Select Committee on Work and Pensions Minutes of Evidence

Examination of Witnesses (Questions 160 - 179)

MONDAY 21 MAY 2007


  Q160  Miss Begg: You all represent organisations that are trying to move people off benefit and into work. To what extent do you believe that the current benefits system actually hinders the work you are doing, that it acts as a disincentive for people to come off benefits and into work?

  Ms Lunn: I was going to talk as well about self-employment. Part of what we are trying to do is get young people into business start-up programmes and we give out start-up loans. Some of the feedback I have had is around the test trading model, in that first six months when they are trying to set up in business, and, the income, you are never quite sure, to have the test trading amount available, it is only in certain places. It would be really helpful to have more of that there to kind of cushion you for that first six months, which makes you more likely then to have a sustainable business; it is in that first period of time, I think. It is the same, in some ways, when people are starting in work; we find that it is the confidence to move them from being unemployed into work, because they start calculating the income they are going to lose through the benefits system, and to try to say, "Well, actually, by working, you're going to have the same sort of amount," often they just do not believe it. I find it is about giving them the confidence to be able to start that process and if they had something that was helping them. I think the first month is critical, because once you start a job you are not paid until the end of your first month so if you are someone who is used to getting your benefits every week, things like that, if there was something there that could provide just short-term help.

  Mr Fothergill: Absolutely, and I think a lot of things there are quite cost-neutral. If you look at the whole issue of Housing Benefit run-ons, people entitled to Housing Benefit run on for the first four weeks, which obviously will pay their rent until most people get paid, but if you have not been on benefit for six months then you do not qualify for that. Generally, if someone has been on benefits then they are in the same boat. I know that the longer you are on benefit the worse off you are going to be and all the societal things that kick in then, but there are things like that which could be changed quite easily, not to have such a short qualifying benefit for run-ons; once again, people really not knowing that they exist sometimes. A lot of the research that we have done is very much people are hindered going into work because of very, very high rents, especially if they live in hostels which could be up to £180 per week and they cannot afford to work paying that amount of rent with the Housing Benefit taper. I know that Karen Buck MP has been kind of championing the cause, but we have got a project called Working Future which is being run in the East End of London by the GLA and East Thames Housing and that is block subsidies on rent, which again is cost-neutral and it brings down an average London rent for a family from £300 to £70 and then enables people to work. What Karen has been going on about is, this is a three-year pilot and we can see it is working and why do we not replicate it nationally; and what we really do not want is another pilot, so we are seeing how that is going to come out at the end. We are not really going to build these huge amounts of social housing that are often promised, it is about adapting properties that we have in the private rented sector and elsewhere, to make them affordable, I think.

  Q161  Chairman: Can I say we had a debate last Thursday to which Jim Murphy was responding and we did point out the DWP has got more pilots than BA, so we hope they got the message.

  Mr Fothergill: Yes. I read that.

  Ms Howard: I think we would agree, that first month is absolutely crucial and that is when they lose people. A lot of organisations such as our own end up subsidising people during that first month, quite significantly, to get them through unexpected costs; also the fact that sometimes the system just lets them down. We have a lot of clients who have to wait up to 10 weeks for their tax credits to come through, so if we are not there to support them I do not see how else they would get through that period. Also there are things like budgeting skills, having to make that transition from weekly to monthly pay is quite a big shock to the system, and again there are just unexpected consequences from that.

  Q162  Miss Begg: You have all talked about the one big thing would be that transition and that the run-on of benefits would help. Is there anything within the complexity of the benefits system as presently designed which could be changed in order to make it easier for people to see the benefits of moving into work?

  Mr Fothergill: I have mentioned the Housing Benefit taper about five times already, but the Housing Benefit taper is ridiculously huge at 65 pence. I am not saying that people should be comforted all through their working lives, because you would hope that people would progress at a reasonable time, but the people we deal with are probably going to remain on the National Minimum Wage for a good two to three years at least, because for them it is sustaining a job as opposed to progressing in a job. I am not saying that everybody will not progress but certainly there will be a large percentage that will not, and with that Housing Benefit taper it is just going to be almost impossible for them to work. If we had a system which actually did have a proper taper, it is not even a taper, it is just a reduction, if we had a proper taper which started off lower and then increased gradually over a period of five years, or such, maybe that would support better, but at the moment certainly not for National Minimum Wage and high rent.

  Q163  Miss Begg: Would you advocate differentials in Housing Benefit? Obviously London is a particular problem, the kinds of figures that you are quoting exist in London, they might for hostel accommodation elsewhere in the country, but your average council house is not going to be £300 a week and almost anywhere else in the country it is going to be nearer £70, or less in many places. Is there an argument for looking at different parts of the country differently and having differentials in the benefits system, or would that not just lead to even more complexity?

  Mr Fothergill: The news is all about regional variances, really. The Mayor of London has already come up with the idea of the London Minimum Wage; it is a good idea, it is an important idea and it enables people to afford to work, because obviously in the capital it is just so much more expensive to live. What worries me is that some of the people who are developing the Olympic sites have already reneged on that promise and have said they are not going to offer the London Minimum Wage, in fact not even the National Minimum Wage. We have a lot of migrant workers coming here who are undercutting the National Minimum Wage as well, so there is a whole raft of issues going on about who will work for what money at the moment.

  Q164  Miss Begg: Once you have got somebody into work, how easy is it to sustain them in that work? Again, we are looking at the complexity of the benefits system; is there anything inherent in the benefits system, in the way it operates, that adds sometimes to the revolving door system that some claimants get into, or is that just because we are not giving them enough in-work support?

  Ms Howard: I think there is a wee bit of both; the interconnection of benefits. If you cannot get your better-off calculation, they are not necessarily going to work with their eyes wide open about the fact that if they move off JSA they are also going to lose things like school meals, uniform costs; that can be quite a shock to the system, and if people are not prepared for that I think that can contribute to not sustaining their work. I think in-work support and tackling in-work poverty is also a massive thing that needs to be done which has not really been done sufficiently as yet, so probably both elements need to be addressed.

  Q165  Miss Begg: All your organisations are dealing with what are often called the hard to place and people who are the most difficult to get into work. What proportion of your client group, at any one time, are what we call in this place `retreads', in other words, they have already been through if not your organisation a similar organisation, they might perhaps have been in work but fallen out of work within the 13 weeks, or just after the 13 weeks, that have been through some organisation like yourself before; what proportion?

  Ms Lunn: It is something that we do not actually track.

  Ms Howard: I tried to quiz my colleagues about this and we do not record that information or aggregate it. We think it is at least half and we deal with about 6,000 people a year. One of the problems is that, because of data-sharing issues, we cannot get that information from Jobcentre Plus, so unless we record that and ask that of every single person it is a difficult thing to measure. Yes, at least half, I should think.

  Mr Fothergill: There are statistics around about re-entries onto New Deal, which is quite hard to understand, I cannot remember the actual figure, but certainly that is akin to the whole re-entry into employment. As you said about the whole support issue, it is very much about the flexibility of support in work and I do not think any of us actually think that certain employers will be offering that kind of support, because that is not what they do and there is not any kind of funding for that to happen. I think it is very much using experts who know how to deal with certain clients, to deal with them and mentor them and support them through whatever period it is until they feel their work is sustainable. Certainly, what I mentioned before, about the Working Tax Credits, if we are talking about direct relevant benefits' knock-on effects to sustaining employment then year two of Working Tax Credits, if someone has not progressed in their job, there is every likelihood that they are not going to be better off in work and certainly may be worse off in work and nobody is going to work in that situation; so that year one will trigger someone going back onto benefits, I am sure.

  Q166  Miss Begg: You mentioned that relationship between out-of-work benefits and in-work benefits; is there a problem with the ability of the DWP to talk to HMRC with regard to an individual's benefits, or is there a lack of communication between those two agencies?

  Ms Lunn: It would seem to make more sense if was all through one body. I think that would mean that it was much clearer then to deal with everything.

  Mr Fothergill: I just think it is the intricacies of Working Tax Credit, because they have just agreed, have they not, to write off £2 billion in overpayments, and this sounds very similar to something which could have been put into place years and years ago when Family Income Support and Family Credit was in payment, back in the seventies and early eighties. Basically, that was awarded in year and it was kept for the whole year and there was no change of circumstances, you could not stop it being paid; so someone coming back onto benefit, you just took it into account as an income. That would seem to be almost kind of the line that Working Tax Credit seems to be thinking about taking, so they cannot cope with the change of circumstances, because people do not know what to report or when to report it, they seem to have admitted that actually, we can't afford to work on this and reclaim it; it's going to be cheaper just to write the whole lot off.

  Q167  Miss Begg: Do you have examples from your client group where the fact that the individual that you are dealing with has gone into work has affected the whole family's income? Obviously, a lot of the income-related benefits are based on a household income and not individual benefit and that in itself can act as either as a disincentive for going into work or once they get into work the pressure comes from the family where other benefits that they have become used to as a household are affected. Is that something that is familiar and, if it is, how do you solve that?

  Ms Howard: I do not have any specific examples. I have heard clients talk about, for example, pressure from their family not to work. We had one client whose Dad smashed his alarm clock every week because he did not want him to wake the whole household; the impact on the whole household income was also a big consideration. I think there is something around having to deal with household units rather than individuals. It is something I think the Glasgow City Strategy is trying to look at as an approach, for example, because we cannot ignore that unit.

  Q168  Miss Begg: It was in Glasgow that it came up in discussions, particularly if you are into third generation worklessness, the youngsters leaving school going into work, the whole edifice of benefits that have built around the family start to crumble, or it is the first crack?

  Ms Lunn: I think it is; it is that culture of trying to change from that environment really is difficult.

  Mr Fothergill: Behaviour certainly breeds behaviour. There is also a whole raft of hidden costs to being in work as well. Not only do you lose all of your benefits and your Housing Benefit is reduced drastically but then you also lose free school meals, prescriptions, glasses, teeth, council tax, all these things, then you have to pay fares to get to work, there are extra costs for clothes, for food; into-work calculations do not bring that kind of stuff to bear. I keep banging on about what we are doing but I think it is really important. We are also developing an into-work calculator, basically which looks at our clients, which are single people living in hostels, and it is going to be a very, very straightforward better-off calculator, run online, for clients to look at very simplified ones so they can get an idea of what they will be doing and how much better off they may or may not be if they are going to work. Then a much more complicated one, but still very, very, very straightforward, for a single person living in a hostel, which takes into account all those elements and will give them a real idea of exactly how much better off, or not, they will be when they are in work and we would train the workers to use it. That would incorporate upskilling front-line workers as well.

  Q169  Miss Begg: I just wonder why the DWP does not have that, because HMRC has it, from what you say, which can do a rough calculation of your own taxation?

  Mr Fothergill: The one that DWP has, the Ferret calculator, has been in existence since about 1990 and it was always very complicated and staff shied away from it because it took just too long. When you have these time limits for working with people in Jobcentres, which is an hour tops, then a better-off calculator, which covers every single area of benefits, could take that time in itself and it is not used that widely because it takes too much time.

  Q170  Miss Begg: Just listening to your answers to these questions, it would suggest that the complexity of the benefits system is the very thing which allows some of these more complex families a level of income which they can sustain by the amount of benefit, I will not say `quite comfortably' because it is never comfortable, but they can live on benefit for years, and indeed for generations. Take away that complexity, start to strip out the complexity from the system, then is there not a danger that you would end up with these very groups of people having less benefit rather than the amount of benefit they have got, because it is these different, complex layers that give them the benefit which allows them to survive on benefit?

  Mr Fothergill: I suppose the most complex cases are people with disabilities really.

  Q171  Miss Begg: It is just that some of the other organisations have said that complexity may not always be a bad thing, provided it is not necessarily the client that is finding it complex, because that complexity is what gives people with disabilities, children with disabilities, extra money on which to live?

  Mr Fothergill: It makes you wonder whether you can actually turn that on its head and say maybe the people who are administering benefits do not understand the complexity of the benefits and do not understand that people should be on them more often. Most certainly a whole raft of issues with DLA in the late nineties, where it just seemed to be there was a blanket approach, either paying people or refusing people benefit, and it all went horribly wrong and a huge review had to take place and it took years to correct it. Probably there is that; but a simplified benefit would be fantastic, but there are so many different circumstances, but a simplified benefit that actually is of a reasonable amount would allow people to live to a reasonable standard but not to be benefit-dependent.

  Q172  John Penrose: I want just to pick up on some of your answers to the questions so far, and perhaps dig a little deeper, if we could. I think all of you have said so far that you think there are people who are worse off if they go into work because of the operation of the benefits system. We have been asking people who have been giving us evidence so far if they have got any sense about which groups of people and how many of them there are, because we are trying to get some sort of quantification, because at the moment the steer we are getting, quite strongly, from the Department is actually there are not any people like that, and therefore we would like to have some hard numbers. Have you guys got any sort of data you can give us, or concrete examples of people, classes of people, who maybe we could go off and quantify elsewhere, who are definitely worse off, whichever way you look at it?

  Mr Fothergill: The piece of research that we have just done is called The Cost and Benefits of Formal Work for Homeless People, and I can certainly let you have a copy, which basically is a study into single people living in hostels and comparing the whole raft of scenarios, and this is just for single people. I think probably there are over 150 different scenarios, just for people doing different hours of work, so there is a 16-hour scenario, there is a 25-hour scenario, there is a 35-hour scenario, three different levels of Minimum Wage, different hostel rents and then doing a whole raft of comparisons about how much better off a person is in relation to different benefits. There is a huge amount of scenarios dealing with disability benefits, just straightforward JSA or Income Support, so really complex analysis. If then you went into families and brought in other areas this would go on for just ever and ever and there would be hundreds and hundreds and hundreds of scenarios. Certainly it shows you the whole level of where people are better off and then what happens in year two.

  Q173  John Penrose: Out of these 150 or so scenarios that you have modelled, how many of them are people who are actually worse off?

  Mr Fothergill: Because people aged under 25 are not entitled to Working Tax Credits then people under 25 working part-time will never be better off by working. People aged over 25 who are working 35 hours a week on the National Minimum Wage will be better off in the first year, on average, by about £45, but come year two they are better off by £4. If their wages do go up slightly then probably they are going to be worse off because of the marginal deduction rate, which is 80, 77%, so all the tax and National Insurance, reduction in Working Tax Credits coming off, Housing Benefit taper going up, then they are also worse off in year two. It is a very straightforward analysis of what actually happens.

  Q174  John Penrose: I do not think you submitted that report in evidence to us; if you have not, please can we see it?

  Mr Fothergill: I did. ERSA were meant to be at this, I think, and I sent it to ERSA as part of the response. They may not have sent it to you; so I can do that.

  Q175  John Penrose: For whichever reason. That sounds like an essential piece of evidence, if we could get hold of it?

  Mr Fothergill: I can do that, yes.

  Q176  John Penrose: Do the other two of you have any other thoughts?

  Ms Howard: We have not.

  Ms Lunn: No.

  Q177  John Penrose: We would really like to see that.

  Ms Howard: We would like to see that too.

  Mr Fothergill: Absolutely. I do not think there is a lot of this stuff around, because at one of the many meetings that we have been to with David Freud we talked about this then, after he had said, "Well, actually, there's no evidence to that effect." We said, "Well, actually, we have just had some done."

  Q178  John Penrose: Do either of the two of you have anything equally factual to give us?

  Ms Howard: Not really. I think it comes from talking to case workers around this kind of situation, the message you get back is, the more complex the personal situation the more likely it is they will be worse off in work. I can certainly try to do some digging but we do not have anything as comprehensive as that.

  Ms Lunn: No, we do not have anything like that.

  Q179  John Penrose: You have all hinted, I think, that you feel that the existing better-off calculations are inadequate, omit things and may give incorrect steers, and Michael you have been talking about a couple of alternative calculators that you are working on at the moment. The existing DWP better-off calculator, which happens in 27% of cases, or whatever it is, at Jobcentre Plus, how badly wrong is that, is it wrong by a few pence, or is it seriously wrong and people will miss out on things and go into work when they should not, or do not go into work when they should?

  Ms Lunn: From talking to our staff, most of them did not seem to have come across it, so I do not think it is widely known about. That is obviously what you have found, so probably it is not being used as well as it could be.

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