Select Committee on Work and Pensions Seventh Report


6  Future simplification: fundamental change

315. Much of the evidence we received gave examples of where the simplification of specific parts of the benefits system could make the claim process and administration of the system easier to navigate and the value of this sort of reform is set out in the previous section.

316. In our terms of reference we did not specifically seek views on long-term or fundamental change to the benefits system. However, we were aware that the Green Paper and the Freud report had both raised radical reform, in the form of a possible 'single system of benefits' as something that Government should investigate further. We were interested therefore in witnesses' views on this issue. However, it was not surprising that few witnesses were able to discuss this in any depth. Many asked what a single benefit system might look like because they had not seen any proposals and were understandably cautious in their responses.

A "single system of benefits" or a single working age benefit?

317. The Government first proposed a "single system" of working age benefits in its Green Paper on welfare reform, which stated:

"We consider that there may be advantages in moving in the longer-term towards a single system of benefits for all people of working age, with appropriate additions for those who have caring responsibilities and those who have long-term illness or disability."[346]

318. Since the Green Paper, the debate about how this system might operate has intensified. We heard a number of different views on what a single system might mean in reality. In his independent report, David Freud set out his proposals and recommendations to Government on how it might move towards this single system. The Government intends to respond to these proposals in the summer.

DAVID FREUD'S SUGGESTIONS FOR BENEFIT REFORM

319. Building on the Green Paper, David Freud proposed three options for a "single system" of working age benefits, which were:

"As now, different benefits and benefit levels to reflect different circumstances, based on one common rate (Income Support personal allowance);

a single benefit with a single rate [with additional premiums if appropriate]

a single system with two rates - a basic rate and a long-term rate"[347]

320. Freud highlighted the inherent complexity in the first option but accepted its adeptness at providing a safety net for all who need it and targeting assistance for those who need it most. He argued that this model does not necessarily concur with the Government's rights and responsibilities agenda because its design may encourage people to move between benefits and away from the labour market.

321. Freud concluded that the second option:

"would be straightforward for the State and the individual, would send clear messages about entitlement and would remove incentives to move between benefits. It would support poverty objectives and need not create an 'unemployment trap', as long as either the benefit is set below 16 hours at National Minimum Wage or is supported by in-work Tax Credits."[348]

322. However, he suggested that this option may come at significant financial costs, and could create disincentives to work (depending on the rate at which the benefit is set). If the impact was to increase the average duration on JSA by just five days, Freud estimated that this would create an additional annual cost of approximately £200 million.[349]

323. Freud's third option "would be somewhere between the status quo and a single benefit with a single rate."[350] This model would have a common short-term and long-term rate. Freud's report highlighted the fact that:

"the adverse work incentive impact could still be significant. Financial work incentives for lone parents tend to be weaker than for most people, and this would weaken them further. The perverse incentive would be to remain out of work once one was through the twelve month hurdle, and affect that could only be partially mitigated by linking rules."[351]

324. Freud concluded that before any decision can be made, detailed modelling of the options should be undertaken. However, he commented:

"There is a strong case for moving towards a single system of working age benefits ideally a single benefit, in order to better support the Government's ambition of work for those who can and support for those who cannot."[352]

325. The Government has yet to respond to Freud's report but in a supplementary memorandum to this inquiry, DWP said one of the Benefit Simplification Unit's priorities over the next year will be:

"To assist colleagues within the Benefit Reform Division in the development of ideas for a single income replacement benefit for people of working age."[353]

A "SINGLE SYSTEM OF BENEFITS"

326. Despite the comment in the DWP memorandum about the BSU's future priorities, the Minister was careful to emphasise that a 'single system of benefits' did not equate to a 'single working age benefit'. He told us:

"I think there is a distinction here between single benefit and single system of benefits and we are talking about a single system of benefits, benefits plural, so you are going to have different benefits, as we have at the moment. The reason we are talking about a single system of benefits, I would describe it as a coherent family of benefits, is that the pieces all fit together. They may be different benefits, to respond to different needs and different sets of circumstances, and they may have different foundations to them, but they need to be cohesive as a system so that people do not fall between the cracks between different benefits, we can move them from one to the other, find it a fairly seamless process, and people who are in receipt of more than one of them and are not having to deal with differences in the process which are not necessary, that is what I understand by creating the system of benefits; quite a different matter from a single benefit."[354]

327. We questioned the extent to which the long-term goal that the Minister described was in any way different from the existing benefits system but we did not receive clarity on this distinction.

"Natascha Engel: How does that differ from what we have at the moment; do we not have a single system?

Mr Plaskitt: The whole reason why I think that you are having this inquiry and why we are having so much work done on the process of simplification is that, at the moment, yes, there is a family of benefits but they do not fit well together necessarily; that is the whole point. That is why we are looking at all the things which are on the agenda of the Simplification Unit, and it is why we subject every reform that we are taking forward to the test is it contributing towards simplification, precisely to try to bring the system into greater coherence than it has at the moment; that is what informs this whole process."[355]

328. In January 2007, the then Minister for Employment and Welfare Reform, Jim Murphy, gave a speech on the future of benefit delivery, prior to the publication of Freud's report in March. Referring to the concept of a single working age benefit, he said:

"I believe this is one of the most crucial questions for the future of benefit delivery over the next ten years. The potential of a radically simpler benefit system is unquestionable - but we have to ensure, in reaching for that goal, that we maintain the flexibility within that system to tailor welfare to the specific needs of individuals."[356]

329. We accept that the Minister did not wish to pre-empt the Government's response to the Freud review during our evidence session but we were very disappointed that he could not present a clear long-term vision for the simplification reforms of the benefits system or comment on the principle of a single working age benefit. This was particularly the case given that discussions about the possibility of a single working age benefit pre-date the Freud review on the Government's policy agenda.

A SINGLE WORKING AGE BENEFIT

330. Freud's inclination towards a single working age benefit has yet to be backed up by the robust modelling which he suggests is required before moving forward. The lack of any substantial research into the feasibility of introducing a single benefit to the UK was reflected in the fact that witnesses were generally impartial on the subject; one exception to this was the Institute of Public Policy Research (IPPR). IPPR welcomed Freud's report and suggested that in addition to the advantages he outlined, a single working age benefit would lead to:

"greater transparency (leading to greater understanding of, and support for, the benefits system), greater administrative simplicity, the end of a system of categorising people according to a single characteristic such as lone parenthood and the introduction of a system centred on the citizen as an individual and greater alignment of the benefits systems with employment support options."[357]

331. Like Freud, IPPR recommended that DWP undertake or commission detailed modelling work to explore the likely impacts of creating a single working age benefit that combines Jobseeker's Allowance, Incapacity Benefit/Employment Support Allowance and Income Support.

332. We also received evidence from the Citizens Income Trust, with its proposals for "an unconditional, automatic and nonwithdrawable payment to each individual as a right of citizenship".[358]

333. Some witnesses did comment on the principle of a single benefit and were sceptical that a single benefit would remain simple in the face of complex contingencies. Michael Fothergill of OSW commented,

"It really worries me as to whether a Single Working Age Benefit would actually be that simple. ... I was talking a bit earlier about the Employment and Support Allowance ... Within one benefit there seem to be all these different rates and complexity, depending on what work activity you get involved in, then possibly further sanctions beyond and below the holding rate as well. Often they start off by looking simple but end up being relatively complex."[359]

334. Steve Broach of Every Disabled Child Matters commented:

"If you took our families as an example, a single working age benefit would need a disabled child premium, the disabled child premium would probably have to be differentiated, perhaps into a higher, middle and lower rate, and then you have basically replicated Disability Living Allowance [...] so you might spend an awful lot of time and money replicating the existing system when it came down to brass tacks and to delivery."[360]

335. For the most part witnesses cautioned against the execution of bold reform too quickly because the details of it remained unclear. John Wheatley from Citizens Advice said:

"It is such a 'big bang' change that I think all groups would want to see some analysis of the impact before rushing to judgement. It is an attractive notion that you have a single benefit with overlaying things on, but it does mean scrapping what we have now and putting something else in place. It is much easier to contemplate incremental changes, and there are plenty of things which could and should be done to simplify in the short term." [361]

336. Janet Allbeson from One Parent Families argued that in the absence of more concrete details to such a proposal, it was difficult to understand how a single working age benefit would operate in reality, particularly in terms of accommodating wider benefits such as Housing Benefit and Tax Credit:

"I must admit to being really perhaps slightly head-scratching about what the single working age benefit actually is, in that I cannot quite work out where it sits within Housing Benefit, Council Tax Benefit. Are they still going to be there? What about the Working Tax Credits, Child Tax Credits? A lot of the attempts to simplify are someone sitting down, looking at a piece of paper and saying 'Gosh, this looks terribly complicated. Let's just make it simpler' without thinking through the implications."[362]

337. However, One Parent Families added that "unless resources are found for a more radical and ambitious simplification agenda, it is unlikely that the complex workings of the present system will be improved from the point of view of lone parents." [363]

Winners and Losers

338. The hesitancy of witnesses about the single working age benefit was also fuelled by concerns that such wholesale reform of the benefit system could lead to injustice and a large proportion of losers.

339. Referring particularly to the single working age benefit, Paul Treloar, from Disability Alliance told us:

"We would want some very robust modelling of winners and losers in terms of particularly disabled working age adults, because they are one group who have been moving more deeply into relative poverty over the last ten years compared to people with children and compared to older people. There are issues around universality of disability benefits which we think could help to bridge some of that gap. So we are not against it in principle but we would be, as I say, very keen to see some robust modelling to make sure that the actual effects on disabled working age adults were taken care of."[364]

340. The concerns of witnesses about the winners and losers that a single working age benefit might create and about the lack of coherent thinking around the concept has been picked up by the Institute for Public Policy Research (IPPR). IPPR has recently examined the case for a single working age benefit and concluded that it may provide "the best prospect of achieving a benefit system that actively supports welfare-to-work policy":[365]

"The single benefit would replace JSA, IB and IS and could also incorporate Carer's Allowance. There is a range of advantages to this vision of a single working-age benefit that deal with some of the problems of the current benefit system (and particularly the links between them) that certainly exist and that look likely to continue after the introduction of the ESA. The problems associated with moving between benefits would disappear. There would be no risk to a person's benefit if they tried going into work because the benefit would be the same before and after a period of work. There would therefore be no need for the little understood 'linking rules', which currently allow people to return to their former rate of benefit if they cease working. It could also be expected that the stigma and possibility of subsequent discrimination that have been associated with the notion of disability benefits would be reduced. Importantly, there would be no financial gain of claiming one benefit over another or of remaining on benefit for a longer period. Overall, a single working-age benefit would not only be less complex and easier to understand than the current array of working-age benefits, it would be easier to administer too."[366]

341. IPPR developed further ideas around the gateway, eligibility rules and the level at which the benefit would be set.

342. The Institute of Public Policy Research has set out one option for the radical reform of the benefits system. In the absence of a strong Departmental vision we have endeavoured to spark a debate by developing a suggested outline for a simplified Single Working Age Benefit, which is attached at Annex A. This sketches out an alternative option to that proposed by IPPR by extending the single working age benefit to provide in-work support, thus replacing tax credits. We recommend that the Government study these proposals and respond setting out which elements it agrees with and, most importantly, what alternatives it would propose for those facets it does not accept. We accept that fundamental changes such as those outlined would require a great deal more detailed development before they would be ready, but we would reiterate our disappointment that there is no obvious debate or vision being developed and, accordingly, offer this as a starting point.

Transitional arrangements: potential to 'buy out' claimants' rights to legacy benefits

343. Wholesale structural reform to create a simpler, more manageable system is a desirable prospect, although whether it is achievable remains uncertain. This is partly because of the extensive modelling that would be required to determine if it is achievable, partly because of the enormity of managing such change and partly because it raises the question of what happens to existing claimants.

344. Previous welfare reforms have managed the latter issue by putting in place transitional arrangements to protect the rights of claimants to remain on legacy benefits when they are replaced. However, for a system such as the single working age benefit to be introduced, particularly if it were done in the name of simplification, transitional arrangements would defeat the purpose - retaining old benefits and adding a new layer contributes to complexity as opposed to remedying it.

345. Donald Hirsch from the Joseph Rowntree Foundation said:

"What happens effectively is that we have a system with all the little old bits hanging off, and I think that does add to the complexity itself."[367]

346. Steve Devereux from Jobcentre Plus highlighted the fact that transitional protection contributes significantly to the administrative complexity of the benefits system which is "arguably the bane of my life and certainly the bane of my staff's life."[368] The impact, he continued, will be compounded as the numbers of staff who understand the rules of the old benefits decreases:

"I can only speak from my position as a manager who is having to deal with staff who work with things like transitional protection. It is something I cannot possibly train new staff to do. There is absolutely no way I can train new staff to understand issues that came to pass 15, 20 years ago, and I am left being very dependent on a limited number of staff who have got that technical expertise.[369]

347. The DWP's memorandum similarly conceded that "transitional protection avoids losers but increases complexity because it preserves the old rules alongside the new."[370]

348. We discussed with witnesses the possibility of overcoming the complexity of transitional protection by buying out the right to retain a benefit when it is replaced by giving claimants a lump sum at one time rather than continuing with a small regular payment of the old benefit. Sue Royston told us:

"it would be very helpful, certainly with sickness benefits. There are so many different forms of sickness benefit it must be very difficult for officers to deal with. It is difficult for advice agencies to deal with when you have got people on invalidity benefit, incapacity benefit, SDA and so on. I suppose it depends whether it is affordable. It would be very helpful if it was affordable."[371]

349. Steve Devereux from Jobcentre Plus agreed. He said:

"From an administration standpoint it is certainly simpler in the long run. I do not know how employment support allowance at this moment in time is going to impact on things like transitional protection. It will start and new claims will be taken on but there is certainly going to be a question about the existing incapacity benefit customers as they transfer at some point and migrate onto employment support allowance. That seems to me like an opportunity."[372]

350. However, Fran Bennett suggested that forecasting accurately how long a person is going to claim an old benefit in order to determine how much they should receive in a lump sum would be difficult. She concluded:

"the problem about the lone parent example is that it would be very difficult to predict how much you ought to give them to be fair, because you would not know how long their lone parenthood would last. We know the average is only about five or six years, I think, but it would be more or less difficult to have such a buy-out depending on which group of claimants you were talking about, I suspect.[373]

351. DWP provided information on the caseload of legacy benefits in 2006-07:[374]Table 5: Legacy benefits - Current caseloads figures for the 'legacy benefits' (benefits not currently open to new claimants)
Supplementary Benefit to Income Support in 1988 Income Support to Jobseeker's Allowance in 1996 Widows Benefit changing to Bereavement Benefit in 2001 End of new claims for severe Disablement Allowance in 2001 End of new claims for Invalidity Benefit in 1995
Data not available Data not availableCaseload of 109,000 in 2006/07 Caseload of 270,000 (227,000 working age, 42,000 pensioners) in 2006/07 Caseload of 360,000 in 2006/07

Source: 2006/07 caseloads taken from DWP benefit projections, Forecasting Division

352. DWP also provided information on the costs of buying out transitional protection for Invalidity Benefit:

"A cost benefit analysis of buy-outing transitional protection for people in receipt of Invalidity benefit with a lump sum payment that would be actuarially calculated depending on age and the amount of Invalidity Benefit received, and replaced with long-term Incapacity Benefit, was undertaken in 2004. It was estimated that such a buyout would cost around £2.5 billion. Cost benefit analysis information on the other legacy benefits is not available."[375]

353. We asked DWP how the £2.5 billion figure had been calculated and it provided an analysis in a supplementary memorandum, which stated that the bulk of the figure (£2.3 billion) came in buying out Additional Pension Entitlement. However, there was no analysis in the paper we received of the administrative savings which would arise from no longer having to pay out benefits according to multiple rules. We have included the Department's calculations as an appendix to this report.[376]

354. We were disappointed that the Department does not appear to have undertaken comprehensive cost benefit analyses of legacy benefits in the system. We would recommend that the Government examines the benefits of buying out transitional arrangements in much greater detail than appears to have been done so far to determine whether this measure could simplify the benefits system.

Individualisation of benefits

355. Some witnesses suggested that there was scope to move away from household calculations and towards a more individualised benefits system, In 2003, Jane Millar proposed that an individualised means-tested social security system would have four main aspects:

"Each person would have an individual right to claim financial support, and no-one would be able to claim support simply as an adult dependent of another claimant;

"Assessments of financial need would take place on an individual basis, without taking into account the needs or resources of other adults in the family or household;

"The award would cover the needs of that individual only and would not include any payments for adult 'dependents';

"Payments would be made to the individual, so that each individual adult would receive money in their own right."[377]

356. Fran Bennett summarised the options for individualisation of benefits:

"Briefly, I think there are two different things that are talked about when people talk about individualisation, and they are very different. One is individualisation of payment and the other is individualised assessment, and that is within the means-tested area. We already have individualised benefits which are non means-tested. They are increasingly not carrying dependant's additions with them and, therefore, they are just totally individually based. So, it is not an issue with the non means-tested benefits really. I assume you are talking about means-tested benefits or Tax Credits, where there is much more difficulty in individualising. My personal preference is to go as far as we can down the non means-tested routes, because those are much more appropriate individualised benefits, than to try to individualise means-testing. You can individualise means-tested benefit payment just by chopping the payment in half once you have assessed a couple jointly and giving half to each adult. You could argue that that is more consistent with the Government's rights and responsibilities agenda"[378]

357. It was clear from the evidence we received that the current system of household calculations for benefits can affect work incentives and give incentives for people to live in single adult households. This is an important issue which we will return to in our autumn inquiry covering child poverty.


346   DWP, A new deal for welfare: Empowering people to work, January 2006. Chapter 7, Para 3. Back

347   David Freud, Reducing dependency, increasing opportunity: options for the future of welfare to work. An independent report to the Department for Work and Pensions, 2007, p 100  Back

348   As above, p 101 Back

349   As above, p 102 Back

350   As above, p 102 Back

351   As above, p 102 Back

352   As above, p 9 Back

353   Ev 134 Back

354   Q 379 Back

355   Q 380 Back

356   Jim Murphy MP, Minister for Employment and Welfare Reform, Net Gains - Future of Benefit Delivery, Dods, London,, 23 January 2007 Back

357   Ev 93, para 7 Back

358   Ev 85, para 1.1 Back

359   Q 201 Back

360   Q 137 Back

361   Q 110 Back

362   Q 137 Back

363   Ev 143, para 32 Back

364   Q110 Back

365   Sainsbury, R and Stanley, K. One for all: active welfare and the single working-age benefit, IPPR, July 2007 Back

366   As above Back

367   Q 72 Back

368   Q 236 Back

369   Q 239 Back

370   Ev 110, para 2.4 Back

371   Q 86 Back

372   Q 237 Back

373   Q 86 Back

374   Ev 131 Back

375   Ev 131 Back

376   Ev 235 Back

377   Millar, J. Squaring the circle? Means Testing and Individualisation in the UK and Australia. Social Policy and Society 3:1, 67 - 74. 2003, Cambridge University Press Back

378   Q87 Back


 
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