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
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
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).
ADDITIONAL BENEFITS TO TOP UP THE SWAB
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
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.