Further supplementary answers by DWP
Marginal Deduction Rates (MDRs) are generally
regarded as primarily an issue for people in work whose benefit
may reduce as their earnings increase. Housing Benefit /Council
Tax Benefit taper rates are often raised for debate in the context
of their contribution to MDRs.
There are around 500,000 working age Housing
Benefit recipients with Marginal Deduction Rates in excess of
40%. The vast majority of these are on the Housing Benefit taper.
There are other important contributors to MDRs such as Taxes and
Tax Credits, so the overall contribution Housing Benefit/Council
Tax Benefit will make to MDRs depends on what other elements of
the tax and benefit system people are on.
During the committee stages of the Welfare Reform
Bill Anne McGuire MP Minister for Disabled People stated that
`recent research suggests that the Housing Benefit/Council Tax
Benefit taper is not the main barrier preventing people from moving
into work. Sometimes the barrier is that people lack knowledge
as to whether they can retain their housing benefit and move into
on awareness and understanding of Housing Benefit/Council Tax
Benefit as in work benefits, highlights areas where the Department
needs to improve the basic awareness and understanding of Housing
Benefit and Council Tax Benefit as in-work benefits amongst Jobcentre
Plus staff and its customers.
This is because, in general, customers do not
take account of Housing Benefit/Council Tax Benefit in their better
off calculations and this distorts their decision to move into
work. This lack of awareness implies that MDRs in this sense are
not at the forefront of people's minds when considering a move
Evidence reveals that if some clients had been
aware or made aware that Housing Benefit and Council Tax Benefit
could be claimed in work then this would have impacted on their
decision to take up employment. Therefore increasing awareness
and understanding of in-work Housing Benefit/Council Tax Benefit
could perform an important role in encouraging moves into employment.
The Department is currently pursuing strategies to address this.
Since it is possible to claim several benefits
at any one time, it is useful to consider combined taper rates
in order to understand the impact that multiple tapers (or MDRs)
are likely to have on claimants in practice.
Multiple tapers can work in three main ways,
depending on benefit design. Firstly, there are additive tapers.
Housing Benefit and Council Tax Benefit are examples of benefits
which have additive tapers. This is because Housing Benefit and
Council Tax Benefit can be received simultaneously by a customer,
so the combined taper rate or MDR faced by the claimant is simply
the sum of the two individual taper rates. Housing Benefit has
a 65% taper rate while Council Tax Benefit has a 20% taper rate.
So, ignoring the effects of taxation for now, the MDR faced by
a claimant in receipt of both Housing Benefit and Council Tax
Benefit is 85%.
Secondly, tapers can work consecutively. When
thinking about how the support for housing and living costs interact
it is important to note that the applicable amounts in Housing
Benefit and Council Tax Benefit are equal to or greater than the
corresponding maximum entitlement to Income Support, State Pension
Credit or Jobseekers Allowance (Income based). This means that
as income increases, entitlement to Income Support, State Pension
Credit or Jobseekers Allowance (Income based) is withdrawn first,
at 100%, while Housing Benefit and Council Tax Benefit remains
at the maximum entitled amount. It is only once income is high
enough such that entitlement to those benefits ends that support
for housing costs begins to be withdrawn at the alternative rate
of 65% for Housing Benefit (and 20% for Council Tax Benefit).
So the MDR for a claimant in receipt of both Income Support and
Housing Benefit is 100% up to their applicable amount, and 65%
for earnings above their applicable amount. The MDR for a claimant
in receipt of Income Support, Housing Benefit and Council Tax
Benefit is 100% for earnings up to their applicable amount, and
85% for earnings above the applicable amount (for simplicity we
are again ignoring the effects of taxation).
The DWP-based benefits are awarded based on
net income, while Tax Credits are aimed at offsetting the negative
impact of taxes on earnings for low income individuals. For this
reason, Tax Credits are taken into account as income when calculating
Housing Benefit and Council Tax Benefit entitlement. This gives
rise to a third way in which tapers can interactwhen income
from one benefit affects the entitled amount in another.
The Better Off Calculator and Personal Benefit
Advice applications both prompt a user to enter the amount of
potential child care costs and details of any expenses which may
be incurred if a customer commences work (eg fares to work).
The primary reason for collecting child care
costs is to estimate the impact on benefits such as Housing Benefit,
Council Tax Benefit and Working Tax Credit (Child Care element).
The reports produced include a breakdown of the calculation and
how the amounts entered impact on the potential awards.
Collecting details of a customers expenses is
used only to provide a more accurate figure for the comparison
between the income a customer will have while on benefit to the
income they will get should they take up employment.
There are no plans to remove either of these
flexibilities from the Better Off Calculator and Personal Benefit
Advice applications as, although they may be figures estimated
when an interview is being carried out, they provide a more accurate
calculation from which a customer can make a decision.
6 June 2007
Housing Benefit and Council Tax Benefit as in-work benefits; claimants'
and advisors' knowledge, attitudes and experiences. Back