Select Committee on Work and Pensions Written Evidence


Memorandum submitted by Judy Scott

1.  SUMMARY

  1.1  Incapacity based benefit rules can either deter or promote part-time working. Encouraging work related activity is a key element of DWP plans for the Welfare Reforms and so it was hoped that measures to promote part-time work would be included in the Welfare Reform Bill.

  1.2  DWP research on Permitted Work has found that people who earned and worked for just under 16 hours a week during their claim were most likely to move off benefits altogether and into employment.[4] This may be because they had a financial cushion such as a partner in work or it may have been because this is the only group that are currently able to work for just under 16 hours a week without having their benefits reduced as a result.

  1.3  DWP have recently advised that the introduction of Employment and Support Allowance (ESA) will bring a welcome change for those on the income based strand, raising the earnings disregard from £20 to £86 a week for one year only, promoting part-time paid work to just under 16 hours a week for the above group, without benefit reductions.

  1.4  However, for up to one and a half million claimants who will claim ESA contributory strand and who have housing costs, the earning disregard is to stay at £20 a week. The rules applied to Incapacity Benefit are to be duplicated in ESA. Only the better off group who have no housing costs, will be able to earn and keep up to £86 a week. The majority whose benefits would be reduced if they earned up to £86, are likely to do as now, and not attempt to earn above £20 a week. Government plans to provide stepping stones into work will be undermined by failure to address this matter for very large numbers of claimants.

  1.5  People with severe disability may also lose out. DWP appear to be planning to abolish the non-time limited options in Permitted Work for ESA claimants. Those with the most severe health conditions or limiting disability will like others be subject to the one year limit on earning up to £86 a week if they are in receipt of income based ESA (but not contributory ESA). This will impact on people whose health or disability make a move into work within one year impossible. People with a relapsing condition that precludes consistent part-time work may only be able to use part of alternate years to take up opportunities and will be disadvantaged further.

  1.6  If the non-time limited options are abolished for people in receipt of ESA, government policy for public participation and involvement will be impeded to an even greater extent than occurs now. Public authorities have a statutory responsibility to involve people who use health and social care services. Many of the people who public authorities ask to advise on their experience of using services, have severe ill-health or significant levels of disability and so are in receipt of benefits. Involvement is usually intermittent and may be as little as a couple of hours a week for the duration of a steering group over a few months; it may be monthly or quarterly meetings. There are no fixed patterns but involvement is never for 52 weeks a year. If the non-time limited options for payment are abolished people will be prevented from participating in alternate years although they were involved and paid for just a few hours in the year that the earnings rule applied.

  1.7  These proposals are not yet fixed in law, and DWP have agreed to consult with interested stakeholders.

2.  CHART SHOWING COMPARATIVE BENEFIT RULES ON PART-TIME PAID WORK DURING A CLAIM TO BENEFITS

    —    in the current system (second column),

    —    in the proposed system for ESA (third column) (as far as there is information available).


Current system for incapacity based benefits (Incapacity Benefit, Severe Disablement Allowance, Income Support for incapacity)
Employment and Support Allowance proposed rules

2.1Incapacity Benefit only (no housing costs).

Earn up to £20 a week or earn up to £86 (no deductions):

—  Permitted Work one year only, or

—  Supported Permitted Work no time limit, or

—  Permitted Work exempt no time limit.

ESA work related and support group contributory only (no housing costs).

Earn up to £20 a week or earn up to £86 one year only (no deductions).
2.2Incapacity Benefit with Housing Benefit and Council Tax Benefit.

Earn up to £20 a week or earn up £86 (but deductions of 65p off HB and 20p off CTB on earnings over £20):

—  Permitted Work one year, or

—  Supported Permitted Work no time limit, or

—  Permitted Work exempt no time limit.

ESA work related and support group contributory with Housing Benefit and Council Tax Benefit.

Earn up to £20 or earn up to £86 one year only (but deductions of 65p off HB and 20p off CTB on earnings over £20).
2.3Severe Disablement Allowance only (no Income Support).

Earn up to £20 a week or earn up to £86 (no deductions):

—  Permitted Work one year only, or

—  Supported Permitted Work no time limit, or

—  Permitted Work exempt no time limit.

2.4Severe Disablement Allowance with Income Support.

Earn up to £20 a week or earn up to £86 (but deductions from IS £ for £ on earnings over £20):

—  Permitted Work one year, or

—  Supported Permitted Work no time limit, or

—  Permitted Work exempt no time limit.

2.5Severe Disablement Allowance with Income Support and Housing Benefit and Council Tax Benefit.

Earn up to £20 a week or earn up to £86 (but deductions from IS £ for £ on earnings over £20 and when IS is nil, deductions of 65p off HB and 20p off CTB on earnings over £20):

—  Permitted Work one year, or

—  Supported Permitted Work no time limit, or

—  Permitted Work exempt no time limit.

2.6Income Support for incapacity first year.

Earn up to £5 a week.
2.7Income Support with a disability premium (after one year or if receiving DLA) Earn up to £20 a week or earn up £86 (but deductions from IS £ for £ on earnings over £20):

—  Permitted Work one year, or

—  Supported Permitted Work no time limit, or

—  Permitted Work exempt no time limit.

ESA work related and support group income based only (no housing costs) (possibly from day one?)

Earn up to £86 (no deductions) for one year only.
2.8Income Support with a disability premium (after one year or if receiving DLA) and Housing Benefit and Council Tax Benefit.

Earn up to £20 a week or earn up £86 (deductions from IS £ for £ on earnings over £20) (HB and CTB cannot be affected as when £66 is deducted from IS the earning limit is reached) in:

—  Permitted Work one year, or

—  Supported Permitted Work no time limit, or

—  Permitted Work exempt no time limit.

ESA work related and support group income based with Housing Benefit and Council Tax Benefit. Earn up to £86 (no deductions) for one year only.

3.  IMPLICATIONS OF PROPOSALS FOR ESA AND PART-TIME EARNINGS

  3.1  People who will claim the contributory ESA will have earnings over £20 a week deducted from benefits if they claim for housing costs. This is unfair.

  3.1.1  People who do not have housing costs or who claim income based ESA will be able to earn and keep £86 a week (no benefit deductions).

  3.1.2  People who claim contributory ESA will be allowed to earn £86 a week for one year but they can only keep the full amount of their earnings if they have no housing costs. This can occur if a person has a partner in work or if they have a private income or if they own their own home outright. This group are better off than others on benefits.

  3.1.3  People who claim contributory ESA must, if they have housing costs, declare their earnings to Housing Benefit (or the Local Housing Allowance) and to Council Tax Benefit. They will lose 85p in the £ on earnings over £20 a week through the reduction of their housing cost benefits.

  3.1.4  Anecdotal evidence is that people choose to keep their earnings under the disregard limit of £20 a week rather than interfere with benefit continuity. When there are changes to payment of benefits there is a risk of maladministration and the process of getting benefit continuity reinstated can take months. The only exception to this practice is where some people with a learning difficulty in local authority funded day services are persuaded by professionals to accept the reductions.

  3.1.5  Earnings of up to £20 even at the minimum wage rate allow just three and a half hours paid work a week. Most large employers require a minimum shift of 7 hours a week from part-time workers. This benefit rule excludes people from getting a part-time foothold in the labour market. The only paid work that is available for three and a half hours a week is generally within a workshop setting for disabled people. These settings are now known to institutionalise people in the same way that psychiatric hospitals did.

  3.1.6  About 1.5 million people claim Incapacity Benefit that is a contributory and about 1.1 million people claim Income Support for disability that is income based. If this proportion is replicated in ESA, eventually up to 1.5 million claimants on contributory ESA (who have housing costs) will not use this opportunity to earn up to £86 and therefore maintain contact with the labour market or develop the self-belief to move from benefits into work. Evidence suggests that this may prove a costly mistake.

  3.2  People on income based ESA will be allowed to earn and keep £86 a week whether or not they claim for housing costs, for one year.

  3.2.1  The welcome news is that people who claim income based ESA will be afforded a much better opportunity of moving towards work than has previously been the case for those on Income Support with a disability premium. This is providing that they can achieve this in one year. If they do not get a job at the end of the year they must stop working for a year before they are allowed to try again.

  3.2.2  A blanket rule of this type seems to be an unhelpful plan for getting people into jobs. If there were flexibility in the system that was managed by the Personal Adviser this might be a more sensible approach.

  3.2.3  The rigid time limit may have been dictated by assumptions to do with differentials between income on benefits and income off benefits in work and personal motivation. This area deserves further exploration.

  3.3  DWP is considering abolishing Supported Permitted Work and Permitted Work PCA exempt, for ESA.

  3.3.1  Supported Permitted Work and Permitted Work PCA exempt allow earnings up to £86 a week without time limit. These options are generally used by people with more severe health conditions and more limiting disability because of the conditions: a support worker must sign the official form and commit to providing regular support for Supported Permitted Work; Permitted Work PCA exempt was recently introduced for people whose condition is such that no medical tests are required. These options are generally taken up by the "better off on benefits group" who claim Incapacity Benefit or Severe Disablement Allowance that are contributory non-means tested benefits and who have no housing costs because of a partner who is in work or because of a private income. This is because others with means tested benefits tend to keep earnings to the £20 limit so as to avoid disrupting benefit continuity.

  3.3.2  The option of non-time limited earnings is extremely important to people with long-term fluctuating conditions such as the more severe forms of mental illness. People with a fluctuating condition may take one step forwards towards work only to relapse and find themselves three steps back. Many people have to live with the lifelong expectation of relapses that at the best, with care and treatment, can be reduced in severity and duration and lessened in frequency.

  3.3.3  The option of non-time limited earnings is also extremely important for public participation/involvement. As has previously been mentioned, public authorities have a statutory responsibility to involve people who use health and social care services in the design and planning of these services. The legislation was introduced in 2001 with the Health and Social Care Act Section 11. "Requirements for Social Work Training" issued in 2002 which underpin the new social work degree, specifies that service users and carers must be involved in all parts of the design and delivery of social work education and training. The Disability Equality Duty came into effect December 2006. This new legal duty requires public authorities to actively look at ways of ensuring disabled people are treated equally. There is a general duty on local authorities, government departments, health trusts, governing bodies of colleges and universities and others to produce a Disability Equality Scheme, which centrally includes the involvement of disabled people. Public authorities cannot arrange their involvement around alternate years. It is impractical. Ongoing arrangements are essential.

  3.3.4  Work is known to be beneficial for mental health, and for many people with mental illness, work is seen as a target—an aim towards which many people aspire. A part-time Permitted Work job is often seen as a lifeline, and as an alternative to complete unemployment and inactivity, where ambitions for full-time work are not realised.

  3.3.5  The combined impact of mental health problems and employer prejudice currently mean that about 80% of people with a mental health problem do not compete successfully for jobs and do not achieve a stability in their mental health that allows them to work more than 16 hours a week, all year round. It is hoped that welfare reforms will allow many more people with mental health problems to move into employment but it is early days.

  3.3.5  Research into the outcomes in the Pathways to Work Programme demonstrated that virtually none of those with mental health problems succeeded in getting employment.[5] This was despite the increased level of successful job entry of other groups with other health conditions or forms of disability.

  3.3.6  DWP are focusing on benefit rules that are believed to encourage people into employment. There are no measures in the benefit rules in ESA to address the circumstances of those with a greater level of disadvantage who are unlikely to get a job as a result of short-term programme.

  3.3.7  If plans are successful and numbers of people in receipt of incapacity benefits are reduced by one million, that leaves 1.7 million people who because of ill-health or disability may be receipt of ESA. These people have to live their life as best they may on a very low level of income from benefits. It seems cruel and unnecessary to impose restrictions that limit part-time paid work as and when health allows to alternate earning years. This proposal to time limit part-time work will if implemented, damage mental health, corrode self-belief and lessen the chances of eventual employment.

4.  WHAT IS THE REASONING THAT LED TO THE DECISION ON ALLOWING PART-TIME EARNINGS OF UP TO £86 A WEEK FOR ONE GROUP BUT A DISREGARD OF £20 A WEEK FOR THE OTHER GROUP?

  4.1.1  DWP have indicated that the reasoning for the decision to raise the disregard limit to £86 in ESA income based but not to do the same for those on ESA contributory based who have housing costs lies with three issues:

    —    the operation of the existing benefit system that is carried through into ESA with contributory strands and income based strands;

    —    the desire to ensure that the differential between on benefits income and in-work income plus tax credits is not removed; and

    —    to avoid increased costs that would be caused by ensuring that a greater proportion of Working Tax Credit may be retained by the person in employment income and is not taken away by reductions to Housing Benefit and Council Tax Credit.

  4.1.2  ESA income based is based on Income Support with a disability premium. Raising the disregard to £86 a week for one year is deemed to cost very little as it is thought that most people do not earn over the disregard and have their benefit reduced.

  4.1.3  ESA contributory based is based on Incapacity Benefit that is non-means tested. The earnings limit is now £86 a week. But for those who claim Housing Benefit and Council Tax Benefit as well as Incapacity Benefit, there is an earning disregard of £20 a week. As ESA contributory based is non-means tested it is not affected by earnings although a limit is imposed of £86. But Housing Benefit and Council Tax Benefit are means tested, and the earnings disregard is £20 a week.

  4.1.4  Housing Benefit and Council Tax Benefit are available to people who are in work but on a low wage. In the current system these are withdrawn when a single disabled person has earnings, minus tax and NI, plus Working Tax Credit, that exceed the threshold of £116.85 a week (2006-07 rate). About half of the amount of Working Tax Credit that is paid by HMRC is taken away by tapers of Housing Benefit and Council Tax Credit.

4.2 Chart: Comparative benefit and earnings that are retained after housing costs for people who are in receipt of incapacity based benefits (Incapacity Benefit, Severe Disablement Allowance, Income Support for incapacity) (2006-07 rates)


Benefits
Benefit Rates
Earning disregard if in receipt of Income Support
Earning disregard if in receipt of Housing Benefit and Council Tax Benefit
Permitted Work rules allow earnings £86 a week but means tested benefits are reduced
Income from benefits plus earnings after reductions and housing costs
Choice made by those claimants whose health/disability/skills allow
Outcome

Income Support with disability premium
£81.95
£20.00 for IS
n/a
IS is reduced

by £66.00
£101.95 for one year only, or non-time limited Supported Permitted Work, or Permitted Work PCA exempt
Earn up to £20 a week to prevent disrupting benefits
Incapacity Benefit (if first started claim before 35 yrs)
£95.00
n/a
£20.00 therefore threshold £115.00 (IB + £20)
HB is reduced by 65% CTB by 20% Total £67.19
£113.81 for one year only, or non-time limited Supported Permitted Work or Permitted Work PCA exempt
Earn up to £20 a week to prevent disrupting benefits
Incapacity Benefit (over 35 first claim) Living with a partner or private income so no HB or CTB
£95.00
n/a
n/a
No reductions
£181.00 for one year only, or non-time limited Supported Permitted Work or Permitted Work PCA exempt
Earn up to £86 a week
DWP Research found this group moved into employment in greater numbers than others


4.3 Chart: Comparative benefit and earnings that are retained after housing costs during a claim to Employment and Support Allowance as currently proposed ((2006-07)


Benefits
Benefit Rates not known (presume same as IS now)
Earning disregard if in receipt of ESA income based
Earning disregard if in receipt of ESA
IF earn £86 a week
Income from benefits plus earnings after reductions and housing costs
Probable choice of claimants whose health/disability/skills allow
Outcome

ESA income based
£81.95
£86.00 for ESA income based
n/a
ESA
£167.95 for one year only
Earn up to £86 a week
?
ESA Contributory
£81.95
n/a
£20 and therefore threshold £101.95 (ESA + £20)
HB is reduced by 65% CTB by 20% Total £56.10
£111.85 for one year only
Earn up to £20 a week to prevent disrupting benefits
?
ESA Contributory Living with a partner or private income so no HB or CTB
£81.95
n/a
n/a
No reductions
£167.95 for one year only
Earn up to £86 a week
?


4.4 Chart: Take home income after housing costs for a single disabled person off incapacity benefits and into employment at 16 hours a week with Working Tax Credit and reducing amounts of housing benefits

      2006-07 rates

      Assume:

      Rent £67.47

      Council Tax £14.24


Wage gross @ minimum wage
-Tax
-NI
+WTC
Income Before Housing costs
HB Reduced By
CTB Reduced
by
Net income
after housing
costs
+Credit for one
year if applicable

£85.60
(16 hrs)
n/a
n/a
£74.80
£160.40
£28.30
£8.71
£123.39
£40
£107.00
(20 hrs)
£1.02
£1.10
£72.35
£177.23
£39.24
£12.07
£125.91
£40
£155.15
(29 hrs)
£7.86
£6.40
£54.54
£195.43
£51.07
£14.24
£130.12
£40
197.95
(37 hrs)
£17.28
£11.10
£51.78
£221.35
£67.47
Rent paid
£14.24
Council Tax paid
£139.64
£40


  4.4.1  The above chart on the tax/benefit deduction rates demonstrates how about half of the amount of Working Tax Credit provided by HMRC is taken away through Housing and Council Tax Benefit tapers.

  4.4.2  A single disabled person who is encouraged to enter employment will not lever themself out of poverty unless their earnings take them out of this poverty trap of reliance on Working Tax Credit and housing cost benefits altogether.

  4.4.3  The additional Credit of £40 a week for one year (only for those who qualify), is not subject to tapers of any kind. As a result when the Credit ends the following year the person in employment will have to treble their salary to achieve a take home income equivalent to the first year.

  4.4.4  Median poverty levels for a single person 2004-05 after housing costs were found to be £186 a week.

  4.4.5  People with a disability who manage to obtain employment are not necessarily moving out of poverty if their earning power is low. They must increase their earning power and work full-time in order to attain a standard of living above the poverty line.

5.  TARGETS FOR BENEFIT SIMPLIFICATION OF PART-TIME EARNINGS FOR PEOPLE WITH ILL-HEALTH OR DISABILITY

5.1  Some aims

  1.  Introduce equity of opportunity between benefit claimants: all claiming benefit because of ill-health to be allowed to do some part-time paid work without affecting benefits.

  2.  Set the number of hours allowed for part-time paid work just below the number of hours required to move off benefits and to receive Working Tax Credit, giving a smaller step to take between the current 3.5 hrs work on benefits and 16 hours work to qualify for Working Tax Credit in employment.

    —    ie up to 15 hours if Tax Credit available at 16 hours; and

    —    ie up to 11 hours if Tax Credit is made available at 12 hours.

  3.  Set an appropriate duration of the part-time paid work that is allowed according to individual circumstances relating to health and disability.

  4.  Allow people with long-term health problems to become involved in public participation schemes with an annual earnings limit (rather than weekly).

  5.  Introduce equity of tax/benefit deduction rates with taxation rates for the lowest paid. Ensure that full-time employment at the minimum wage provides a take home income of above the poverty level, after housing costs.

5.2  Costs of achieving aims

  5.2.1  Potential savings gained from people moving into work must be set against potential costs but there is insufficient data to do this at present.

  5.2.2  DWP research of Permitted Work rules found that people using the Permitted Work, higher level, who moved successfully into work, were those with a partner in work or with some financial cushion. Those of this group who claimed a non-means tested benefit only (IB or SDA) are the only people who have been able to earn and keep the full amount allowed by Permitted Work rules of £86 a week.

  5.2.3  This group moved into employment off benefits despite a probable drop in income of at least £80 a week if they started at a low wage rate. The research was not sufficiently detailed to ascertain whether this was in fact the case and if so which factors caused these outcomes.

  5.2.4  The supposed cost of allowing earnings of up to £86 a week for people on benefits is based on the expectation that it is the in-work income differential that motivates people to move from benefits into work.

  5.2.5  As can be seen above the differential is small in the current system and where there are in-work costs such as travel the differential may be nil. The tax/benefit marginal deduction rate is not based on encouraging people to work longer hours and to earn more money as virtually all of the increases of income are clawed back. This claw back rate has not been flagged up as a disincentive to work.

  5.2.6  Many factors lead to some people getting work while others do not and spend a lifetime on benefits. Research evidence on the employment rates of people who have mental health problems has found that diagnosis or severity of the condition does not predict who will and who will not get a job. The only factor that was found to predict a likely move into employment or not, was the level of self-efficacy or self-belief of the person concerned.[6] It may not be coincidental that holding down a part-time job is likely to raise a person's level of self-belief.

  5.2.7  If the benefit rules that limit earnings to 3.5 hours a week are responsible for preventing people from moving into work these are very expensive rules indeed.

  5.2.8  At this time of reform there are powerful reasons to pilot different ways of supporting people into work, and for costing the implications.

4 April 2007









4   DWP Research Report 268, Final outcomes from the Permitted Work Rules 2005 P 36, 3.6 Living arrangements. Back

5   Pathways to Work Outcomes Chart page 64. Back

6   Sheep and goats: thinking on employability Bob Grove and Helen Membrey. Back


 
previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2007
Prepared 26 July 2007