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 wageas 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 unusualthat 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 £405a
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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