Select Committee on Work and Pensions Minutes of Evidence


Examination of Witnesses (Questions 80 - 87)

WEDNESDAY 2 MAY 2007

MS FRAN BENNETT, MR DONALD HIRSCH AND MS SUE ROYSTON

  Q80  Greg Mulholland: One final very quick question. We are quite happy with yes or no answers. Fran, you picked up the issue of means-testing. Very simply, do you think a reduction in the amount of means-testing in the benefit system would go a very long way to reducing the amount of complexity in the benefit system?

  Ms Bennett: Yes.

  Ms Royston: Yes.

  Mr Hirsch: Yes. I think at the moment some of the things that we means-test are going so far up the income distribution that it would make less of a difference to do that than we sometimes think.

  Q81  Michael Jabez Foster: I want to ask you one or two questions about the incentives and disincentives to work if we adopt more simplified systems. I know, for example, that work by the Institute of Fiscal Studies suggests that both the incentive to work and the in-work incentives, whilst higher today than in 1979, have actually fallen off in the last few years. The Joseph Rowntree Trust highlights this work in its submission. Is it as a result of complexity that you think those disincentives arise, or is it just that the benefits are too high anyway?

  Mr Hirsch: Neither. It is not as a result of the complexity of the system but it does have complex reasons. It is to do largely, I think, with putting more of an emphasis on providing benefits for children, which are going across low-income groups, and the working tax credit, which is associated with work, is not rising as fast. There are a number of complicated reasons for it. What is more relevant here is to say: "What is the interaction between complexity and work incentives?", which is quite interesting At one level (and this may sound a bit cynical) the fact that the system is so complex could actually help avoid work disincentives, in the sense that somebody who is in work getting a tax credit might have a withdrawal rate of 50, 60 or 80% but not really quite realise it because it only comes further down the road, and so, if you are offered more work you do it, you do not think, "Am I going to end up with not much more?" On the other hand, of course, the long-term effect of that can be disillusioning, and also the reverse can be true, that sometimes people do not realise what they are entitled to. That could cause them to underestimate the incentive to work, although it could also cause them to overestimate it. Let me tell you what I mean. If somebody is thinking about whether to go into work, people often think, "I am going to have to pay my rent", when in fact they get a lower amount, but they still would get housing benefit in work, and not being able to make that calculation can be a problem. Similarly, they might not realise that they can keep the child tax credit up to a certain income. On the other hand, they might not be able to work out some of the losses they will make, for example, by losing some of these so-called passported benefits like free prescriptions, and so there is certainly going to be an interaction between complexity and the incentive to work. I think the particular risk of having complexity, as I say, is not realising what you could be entitled to in work. Even though on paper it looks like you are better off, you do not realise it. But once you are in a job, the high withdrawal rates that you have might not be very visible.

  Q82  Michael Jabez Foster: We have had evidence in the past from parents, in particular, who are fearful about the delays in the system being created in work benefits. It is not simply a complexity issue, but they are fearful how long it is going to take to replace income in work. Is that an issue that you have come across in your inquiries?

  Mr Hirsch: Yes, because it creates a kind of conservatism really. It creates the opposite of flexibility. If you are getting something and you have an opportunity to do something else, you are afraid of changing your status. That is particularly also to do with the difficulties we have in huge distinctions between your status when you are working and not working.

  Q83  Michael Jabez Foster: How would any of you deal with that issue, particularly the complexity issue, of a better understanding? We discussed earlier the enormous support that is being given just in filling in forms; but when people are coming out of work, unless they have got an adviser, such as a single parent adviser, or whatever (and I know they are very good at doing that), other groups that may be moving out of benefits into work, and so on, have you any examples of good practice as to how that might be better achieved?

  Ms Royston: I would first like to say something about the problems, because I think there are a lot of realities that are not taken into account. Just looking at lone parents, I think, on average, they are a lot better off in work. However, that average hides very different groups. There is a group who are enormously better off as a result. If they have high maintenance, if they have low childcare, if they have low rent, the tax credit system has been wonderful; it makes them a lot better off. If they can command a high wage—as their hours increase, they increase their income—. There is a group of lone parents who are really no better off in work. They will look on paper to be better off in work, but are not. These are lone parents who are minimum wage or near minimum wage, have high childcare costs and no maintenance. On paper they usually are about £30 a week better off, and the lone-parent adviser will tell them they are £30 a week better off. However, that does not take into account the fact that they lose free school meals. If they have two children, that is £16 a week they have lost. Very few people are going to have no travel costs to work. To get the children to the child minder and then to work, £10 a week would not be unusual—that is £26 a week. Parents are being encouraged back to work when the children start school, the very group with high childcare costs in the holidays, low childcare costs during term time. Because of the misalignment about the way that housing benefit and tax credits are paid, what the lone-parent adviser would predict they would get for the year, they would actually get £500 less than that because of the way it was paid. That is another £10 a week gone. They are now below income support level. Then, the most important thing of all, I think, and this is what leads to fluctuations, makes people so scared about going into a job, that they have not got access to the Social Fund. These are people on very low incomes who will not have savings. They have no access to the Social Fund. It pushes them out into using credit cards and borrowing from door-step lenders. There was a report recently called The Poverty Premium which gave the example: if a cooker broke down you could get a loan from the Social Fund, if you are on income support, you could then buy that cooker for £160. If you went to BrightHouse, the store in the high street that a lot of people would otherwise have to use because they can pay back over two years, the same cooker would cost £405—a huge difference. That gets people into a financial mess. For a lot of my clients working in places like supermarkets, it is a stipulation that they have to work on Saturdays. Their registered child-minder does not work on a Saturday, so they have to pay a friend, and they cannot claim those childcare costs back, that is another £20 every couple of weeks. I think, first of all, there really needs to be a serious addressing of some of these realities of people's lives and actually increasing the amounts so that they are genuinely better off in work.

  Q84  Chairman: We did receive lots of submissions that cancelled against simplification, one-parent families for one, in that the complexity does allow you to deal, superficially at least, with individuals' circumstances. Is this a sterile debate? Can we wrap this inquiry up today?

  Ms Royston: I think when people are saying get rid of complexity, I think it would have to be tempered by some complexity because I think there are important areas where complexity is necessary. However, I do not think the submissions would say that you, should not deal with the effects of the complexity. I do not think any of the submissions I saw were saying that, complexity did not matter. It is important to address and find ways of masking that complexity, but I think what they were saying is, if there is a limited amount of money, making sure that it addresses people's individual lives is important and not levelling everything down so as a result you are not addressing individuals' problems.

  Ms Bennett: I think I would argue what I argued at the beginning, which is that the crucial thing is the outcomes for claimants and that seeing simplification in its place but in the light of those outcomes for claimants being the important priority is the way to go about that, and it is not so much complexity that is the issue but, as we argued in our evidence, the cost of compliance for claimants. In other words, all the things you have to do in order to establish, maintain and come off your benefit, which is a priority issue to deal with.

  Q85  Chairman: A very constant principle over 40 or 50 years in benefit changes has been that there should be no cash losers at the point of change, and often that brings in great losers when you actually follow it through; but do you think there is a case for buying out people's right to retain the benefit they used to be on that is no longer there?

  Ms Bennett: I was not quite sure what you meant by "buying out". Do you mean giving them a lump sum at one time rather than continuing to pay them five pence a week over 60 years?

  Q86  Chairman: If we go back to 1988, one of the big changes was the abolition of a long-term rate, and lots and lots of lone parents had no increase in their cash benefit for two, three, four years. In their circumstances, it may be better to say: "Here is £1,000, here is £2,000, but from now on you are on this." Give them the option perhaps. Do you know of anywhere in the world where that has been done?

  Ms Royston: I do not, but it would be very helpful, certainly with sickness benefits. There are so many different forms of sickness benefit it must be very difficult for local JC Plus offices to deal with. It is difficult for advice agencies to deal with when you have got people on invalidity benefit, incapacity benefit, SDA and so on. I suppose it depends whether it is affordable. It would be very helpful if it was affordable.

  Ms Bennett: Yes, the problem about the lone parent example is that it would be very difficult to predict how much you ought to give them to be fair, because you would not know how long their lone parenthood would last. We know the average is only about five or six years, I think, but it would be more or less difficult to have such a buy-out depending on which group of claimants you were talking about, I suspect.

  Mr Hirsch: In any group there would still be winners and losers, would not there, because in any group you do not know how long they are going to go on claiming it?

  Q87  Chairman: Can I take you back to basic principles. Should we be moving to an individualised benefit system or is maintaining (for parts of it) the household still acceptable and the right way to do things?

  Ms Bennett: That takes us on to a whole other debate, if you have got two hours, that I would be very interested in having with you. Briefly, I think there are two different things that are talked about when people talk about individualisation, and they are very different. One is individualisation of payment and the other is individualised assessment, and that is within the means-tested area. We already have individualised benefits which are non means-tested. They are increasingly not carrying dependant's additions with them and, therefore, they are just totally individually based. So, it is not an issue with the non means-tested benefits really. I assume you are talking about means-tested benefits or tax credits, where there is much more difficulty in individualising. My personal preference is to go as far as we can down the non means-tested routes, because those are much more appropriate individualised benefits, than to try to individualise means-testing. You can individualise means-tested benefit payment just by chopping the payment in half once you have assessed a couple jointly and giving half to each adult. You could argue that that is more consistent with the Government's rights and responsibilities agenda: because, for example, with joint claims to jobseekers allowance now both partners have actively seeking work requirements but one of them gets the benefit and the other gets nothing; so you could argue that it is more consistent. There have been concerns expressed, particularly in terms of couples with children, from people who are worried about women's welfare and children's welfare because they argue that some men would see that half as their personal spending rather than that half being both their personal spending and their contribution towards household expenses in general. So, whereas you might have thought it was a good idea for the woman to get half of the benefit in those circumstances, some people have argued that we need to be a bit careful because it might mean that the woman ended up with less benefit for herself and the children and the household as a whole, which is usually her responsibility. So, that is payment. Individual assessment of means-tested benefits is a much bigger issue and much more complicated. Australia has gone some way towards an individualised means-tested benefit system, and Jane Miller is the person to talk to about that, where if your partner gets no more than the amount of benefit, either in benefit or in earnings, that is ignored for your own entitlement basically, but she is the expert on it. Individualised assessment, even that is only partly individualising the assessment, and if you have got a means-tested benefit system, it seems to me quite difficult to see how it cannot take account of within household transfers. I think there are better routes to go, but I agree basically with the goal.

  Chairman: I did hesitate about asking. Can I thank you very much for being here today. It has been a very interesting session and will be reflected in our report. Thank you very much.





 
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