there in policy terms, the real challenge is delivery – in particular the role of the intermediary. We believe that it is absolutely vital that all employment brokers are properly incentivised to move disabled people along the journey into work and that there are enough of them to do the job. The next step therefore is for private sector to work alongside government to achieve delivery, focus and capacity building within the system.
UnumProvident was building its influence. In 2001 it had launched New Beginnings, a public private partnership which could extend the company’s influence in policy making, particularly in relation to Pathways to Work. Its annual symposium was attended by government ministers . Then in July 2004, it opened its £1.6m UnumProvident Centre for Psychosocial and Disability Research at Cardiff University. The company appointed Mansel Aylward as Director following his retirement from the DWP in April. Professor Peter Halligan who had forged the partnership with UnumProvident was ambitious: ‘Within the next five years, the work will hopefully facilitate a significant re-orientation in current medical practise in the UK’. The two men were joined at the centre by Gordon Waddell an orthopaedic surgeon turned academic and another Woodstock participant. The launch event was attended by Archie Kirkwood, recently appointed Chair of the House of Commons Select Committee on Work and Pensions. Malcolm Wicks, Minister of State in the DWP gave a speech praising the partnership between industry and the university.
In 2005 the centre produced a monograph The Scientific & Conceptual Basis of Incapacity Benefits (TSO, 2005) written by Waddell and Aylward and published by the DWP. The monograph provides the unacknowledged intellectual framework for the 2006 Welfare Reform Bill. The methodology used by Waddell and Aylward is the same one that informs the work of UnumProvident.
In a memorandum submitted to the House of Commons Select Committee on Work and Pensions, UnumProvident define their method of working : ‘Our extended experience...has shown us that the correct model to apply when helping people to return to work is a bio-psychosocial one’. Waddell and Aylward adopt the same argument in their monograph. Disease is the only objective, medically diagnosable pathology. Sickness is a temporary phenomenon. Illness is a behaviour - ‘all the things people say and do that express and communicate their feelings of being unwell’ (p39). IB trends are a social and cultural phenomenon rather than a health problem. The solution is not to cure the sick, but a ‘fundamental transformation in the way society deals with sickness and disabilities’ (p123). The goal and outcome of treatment is work, because work is therapeutic. Worklessness is a serious risk to life. It is ‘one of the greatest known risks to public health: the risk is equivalent to smoking 10 packets of cigarettes per day’ (p17). No-one who is ill should have a straightforward right to Incapacity Benefit.
In the US, UnumProvident’s claims management had been coming under increasing scrutiny. In 2003, the Insurance Commissioner of the State of California announced that the three big insurance companies had been conducting their business fraudulently. As a matter of ordinary practice and custom they had compelled claimants to either accept less than the amount due under the terms of the policies or resort to litigation. The following year a multistate review forced UnumProvident to reopen hundreds of thousands of rejected insurance claims. Commissioner John Garamendi described UnumProvident as, ‘an outlaw company. It is a company that for years has operated in an illegal fashion.’
The company rebranded itself as Unum Group. In January 2007 a performance rating from Credit Suisse was low but with an upside driven by higher than expected UK earnings and a lower than expected tax rate. UnumProvidentUK with 2.3million individuals covered by its insurance schemes and pre-tax profits of £109.8m provides up to 25 per cent of the post tax, operating income of the UnumProvident group of companies. Graffam’s strategy had paid off.
The 2006 Welfare Reform Bill sets a target of an 80 per cent employment rate amongst working age adults. To achieve this Pathways to Work will be rolled out across the country by 2008. The numbers on Incapacity Benefit will need to be reduced by one million. One million more older people and 300,000 extra lone parents will need to be motivated into work.
In 2008, IB will be replaced by a two tier Employment and Support Allowance. ‘Customers’ who fail to participate in work-focused interviews or to engage in work related activity will lose benefits. With current levels of IB averaging £6500 per annum, claimants could lose as much as £10.93 a week rising to £21.86 for a second refusal. Jim Murphy, Minister of State for Employment and Welfare Reform was blunt : ‘Work is the only way out of poverty... the benefit system will never pay of itself [enough to lift people out of poverty] and I don’t think it should.’
The Welfare Reform Bill is short on detail, and secondary legislation will delegate power to make further changes to the DWP minister. In 2006 Hutton commissioned David Freud a senior banker at UBS AG to conduct a review of New Labour’s welfare to work policies. Published in March 2007, Reducing dependency, Increasing opportunity : options for the future of welfare to work provides a business model for workfare. The Government target can be achieved by bringing in the private sector on long term, outcome based contracts. A price per claimant is calculated on the savings in IB costs when the claimant moves back into work. The income generated by the outflow of people from IB would be the incentive driving business toward the Government target.
To carry out this transformation of welfare the DWP will need to establish a new kind of contracting system which will open up public finance to private companies. Using the private sector will bring in the banks who can fund the ‘extremely large investments implied here’. Private companies would take the lead in the bidding process for contracts and in building up consortia of groups. This annual multi-billion market and the creation of of regional monopolies ‘would attract major players from around the world’ (p62-3). As Freud concludes: ‘The fiscal prize is considerable’. Hutton’s public reaction was to describe the report as a ‘compelling case for future reform’.
But on April 20 this year, Hutton received a letter from the Treasury. It informed him that, ‘as the Chancellor made clear, it is not possible to develop or pilot a new funding model in the immediate future.’ Freud’s scheme may be a bridge too far for Gordon Brown; time will tell. In the meantime UnumProvident continues to exerts its influence, aided by the ideological work of the Woodstock group of academics.
What’s been your experience of Incapacity Benefit and Pathways to Work? Good, bad? Write in with your comments.
The full length version of this article will be published in issue 36 of Soundings out in July.
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