Select Committee on Work and Pensions Seventh Report

Annex A: a single working age benefit

A Single Working Age Benefit


What is proposed in this paper is an attempt to sketch out a radical solution to simplifying the UK benefits system by introducing a Single Working Age Benefit (SWAB) for those both in work on a low salary and those out of work for whatever reason. This proposal is not necessarily the only way of achieving the aim of a SWAB, or indeed the whole answer, but is set out here in order to stimulate a debate on how the benefits system can be streamlined, while removing some of the perverse incentives which exist in the present system. The level at which the SWAB and Marginal Deduction Rates (see below) are set will determine whether the cost to the Treasury of implementing the benefit will result in a fiscal saving, be cost neutral or more expensive than the benefits and tax credits it would replace.

At present the Government appears to have no proposals for such far reaching reform of the benefits system so this paper is an attempt to elicit from the Government its thinking on the concept of a Single Working Age Benefit.

The Single Working Age Benefit (SWAB)

A Social Protection Scheme

The SWAB would provide an income for anyone who is legitimately resident in the UK and is both willing and able to work (or is exempted from the latter criterion because of illness, disability or caring responsibilities - see below). It would, therefore, replace Income Support, Jobseeker's Allowance and the planned Employment and Support Allowance, and the need for any linking rules for people moving between them.

As an income replacement benefit the SWAB should be set at or above an independently-researched level of income, to be calculated statistically and published annually. Having guaranteed this minimum amount at least, there would be no need for the SWAB to rise after people had been claiming it continuously for a certain amount of time, removing a disincentive for people to return to work and simplifying the system considerably.

Because it provides an acceptable level of income, the SWAB is a genuine social protection scheme. It is designed to ensure that no-one falls below the acceptable level of income whether their previous wages were high or low.

'Willing and Able To Work'

Claimants who are not sick or disabled would have to demonstrate that they are willing to work by participating in focussed 'welfare to work' programmes. These would be run by specialist organisations contracted to the Department for Work and Pensions, and would only be paid according to their success in placing claimants in long-term stable and sustainable employment. Claimants who are not genuinely willing to work would, in time, be referred by the welfare to work organisation which was responsible for finding them a job to a DWP decision maker, with a recommendation and supporting evidence that their SWAB should be sanctioned until they are willing to participate properly.

Claimants who are sick or disabled would be assessed through a modified Personal Capacity Assessment (PCA), similar to the one already proposed for the Government's new Employment and Support Allowance regime. This would be a single assessment to establish a claimant's eligibility for additional disability-related benefits (see below), their ability and potential to undertake different types of work, and any assistance they may need (including medical treatment, physical aids and skills training) to get and hold a job. Claimants who were assessed as too severely sick or disabled to have a realistic chance of stable employment - the equivalent of the 'Support Group' in the Government's new Employment and Support Allowance regime - would still be encouraged to apply for work if they were willing, but looking for employment and participation in welfare to work programmes would not be a condition of continuing to claim the SWAB. For all other claimants with illnesses or disabilities, the results of the PCA would be fed into their welfare to work programme and treated in the same way as any other barrier to work - an obstacle which can be overcome with the right support and preparation.

Claimants who are caring for dependent children or adults would also have their needs assessed. Depending on the age of the children - the caring burden tends to decline as children enter primary school, and again when they begin secondary education - or the level and type of care required by a dependent adult, carers will face a variety of obstacles to finding and keeping a stable job. There would be a single assessment based either on the ages of the children or the PCA assessment of the adult's needs. As with sick or disabled claimants, in some cases the most demanding examples of care may mean that work is an unrealistic prospect (e.g. caring for severely sick or disabled children or adults). Once a claimant had been assessed as belonging to this group, looking for employment and participation in welfare to work programmes would not be a condition of continuing to claim the SWAB although, as with severely sick or disabled claimants, participation would still be encouraged if the claimant was willing. For all other carers the obstacles identified in their assessment should be fed into a welfare to work programme and treated in the same way as any other barrier to work - a problem which can be overcome with the right support and preparation.

An In-Work Benefit Too

The SWAB would also be an in-work benefit. Once someone had begun work the DWP would tell the tax office (HMRC) how much benefit they were receiving. HMRC would then reclaim the benefit from their wages at a constant Marginal Deduction Rate (e.g. 40p in the pound) through the tax system. The Marginal Deduction Rate (MDR) would be a national percentage set by the Chancellor in the Budget, and would apply from the first pound of income until an individual's wages had risen high enough to repay all their benefit, at which point it would no longer apply. This system would, therefore, replace all existing benefit withdrawal rates (which frequently rise to 85% at present, and sometimes to 100%) and the entire tax credit system as well. It would also abolish the need for any notification of changes of circumstances for people moving in and out of work, or for linking rules to cover them either.

The MDR could also be defined as a residual (e.g. 40% less the rate of income tax and NI) so that the overall effect of the MDR, income tax and National Insurance would not create an unacceptably high marginal rate of income removal for anyone. This would clarify to anyone contemplating employment that they would always be significantly better off in work because they would know that they would never lose more than the MDR percentage on every pound they earned.

People who are already in work would, of course, be able to claim the SWAB as well, so they would not lose out when the tax credits system was abolished.

The MDR system could also count child maintenance payments as income, so that the SWAB could be reclaimed from it in the same way as any other earnings. This would completely replace the current system of CSA benefit disregards, simplifying the administration significantly and removing many disincentives to work or to pay maintenance.

The net fiscal impact of this system would, of course, depend on the interaction between the level set for the SWAB and the MDR. Depending on those levels, the cost might be less, more, or the same as, the costs of the existing benefits and tax credits it would replace. Under this system it would become relatively fiscally painless for Chancellors to raise the levels of income at which income tax starts, or to introduce tax allowances (e.g. for families) since the costs of any lost tax revenue would be reduced through the MDR benefit reclaim mechanism instead.

An End To Means Testing at the point of application?

The MDR mechanism would abolish the need for an income-based means test at the point of application, further reducing the complexity of applying for and administering the SWAB. Capital based means testing might, however, still be needed since the MDR would not reclaim benefits paid to people with significant savings who had no income. These people fall into two distinct groups:

1.  Most people with significant savings and zero income are either not of working age (ie they are retired) or not genuinely willing to work because they already have sufficient income to meet their needs. In these cases they would either not be eligible to claim the SWAB in the first place, or would swiftly have their benefits sanctioned if they weren't willing to participate in a welfare to work programme.

2.  The only group with savings and no income which might be eligible for the SWAB are middle-income earners who are temporarily unemployed. The majority of these people have valuable skills - or they wouldn't have been able to earn a middle-income wage before they became unemployed - and most will rapidly find themselves a new job. For these people a capital-based means test would be complex and unnecessary, since the SWAB they receive while they are unemployed would be mostly reclaimed through the MDR system in any case.

For the remainder of this group who take longer to find a new job, the Government would need to assess whether the additional complexity and intrusiveness of a capital-based means test would be worthwhile. At a minimum it should not be applied until someone had been claiming the SWAB for at least 3 months, to avoid the complexity of assessing all the people who would rapidly get back into work in any case.

Individual Or Household Income?

As a basic principle, the SWAB would be paid to individual claimants based on their personal circumstances only. Where households contain more than one person they would be dealt with through separate claims, so that an individual change of circumstances would not alter the claims of everyone else in the building. This would be far simpler, quicker and less intrusive than the current system.

It may, however, be necessary to take household income into account in the specific situation where a claimant is a non-working partner of a high earner, and is unable to work because of either caring responsibilities or disability. In these cases, it may be necessary to apply the MDR to the household's income rather than the claimant's alone. This would add a little complexity to the basic principle of individual circumstances and income described above, so the Government should consider the number of likely claimants in this group and whether the fiscal gains of assessing their joint income would be worthwhile. If they are, household income could be assessed by linking people through the tax system, but there would be complications to avoid penalising people who are married or in formal civil partnerships (and who are, therefore, easy to identify) relative to people who are simply living together (and who are not).


Once someone has established a claim to the SWAB as described above, there are three specific circumstances where they may also need to apply for an additional benefit to top it up. These additions would also be in-work benefits which would be reclaimable through the MDR mechanism in the same way as the SWAB. They are:


Claimants who are caring for dependent children will need a small additional amount of income to reflect the additional costs of living for each child. This would be an automatic benefit for everyone with children of dependent age, similar to the existing Child Benefit (it would be up for discussion whether this child benefit would be means-tested through the MDR process), and its level would be set based on the same type of independent, annually published research as the SWAB itself (see above).

Claimants who are caring for dependent adults would not need help with the additional costs of living, because the dependent adult would be claiming the necessary benefits in their own right.

People With Disabilities

Once a claimant had established their eligibility for disability benefits through the new, simplified single PCA assessment, they would be eligible for additional financial help to provide the aids and assistance they need to live as independently as possible. Whether this new benefit would be the same as the existing Disability Living Allowance or a new benefit to cover all extra expenses associated with a persons disability would need to be discussed.

Housing And Council Tax Benefits

Eligibility for Housing Benefit and Council Tax Benefit would be determined through the same initial application for the SWAB. If someone was receiving the SWAB then, depending on whether they were in private rented or social housing, they would automatically be eligible for one or both of these two benefits as at present. The DWP would simply direct the relevant local Housing Authority to pay the new Local Housing Allowance and / or the local Council Tax benefit too. This approach would be substantially simpler and cheaper to administer as a result.

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Prepared 26 July 2007