Select Committee on Social Security First Report


APPENDIX 2

Memorandum submitted by Ms Lorna Reith, Disability Alliance (TAB 63)

DISABLED PERSON'S TAX CREDIT

1. INTRODUCTION

  In his Budget speech Chancellor Gordon Brown announced that the Government would be replacing Disability Working Allowance (DWA) with a Disabled Person's Tax Credit (DPTC) from October 1999. The new credit would be more generous than DWA in two ways. The threshold for entry onto the benefit would be higher, bringing more people potentially into its scope, and the rate at which benefit is reduced as earnings rise (the taper) would be less steep than DWA. No further details were announced but the impression given was that in other respects DPTC would mirror DWA.

2. THE BACKGROUND—DISABILITY WORKING ALLOWANCE

2.1 What is DWA?

  DWA is a means-tested benefit introduced in April 1992. It is available to disabled people who are in employment but earning a low wage and is based on the model for Family Credit. To qualify people must be:

    —  in employment and working 16 hours or more a week;

    —  have an illness or disability which puts them at a disadvantage in getting a job;

    —  be in receipt of disability living allowance or have been in receipt of incapacity benefit, severe disablement allowance or a disability premium (with one of the means tested benefits) in the 8 weeks before making a claim for DWA;

    —  have an income below a set threshold*;

    —  have savings less than £16,000*.

  (* both these limits are affected by the income or savings of a spouse)

2.2 How many people get DWA?

  Current estimates put the number of recipients of DWA at approximately 14,000. At the time of its introduction in 1992 DWA was expected to reach 50,000 disabled people, two-thirds of whom would be people moving off incapacity benefits and back into work. Estimated projected savings from the introduction of DWA were £10 million. However, as an incentive to encourage disabled people back into work DWA has been spectacularly unsuccessful. Research (Disability, Benefits and Employment, DSS Research Report No. 54, TSO Rowlingson and Berthoud 1996) shows that most recipients had not even heard of DWA until after they started work. In practice the most common qualifying benefit is DLA (which someone can get while in employment).

  2.3 DWA has failed as a work incentive measure but has been marginally successful in terms of job retention and despite its limitations has been very helpful for those people who do manage to qualify.

3. WHY HAS IT FAILED?

  3.1 The assumption behind DWA was that it would act as a partial capacity benefit, providing support to those less severely disabled people who were most likely to be able to enter the labour market. In practice however, the stricter test of entitlement introduced for Incapacity Benefit (receipt of which is one of the qualifying conditions) effectively ruled out the very group of disabled people who might otherwise have been assisted by DWA.

  3.2 Once entry onto DWA had been limited to more severely disabled people (those on DLA or IB) the benefit was doomed to fail as a means of assisting people into employment.

  3.3 DWA was designed as a work incentive. It took as its starting point the disabled person on incapacity benefit and looked at how that person might be encouraged into employment. This assumption meant that the person who developed health problems or became disabled while in work could not easily access the benefit. It was not designed with them in mind. In practice (unless they were severely disabled enough to qualify for DLA) someone in this position would have to give up their job, leave the labour market, move on to incapacity benefit, then try and re-enter employment, to meet the qualifying conditions for DWA.

4. DISABLED PERSON'S TAX CREDIT

  4.1 The introduction of DPTC provides an excellent opportunity to create a benefit which will assist disabled people both to access and to keep employment.

  4.2 The importance of help with job retention cannot be overestimated. The 1.5 million recipients of incapacity benefit all once had a job. IB is, after all, a contributory benefit. If appropriate help had been provided at the right time a proportion of those on IB might have remained in the labour force. A DPTC could provide much needed financial support for someone whose condition (multiple sclerosis for example) means they need to move from full to part-time work, but wish to remain with the same employer.

  4.3 We recommend that the "qualifying benefit" rules for the new DPTC should enable people to claim immediately if they are working and satisfy the condition of being disabled and at a "disadvantage in getting a job". The test currently used for DWA renewals (all DWA claims have to be renewed every six months) could be easily adapted to become the main entry test for DPTC. See Annex 1 to this paper.

  4.4 We suggest the following changes are considered as a means of making the benefit more successful:

    —  lessening the means-testing element either by disregarding a spouse's income, or by including a spouse's earnings disregard;

    —  disregarding DPTC when calculating Housing Benefit or Council Tax Benefit entitlement;

    —  add in an allowance for mortgage interest payments—this would assist those people who became disabled after taking out a mortgage and whose reduced earning capacity means they are not able to command earnings sufficiently high to pay their mortgage. It seems unfair that a tenant who becomes disabled can obtain help with their rent through housing benefit but a homeowner in a similar position cannot.

5. DECISION MAKING, APPEALS AND ACCOUNTABILITY

  5.1 All social security benefits come with a legally defined set of entitlement conditions, claiming processes and appeals procedures. Proposed changes in regulations have to be sent to the Social Security Advisory Committee for their views before implementation. It is unclear whether the new tax credit regimes will include any of this. We believe it is important that statutory entitlements, whether labelled as benefits or tax credits, should be subject to similar rights of appeal. There should also be a process to ensure that the consequences of any proposed changes are properly considered and see no reason for the SSAC not to continue carrying out this important role.

6. CARING FOR A DISABLED CHILD

  6.1 Both Family Credit and DWA include provision for an extra earnings disregard for childcare costs, which will also be included in the Working Families Tax Credit and DPTC. To qualify under the current rules parents must use a registered childminder or an out-of-school-hours scheme run on school premises or by a local authority. The child must be under the age of 12 years. Although very helpful for many parents on low incomes current provision rarely meets the needs of parents with a disabled child.

  6.2 Parents with a disabled child can face enormous difficulties securing appropriate childcare. The child may require one to one care or at least a higher ratio of staff to child than would be usual in a nursery. If the child is a wheelchair user it is highly unlikely that a childminder in an accessible property will be found. If the child's home has been specially adapted it may be far better that the care is provided in the child's home. Yet, under current provisions there is no mechanism by which someone caring for a child in the child's home can be registered. If the child has behaviour problems or needs medical treatment during the day it may be far better that they are cared for by a relative that they trust - but such a person is unlikely to meet the registration provisions. We recommend that, where the most suitable childcare for a disabled child is that provided in their own home, the childcare costs of their parents are fully taken into account for benefit purposes.

  6.3 The cut-off at age 12 is not appropriate for many disabled children who continue to require higher levels of care than their non-disabled peers. For example, a child with severe learning difficulties will continue to need out-of-school-hours care up to school leaving age. We recommend that the age limit is removed for parents caring for a disabled child.

7. CONCLUSION

  7.1 The adoption of the recommendations listed above would help ensure that these two new credits were much more successful in meeting their objectives than the benefits they are to replace.

Lorna Reith

Disability Alliance

May 1998


 
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