Select Committee on Work and Pensions Written Evidence


Further supplementary answers by DWP

IMPACT OF MARGINAL DEDUCTION RATES

  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 work'.

  The research,[18] 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 into work.

  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.

TAPER RATES

  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 interact—when income from one benefit affects the entitled amount in another.

BETTER OFF CALCULATIONS

  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







18   http://www.dwp.gov.uk/asd/asd5/rrs2006.asp£hbctbinwork, Housing Benefit and Council Tax Benefit as in-work benefits; claimants' and advisors' knowledge, attitudes and experiences. 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