Health, poverty and employment effects of cutting income replacement benefits for the disabled: a difference-in-differences analysis of the 2017 welfare reforms

BACKGROUND: Health-related economic inactivity in England has risen, with more working-age adults claiming disability and incapacity benefits. The 2016 Welfare Reform and Work Act reduced weekly payments for Employment and Support Allowance recipients deemed capable of some work from April 2017, potentially affecting poverty, mental health and employment among people with long-term conditions (LTCs). Evidence on its causal impact is limited. DATA AND METHODS: Using UK Household Longitudinal Survey data (2010-2019), we evaluated the reform's impact on working-age individuals with LTCs. Triple-difference and difference-in-differences models assessed transitions in employment, poverty risk (income <40% median) and incident poor mental health (defined as SF-12 Mental Component Score ≤45.6 among those without prior poor mental health), controlling for age, gender, children and education. RESULTS: The 2017 reform was associated with a 5.5 percentage point increase in poverty risk among individuals with LTCs leaving employment (95% CI 1.4% to 9.6%, p=0.008) and an 8.9 percentage point increase in the incidence of poor mental health in this group (95% CI 1.1% to 16.7%, p=0.025). No significant effects on transitions into or out of employment were observed at the 95% confidence level.Applying these estimates to national employment figures suggests that the reform may have resulted in approximately 37254 additional people entering severe poverty and 60117 additional cases of poor mental health annually. CONCLUSIONS: These findings suggest that reductions in disability-related benefits may exacerbate financial and mental health vulnerability among affected individuals but not affect employment. This highlights the need for policy measures that balance fiscal objectives with social protection.