Select Committee on Work and Pensions Written Evidence


Further supplementary memorandum submitted by DWP

"My DWP" Project

  The "My DWP" Project is delivering the first iteration of a secure customer account on the internet. The first release, in spring 2008, will focus on customer enquiries and establish the IT platform to enable further releases to follow as the DWP Change Programme progresses.

  This will provide easy access to welfare information for each customer. It will provide information about:

    —  potential benefit entitlement;

    —  benefits in payment;

    —  individual pension information; and

    —  enable the customer to search for job vacancies.

  It will also provide access for formal customer representatives in the form of a Trusted Intermediary Model. This will be invaluable for vulnerable customers who need support in accessing any of our services.

BACKGROUND

  The Department's objective is to introduce a secure internet service that will appear through the DirectGov site by the end of March 2008. This supports recent recommendations that citizen/ Government services are accessed through a single site. Most services will be available around the clock.

  The solution will recognise the need, on occasion, for cross-channel journeys. For instance, a customer may access the on-line service and wish to follow that up with a telephone benefit claim. These cross-channel actions will be kept simple and will aim to make the customer better informed before they call, and ensure they understand who to call or to visit.

  These services will be prioritised and phased in to ensure that the most beneficial services for customers are delivered first and customer analysis currently underway will guide this.

  The service will integrate Government Gateway enrolment and authentication services to provide secure access to those services that require it. This means that customers will be encouraged to enrol with the Gateway so that they can receive services that give them access to their personal data, in a very secure manner. If customers do not enrol for secure services they will still be able to access services such as identifying what benefit they could receive.

  The Department will develop a take up and marketing strategy to advertise the new service.

  The new services will include:

    —  a customer benefit enquiry service that shows which benefits are in payment and when from; and

    —  a benefit advisor service that will seek to identify which benefits a customer may be entitled to, based on information input by customers, and signpost the customer's next steps to claim or make further enquiries. This service will also, at first for a limited group of customers, provide an initial calculation of benefit entitlement.

  The Department plans to involve customers in the design and testing of the new services. During July we will demonstrate the early service design to a customer focus group and use the feedback to refine and improve the service, prior to completing detailed design work. Later, we will test the services with customers to ensure that the final design has met their needs and can be easily used.

ANALYSIS OF WORK INCENTIVES

  DWP, HMT and external organisations regularly carry out analysis related to the impact of the benefits system on work incentives. The main pieces of research and their key findings are outlined below.

INTRODUCTION

  It is important to note that the structure of Tax Credits, Housing Benefit and Council Tax benefit are designed to ensure that work pays for most people. As the analysis shows, subject to the level of work-related expenses and passported benefits in individuals' cases, the situations where incomes in-work may be lower than incomes out-of-work are fairly uncommon. In addition, this factor in isolation may not have a significant impact on people's work decisions.

  Research set out below highlights the role that understanding the benefits system—especially the availability of in-work benefits—plays in an individual's decision to enter work. In this respect, the complexity of the system is clearly part of the problem because it makes it hard for people to understand the potential gains from working.

  Qualitative research has found a positive link between work decisions and estimated gains to work of over £40, but there is also a strong evidence base showing that work is generally good for physical and mental health and well-being. This reinforces the idea that although financial gains are clearly an important factor in work decisions, there are also other benefits of working.

  The few structural disincentives within the benefits system may be less significant than other factors such as; awareness and understanding of the benefits system, individual's in-work costs and passported benefits, alignment of in work and out of work benefits and other non-financial factors.

WORK INCENTIVE CONCEPTS

  The following concepts and definitions are often used in relation to work incentives, and are referred to in the reports below:

    —  The unemployment trap occurs when those without work find the difference between in-work and out-of-work incomes too small to provide an incentive to move into work.

    —  The poverty trap occurs when those in work have little incentive to move up the earnings ladder because of only limited net gains.

    —  Marginal deduction rates (MDRs) measure the extent of the poverty trap by showing how much of each additional pound of gross earnings is lost through higher taxes and withdrawn benefits or tax credits.

    —  The replacement rate is the ratio of net income when out of work to net income in work, thus measures the extent of the unemployment trap.

TAX BENEFIT MODEL TABLES

  Each year the DWP publishes the Tax Benefit Model Tables which illustrate the financial circumstances of a selection of hypothetical local authority and private tenants (http://www.dwp.gov.uk/asd/asd1/TBMT<au1,3>  2006.pdf). They contain a wealth of information about work incentives—for the various household types, they show the replacement and the marginal deduction rates faced at a variety of income levels. It should be noted that the tables do not cover all types of families in receipt of benefit—in particular, the disabled client group is not included. Also, the individual's costs associated with entering work are not included in the calculations. The main points to note from the tables:

    —  Marginal Deduction Rates are generally below 100 per cent, indicating there is a financial gain from an increase in gross earnings.

    —  However, it is possible for Marginal Deduction Rates to rise briefly above 100 per cent where a benefit tapers out, ie falls below its minimum payment level.

    —  In the scenarios depicted, Replacement Ratios are generally below 100 per cent at all income levels, indicating net income is higher when in work than not.

    —  The tables show Replacement Ratios of over 100% for families where the head of the household is earning less than £90 and working 16 hours per week.[19] However, in the case of IS, the benefit rules allow the non working partner to claim on behalf of the couple, allowing the working partner to work up to 24 hours before IS entitlement is lost. Therefore, if the couple are claiming IS, the in-work income is higher than the gross earnings depicted in the table, and the Replacement Rate does not exceed 100 per cent.

BUDGET 2007

  HMT publishes an analysis of the tax and benefits system on work incentives in Chapter 4: "Increasing Employment Opportunity for all" of Budget 2007 (http://www.hm-treasury.gov.uk/media/73B/65/bud07<au1,3>  chapter4<au1,3>  267.pdf sections 4.68 to 4.71). The main messages were:

    —  The introduction of the minimum wage has increased the minimum income that people can expect on moving into work, thereby reducing the problem of the unemployment trap. Weekly Minimum Income Guarantees for various family types can be found in Table 4.1.

    —  The Government's reforms are ensuring that workers have improved incentives to progress in work, with only around 50,000 households facing MDRs in excess of 90 per cent. The numbers of families facing MDRs of over 100, 90, 80, 70 and 60 per cent can be found in Table 4.2.

AWARENESS AND UNDERSTANDING RESEARCH

  DWP have recently published research on "Housing Benefit and Council Tax Benefit as in-work benefits; claimants' and advisors' knowledge, attitudes and experiences" (http://www.dwp.gov.uk/asd/asd5/rports2005-2006/rrep383.pdf). This research on awareness and understanding of Housing Benefit/Council Tax Benefit as in-work benefits, and our work incentive analysis, highlight areas where we need to improve the basic awareness and understanding of HB and CTB as in-work benefits amongst Jobcentre Plus staff and claimants.

    —  This is because in general claimants do not take account of HB/CTB in their better-off calculations and this distorts their decision to move into work.

    —  Evidence reveals that if some clients had been aware or made aware that HB/CTB could be claimed in work then this would have influenced their decision to take up employment. Therefore increasing awareness and understanding of in-work HB/CTB could perform an important role in encouraging moves into employment.

HMT PUBLICATIONS

  In addition to the information contained in the Budget, and Pre-Budget reports, the HMT also publish a range of reports related to work incentives because of their lead on tax credits. http://www.hm-treasury.gov.uk/documents/taxation<au1,3>  work<au1,3>  and<au1,3>  welfare/work<au1,3>  and<au1,3>  welfare/tax<au1,3>  workwel<au1,3>  index.cfm

EXTERNAL RESEARCH

  A number of external organisations also conduct analysis on the impact of the benefits system on work incentives (which do not necessarily represent DWP views). Some examples of these are as follows:

    —  The IFS report "Financial Work Incentives in Britain: Comparisons over time and between family types" (2006) by Stuart Adam, Mike Brewer and Andrew Shephard (http://www.ifs.org.uk/wps/wp0620.pdf).

    —  The ESRC Research Centre for Analysis of Social Exclusion report "Ends and Means: The Future Roles of Social Housing in England" (2007) by John Hills (http://sticerd.lse.ac.uk/dps/case/cr/CASEreport34.pdf).

    —  An article in Journal of Mental Health "Welfare benefits and work disincentives" (2001) by Neil Turton.

DWP/HMRC JOINT WORKING—THE WALLSEND PROJECT

  DWP, HMRC and North Tyneside District Council have, over recent months, been developing and testing possible service improvements in a trial in the North Tyneside Local Authority district in the North East of England. This has focused on delivering improvements in the client experience during the transition into and out of work through closer working and service integration. This is not wholly new territory—these organisations already seek to share information as part of many core processes—but it represents a potential step-change in the scale and impact of that activity.

  When an unemployed person in the trial area leaves benefit to take up work, Jobcentre Plus staff will work with them to initiate and partially populate a claim for Tax Credit at the same time as they close the benefit claim. They will similarly pursue possible Housing Benefit/ Council Tax Benefit claims or changes in conjunction with local authority staff. This ensures that people are aware of, claim and much more quickly receive in-work benefit and Tax Credit entitlements.

  Conversely, when someone leaves work and claims Jobseekers Allowance, Jobcentre Plus staff share information as appropriate with colleagues in HMRC (so that appropriate Tax Credits can be stopped immediately, thus avoiding overpayments and debts) and the local authority (to initiate or amend a claim for Housing Benefit/ Council Tax Benefit).

  In the initial stages the trial involved some co-location of staff. This has helped to break down organisational barriers, in particular, increasing levels of trust between people working in the different organisations so that one is prepared to take the authority of another as sufficient evidence that information is correct. It should, however, be possible to achieve similar results without co-location.

  The trial officially ended on 28 February. Although the final report is still to be published, evidence shows that the initial impact has been very positive.

    —  More claimants are aware of potential in-work entitlements.

    —  Claimants moving into work are having Tax Credits processed within three days.

    —  People moving out of work are receiving both JSA and Housing Benefit within around 17 days, compared to a baseline for the latter of around 37 days.

NEXT STEPS

  DWP and HMRC are planning to test the trial model in another six or so Local Authority (LA) areas from around September 2007. This will provide the opportunity to test more fully: how the application might work in different types of LAs; where the associated costs and potential savings fall; whether an IT solution can successfully replace the faxes used in the trial to transfer information; and the impact upon performance and customer experience. The trials will incorporate some additional changes that have been identified which compliment the North Tyneside trial approach and support improvements to customer service.







19   Note that these tables were published in April 2006 when the National Minimum Wage was £5.05, so 16 hours at the NMW resulted in gross earnings of £80.80, and the applicable benefit rate for a couple was £90.10. Back


 
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