Select Committee on Work and Pensions Written Evidence


Memorandum submitted by Community Links

INTRODUCTORY THOUGHTS

  When I did welfare benefits advice work 25 years ago we expected to train new benefits advisors in one week. Anyone could do it! Today we run two-year long courses and also employ specialists with expertise and experience in particular benefits. Why?

  The system has become massively complex. A typical claim form was five or six pages long. Today several run to 50 pages or more. This has had several effects:

  1.  Under claiming amongst the most disadvantaged—the paperwork is too intimidating and complicated.

  2.  High rate of failure amongst legitimate claimants—they just fill the form out wrong and never know why they were turned down but assume they weren't eligible.

  3.  Expensive bureaucracy—primarily occupied with administering the system but also in the advice industry. I fear we will soon reach the point where lay people won't claim benefits without the help of an advisor any more than most of us would expect to do the conveyancing on a house without a solicitor.

  4.  Anomalies and absurdities—No government intended to create the Poverty Trap but as the system has become more sophisticated the trap has become a bigger problem.

  It seems to me that successive governments have tried to improve and repair bits of a system which needs rebuilding. I remember hearing Malcolm Wicks (MP for Croydon North) say some years ago that there had been 134 additions to the Housing Benefit system since its introduction—no doubt it is a larger figure today and no wonder it is so complicated. The Child Poverty Action Group (cpag) annual "Welfare Benefits and Tax Credits Handbook", at least three inches thick and growing, highlights this growing complication.[60] There are good bits in the current welfare reform green paper but they are building on, or shoring up, a structure that has been patched up for too long.

  I wonder what a modern benefit system would look like if we started with a blank sheet? I am sure it could be simpler, fairer and no more expensive. Suppose an eminent academic professor(s) was invited to lead a team that would design a new system based on principles and criteria laid down by ministers but designed outside government ie without any existing baggage? Starting now (March 2006) would be timely as we mark the 60th anniversary or perhaps it could be developed as a suitably ambitious project for a new prime minister?

MAIN RESPONSE

    "There are so many people who are entitled to benefits but don't claim, either because they don't know they are entitled, or because they find the system complicated and impenetrable."—Jo, aged 27; taken from "Need not Greed" (2006) p28.

INTRODUCTION

  1.  A careful and systematic reassessment of the benefits system is needed: The government acknowledges that "The present benefits system for people of working age is too complex.... We need a simpler benefits system" (DWP, 2006, p 92). The current government pledges to rationalise the system: "Benefits often overlap and have complex interactions with each other and Tax Credits. The next step is to review the range of benefits to identify the challenges to creating a single system with fair and effective solutions" (DWP, 2006, p 92).

  2.  The National Audit Office (2005) and Committee of Public Accounts (2006) have both produced strong reports recommending simplification of the benefits system, which examine some of the questions raised by this current Work and Pensions Committee inquiry. The main conclusion reached was that whatever direction of reform is chosen it will be incredible difficult to achieve.

  3.  The Department for Work & Pensions has established a small Benefits Simplification Unit in mid-2006, which has a very limited budget and staff, and a remit for only looking at simplifying current or future benefits legislation, rather than the mountain of rules and regulations which have built up over the previous 60 years and cause the bulk of complexity. There is political acknowledgement that the benefits system needs to be re-examined and simplified, however the questions remain how, when, at what cost: financially, socially, morally and politically, does a simpler benefit system come at.

  4.  A period of evidence gathering, new policy formulation and budgeting needs to be undertaken, so we welcome the Work and Pensions Committee inquiry. However, whatever changes are recommended, the socio-economic and political ramifications that an enhanced or new system would entail will need to be fully explored before going public (including as far as possible the benefits, risks and unintended consequences). The change will need to be driven by some very bold political leadership, and we're not sure that the climate exists to bring about change on such a huge (and potentially politically risky) scale.

  5.  The following response answers the inquiries questions by providing evidence, signposts to other sources of evidence, and makes recommendations.

COMMUNITY LINKS AND THE BENEFITS SYSTEM

    "Most people I know from my community treat benefits offices as unwelcoming places…There's a permanent mutual suspicion and mistrust between claimants and officials. The two don't trust each other."—Kingston, aged 29; taken from "Need not Greed" (2006) p27.

  6.  Community Links has over 30 years of direct experience and expertise of the working with people and the benefits system, which has direct relevance for the Committee's inquiry. Community Links is an innovative charity running community-based projects in east London. Founded in 1977, we now help over 53,000 vulnerable children, young people and adults every year, with most of our work delivered in Newham, one of the poorest boroughs in Europe.

  7.  Community Links pioneers new ideas and new ways of working locally and shares the learning nationally through linksUK, which provides practitioner-led consultancy and training, research and policy development and a programme of publications

  8.  Over the last seven years, linksUK has:

    —  conducted over 25 research projects

    —  published 28 books and reports based on our research

    —  worked with over 5,000 local people using our innovative "Everyday Innovators" approach

    —  succeeded in securing 12 national policy changes

    —  and has successfully tested 11 ideas for improving delivery of local services.

HISTORICAL UNDERSTANDING OF THE BENEFITS SYSTEM

  9.  For the history of the UK's benefits system read Nicholas Boys Smith, "Reforming Welfare" (2006); and James Bartholomew, "The welfare state we're in" (2004).

DISCONNECTED GOVERNMENT DEPARTMENTS

  10.  The benefit system cannot be examined in isolation—people progress or transition between the benefits, in-work benefits (ie tax credits) and tax systems. The continuing culture of government departments not "joining up" merely adds to the growing complexities as new strategies, policies and budgets come into play. Compounded over a number of decades, we have today a complex maze of rules, regulations, loop holes and traps. HMT, DWP, and HMRC have primary responsibility, however DfES, Cabinet Office, DCLG and DTI all contribute to the complexity of the systems. Each of these departments needs to participate in joint consideration of relevant policy proposals of benefits simplification.

ESTABLISH A CROSS-GOVERNMENT WORKING GROUP, CHAIRED BY A CABINET MEMBER

  11.  We recommend that a cross-government working group, chaired by a cabinet member, be established to provide the forum and political will to work towards a simplified benefits system.

LINK DATABASES

  12.  Government agency database linkages should be made. The current separation between Revenue & Customs and the benefits agencies means that it is relatively easy for administrative error to occur in the payment of state benefits and the overpayment of Tax Credits or Housing Benefit run-on. Linkages may include, for example, showing a person's situation and therefore eligibility for Housing Benefit, Child Benefit, Working Tax Credit and taxable income and/or taxes paid. This would also help reduce fraudulent claims.

  13.  Greater database unification would also facilitate a smooth transition from benefits to work. A system that can monitor and track the transition people make from benefits into work could respond immediately to changes and keep the right balance between benefits and tax, guaranteeing a basic income.

STAFF TRAINING

    "They basically told me I had to become unemployed in order for them (Jobcentre Plus) to give me advice. But when I did that, they started trying to force me to do something completely different, like can driving and factory work. I tried to tell them that I wanted to set up a music school but they wouldn't listen".—Otis, aged 36; taken from "Cheats or Contributors (2004).

  14.  Staff training in reforms to the benefits system is a key issue. Computer systems should make reforms such as Housing Benefit run-on, and automatic reclaim of benefits for people in temporary work, smooth. However, a clear understanding of policy by frontline delivery staff, to inform people of their entitlement and to reduce error, is needed to underpin this.

  15.  Changes to the tax and benefit system to encourage people back to work must be accompanied by efficient systems, staff training and regular information sharing. For example, while the current system allows one month of Housing Benefit run-on in order to encourage people back to work, in practice confusion between staff in the benefits agency and the Housing Benefit department means that run-on is not always allocated.

MINIMISE OFFICIAL AND CUSTOMER ERROR AND FRAUD INCORRECT BENEFITS PAYMENTS HIGHLIGHTS COMPLEXITY

  16.  There are three causes of incorrect payments: fraud, claimant error and official error. The distinction between fraud and claimant error is one of intent and severity, with claimant error being accidental omissions of necessary information rather than an intention to defraud the system. Despite the government concentrating resources on fraudulent activity, error is a more significant element of the problem. DWP (2007) figures show that between April 2005 and March 2006, they spent £115.8 billion on benefits. Of this, 2.2% (£2.6 billion) of overall benefit expenditure is estimated to have been overpaid. Breaking this down further, fraud accounts for 0.6% (£0.7 billion), claimant error makes up 0.9% (£1 billion) and official error amounts to 0.7% (£0.8 billion).[61]

17.  This phenomenon can be analysed at greater depth by investigating the rates for specific benefits, for example Income Support (IS), Jobseeker's Allowance (JSA) and Housing Benefit (HB). In each of these cases the rate of incorrect payments is higher than the overall figure of 2.2%. Investigating IS and JSA in combination, 4.7% (£550 million) of overall expenditure is estimated (by the DWP) to have been overpaid. Breaking this down, fraud accounts for 2.1% (£240 million), claimant error is 1.3% (£150 million) and official error makes up 1.4% (£160 million). This is the only case where fraud is the most significant single cause of overpayment, but it is clearly still less than overall claimant and official error. In the case of HB, 5.5% (£770 million) of overall expenditure is estimated to have been overpaid, with fraud constituting 1% (£140 million) of that, claimant error being 3.1% (£440 million) and 1.3% (£190 million) is down to official error. Once again, official error is more significant than fraud. Policy and practice would be more effective and efficient if they were designed and implemented with this taken into account.

  18.  It is estimated that underpayments across the benefits system totalled 0.8% (£0.9 billion) over 2005 and 2006. Underpayment refers only to claimants receiving less than they are entitled to; it does not apply to those entitled to benefits but who do not take them up. It is intuitive to offset this figure against the overpayments figure when assessing how much money is being lost from the benefits system, but because the estimates do not account for overpaid benefit that will subsequently be recovered, they do not provide a measure of net losses.

  19.  Fraud is the least important cause of incorrect benefits payments. Campaigns to increase the take-up of benefits by those who are eligible but who do not claim through ignorance or fear are far less prominent than those that seek to address fraud.

UNCLAIMED BENEFITS

  20.  Not only is fraud less significant than error when it comes to the causes of incorrect payments, but incorrect payments themselves amount to less than unclaimed benefits. Again, the figures are estimates based on a range of likely values, but even the DWP's lowest (2006) estimate of unclaimed benefits[62] for the period April 2004 to March 2005[63] amounts to £4.78 billion. The higher end figure in their range is £8.03 billion. Applying the convention of using the median level as a guide puts the estimated level of unclaimed benefits at £6.405 billion, more than double the estimated figure for overpayments in the 2005-2006 financial year.

  21.  Even though there is a degree of imprecision in all the figures (due to factors such as sampling error, the difficulty of obtaining accurate statistics on covert activity and identifying administrative errors) and they were collated one year apart, they are still of value in drawing broad conclusions. It is clear from these figures that fraud plays a relatively minor role in the benefits system when compared with administrative error (due to complexity, training and management) and unclaimed benefits. Greater gain is to be made where the problem is greatest, so it follows that it would be more appropriate for policy to address administrative error and low take-up rates, instead of being so strongly focused on fraud.

THE BENEFITS TRAP

  22.  The effects of the tax and benefits rules for people on benefits or low incomes can leave people in the already well-documented dilemma of the " benefits trap" or "poverty trap", which can "push" and "pull" people to work informally. (Read Copisarow and Barbour (2004) and Katungi et al (2006) for more detail)

  23.  The objectives of the proposed adjustments to the current policies and tax and benefits rules are:

    —  To re-balance the carrots vs. sticks, including offering a "nothing to lose" approach to taking a job or starting and developing a business, ie a defined period of guaranteed living cost reimbursement.

    —  To co-ordinate the tax and benefits thresholds more closely, so that the transition is as seamless as possible for people to graduate from receiving benefits, to progressing through a "no benefits, no tax" point, to becoming a tax payer. This will eliminate some current anomalies in which people's benefits are inappropriately taxed away.

  24.  This streamlining process will also involve an elimination of such "distortions" as absolute caps on permitted earnings disregards, work hours or savings levels for benefits retention. What is needed instead is a sliding-scale system which encourages people to work, earn and save as much as they can, rather than manage down their capacity to become independent of State support in order to fit into the current benefits rules.

INCENTIVES AND DISINCENTIVES TO WORK

  25.  There is always a balance to be struck between legitimate monitoring and creeping bureaucratisation. At the moment, too many people lose out on their legal right to state support, largely through ignorance or negligence. Under the present system, it is difficult to understand and calculate whether an offer of work will actually boost income when benefits will be lost. This intimidates people considering leaving benefits and taking on work.

  26.  Theoretically, In-Work benefits, taxes and welfare benefits operate in concert to provide good financial incentives for single people, couples and parents to take on work, but in practice fall short when it comes to facilitating opportunities for promotion and increased earnings. Confusing rules and flawed administration serve to discourage optimal take-up.

  27.  If the benefits system were simpler it would be easier to identify fraudsters, but it has been shown that this should not be the primary focus, because improving efficiency and reducing error would increase take-up by eligible claimants failing to make claims. Uncoupling passported benefits is an obvious progression; if people did not immediately lose other benefits when losing Income Support, they would be more inclined to take the risk of transferring into formal employment.

UNDERSTANDING OF WORK

  28.  The structures that deal with work, such as the Revenue & Customs and the Department for Work and Pensions operate on the tacit assumption that people have a shared understanding of the ideas around the concept of "work".

  29.  Our research indicates that there is variation around the ideas about work. People newly arriving in the UK may have a different understanding of work. The differences may be sharper among those arriving from developing countries. The different understandings of work may make people unresponsive to institutions that try to encourage people to participate in UK society and especially into formal paid work. It may render back-to-work services inaccessible.

  30.  A system that is sensitive to people's needs should recognise diversity. The rules, systems and norms from a particular country may be a point of diversity as much as culture, language or shared experiences. If services are to be sensitive to diversity, and to reach out to people whom they often find hard to reach, they need to be able to deal with the idea that people have different norms and understandings of very fundamental concepts. Can we assume that people know how to search for jobs, that they know what a job agency is? Is this a norm in their country of origin? Services such as Jobcentre Plus or back-to-work organisations need to be clear about the idea that people may have preconceptions that they bring with them from their country of origin about what work is and isn't acceptable for someone with their qualifications to do.

BENEFITS AND INFORMAL PAID WORK

  31.  One of the consequences of a benefits system which is complex, bureaucratic and slow to respond to people's changing circumstances, is that it pushes some people into informal paid work. The benefits system creates disincentives for people to return to formal paid work. In particular, fears about inefficiencies in the system can make people wary of building up arrears while waiting for run-on or reinstated payments on returning to work. Some people are no better off when working formally, due to losing linked benefits.

  32.  Read Community Links latest research report "People in low-paid informal work: Need not Greed" (2006), for evidence and recommendations, about the relationship between the benefits system and informal paid work; and visit: http://www.community-links.org/ourwork/IEpage<au1,3>  page159.aspx and www.informaleconomy.org.uk (to be launched in June 2007).

INCREASE THE EARNINGS DISREGARD

  33.  The Earnings Disregard is the amount a person can earn before their earnings are offset against their benefits and it has hardly changed in almost 20 years. Levels are low; for example, single people signing-on have to declare any earnings of more than £5 per week before they lose out—meaning that if they were being paid the Minimum Wage they would not be able to afford to work even one hour per week.

  34.  Levels of Earnings Disregard should be raised and index-linked, enabling people to take transitional part-time or sessional jobs. Specific proposals on this include the following:

    —  Introduce an "Earnings Credit"—the First Policy Action Team report (DfEE, 1999) recommended an Earnings Disregard reform using the Australian model of a £1,000 earnings credit pot.

    —  Establish a "Community Allowance" scheme whereby local people on benefits are paid to provide key jobs to improve their community (Steele, 2006).

    —  The recent raising of Savings Disregard levels to £6,000 is welcomed (HM Treasury, 2005).

HOUSING BENEFIT RUN-ON

  35.  Housing costs are a major factor in driving people toward informal working. At present, Housing Benefit is withdrawn four weeks after a claimant finds work, meaning that they are confronted with having to pay high rents immediately after they have got a job they do not yet know they will remain in for a sustained period. The Housing Benefit run-on period should be increased to six months so as to maximise opportunities to locate, attain and retain employment.

    "Government should allow claimants to keep some of the key benefits such as Housing Benefit when people get into low-paid work, rather than severing them off straight away and throwing them in at the deep end. When people get a job, you would want them to keep it, but if they face extreme difficulties including homelessness because they can't afford to rent, they may not keep the job, and sooner than later they will be on welfare again."—An advice worker; taken from "Need not Greed" (2006) p42

HOUSING BENEFIT TAPER

  36.  This works in a similar manner to the Earnings Disregard in that benefit is reduced according to income. A person's Housing Benefit (HB) level is based on whether their income exceeds what they would otherwise receive on Income Support, Jobseeker's Allowance (income-based) or Pension Credit Guarantee. If it is, a deduction is made at the rate of 65 pence off HB (as well as a further decrease of 20 pence in their Council Tax Benefit) for each pound of excess income. This is higher than the top rate of income tax.

  37.  Difficulties are compounded where income fluctuates because each week's earnings constitutes a change in circumstances, so it is difficult to be certain deductions are correct at any given time. These conditions entrench poverty because they adversely affect people doing contingent work. The Housing Benefit taper should be lowered to 36pence in the pound

UNCOUPLING "PASSPORTED" BENEFITS

  38.  Currently, on losing Income Support, all other passport-ed benefits such as Housing Benefit, Council Tax benefit, free prescriptions and free school meals, are lost. This acts as a disincentive to taking low-paid formal jobs.

    "Benefits should not be linked. If you lose Income Support, you lose all other passport-ed benefits such as Housing Benefit, Council Tax, free prescriptions, free school meals. It's too much to take in for some of our clients considering returning to work. They feel they wouldn't cope. Why not say `ok you will lose this, but keep this benefit for the time being.'"—An advice worker; taken from "Need not Greed" (2006) p43.

CASE STUDIES

  39.  As part of our current "Interact" project (see below) we are gathering case studies. An interim report will be published and available over summer 2007.

INTERNATIONAL EXAMPLES

  40.  We recommend that you read Nicholas Boys Smith, "Reforming Welfare", published by the think-tank Reform, in November 2006, for international examples of benefits simplification.

A SUGGESTED WAY FORWARD FOR THE UK'S BENEFITS SYSTEM

  41.  At Community Links we see that there are three options:

    —  Continue to take incremental steps in modifying and "improving" existing benefits, which will continue the present mess.

    —  Develop a new set of values and principles, and apply to the current system.

    —  Conduct a fundamental review and develop a new system.

  42.  A work programme aimed at re-thinking and simplifying the benefits system would have to be comprehensive, substantive, rigorous and conducted on such a scale that the findings and recommendations would be taken seriously (and implemented) on many different political levels.

  43.  The work programme would include:

    —  Agreeing the values and principles underlying the benefits system. Are the original values still relevant today?

    —  Deciding whether to develop a model(s) which simplifies the current system or one which starts again with a blank sheet.

    —  Undertaking an international comparison of benefits systems or lack of them (focusing on outcomes and operations)

    —  Reviewing the current UK benefits system, which has already been completed by the National Audit Office (Dec 05), examined by the House of Commons, Committee of Public Accounts (Mar 06), and Reform (2006).

    —  Developing and recommending various benefit system models that could be tested, evaluated and rolled out across the UK.

    —  Examining the financial and practical realities, including cost-benefit, of undertaking a new or simplified benefits system.

  44.  In order to conduct this work programme and to persuade the political powers that be, a highly respected, independent and influential group / commission / enquiry would need to be established to lead this work. Members could include prominent academics, voluntary & community practioners and leaders, and business leaders. Substantial funding (government and/or independent) would need to be secured.

  45.  Any benefits system needs to be very clear on its principles which will inform who it is there to support, for how long, with how much, for which circumstances. It has to be simple to administrate and therefore value for money.

  46.  Political parties need to find the courage, foresight and determination to push for a new system, because the current climate might not be that receptive to change, in fact it could be the opposite, nor is it high up the political agenda. However action must be taken—doing nothing is not an option.

COMMUNITY LINKS WORK PROGRAMME FOR 2007 INTO THE BENEFITS SYSTEM

  47.  The Committee might be interested in our work programme for this year into different aspects of the benefits system. Projects include:

  48.  "Interact": We are working with the Charter Institute of Taxation's Low Incomes Tax Reform Group, and Child Poverty Action Group, with support from SIED, to research the interactions people make as they find work and move through the benefits, in-work benefits (eg tax credits), and tax systems. Our findings will be published in winter 2007 on the back of a specific campaign about the complexities of these systems.

  49.  Informal Economy campaign: In 2006 we convened a national Informal Economy Campaign Coalition, with 70+ members, to influence and change policy that can support more people, should they wish, to make the transition to the formal economy. We continue to develop www.informaleconomy.org.uk—the world's first dedicated website to the informal economy. We contributed a number of articles and interviews to the academic, trade and national media (print and radio) about the informal economy. And later this year we will publish a "menu of practical actions to harness local informal economies", and launch a campaign tool kit.

  50.  CREATE, the Community Allowance: We are working with BURA, Development Trust Association, National Community Forum (DCLG) and Slivers-of-Time, to develop the Community Allowance which will improve neighbourhoods and change lives by enabling local people on benefits to take on short-term and sessional work in regeneration without losing their benefits status. We are lobbying the Secretary of State to include this in the Welfare Reform Act, and building a network of partners to pilot the Community Allowance in Spring 2008.

  51.  Towards a welfare state that works: We are working with nef (new economics foundation), with support from the Big Issue Foundation, to capture real life experiences of those affected by the welfare system. We will publish an innovative report, towards the end of 2007, that sets out some of the bizarre anomalies in the welfare system—why, for example, should it cost so much more to send a prisoner to Parkhurst than it does to send a wealthy pupil to Charterhouse? This will enable us to launch a national debate about the welfare state that breaks out of the usual confines of either dull political debate or stereotyping and demonisation—and generates innovative and radical proposals to move forward.

  52.  National Audit Office / DWP study into benefit simplification: A follow up study and report into the complexities of the benefits system is being carried out by the NAO—part 2 to a report published late in 2005.

  53.  Mini-Jobs: Community Links is a member of a project advisory group for the National Council of One Parent Families and the Institute of Fiscal Studies, supported by the Joseph Rowntree Foundation. The project is examining the role and impact of encouraging more mini-jobs (jobs providing work for less than 16 hours a week), so moving people off benefits, and enabling the government to reach its target of 80% employment. The report will be published later in the year.

BIBLIOGRAPHY

  Bartholomew J, (2004) "The welfare state we're in", London: Politico's Publishing Ltd

  Boys Smith N, (2006), "Reforming Welfare", London: Reform

  CPAG (2005), "Tackling the complexity of benefit regulations", evidence paper submitted to the Committee of Public Accounts, December 2005

  CPAG, Welfare benefits and tax credits handbook 2005-2006, Child Poverty Action Group, 2005

  Committee of Public Accounts, House of Commons (2006), "Tackling the complexity of the benefits system", Thirty-sixth Report of Session 2005-06. London: The Stationary Office Ltd. HC 765

  Copisarow R & Barbour A, (2004) "Self-Employed People in the Informal Economy—Cheats or Contributors? : Evidence, Implications and Policy Recommendations", London: Community Links

  Department for Work and Pensions (2006) "A new deal for welfare: Empowering people to work", Welfare reform green paper, London: DWP

  Katungi D, Neale E & Barbour A, (2006) "People in low-paid informal work: Need not Greed", Joseph Rowntree Foundation and The Policy Press

  National Audit Office (2005), "Dealing with the complexity of the benefits system", London: The Stationary Office Ltd. HC 592

  Smerdon M & Robinson D, (2004) "Enduring change: the experience of the Community Links Social Enterprise Zone. Lessons learnt and next steps", The Policy Press and Community Links

David Robinson

April 2007






60   The legislation for the benefits system fills about 5 foot of books; and the case law would fill another 10 foot of books-though unhelpfully the case law is not compiled in one easily accessible format. Back

61   note that the sum of monetary figures does not match the overall figure due to rounding. Back

62   combining estimates for Income Support, Pension Credit, Housing Benefit, Council Tax Benefit, Jobseeker's Allowance. Back

63   note this is not the same period as the fraud and error statistics cited previously which apply to the following year. Back


 
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