The Employment and Support Allowance (ESA) system has serious flaws causing "considerable distress and anxiety" and requires "fundamental redesign", the Work and Pensions Committee said in a report published today.

Simply "rebranding" the Work Capability Assessment (or WCA) used to determine eligibility for ESA by appointing a new contractor will not solve the problems, it said.

Committee chair Dame Anne Begg MP said: "We know that the redesign can’t happen overnight, but the current system needs to be improved now, because it is clearly causing claimants considerable distress and anxiety."

ESA is the benefit paid to people who are unable to work because of ill health or disability. It was introduced by the previous government for new claimants in 2008. Existing Incapacity Benefit claimants began to be migrated to ESA in 2011.

Crisis chief executive Leslie Morphy welcomed the report.

"We know from our own work with homeless people that if you are ill or disabled you need proper support to rebuild your life. Yet this report shows the system that wrongly assesses people as fit to work is instead failing them. It causes stress and worry by placing unrealistic expectations on people, leaving them at risk of sanctions, severe hardship and sometimes even homelessness," Morphy said.

"The Work Capability Assessment is a large part of the problem but it is clear that the whole system is failing to recognise people that need support. We urge the government to listen to the recommendations made by the committee and reform this process, which is causing immense suffering, immediately."

Most claimants are required to undergo a face-to-face assessment of functional capability carried out by a private sector provider (currently Atos Healthcare). DWP has agreed with Atos that it will exit the contract for delivering the WCA six months earlier than planned. A new provider is expected to take over sole delivery of the WCA in February 2015, with a new contract involving multiple providers expected to be tendered in 2018.

The committee called on the government to undertake a fundamental redesign of the ESA end-to-end process to ensure that the main purpose of the benefit – helping claimants with health conditions and disabilities to move into employment where this is possible for them – is achieved. This will take some time, but the redesign should be completed before the new multi-provider contract is tendered, which is expected to be in 2018.

Begg said: "Many people going through the ESA claims process are unhappy with the way they are treated and the decisions which are made about their fitness for work. The current provider of the WCA, Atos, has become a lightning rod for all the negativity around the ESA process and DWP and Atos have recently agreed to terminate the contract early.

"But it is DWP that makes the decision about a claimant’s eligibility for ESA – the face-to-face assessment is only one part of the process. Just putting a new private provider in place will not address the problems with ESA and the WCA on its own. We are therefore calling for a number of changes which can be made to improve ESA in the short-term, while also recommending a longer-term, fundamental redesign of the whole process."

One of the key issues which the report identified is that ESA is not achieving its purpose of helping people who could work in the short to medium term to move back into employment.

One of the reasons for this, the report said, is that the outcomes of the ESA claims process are too simplistic. Claimants can be found “fit for work” and are then ineligible to claim ESA. Claimants found to have such limited functionality that that they cannot undertake any work-related activity are placed in the support group, where they are subject to no work-related conditionality. This leaves a large and disparate middle group of claimants who are not yet fit for work, and may even have a deteriorating condition, but who are required nonetheless to undertake activity which is meant to help them find work in the longer term. These claimants are placed in the Work-related Activity Group (WRAG). The report says the WRAG covers too wide a spectrum of claimants with very different prognoses and employment support needs.

The committee recommended that the ESA redesign should aim to ensure that the process properly identifies claimants’ health barriers to employment and the particular support they need, so that the conditionality that they are subject to and the employment support they receive can be tailored more closely to their circumstances. For claimants in the WRAG, proper account needs to be taken of where they are on the spectrum of readiness for work, given the wide range of conditions and disabilities which the WRAG encompasses, and the different impacts these have on an individual claimant’s functional capacity.

Begg said: "ESA is not properly joined up with employment support because an individual’s health-related barriers to working are not being properly assessed as part of the process. We recommend that the government reintroduces a separate assessment of these barriers, along the lines of the Work-Focused Health-related Assessment – the WFHRA – which it suspended in 2010."

Begg said: "The re-letting of the contract provides an opportunity to address some of the problems. The new contract needs to set out robust and clear service standards on the quality and timeliness of assessments and the reports produced by the contractor, and for the way claimants are dealt with.

"DWP should also improve the way it communicates with claimants – at the moment, the letters that are sent to claimants are too technical and complex. They need to be in plain English and avoid using jargon. The terms “limited capability for work” and “limited capability for work-related activity”, which are currently used to categorise claimants, are too confusing and DWP needs to find more meaningful alternatives."

The committee recommended that DWP implements a number of other changes in the shorter-term to ensure better outcomes and an improved service for claimants. These include DWP taking overall responsibility for the end-to-end ESA claims process, such as taking decisions on whether claimants need a face-to-face assessment, rather than this decision being made by the assessment provider.

The report is available at http://www.publications.parliament.uk/pa/cm201415/cmselect/cmworpen/302/302.pdf