Examination of Witnesses (Questions 160
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
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
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
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,
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
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
Ms Lunn: No, we do not have anything
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.