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Incapacity benefit has become a barrier to work and should be replaced by a new set of measures, according to a leading think-tank.

The Institute for Public Policy Research wants incapacity benefit to be replaced by a flat-rate "earnings replacement allowance" alongside an enhanced disability living allowance to ensure that the extra costs of living with a health problem or disability can be met. This would split disability from incapacity and remove the incentive to stay on incapacity benefit longer to qualify for extra money.

In a report, the IPPR points out that claimants must currently demonstrate they are incapable of work in order to receive the benefit, and risk losing it if they look for a job. Yet they are also required to attend work-focused interviews.

The think-tank would also like to see agreed action between claimants and personal advisers towards "social and economic inclusion", but not necessarily employment.

• Fit for Purpose from www.ippr.org/publications