White Paper on Universal Credit - Work and Pensions Committee Contents

Examination of Witnesses (Questions 72-167)

  Chair: On behalf of the Committee, may I thank you for coming along this morning, Secretary of State? I know that it is a busy time for you and your Department—you keep throwing things at this Committee. We are very pleased that you could be here this morning. We obviously know who you are, but perhaps your colleagues could introduce themselves for the record.

  Terry Moran: I am Terry Moran. I am the Director General and Senior Responsible Owner for the implementation of Universal Credit.

  Neil Couling: I am Neil Couling. I'm Director of Benefit Strategy at the DWP, and I have policy responsibility for Universal Credit.

  Q72 Chair: I shall start with a very general question—we have quite a lot of more specific ones. The principle of Universal Credit has been broadly welcomed, and many people have welcomed the whole idea of a simplification of the benefit system. Is there not a danger that because there is that broad consensus around the thrust of these reforms, the critical analysis and some of the potential pitfalls of the legislation might be missed?

  Mr Duncan Smith: First, may I thank you for extending the invitation to us today? It is helpful to us to go through this process—that may in part be the answer to your question—prior to the legislation, which I can't give you dates for at the moment but is imminent.

  In answer to your question, that might have been the case had we not done the work over the past few years as well. The principles of this, under the previous Centre for Social Justice paper that was put forward, were pretty heavily tested by a lot of other think-tanks and groups. We had a lot of commentary from voluntary sector organisations representative of various groups, such as Gingerbread, at the time. They all put in commentary about what they thought at the time and engaged quite heavily. Since I came to the Department, having announced that we were going to start this, I think you will find that pretty well throughout, in everything, we are consulting pretty much every single group possible and testing the responses on that. Although I may not be able specifically to talk about some of the decisions today, I can guarantee you that we are engaged with every single group and trying to listen to what they think might work or might not work.

  On the other side of that, too, given the nature of this, accepting it in principle is one thing, but the other parties—specifically at this point the Opposition—will want to make, and have already made it clear to us in discussions that they will want to make, certain points about where they think the balance may be right or wrong. I welcome that, because that is the nature of this. I hope the key thing is that we debate as much of the structure as possible, but don't get too hung up on some of the particular details, which ultimately can vary and change. That is a point that I want to make later on.

  I notice in some of your discussions that people have settled quite heavily on things like, for example, the taper. I'm sure you are going to come to that later on, but the basic principle is that that simplifies even the nature of the political debate, because for the first time ever you'll end up being able to debate something like you debate taxation, which is what happens to benefits. This is what happens to benefits; it is very simple and now we can see very transparently whether a Government are fulfilling their pledges or not, rather than hiding in a whole mess of detail. So "I hope not" is the answer, but of course that is up to those who want to have a look at this.

  Chair: I think much of the evidence that we've received has said that the devil will be in the detail, and it's that detail we want to explore.

  Q73 Stephen Lloyd: Good morning, Secretary of State. A number of witnesses have expressed concern over the impact of financial sanctions where children are involved, where the parent has failed to meet the terms and conditionality. How do the Government plan to protect vulnerable children in this situation from the effects of the financial hardship arising from the inappropriate conditionality behaviour of the parent or parents?

  Mr Duncan Smith: First, some of the debate has made it sound as though we've never had conditionality before and this is a new arrival. I know, obviously, that the Committee does not accept that, but the reality is that outside sometimes it is as though we have just introduced conditionality into benefits. Conditionality has been in benefits over the last two Governments. The principles behind that conditionality haven't really changed, and won't change as we go forward. The reality of how we want to protect children and dependants continues to follow the same principles as existed under the previous Government. We are not really going to change those. If I can just remind you of what that amounts to, those things that are related to children are not within the sanctions regime. For example, Child Benefit would not be caught up, and other child-related matters such as housing, Council Tax Benefit and disability premia will not be caught up in the sanctioning process. They already aren't, and they won't be; there is no plan for that to change. Things that are really caught up will be things like Jobseeker's Allowance (JSA) and Employment and Support Allowance (ESA).

  However, what is important to note on this is that what is changing at the moment is better. That is to say that, although we are extending some of the lengths of the sanctions, we are also making them much clearer. Right now, there is a problem that exists for sanctions, and this came after going around a number of Jobcentres and talking to various staff who said that, in truth, most people don't understand the sanctions regime from the word go. They only ever understand it when they are told that they will be sanctioned for one week to 26 weeks, depending on what the severity of their misdemeanour or failure to co-operate allows the staff to introduce. They said that it is very difficult, therefore, to set the sanctions regime as a deterrent to such action, because they don't believe that it's going to happen until it happens.

  The point was that if they could have a clearer regime so that, from day one, people understood what would happen if certain tripwires were crossed—things that they failed to do—then that would have a much better effect. They all believed that, ultimately, they would sanction fewer people, because those people would understand that they were heading for that at a very early stage. So the person interviewing can actually say to them, "You know that what is going to happen over a set period is this sanction of that length if you fail to do this. I am just warning you ahead of time that you need to co-operate, otherwise this will happen," rather than saying, "I'll have to make my mind up." I hope and believe that the sanctions regime that is in the White Paper, which we announced, in part, in the House previously, while being a sanction that is tougher in detail, is a much clearer sanction. It allows those sanctions to be relevant, as you will see in the chart.

  Q74 Stephen Lloyd: I take your point that a lot of them have actually been around for the past 15 years or so, but picking up on what you were saying, you clearly envisage that there will be a much clearer and earlier communication to the people in this situation this time. Now, I would hazard a guess that some of my colleagues who were MPs in the previous Parliament and were on the Committee would probably have heard similar things from the Secretary of State at the DWP, such as, "We're going to communicate it earlier." How can you convince us that, this time, the Jobcentre Plus staff really will be communicating that sanction regime earlier, so that this time people really will take it on board? Let's face it; the reality for many people in this situation is that they're going to be very stressed, they're going to have lots of things on their mind, and there is a reasonable likelihood of dysfunctionality in the family, so how are we going to communicate it differently, so that they really do hear earlier this time?

  Mr Duncan Smith: I take your point, and I also take the Committee's concerns. We will ensure that this particular point about the Jobcentre staff understanding the nature of pre-information is critical. To be fair, however, it is they who have driven us in this direction. It is the staff's comments to us that have actually centred us on this. They have basically pointed out what they thought the weaknesses were in the present regime. This is not a party political point, because it has existed over two Governments. Their point is that we need to let them know very clearly what will happen much earlier. In other words, if you look at the page in the White Paper that deals with the chart, it is quite clear and explicit there that certain failures to do certain things will bring certain results and in different categories. It's very easy for them to sit down with somebody and say, "I draw your attention to this factor. Right now, you are here, but if you don't comply with this, this will happen. Be in no doubt; that is exactly what will happen."

  So, yes, I will take your point, and we will take it away and make sure that we find some mechanism that will ensure that Jobcentre staff are clear to everybody from the outset that this will happen. Once they do that, I genuinely believe that we will actually end up sanctioning fewer people, because I don't know of anybody who really wants to get to that point. I was in a Jobcentre the other day, and they were saying to me that it's a shock when they get hit by the sanction. It has quite a salutary effect on them at that point. So the point is that we need them to arrive at that mental point before the money is withdrawn. They now know that this is going to happen. Jobcentre staff will need to explain to them the costing level of what it will do to them.

  Q75 Stephen Lloyd: My next question, which, again, has come up from a number of concerned groups, is: how will carers be identified for the purposes of the conditionality regime?

  Mr Duncan Smith: It will certainly be the job of staff to make sure that they understand fully the nature of what the individual in front of them is engaged in, what their personal details are, whether they will be involved in caring and whether they are parents and so on. That will be very clear at the time, so when they arrive at the point when they can define out those elements that should not be brought into the sanctions process, they will also be dealing with them as individuals and looking ahead of them and deciding whether a personal problem is causing the difficulties.

  What I am after with the Jobcentre regime is that we do not have a two-dimensional process that just says, "Wait, wait and wait and it arrives." It is really important that Jobcentre staff are much more engaged early on in understanding the nature of the individual and what is happening to them. If, for example, it is clear that this sanction is in process—they still have some scope on it with regard to the individuals—and they understand that there is a particular problem with an individual, they should look again.

  For example, there may be a mental health problem. They should then be looking again at whether the individual should be on Jobseeker's Allowance at all, and whether there ought to be another assessment of them and a move to another benefit system such as Employment and Support Allowance, a work-related activity group or a support group. In other words, we are asking them to be proactive at looking at the individual in front of them and figuring out whether it is just wilfulness or ignorance or whether some other condition is causing them a problem.

  As I said earlier, issues of children and their support are not sucked into that, and there is still scope to give discretionary payments in the course of that sanctions process, which will exist after we introduce the new sanctions process. If they are hitting real hardship, Jobcentre staff have the scope to give them discretionary payments.

  Q76 Alex Cunningham: Do you agree with Carer Watch that, as a society, it needs carers identified as a group so that resources can be targeted correctly in the future?

  Mr Duncan Smith: I will be honest with you. I am not altogether certain that we do not identify carers quite clearly. When I looked at it, I was not quite certain what it was intending we should do that we do not already do. Perhaps my colleagues can tell me about something that I have missed.

  Neil Couling: The definition of caring within social security is very clear. It is looking after someone for more than 35 hours a week, who is in receipt of the higher or middle-rate elements of Disability Living Allowance (DLA). That is the qualifying condition for the carer premium. It is the qualifying condition for the Carer's Allowance.

  Q77 Alex Cunningham: So you are satisfied that they are properly identified and properly covered?

  Mr Duncan Smith: That is really my point. I read it, and I was not certain what they wanted us to do more that would have materially altered it for the better. I was not quite certain. I think that we do identify them. The key question is, do we identify them? That is the issue. For the most part, we do. There is a balance that is dependent hugely on whether the individual in front of you is declaring themselves correctly and the matter therefore does require probing sometimes. One of the things that I want Jobcentre staff to do is to be more proactive as we head towards the Work Programme as well, so we identify people who might need to go on the Work Programme early, who have particular conditions so that we do not wait for them to reach the 12-month period.

  Q78 Chair: In terms of identifying groups, you are still using the old benefit titles, Jobseeker's Allowance and JSA claimants, but under Universal Credit surely some of those distinctions will disappear. If they do disappear, how will Jobcentre Plus be able to identify different claimants from the different groups, because each of them will have different sanctions regimes that apply to them?

  Mr Duncan Smith: You must remember that they still qualify within the Universal Credit under a number of different scales, so it is not as though you have only one qualification. A number of elements make up the final payment towards the Universal Credit. You will still identify people by the nature of their requirements, prior to their final point of payment. Ultimately, it is the simplification of the amount that they receive and have taken away from them which is the key to Universal Credit.

  Q79 Chair: But at present there are some advantages in being on one benefit as opposed to another. Some individuals could come through the JSA route, the ESA route, the Incapacity Benefit (IB) route or a carer's route, but they end up with the same amount of money. Sometimes, the way in which they come on to the benefit system will determine what rate they end up with and which various sanctions might apply to them. Will that not be even more blurred under Universal Credit because there will not be any more money in the system necessarily for them because of the way in which the withdrawal rate works? In fact it is a single working-age benefit?

  Mr Duncan Smith: I will bring the others in on this one, but my view is that it will actually be better. It will be at one place and they will have everything assessed at the same time so there will be a much clearer understanding of what they need. At the moment they are forced to do a lot of chopping and changing—playing off different systems—because, in essence, it is difficult for them to understand the net effect of their position and claims. We think that the Universal Credit will make that much simpler, so that one process of arriving at the Universal Credit will be properly evaluated.

  Q80 Chair: But if the conditionality is different, depending on the route that brings people on to Universal Credit, they will have to be labelled in some way to ensure that the conditionality does not apply to a family with small children because the mother is a lone parent and not in work.

  Mr Duncan Smith: We will identify that at the time much more clearly than we do at the moment.

  Neil Couling: Essentially, you are talking about conditions of entitlement to Universal Credit. Under the proposals we are bringing forward in the Welfare Reform Bill, there are four basic conditions of entitlement: that somebody is incapable of work on grounds of sickness or disability; that they are unemployed; that they have caring responsibilities; or that they are a lone parent with children under five.

  The conditionality regime flows from the conditions of entitlement that you have established. Universal Credit creates a common system of rules, entitlements, tapers and so on, that flow from that. So it is about entry points into the system, deciding which conditionality regime applies and applying that conditionality regime.

  Mr Duncan Smith: That is my point. It is easier at that point, because it happens all at the one point. You are not relying on them to chase around after the various benefits.

  Terry Moran: I will say just one thing, which links to the earlier conversation about conditions and sanctions. At the point at which somebody enters the new system, we envisage that we will gather some information from the individual. They won't be entering the system labelled, as people are today, by the products that they have previously received. Through that intervention at the very beginning of any new claim, we will understand, as Neil has identified, which classification that person falls into.

  For those that are subject to some form of conditionality, the Bill will set out a form of claimant commitment, which will explicitly state what is expected in return. That is in response, as the Secretary of State has said, to what Jobcentre Plus staff have said about their customers sometimes not knowing what is expected of them in such circumstances. It will now be far clearer at the very beginning of this entitlement than it has ever been before.

  Mr Duncan Smith: The advisers will have scope to do more personalising of the conditionality, too. So they sign the claimant's commitment, and from there the jobseekers can ensure that the support that they need and the conditionality are still tailored within that context.

  Q81 Chair: Will the carer's question be asked at that initial interview? I think that would help.

  Terry Moran: I can't conceive that it will not be part of it. The carer's question will have first been asked in the online application that we are envisaging for a lot of people.

  Mr Duncan Smith: We will take note of your concern on this. It is useful to us, and we will ensure that that is, in essence, one of the key questions that are asked. We are very happy to listen to what you are saying.

  Chair: I will bring in Kate, and then Glenda.

  Q82 Kate Green: I will pursue the carer's question now, if I may, Anne. I know it is coming up later, but I want to pursue it now.

  Secretary of State, you have said that Carer's Allowance will be outside the Universal Credit. So at this point we are identifying a group of people who are not, as I understand it, being covered.

  Mr Duncan Smith: First of all, I can't tell you what decisions are being made, because we are ahead of the Bill. We have listened carefully to all the carers' groups, and I can't publicly state at the moment what decision we have arrived at on whether Carer's Allowance is in or out.

  This, however, is even outwith that decision. So we are assuming that it is to do with the personal circumstances of an individual anyway, whether or not Carer's Allowance is taken in. Even if we didn't take it in, we would still want to know whether the claimant had caring responsibilities, because they might affect other aspects.

  If concern is being raised that we need to be certain that the question is asked, I am happy and content that questions will be asked about caring responsibilities at the first interview. We will make sure that is very clear, if that is the Committee's concern.

  Q83 Kate Green: I suppose we are concerned that you are trying to undertake a process whereby some carers could fall within the ambit of Universal Credit—potentially all carers, given that you cannot tell us at the moment whether Carer's Allowance might bring those people in. Are you considering the possibility that carers might be subject to means-testing?

  Mr Duncan Smith: In what sense?

  Kate Green: Carers that might come within the ambit of the new benefit.

  Mr Duncan Smith: No. You are probing me on whether we will put Carer's Allowance into the Universal Credit.

  Kate Green: Exactly.

  Mr Duncan Smith: With respect, wonderful as it is to answer your questions always in full, Ms Green, you will forgive me if I slightly avoid that answer at this point, for reasons that will no doubt become clear to you as and when. I promise the Committee that before we finally publish the Bill, we will let the Committee know what those decisions are on the things that come in or out. It is difficult for me to make any statement to the Committee today.

  Q84 Chair: When are we expecting the Bill to be published?

  Mr Duncan Smith: Again, we are in the hands of the House authorities on this matter. As you know, some of your colleagues in the other place have not helped us in that regard, but we will publish as soon as possible. We are pretty well ready, give or take a few tweaks here and there. I am hoping, as I said to you privately the other day, that the Bill will be ready for Second Reading by the end of the month, but the First Reading is dependent on what the business of the House allows us to do. It will be within that scope, I would hope, but please do not take that for granted, because I could be in real trouble with the authorities.

  Q85 Glenda Jackson: My concern is on the definition of a benefit claimant, given the sanctions divisions. There are people who fall into more than one category. I will give you an example of a constituent of mine. She has two children: one is of school age and the other is yet to be of school age. She is on Jobseeker's Allowance and cares for an elderly relative who does not live with her. There are complexities there. My first question is: are you considering that, in real life, people do not fall into these nice, neat categories?

  My other concern is that you are consistently saying that it will be the staff in Jobcentre Plus who are, in essence, the deciders—they are the decision makers. We know that the staff of Jobcentre Plus will be reduced. They will be working with a much larger group of people, because a whole new raft of people will be coming into this new system. This idea that they will explore the realities of an individual claimant's life seems to be a time-consuming process. It cannot be done in 10 minutes. Have you any idea of how long that process will be, and how long people may have to wait before they go through it and know whether they may justifiably claim any benefit?

  Mr Duncan Smith: Do you want to take that up, Terry, and I'll come back on it in a minute?

  Terry Moran: We are some considerable way off understanding what, when and the timing of those things. We expect, in terms of setting this out, that for those who can, some of the information will be provided by them through online support. For those who can't, it will be available through other means. For example, we will gather some evidence, which the customer will give us, to help us understand what our first conversation will be with them when they come to claim Universal Credit.

  Your point about not being defined by product is very important. One of the issues with the current system is that not every person in receipt of the same benefit presents the same issue. Through the Universal Credit interview at the very beginning, we would expect to understand where those issues are different, what the issues are that we would hope to set out in the claimant commitment with that person, and, where any conditionality needs are set out, make sure that that is clear, recognising that person's personal circumstances. If they are a carer, it may impact the nature of any conditionality if any.

  Mr Duncan Smith: May I also make a point in answer to your question, which I hope helps? The present system causes more problems to the advisers, because of its complexity and the fact that they spend a lot of time trying to figure out with each claimant—or customer, as they are called in the Department—exactly what they are eligible for, and what results their going to work will have on that eligibility. My last Permanent Secretary spent some time in one of the Jobcentres. He sat behind one of these advisers when they were trying to help a lone parent, who had been working for 16 hours but had been offered work for two or three hours more. The adviser spent 45 minutes with her trying to figure out whether she was better or worse off, because of the very complex nature of what would happen, or what would have happened if she had failed to go to work and had lost her job. It took him a long time to do that.

  We believe that with the Universal Credit, because everything is being brought into one place, the assessment will be much simpler to make at the beginning. It will save advisers some time, which most of those we have talked to accept. It will also give them a bit more time to get closer to the individual to figure out whether there are any nuanced elements that they should have been spotting. That is my point about deciding, at that stage, whether someone, frankly, should not be within that realm and should be better off going straight to the Work Programme, which would give them much more tailored support. That allows advisers scope, because it will give them more time—I don't think there is anything I've missed.

  Q86 Glenda Jackson: But with all due respect, how nuanced is the internet? I appreciate your answer, but you seem to be making big assumptions. In my constituency, for example, accessibility to the internet will be dramatically and drastically reduced. For a sizeable majority of the claimant pool, English is a second language. So, I am not sure that the system will be as easy to use as you are presenting. I understand that it will be so for new claimants, but people who are already in the benefit system are used to the individual pieces of what they may claim. Suddenly they will be told that there is a whole new system. You are not really considering the realities of human behaviour. I go back to the point that, just as this is a learning process for claimants, it is also a learning process for the staff of Jobcentre Plus.

  Mr Duncan Smith: One point, then I shall let Terry come back on the details. On the computer side, a significant majority of tax credit claimants use the internet. 80% to 90% are online, and 85%[1] of those do most of their claiming online. So a large number of people are reasonably computer-literate; of course, there are some who are not.

  Secondly, I fully recognise that as we change the system, people will have to be brought to understand it. That is why we are introducing the process more slowly than might otherwise have been the case. Bear in mind, the change will not happen overnight; it will happen over five or so years. So people will be brought to it and there will be time for new claimants to have the new system explained.

  Terry Moran: Just a couple of points, if I may. If I conveyed any message to suggest that the change is easy, that was not my intention. It is one of the most challenging things that we will embark on. We are already doing things to help inform that process in terms of understanding the people and the issues that will arise. We are holding focus groups with lots of different customer groups—I attended one two weeks ago with lone parents, and following that there was one with disabled people and people with mental health issues—to talk about their reactions to the system and what it would take to help them engage with us in the ways in which we want to work in future.

  Both groups came up with very different views about using technology online. The first group didn't think it was possible, because they had fears about it, which I think we can rationally help them think through. Others wanted to do it, because they preferred it to talking to someone, for different reasons.

  We will continue gaining insight, and we are several years away from starting the system. We are talking to our customers today about what will help them help us do the job in different, more effective ways. That is really important for new and existing customers. For existing customers we have already identified, even in this Spending Review, the importance of ensuring that we talk through the issues that will arise for people who will transition from their existing benefit or credits into the new Universal Credit.

  At the moment, we have estimated—this is based on some evidence, but is not necessarily entirely reliable—that we will need an hour with every individual to ensure that we have helped them understand what the issues are in making the transition. That is broadly for some 40% of the existing case load. Whether that estimate is fair, real or not, we will know over time through the insight that we are taking forward.

  Mr Duncan Smith: Bear in mind, with respect, the present system is a pretty near nightmare to negotiate for most of the same people you are referring to, because of its very complexity. They have two areas—HM Revenue and Customs (HMRC) and us—to negotiate their way through. They have to report their own changes to two separate centres—that will all change; they will have one point of contact. That process does at least lock them to one place for all their information, so they do not constantly have to go to a number of different places. We accept that we have more work to do, but that is exactly why we have put the timetables in place.

  Glenda Jackson: I appreciate that, and it is to be welcomed, but—

  Chair: We had better move on.

  Q87 Andrew Bingham: Just to take you back to something you said a few moments ago, this is coming in over five years, which I think is welcome as it gives people time to adjust. £2 billion has been allocated over the Spending Review to cover the costs of this, and we are interested in how that was calculated and what it includes, but are there likely to be any costs beyond 2014-15—the five years after the Spending Review?

  Mr Duncan Smith: First of all, may I say that the money you see is the Spending Review money? That is for the elements that are relevant to the Spending Review, which is pretty much the bit running into it and then the first two years of the change. However, there are another three years following that in another Spending Review, so clearly, this covers only the Spending Review monies.

  When we publish the Bill, we will be much clearer about what we believe to be the costs running along the way. Of course, a lot of the costs inherent in the Universal Credit are due to the decision we took to cash-protect people on the point of change, which is almost unique in that sense, but we were quite clear that I wanted to ensure that. That may also partly answer Ms Jackson's question; we give people time to understand what the change means to them without their worrying about the fact that at this particular point, they have to get it right first time, because they suddenly may have a problem over money. I know that you'll come back to that in a second, but that was the point about the money, so we are clear about that.

  Q88 Teresa Pearce: To go back to what was said about Jobcentre Plus, at the moment most people's experience of Jobcentre Plus is of a process—people are processed through it. You seem to be saying that the skills needed in future for that initial interview will be quite different—soft skills, involving teasing out information from people, not simply taking things at face value, and understanding the whole person. What sort of training will you put in place? Will you employ different people? Will you train people? What is in place for Jobcentre staff? I think it is a very different skill set.

  Mr Duncan Smith: I know you're probably short of time, but before I answer that may I first say that I have a very high regard for Jobcentre staff?

  Q89 Teresa Pearce: I wasn't saying that I didn't either; it is just different skills.

  Mr Duncan Smith: I know you are not. I am not in any way impugning your concept. My point is that a lot of this comes from talking to them. They are frustrated because they think that they could do more, but they are often limited in what they can do, so they end up being process-based rather than understanding. If you really probe a lot of them, you find that they know quite a lot about the people in front of them, but they are unable to apply some of that understanding. We think that we will be able to work with the existing people in Jobcentre Plus, but to get them across that next bit means that they need to understand much more at the first point. Terry?

  Terry Moran: Your point is well made. When it comes to operating a system of the kind described in the White Paper, how we interact with people and help them change behaviours, which may not have been there in the past, will be very challenging for us. We have to invest in that. We do not yet know what all that investment is in terms of learning and development at this stage.

  Chair: Stephen has one more question to ask.

  Q90 Stephen Lloyd: This is a rather complicated question, but in a way it illustrates some of the anxieties that people have and some of the complex cases that people experience, such as the one that my colleague Glenda Jackson was talking about. Can you clarify how the lone parent exemptions from conditionality outside school hours will interact with a proposal to reduce Housing Benefit by 10%, if someone is claiming Jobseeker's Allowance for more than 12 months? I suspect that this is for Terry—

  Mr Duncan Smith: I am not quite sure that there is much confusion on this at all. The reality is that the advisers have always got the scope, which exists now and will continue, with lone parents with caring responsibilities, obviously. Advisers will ask them to accept jobs when they come into the regime, which was to be at seven years old under the previous Government, and with us it is five years old, or basically school age. However, there will be the scope for them to accept the jobs that fit their base caring requirements. They will not be expected to take a job that breaks through those caring responsibilities, so the same rule would apply pretty much throughout the sanctions. If you are referring to the Housing Benefit end, it is much the same. In terms of them being in work, they'll still have to be in work with the same conditions that exist with regards to their caring responsibilities.

  Q91 Stephen Lloyd: But then will child care be provided for claimants required to undertake mandatory work activity in that situation?

  Mr Duncan Smith: Well, as per our stated position on child care, the answer is yes. I may be missing something here, but I am not quite certain what the line of questioning is on this.

  Q92 Chair: To clarify, the lone parent who has been out of work for a year once their youngest child reaches five, will face a 10% sanction on their Housing Benefit—we have more questions on Housing Benefit coming up. That sanction will follow them, and there is nothing that they can do to get rid of that 10% sanction on the Housing Benefit, unless they get into work. Now, it may be very difficult for them to get into work. Yes, there are allowances that they should only take work that fits with their caring responsibilities, but that might make it doubly difficult for them to get into work.

  They are busy carrying a 10% sanction on their Housing Benefit, which they can get rid of only by getting into work. But they can't get into work because they have caring responsibilities and the employer won't be flexible enough or there is no decent child care in the area that would allow them to get into work. So they are caught in this Catch-22 situation: they have changed their behaviour and have done everything that the Government have asked of them, but that sanction is still following them around.

  Mr Duncan Smith: Chair, unless I am missing something, my understanding of this is slightly different. The sanction is there if they simply do not do what they're meant to do, which is to accept jobs. The jobs that we're talking about here still fall back on the requirement to have a job, but will fit within their caring responsibilities.

  Q93 Chair: Can I be very clear about what you are saying? The 10% sanction on Housing Benefit for those who have been on JSA for a year will apply only if they refuse to take a reasonable job? That is not my understanding of how it has been presented up to now.

  Mr Duncan Smith: Well, refuse to take a job, but bear in mind that the work that they are being asked to do will continue to be work that fits within the scope of their caring responsibilities.

  Chair: That's not quite what I am looking at.

  Mr Duncan Smith: If they were offered a job—

  Q94 Chair: No, there is no job. They haven't been offered a job. They've been on Jobseeker's Allowance a year and they've just gone into the Work Programme.

  Mr Duncan Smith: Okay, now I understand what you're talking about.

  Chair: They are complying with everything that the Government have asked. My understanding at the moment is that you're talking about something slightly different.

  Mr Duncan Smith: Sorry, I thought you were talking about sanctions against failure to take a job. I misunderstood you, and I apologise.

  Q95 Chair: No. This is the sanction that rests with the Housing Benefit, which a lot of people say is just unfair, because you could have an individual who has done everything that the Government have asked, has complied with everything and has turned up to all the work-related activity that they have been asked to, but because they have been on Jobseeker's Allowance for a year, or the equivalent under the Universal Credit, they are losing 10% of their Housing Benefit. It's not a case of whether they're refusing jobs or not, but that they haven't been offered a job because there is no job that they can take. From the Government's own planning, there will be a large number of those lone parents, whose child has turned five and who will not get into a workplace because inevitably they are quite far from the workplace. The planning is that there will be a number of them who will not get work, but are still going to face the sanction through no fault of their own.

  Mr Duncan Smith: The Housing Benefit issue stands as it is, which is that the year point is the cut-off point for that 10%. Of course, at the same time, they will be in the Work Programme at this point, so they will have some intensive support and help to get them into work.

  I understand the concerns about the 10% cut in Housing Benefit, and we've obviously been round and round this point a number of times. But it is not a sanction against refusal to take work—I misunderstood what you were saying because you used the word "sanction"—it is about the fact that they are not in work at the end of that year, and therefore there will be a change to their status on Housing Benefit.

  Q96 Chair: They will get only 90% of their Housing Benefit.

  Mr Duncan Smith: That will stand, as it is.

  Q97 Chair: That surely acts as a disincentive because it will make it much more difficult for them to take work because their income is going to be less. All that militates against or puts a barrier in the way to taking work, making it more difficult for them to take work than would be the case; they are losing money in cash terms—they will lose 10% of their Housing Benefit.

  Mr Duncan Smith: But if they're in work, they will have the full Housing Benefit.

  Q98 Chair: Yes, but that's the only way they can get rid of the sanction. And if there are no jobs, they can't get work.

  Mr Duncan Smith: We will differ on this, but you could argue that it is therefore an incentive, not a disincentive, because they will get their full Housing Benefit by being in work.

  Q99 Glenda Jackson: With respect, Minister, it's an automatic removal of 10% of income.

  Mr Duncan Smith: It is, but the issue that the Chair was talking about was whether it was a disincentive or an incentive if they lose it. Of course, if they're in work, they would have their Housing Benefit. The way to get it back is to be in work.

  Q100 Chair: That suggests that people are wilfully not taking a job. That will not be the case with a large number of people. They would love to get a job, but there is no job for them to take, and they are still going to lose 10% of their Housing Benefit.

  Mr Duncan Smith: Chair, I understand your concerns. We have debated this and we will no doubt go on debating this. The Government's view is that it acts as an incentive, not a disincentive. Obviously, if a number of the Committee think differently, I accept that, and that will no doubt continue through the Bill. But this measure is not directly relevant to the Universal Credit. It may impact on it, and you may take a view, but the Government's view is that it acts as an incentive, not a disincentive. We may disagree about that.

  Chair: I think we will.

  Mr Duncan Smith: I suspect we will rehearse that debate again and again.

  Q101 Glenda Jackson: Surely, the only incentive is that it will encourage people to have more children. I thought that was something we—

  Chair: We will leave that hanging.

  Q102 Mr Heald: Of course, the overall effect of the proposals is to focus more resource on the poorest and to move away from welfare dependency.

  Anyway, I am supposed to ask you about support for rent and mortgage interest. There has been a welcome for the fact that the amount of money that is going to be allowed for rent and mortgage interest under Universal Credit will be similar to what is currently allowed under Housing Benefit, but there are some details about how it might work that we want to ask you about. You are moving to a system that is universal—a central system—from, in terms of what housing support has been, one that is a locally administered scheme. So the first question concerns how you are going properly to reflect housing costs in the new arrangements.

  Mr Duncan Smith: Well, I agree that there is a change. We have set the principles for doing this. I was looking at this earlier. We still want to make sure that there is fairness through it and that it is affordable and ultimately helps make work pay. That is why we want to take it into the system. The point is that the design that we are trying to achieve for the Universal Credit will need to ensure that we have proper safeguards in place for vulnerable tenants. We are working on that at the moment. When it comes to things such as mortgage interest, we will still allocate an appropriate amount, which we added, so that will deal with the needs of those who have a requirement for support through their mortgages.

  By and large, we think that on balance—we are still working it through—it will be better for it to be part of that overall payment. We know that there is an existing problem with the way in which Housing Benefit works. Often it is badly administered. For instance, somebody comes out of work and it gets paid to them late, so they can actually be net losers for a month or more before it gets paid back again. It becomes a real disincentive to take work, because of the complexity and the fact that everyone tells everyone else what happened to them: "I went in and I lost my Housing Benefit. I came out of work and it was three or four weeks before I could get my claim settled. Meanwhile, I am much worse off. You don't want to do that, because it's a disaster."

  We think that we can get over the psychological hurdle that going to work means you will be in trouble, because, with the Universal Credit, being in or out of work is a much simpler process and the calculations and payments will be swifter. By and large, this will be a better system and much easier for people to understand. There will not be lots of multiple claims going on. They will actually get it within their payment.

  As we pick up through the realtime system the way that people's circumstances change, it will be far quicker. If they are in or out of work, or if they are doing more hours or fewer hours, that will be much more apparent and need far less interaction with them. At the moment, if they make a change in their circumstances, they are constantly having to tell everybody that they changed. Often, somewhat vulnerable people get that wrong and therefore end up getting money clawed back from them. The Housing Benefit being brought into this should improve the system enormously.

  Q103 Mr Heald: In terms of the broad principle, our witnesses agree. There is just the question of the mechanics of it. I don't know if either you or perhaps Mr Moran might be able to help on this, but we have two slightly contrary views coming through in the evidence. Crisis told us that it thought registered social landlords should be required to feed in information to you about the level of rent a claimant should be eligible to pay, so that the amount that was added to the Universal Credit was an accurate reflection of their actual rent in that particular locality, under this new system.

  Now, the Building and Social Housing Foundation argued for something rather different. It said that for each area you ought to have flat rates so that if you were a claimant you could go to a table and look up your local area; there might be five or 10 different household sizes or shapes, but it would be very simple. Look it up, and then rather than all the current calculations and bureaucracy, you'd just be able to know how much money your household formation would get. I wondered if this was something that you'd looked at—whether to have perhaps a very accurate but rather bureaucratic system or something that's a bit simpler and more accessible.

  Mr Duncan Smith: The whole principle is to make sure that these things are simpler and easier to understand, but there are complexities to be recognised within it. While I understand what the latter group said about the need for absolute simplicity, there are complexities that we recognise. What we are trying to do is reflect that by still making it simple. Terry, do you want to say anything about the details?

  Terry Moran: The obvious thing to say is that if it was a flat rate, which is what the Building and Social Housing Foundation were offering, then in terms of administration for everyone's understanding it's pretty clear and indisputable. If, however, we have a system about your actual costs, we have to have systems that will help us gather that information effectively and quickly, and assure ourselves that it is the right number. We are at the early stages of understanding whether, and how, we should do that. Part of this, inevitably, relies as it always does on the people who are the customers—the claimants of the system—telling us. We then need to think, and to have systems in place that assure us, about whether we go down the full route that says that, for every single person, we have that automatically available to us. That might be a disproportionate cost, but we will look at it.

  Q104 Mr Heald: You are starting the migration in 2013, but when would your emerging thinking become clearer on this point?

  Terry Moran: During the course of this year we need to be absolutely clear on that, and certainly because in the summer we will be wanting to let contracts, particularly with our IT suppliers, about some of the core elements of what we want to do. So during the passage of the Bill, and certainly no later than summer, the high-level building components of what we want the system to do for us will need to be understood.

  Mr Duncan Smith: We would be happy to engage with the Select Committee again. You will forgive us, but the point we are making is that we have got a lot of this sort of advice coming from all sorts of groups. It is about trying to get the balance right between making sure the system is simple and making sure that it reflects, sometimes, a little more reality on the ground about what people actually need. While we could go for an incredibly simple system, we would end up having to pick up the pieces of some of the fallout on that. We would be very happy to listen to the opinion of the Select Committee on that. We're still at the point of trying to figure it out.

  Q105 Mr Heald: A similar issue has been raised with us over support for mortgage interest where, at the moment, it's a very broad-brush approach: an interest rate is set and that is the amount. Various witnesses have been saying to us that it would help if that could be a more accurate reflection of people's costs. That is raised particularly in the context of the disabled and the shared equity arrangements that they often want to be part of, for independent living. Do you have any thoughts on the balance there? Is it better to stick with the broad brush or would it be possible to move to something a bit more individualised?

  Mr Duncan Smith: Instinctively, my reaction is that the simpler we can make that, the easier it is to administer, but I recognise the problems that we have had quite recently, where the nature of broad-brush means that sometimes you set the rate far too high, and then, when you have to reduce it, others who have set themselves on the higher rate find themselves trapped. I fully understand that.

  Frankly, there is no easy solution to this. We think the principle that should lie behind this is that we basically set an amount that is attached to Universal Credit that deals with it. Again, much like Housing Benefit, we are still trying to figure out whether we go for a simple flat amount, in the sense that it is set and pegged at a rate, or whether we take a greater understanding of the different natures of mortgages. Personally, instinctively, I sense if we start making it too complex on the mortgage front, we are going to end up introducing complexity through the system and then lots of caveats, and I think if you do that it starts to run against the principle of Universal Credit.

  So again, there is no simple answer. We've got lots of advice and we'll reach a conclusion at roughly the same time as we do on Housing Benefit.

  Q106 Mr Heald: Overall, the Institute for Fiscal Studies (IFS) has said there are substantial advantages to having an integrated simpler system, with reduced administration costs. Money lost to fraud and error would be a lot simpler to understand, and so on. So is what you are telling us that on issues to do with housing costs, you are more likely to go for a simpler, more broad-brush type of approach rather than something that is very individualised but complex, bureaucratic and so on?

  Mr Duncan Smith: No. I wouldn't draw too much on that. What we are simply saying today is that we have had a lot of advice from a lot of people and a lot of it conflicting. Obviously, different interest groups represent their interests and therefore they will pitch in two completely differing views, as you have seen.

  My sense about this—for what it is worth—is, instinctively, that Housing Benefit is by its very nature more complex than the mortgage relief side of things, because with Housing Benefit, for the most part you are dealing with quite vulnerable people who are often unsure about their own conditions, let alone able to declare some of that. So I think we need to tread very carefully when it comes to Housing Benefit. That is not to say that we don't understand there are complexities on the mortgage side, but when you are dealing with mortgages there is a sense that maybe people are a little bit more in control of their lives, and therefore that simpler nature may well be more usable there.

  Again, immediately everyone will say, "He's going to go complex and simple." But I simply say that that is the nature of where our discussions tend to be leading us in this. That is the only principle I would lay down. But again, it may be that I am completely wrong—I am, after all, only the Secretary of State.

  Chair: With Housing Benefit I think London is different—

  Q107 Glenda Jackson: You said that Universal Credit is going to be phased in over a period of time. But the realities of Housing Benefit are coming in very quickly, and yet I understand that the Government have commissioned an independent review of Housing Benefit. So presumably you haven't made up your minds as yet as to what the changes to Housing Benefit will be. When you do, are those changes in Housing Benefit set in stone, and will they be part of Universal Credit when it is phased in? Because the issue of housing costs is a particular concern for major groups of people, not least carers, and it is an area which at the moment seems to be grey and foggy.

  Mr Duncan Smith: The review we have committed to will be independent—I guarantee that. The sort of areas that it was likely to be looking at will cover most of those areas that you have concern over, and so, obviously, we will want to be guided by what that review finally tells us. It will look at things like homelessness and the nature of the number of moves and the type of moves that people make—things like the single room rent. It will look particularly at issues around Greater London, which we know has peculiarities. A London MP, as you are, will understand that fully. So it will look at a whole series of things—the size of families, what kind of disabilities people in families have. It will be looking at the nature of what impacts on that area and on that basis we have committed to it. We of course wouldn't commit to it if we didn't think it was worth listening to.

  Q108 Glenda Jackson: I appreciate that, and I appreciate the review. But my question really is, are you expecting that review to actually alter the amounts? For example, is the cap on housing benefit going to go up, go down or change, so that people are going to have to rethink again, in a comparatively short space of time? The second part of that question is, when that decision is made, is it going to be exactly the same decision for when Universal Credit becomes universal?

  Mr Duncan Smith: The point is really that the review, as I understand it—unless my colleagues correct me on this—will want to be looking at the impact of the measures on all the criteria that we are looking at. For all these groups—homelessness, disability, and so on—what is the impact of the changes going to be? Obviously, from there will flow some kind of recommendations. So it is the impact of what we are planning to do which will be the key to the review, and the review will therefore be looking at what we are proposing, and then deciding whether or not it has unintended consequences.

  Q109 Glenda Jackson: If the impact is deemed to be disastrous, presumably changes will be brought in? I am trying to get a timeline on this.

  Mr Duncan Smith: I agree. That is the whole point—we are asking independent people to look at this so that we can get a better view, not just within our own Department.

  Neil Couling: I gave evidence to this Committee, and recommended that there be some review of the implementation of these changes you as the Government were saying, "We think it will have these effects" and there were people outside saying that there would be other ones. In terms of the Universal Credit, what we are proposing to do is to take the Local Housing Allowance arrangements for the private rented sector and put those within the Universal Credit. So if we make changes before 2013 to the Local Housing Allowance regime, that will be reflected inside Universal Credit. I hope that answers your question.

  Q110 Glenda Jackson: I appreciate that. My other question is about the timeline between the review reporting and the changes to Housing Benefit coming in. If, as I say, the report states that this will be a total and utter, unmitigated disaster and you will have to think of different levels—that can't be right. Do you know what I mean?

  Mr Duncan Smith: Actually, the review will be complete before we start the process of moving across into Universal Credit. It is due to finish in 2013, so that will give us time to make any changes or decisions that are necessary.

  Q111 Glenda Jackson: But Housing Benefit changes are coming in well before 2013. That is my point.

  Mr Duncan Smith: They are. Those are the changes that we have already said we will implement now, but the review will be looking at what the impact will be as we move towards Universal Credit.

  Q112 Glenda Jackson: So it will have no impact on Housing Benefit claimants now.

  Mr Duncan Smith: Well, the changes we have already announced will go ahead.

  Q113 Chair: I am assuming that the review will review once the changes are in place. So the review will be a retrospective view.

  Mr Duncan Smith: There is a point that I should have made at the beginning, which was to remind people of the whole issue of transitional protection. The conditions and the state of people as we enter Universal Credit won't change. That will change in the future as conditions change. I hope that is helpful. People will be protected against their knowledge of where they are now.

  Chair: I think Alex has a very short question, then I will call Kate.

  Q114 Mr Heald: Chair, we did ask for such a review, and I think it was welcome.

  Mr Duncan Smith: As Neil reminded you, Chair, it's a feather in your cap that you got the review. We did give it to you because you asked for it. But we will be guided by it.

  Chair: We like to think that that was our first success as a Select Committee.

  Q115 Alex Cunningham: Whatever changes come in and whenever they change, reductions in housing benefit are likely to result in people moving away from where the jobs are. Have you made any estimate of the impact that that will have on the incentive to work?

  Mr Duncan Smith: First, I am not altogether certain that I agree that the changes that we are making to Housing Benefit—we can rehearse this debate all over again, but I don't agree that the changes that we have announced to Local Housing Allowance actually will result in people necessarily moving away from where the work is. I think what has happened to many people is that because of the way that the rents have gone, an awful lot of people have had to move away from where work is right now. You only have to look at London to see that some of the low-income families have had to move to the outskirts of London and commute a very long distance across London to get to work. In my constituency in north-east London, that is very much the case.

  Q116 Alex Cunningham: So you have got to expect more people to be doing that.

  Mr Duncan Smith: No. My point is that we are trying to resettle this so that ultimately, one way or another, living in cities such as London becomes more affordable for people across the board. The present system of payments and the Local Housing Allowance is unsustainable—as I say, we can rehearse that argument all over again, I don't mind. My view is that they were unsustainable. In the last two years, payments rose by 9%, and we need to get that back under control. It is as simple as that. In doing that, we want those rents to come down. That is the key point—40% of the rental market right now is sitting in front of you. What we do, does affect the rental market.

  Independent research shows that in the previous year, private rents had already fallen by 6% but LHA rents had gone up. So there is a mismatch between where those rents are. We've given all sorts of transitional relief to protect people during that process, and we have said that if local authorities can negotiate those rents down, they can get some direct payment. That is very much what the landlords were asking for, and we are now pressing local government to ensure that it helps deliver on that. Basically, if we can get these rents down, people won't have to move.

  Q117 Alex Cunningham: So there is no disincentive to work?

  Mr Duncan Smith: No. Quite the contrary; at the moment there is a massive disincentive in the system to work. The way that Local Housing Allowance is paid often makes decisions to go to work complete madness. If you are in an area and you are going to lose your Housing Benefit and you'll have to move house if you go to work, that in itself is a massive disincentive. To be fair, the last Government recognised that, and I think, had they been in power—I hate to say this—they would have had to enter on almost exactly the same process of change to the Local Housing Allowance because everyone recognised that it had got out of control.

  Chair: We will move on to how disability will be treated in the Universal Credit.

  Q118 Kate Green: At the moment, under the present system we have a number of disability premiums attached to particular benefits. Can you tell us how premiums that recognise the additional cost of disability could be treated under the Universal Credit?

  Mr Duncan Smith: Can you repeat that? I did not hear as everyone was turning their pages over.

  Kate Green: In the present system, disability premiums are attached to a number of benefits. Can you explain how premiums to recognise the additional costs of disability will be treated in the Universal Credit? I am particularly interested in how changes in entitlement to Disability Living Allowance when the Personal Independence Payment comes in might have a knock-on effect on some people's entitlement to disability premiums.

  Mr Duncan Smith: The main point that I make about the premium—my colleagues may want to pick up in more detail on this—is that again, rather like with the Carer's Allowance, we are into an area where it is quite difficult for me to answer the question, and I did make this clear to the Chair a week ago. That is simply because we are looking at how this works. There are two things we know, and you know this more than anybody else. One is the complexity that lies around the multiple levels of benefit that are paid, and we think there are some difficulties in that. We have consulted quite widely with disability groups about what they think we should do when we bring in Universal Credit. Should we leave things as they are? Should we change them? How would we do that?

  We are reaching conclusions about that, but I am not really able to tell you specifically what we will do. I will be able to tell you before the Bill is published, but I can't really tell you now exactly what our choice is on this. All I can say to you is that we want to try to make sure that, under Universal Credit, the system is easy to understand and that, if possible, existing anomalies do not act as problems to people who really need access to benefits. We have constantly discussed this with every group, rather as we have with the carers' groups, to figure out what they really want and what they would prefer in this process, but the premia, as they stand right now, are quite complex and difficult to understand for a lot of people.

  On the Disability Living Allowance side of things, the Personal Independence Payment and the consultation that takes this forward reflect the fact that almost every group we have spoken to has reached the conclusion that the present, existing disability living allowance has become very difficult to understand. You shake your head, but—

  Q119 Kate Green: It was actually the simplest benefit to understand.

  Mr Duncan Smith: Well, it is not. I am quite happy to show you the evidence from a lot of people who have claimed the benefit. Lots of them think that it is income-related. Lots of them worry about going to work, because they think they will lose it. It is very unclear to them what the purpose of it is. It has got quite complex given the nature of the various components inside it. Honestly, almost everybody who is actually in receipt of it is really unsure, and not one of them—well, very few of them—can absolutely say, "These elements are for this. These elements are for that." They have rather lost track of what they are getting, why they get it and when they will lose it. There is a lot of interplay with going back to work, which is the key.

  The key principle behind this, of course, is that we want to retain something that is not income-related and that supports the vulnerable disabled, with the most disabled getting proper support for their independence and living. Those will be the principles that lie behind this. The consultation is ongoing right now, and the impact of that will be taken into consideration.

  Q120 Kate Green: Can I particularly ask you, though, about one issue? Leaving aside the guarantee of transitional protection, which is very welcome, we know on the basis of the consultation that the Government have issued on the Personal Independence Payment that 20% less money is expected to be available for the new Personal Independence Payment given the current level of expenditure on DLA. Leaving aside transitional protection, could access to money to support the cost of disability be less under the Universal Credit than under current benefits for those who come into the system for the first time?

  Mr Duncan Smith: Again, you are dragging me into a specific answer. I am sorry to be cagey about this. It is simply because this will become very clear when we publish the Bill. I cannot really say absolutely. I can instinctively say that that is not my intention.

  Q121 Kate Green: Can I just ask one other thing about carers? I appreciate that you have not been in a position today to confirm whether Carer's Allowance will come within the Universal Credit. Whether or not it does, however, could you tell us whether you see an opportunity to reform support for carers so that they can move away from the all-or-nothing cliff edge that they face at the moment, where, if their earnings move over £100, everything goes.

  Mr Duncan Smith: We all know that this is not a good position to be in and that having cliff edges leads to unintended consequences. All the evidence we have taken and all the knowledge we have internally within the Department tells us that this is not the greatest system. A lot of carers on low income who may be caring part-time, or who would like to squeeze or improve their income, could do some work, which would top up their income. It would be great if they were able to take that income.

  When we asked the carers' groups about this, there was a little bit of a split view on it. They want carers to be able to take those decisions, but they are also very reluctant to see any of the Carer's Allowance tapered, which would, of course, be the issue. You would be able to deal with that if you were tapering it, because that would allow people on low income in particular to benefit enormously. We recognise that. I understand and recognise this, and I am as frustrated as anybody else, because the one thing I would really love to do is resolve this issue. That is why I am unable to say today what the final resolution of this is.

  I accept and agree completely that there is a problem about a cliff edge. It is an invidious problem. But, again, as I say, the carers are slightly divided in their own minds about what they would consider to be reasonable and unreasonable. That is where we are at the moment.

  Q122 Kate Green: So that is not something that you expect to have resolved by the time the Bill is published?

  Mr Duncan Smith: It is something that we hope to resolve. I promise you that I will tell you before the Bill is published what our final decision on this one is. I think you will understand from what I am saying that this is not an easy process. Everybody here would want to give the maximum support to carers because they do such an invaluable job. Although the benefits of the present system are that it supports carers, we know that it is also very unhelpful to carers who work to top up their income, because they hit this £100 cliff. That is deeply unfair. I fully recognise that, but resolving it on both counts is quite difficult, so I will let you know.

  Q123 Chair: Before we move on to disability, what happens to permitted work under Universal Credit? I can't find any reference to it at all in the White Paper.

  Mr Duncan Smith: I'm sorry, I didn't hear that.

  Chair: On permitted work, there are two levels to the old therapeutic earnings. There is the £20 that people can earn, which does not affect their benefits. There is also a short-term and a long-term permitted work that allows usually severely disabled people to earn up to £80 a week, and it does not affect their other benefits.

  Mr Duncan Smith: I don't think they are changing, but Neil, would you like to respond to that?

  Neil Couling: I don't think you need it, as such, because you have the larger disregards for disabled people of £7,000, and you have the taper rate cutting in after it. Permitted work exists now in the current system because you don't have disregards and tapers of that size. Our working assumption is that you don't need that, but we are still modelling through some of the effects to make sure that we don't get any unintended consequences from that.

  Q124 Chair: We have questions about disregards. It has been very difficult for us to work out what the existing disregards are and how they work. If you have a chart, that would be very useful to us.

  Mr Duncan Smith: We are still working through that. Neil's point is quite right, but our instinctive sense about this as we look at it is that the problem lies in the complexity at the moment, which is why you have to introduce all these exemptions. However, this system will, hopefully, capture those exemptions within the disregard. I didn't think it was a problem—

  Q125 Chair: The other thing to recognise in Universal Credit is that, where you have two disabled adults—not necessarily a husband and wife—living in a household, the household income nature of Universal Credit might be to the disadvantage of those two disabled adults, who at the moment are able to access things separately.

  Mr Duncan Smith: Under the present system—my colleagues will correct me if I am wrong about this—the household is defined as those who are linked within that family group. There can be another adult in a household who is not linked to the family, and they are treated separately as a household in their own right. Maybe I am missing the point.

  Chair: There might also be married couples who are both disabled.

  Mr Duncan Smith: I see what you are saying.

  Neil Couling: There are no new dilemmas created for those types of families in Universal Credit, because it is an existing issue if, for example, both were claiming Income Support but there were disability payments as well. It is a similar issue.

  Q126 Chair: So the dilemma remains.

  Neil Couling: If you have a household test for your social security system, those sorts of issues will always come up.

  Q127 Harriett Baldwin: I want to move on to that simplification into the household and the monthly payment. One of the flaws in the current benefit system is that couples with children are often able to get more in benefit for living apart than living together. Is the change to looking at payments on a household basis designed to affect some of the behavioural implications of that?

  Mr Duncan Smith: We didn't specifically set out to design that. Of course, bear in mind that Universal Credit was designed to try and introduce a simpler process that incentivised work. Nonetheless, as a simplified process, what the IFS pointed out and what we came to see, was that this will have an impact on what is loosely referred to as the "couple penalty".

  So, very much so. We want to do that, but it wasn't a specific core element of the design. The reality of the design—which I felt all along would happen once we simplified this and once we created the incentives to go back to work, looking at households—is that we will actually have eroded, not eradicated, elements of the couple penalty, which was something I mentioned yesterday.

  Q128 Harriett Baldwin: With the change to the single monthly payment to a household, which is obviously much more like the cash flow a household would get in an in-work household, has the Department done any work to analyse whether the payment is more likely to be made to the mother or to the father? Or will you be asking for a joint bank account? How will you be dealing with that?

  Mr Duncan Smith: Yes. We are looking at this at the moment. We want people themselves to decide who should receive this money. That would be one key point. For example, it could be possible for it to be paid into a joint bank account. It could be possible to pay this to the woman of the household, or to the man of the household. As far as possible, it would be really good if they can make that decision, in the sense of that one payment.

  We want to try and keep this as simple as possible. I understand and recognise, looking at the evidence that came to the Committee, the concerns. We understand that there are concerns and we have been thinking about that a great deal. We should have scope—and I will ask the other two to say a little more about this—and want to see if there is scope for us to be able to alter that, where certain conditions require us to alter that.

  We think that is feasible, but we don't want to make that the norm. In other words, there may be reasons why and it may be possible to make that alteration, but of course the trouble is that the more you alter, the less simple and more complex it becomes, which then introduces unintended consequences. The point really is—and I separate the monthly from where it is paid, first of all—that we would like to see that paid, and the decision about where that money should be paid, being taken by the family concerned. But there should be scope within the system to make alterations, where a change is required on specific payments. As I say, we are still looking at that at the moment.

  On the monthly side of it, I also notice in the evidence that there were concerns—and I think Ms Jackson raised some questions on this one, when I read back through it—about the idea of firewalling some of the benefits within it. I read that and was interested in it. The trouble with things such as firewalling and the way payments are made within the individual elements is that you then, almost immediately, start to lose the whole point of the Universal Credit, and you start subdividing again. The reason why people who currently receive benefits through the present system say that they have got it sorted out so that they get a payment here and that helps, and a payment over there, is because, frankly, they have to do it like that. Quite often the very complexity right now means that these issues are not settled at the same time.

  We are certain that because the Universal Credit is being done in the same place, we should reach a conclusion about this pretty much at the same time, with all the evidence in front of us. Now, I understand the concern about what happens if one element is still not settled, because it is one payment. But we do have, and will have, scope within the payment of the Universal Credit to make advance payments on the basis that most of the evidence, or a large chunk of the evidence that is available to us, indicates that this is a correct assessment, but we are still waiting for some. So, there will be scope to be able to do that.

  It should not be, and we certainly would not want it to be, the case that anybody would simply be without money because they are still waiting for the settlement of some of the evidence that is necessary to be able to decide whether they are on the right benefit. So, we think that should cover it. I don't know whether I've covered that specifically, or not.

  Terry Moran: I think you have covered that extremely well. The only point I would add is that the failure of the current system today is that when information isn't available to us, we force people down the Social Fund Crisis Loan route, which is not great for anybody and just adds to cost and complexity. The system will present the opportunity of payment to either of the couple or, if we see a real need to do so—at the moment we're not designing it, because it's been a default scenario—we could split the payment if we wanted to.

  Mr Duncan Smith: You mentioned monthly payments. I know that some concerns came out about asking people, particularly vulnerable people such as lone parents, who are used to two-weekly payments, to move to monthly payments. We think that, for the most part, most people can. We think it has the advantage that if you move people to a monthly payment, they're much more in tune with what will happen to them when they're back in work.

  I understand that we're dealing with a group that is used to a different type of payment. Having said that, when they moved from one week to two weeks, much of the same arguments were made and concerns stated, but, as I understand it, very little happened as a result. People reconditioned themselves to the two-week payment and resolved how they paid their bills over that two-week period. We will certainly want to work with people to make sure that their planning of their finances is better and that they understand the nature of it. They're getting a sum of money that needs to be spread over a month, not two weeks, and they therefore need to pick up their bills.

  But you know, there is a point that says the more you pay off each bill for them with a separate benefit, constantly, the more you're really taking away any control of their lives from them and not helping them reach the point where they can cross over to work. I understand that there is a balance. There will be some scope to help them out in these regards, but we think for the most part, and our evidence suggests—certainly from talking to lone parents and others—that they will be able to make that change with a little bit of support and help. Of course, we will keep that under review. We think it's important.

  Q129 Harriett Baldwin: What about the times when households form and break up? How would a larger monthly payment cope with that process?

  Mr Duncan Smith: I don't know what plans we have for the detail, but I think we should pick up that information quite quickly—much quicker than it's being picked up at the moment—to be able to adjust the payments.

  Terry Moran: Inevitably, if there's a serious breakdown in the relationship—they're no longer a couple, one moves out and all the rest of it—we know that that is something that will be reported to us immediately, because of the financial implications for one or both of them. Ordinarily, we would do what we do today, which is make a full readjustment of their entitlements against their new circumstances.

  Q130 Harriett Baldwin: My final question on this. When someone moves into work, is it possible, because of the earnings disregards, that they may find that they are actually taking home more than the person next to them who is in exactly the same family circumstances and exactly the same job, but hasn't been on benefits beforehand?

  Mr Duncan Smith: If the transition is protected, that is entirely possible.

  Neil Couling: We also know that there are people in the current system who are not taking up their entitlements, so we think there'll be an improvement in take-up through bringing everything together. But there are bound to be circumstances where that triggers the thought, "I could be getting this help as well." That would be a good thing, because it would help our poverty figures and so forth.

  Mr Duncan Smith: You'll see an element of take-up—this is the whole point about the poverty figures—that will improve because people understand it better. Your question involves someone who is cash protected versus someone who's new and isn't. It's a sort of notional difference, though. They're cash protected—we took a decision on that—so they've got time to make decisions about what they do, so there's the inevitability of a difference for a period through the system as long as they stay cash protected. The alternative was not cash protecting, in which case the change would be quite tough on them. We can't win everything on that one.

  Chair: We have a number of questions on the administration of Universal Credit. I think we covered quite a lot of them, but there might be the odd bit out of that that Teresa might want to pick up.

  Q131 Teresa Pearce: I have a specific question and a general question. The specific question is about digital inclusion. It looks as if, exceptionally, people will have face-to-face contact, but most people will access this via the internet. Will customers be able to choose face-to-face if they wish, or will they have to justify that? Does the Minister have any concern that people who are digitally excluded at the moment tend to go to public libraries to access the internet, when there is a current threat to public libraries? Has it been taken into account how that will affect the online system?

  Mr Duncan Smith: The point I made earlier about this is that we now know that between 80% and 90% of the group[2] we are talking about are regular users of the internet and understand it. A number of those will be people who use it from a central resource, maybe a library or whatever. About 85% of the DWP customer group does so from home. The calculation off the top of my head would be that 20% to 25% of the people who are knowledgeable about the internet do not use it from home; they go somewhere else to do it. Maybe the answer to your question is about 20%. I may be wrong on those figures, but I think about 20% would actually be users of the internet, but from a central resource.

  The rest will be making claims and so on from home. They are obviously comfortable with that; that is why they are doing it from home. The others that fall beyond will need interviews, which will for the most part be face to face.[3] Some may do some of it by telephone, which is another route. In various locations there are also terminals in Jobcentres. We are looking to put those into other places much more, so that people can go to remote terminals—perhaps in post offices; we have yet to discuss that. That will make it easier for people, with somebody nearby to help if they run into difficulties, to enter claims or changes in the easiest way possible. However, we will still be keen to see people face-to-face who have difficulty with that. If you want to give the details on that, Terry, you could.

  Terry Moran: You have covered most of it. I would just reinforce what I said earlier: we have started an intense and in-depth period of activity with people who are existing customers. We are understanding what it is that they welcome or are concerned about in going online. The feedback is not a showstopper in terms of their view. A lot of people have anxieties that can be managed through more information and communication, but there will some who will never do that. We, therefore, must have the mechanisms to ensure that we provide open and equal access.

  You asked about whether they will be allowed to choose one or the other. Through education, we hope to get to a preference, that the preference is the online channel. However, if anybody turned up, would we turn them away from a face-to-face once they were in the office? We might actually want to help and encourage them to use the technology that is there in the office. Part of the support we want to put in place is about how we ensure that people try online, if they are not au fait with it, and how we keep them online if they are finding it difficult. The support we will put in during the transitional period is about understanding that.

  Q132 Teresa Pearce: We have all said that simplification is good, but it is difficult. People going into part-time or casual work would previously have lost their benefit. Now they will be able to keep it and that is a good thing. They have to say how many hours a week they have done.

  In your document, it says that that will be done through the PAYE system, but not every person who is on PAYE is through a BACS automated system (Pay As You Earn taxation system and Bankers Automated Clearing Services). That would tend to be a person who had a casual job—maybe in a corner shop, that sort of thing. How are they going to be able to let people know exactly what they have earned that week, particularly if they are in something like the hospitality industry where much of the money will come from tips that do not go through the payroll?

  Mr Duncan Smith: May I say two things before Terry answers that question? First, the vast majority of people on benefits are run through the system. I think it is about 98%.

  Q133 Teresa Pearce: With respect, that is 98% of the wages that we know about.

  Mr Duncan Smith: I accept that. We haven't just set it around that. However, the majority will actually be swept up. There is a plus to this. Right now everybody is caught as to where they should make changes clear—whether it is tax credits in one place, or benefits. To whom should they pass the information? If they pass it to one place, we don't talk to them. The benefits offices—the DWP—aren't talking to the tax credit offices about what information they hold on somebody. At the moment, the onus is on the individual to do that, for everybody who makes a change. It takes so long to sweep it up, hence the overpayment, hence the clawback and all the heartache that goes with that.

  It is important that this system will eradicate a lot of that. There will be one place, one point of information. A lot of it will automatically be picked up through the PAYE system—it is important for that to be known—and that will take a lot of stress off people who do not realise that they have to inform someone. A lot of their hours changes will be picked up through the real-time process. However, we will need to pick up this other group, and they will need to help us by telling us what is going on. That will require one-to-one contact. Did you want to add to that?

  Terry Moran: I should add that that issue exists today, of course, in that people need to tell us when they have some earnings, and honest people continue to do that. We have choices about how you aggregate that and the frequency with which you do it. With the new system, for those who will use it online, it will be the easiest of all, so there is only one place where you will be reporting this. How we determine the treatment of that information is another set of choices. Do we really want people to be required to do that every week, or should we be saying we will take it by the month? These are things that we have yet to decide.

  Again, part of the customer insight activity that we're undertaking in research is about understanding people's reactions to those kinds of issues. It is really quite important. For example, come the summer, we will have a prototype of the front end of what the system will look like, which we will have people using. I am fairly confident that whatever we have in the summer will not be what we introduce in October 2013, because that will be the result of research and the input of real people telling us what has made the system hard or difficult.

  Q134 Teresa Pearce: The good thing is that most people will now be automatically "declared" by the PAYE system, but my concern is that that will mean that if someone is getting a wage, they will assume that the tax office knows about it when it might not. A piece of work needs to be done for those people, because people tend to think that the tax office knows everything.

  Terry Moran: Understood. That's a very good point.

  Mr Duncan Smith: We fully accept that. We will take a note to make sure that we absolutely will be able to tell you in the future that we have some solutions for that group.

  Q135 Andrew Bingham: The estimates for savings are £1 billion on fraud and error and £500 million on admin costs. How did you arrive at those figures in terms of all the changes and taking account of what you have just said?

  Mr Duncan Smith: Neil, do you want to get stuck in on the details of that one? Personally, I think that the estimates are quite conservative.

  Neil Couling: We spend about £2.5 billion at the moment administering benefits and tax credits across HMRC, across the local authorities and in the various DWP agencies as well. I think we have taken a rather conservative estimate that, by bringing the system together, we will derive efficiencies and savings of around £500 million. As the Secretary of State said, it will probably be more, but I'm not going to do the Spending Review (SR) negotiations for SR2013 or SR2016 here today—I hope. I think that we have been quite conservative. We have run those assumptions past colleagues in the Treasury, and they agree with them.

  On fraud and error, it is actually error rather than fraud that you particularly pick up through the real-time system. There are two things that go on. To pick up on Ms Pearce's point, some of the earnings in the black economy get picked up because notifications are fed to us through the PAYE system, but there is also a lot of overpayment that occurs in the current system because earnings are declared late to us. That then shows up as error, but that will not happen with this system.

  Finally, there is a third component, which is in the tax credits system now. Assessments are made a year in arrears, in effect, and overpayments are made. You have probably had this in some of your surgeries, where constituents have said, "I've just had this demand for payment back," and so on. There is a big chunk—I think it's about £600 million or £700 million—of overpayments that we think will disappear because of the move to real-time assessment.

  I think we have made quite a conservative assessment of the gains that we will get on fraud and error, and then on administration.

  Mr Duncan Smith: If it's of any use, it also helps politically to tone the rhetoric down quite a bit. We can turn the knob down on this. There is always this "fraud, fraud, fraud" and everyone wagging their finger at everyone else, but the truth is that quite a lot of what we hear about politically and constantly as fraud is often complexity error. It is very easy for us to say it is fraud, and people feel quite stigmatised by that. The truth is that quite often it has nothing to do with them; it is simply that the system itself means that they did not understand what they were meant to be doing, yet they are apparently committing a fraud. A lot of them did not know that that was the case. We hope that, politically, this will tone some of the rhetoric down and basically stop people being accused of something that, frankly, is partly because of the system and has nothing to do with them.

  Q136 Andrew Bingham: At the risk of being controversial, I would not quite take that as read just yet. There is a fraud problem.

  Mr Duncan Smith: There is a fraud problem—I accept that.

  Andrew Bingham: We should not minimise it, to be truthful.

  Mr Duncan Smith: I am not minimising the fraud problem. My point is that this will help, I hope, in our understanding that some matters that we term fraud, are not really fraud. They are actually about the complexity of the system and people's failure to understand the system in general. The rest we can define as fraud. This allows us to get after the real fraud in a much more focused way, rather than spreading resources across looking at this, because we will pick up elements that are to do with the way in which things are reported. That is the point that I was making.

  Chair: We now have questions on Council Tax and the Social Fund.

  Q137 Brandon Lewis: I have a couple of questions on Council Tax and the Social Fund. Taking Council Tax first, it makes sense, looking at the White Paper and the comments made, to move it to local authorities. Is the reason for moving it to local authorities—to try to tease you a bit beyond what the White Paper says—to cut down on the administration cost of having two different Departments effectively doing it, when the local authority does Council Tax anyway? The White Paper refers to working "closely together with local government and the devolved administrations to develop detailed proposals." Can you go any further than the White Paper about what those proposals will be, and how this can work in practice? In my experience, having been with one for quite a long time, local authorities have an innate ability to make things complex without any help from the outside.

  Mr Duncan Smith: As you know, it was announced by the Chancellor at the time of the Spending Review that it was our intention to localise Council Tax Benefit. The pluses on that are, basically, that the whole process of the Government at the moment is to try to give councils greater control over their budgets and greater control over how they set such things to reflect the nature of changes in their local areas more than nationalised systems can do. The DWP is arguably one of the most nationalised Departments in the sense that we control centrally an awful lot of what goes on in people's lives.

  There is a plus element in what we are referring to and in what the Prime Minister is very keen to do, which is to say, "Look, let's let local councils understand some of the more changed needs down at local level." That is pretty much what we are going to try to do, and do successfully, I hope. None the less, of course, we still have to make sure that the work incentives that exist through Universal Credit, and by extension through Council Tax Benefit, continue, and we are taking a series of decisions about how best to do that, which will become clear at the time of the publication of the Bill, I hope.

  Brandon Lewis: On the Social Fund, this is really interesting and quite exciting for local authorities, because it fits perfectly at the time when we have the Localism Bill going through as well and we are moving to a local focus on local needs. May I tease out some of the issues with you, particularly in the light of an article from The Times this week, "Crackdown on crisis loans as payout total reaches £1 million a day", The Times, 5 February 2011, a copy of which we have all been given today? I know from speaking to professionals in Great Yarmouth recently that there is a view about the cash crisis money. One professional made the comment to me a few months ago that there are certainly people using it because it is too easy to access, and they are doing it quite regularly, as some examples in the article outlined. With that in mind, if that is going to be localised, what are the plans, if there are any, to have some form of—I hate the word "prescription"—some direction from the centre around how that should be administered by local authorities? Or is the intention to let it be truly local, so we will get disparity between local councils over what they do and how they administer it?

  Mr Duncan Smith: I go back to the comment that I made earlier, which is that the intention of the Government is, as far as possible, to localise a number of different areas, so that they can be administered and therefore modified at that local level. I must just say about the Social Fund that we have had to try to bring it under control, because with the very nature of what has gone on in the past few years, it has run out of control. Thus, trying to get the thing back under control is our first priority, which is why we have made sure that we try to manage the awards back to a level that is around the 2006-07 levels. In the past few years, it just rose and is out of control. Trying to manage that back down is the main principle in financial terms.

  We face a financial problem—crisis—at the moment and we are trying to make sure that what we do deliver is delivered to those, obviously, who are most in need. There is a sense that, quite often, some of these loans are made to people who may actually be able to get money from elsewhere. Putting money into things like the child element of the tax credit is an area where we think we can get to people much more definitively and help them through their difficult periods.

  Q138 Brandon Lewis: That fits exactly with what was said to me. Even with moving this locally, there will obviously still be times when the centre can give guidance or an indication of what it thinks would be appropriate, so will the Department be looking to suggest to local authorities that one of the ways to move this forward is for this to be part of what Jobcentre Plus can do? My experience of talking to the people at Jobcentre Plus was that dealing with these people—seeing clients day to day—put them in quite a good position to help clamp down on this, rather than local authorities setting up another department and having their own extra on-cost. They could effectively contract this out.

  Mr Duncan Smith: You must have been in the discussion.

  Q139 Chair: In a lot of the evidence we have taken, the organisations are completely puzzled, I have to say, about why you moved the Council Tax Benefit out to local authorities. They seem to think that that flies completely in the face of everything you are trying to achieve with the single Universal Credit and, indeed, with the Social Fund. I am wondering, did Eric Pickles' localism trump your simplification? Is that what happened in Government?

  Mr Duncan Smith: I wish it was as simple as that. The reality really is that, from the word go, the Prime Minister has made it clear that he wants to see as much as possible being moved to the local level, to local councils. You have seen the changes that have taken place—we can all debate as to how those work. The key for us, though, is not so much where the variations are but that, with the Universal Credit, in one way or another the interaction between them does not disincentivise the move to work. That is the key. When we finalise all of this, I think you will see that that will not be the case. If so, we will all be satisfied.

  Q140 Chair: You can understand why people think that this is a move backwards, in terms of complexity, which is what you are trying to get out of the system.

  Mr Duncan Smith: I guess it depends on whether you are passionate about localising things or passionate about work incentives, and where the compromise exists, because there are very good arguments for both. The question is how we square that particular twin demand, which exists in this Government because we have set one of our priorities as localising as much as we possibly can, while at the same time making the system as efficient as possible, so that we don't get rid of the work incentive. I would focus on whether, at the end of whatever we do, work is made less viable or more viable. That is the key test for us.

  Q141 Brandon Lewis: The converse argument, touching on the localism side, particularly with the Council Tax option, is that it depends whether you see this as simplification or, as the Chair said, otherwise. It comes from the position you are looking at it from. One of the comments I have had locally is that this is actually simplification, because the council tax benefit is going in with the body that deals with Council Tax. That in itself is simplification of where we are now, with two different organisations dealing with something and transferring data backwards and forwards all the time. That could be simplification.

  Mr Duncan Smith: There is a strong argument that the people on the ground, in the council, who are dealing with the tenants who are in existence at that stage and with others in receipt of it, are the people who know. They are much closer, they will know the conditions and they will understand in their local area what variations may be necessary. My point, therefore is, that it is possible to square this circle. We can have localism, as it were, within this Council Tax Benefit procedure, as long as we don't end up making the work incentives worse. That is the key test we need to look at.

  Q142 Harriett Baldwin: From an administrative point of view, where my three district councils all share a revenues and benefits administration department, they would be more than willing to take on more of the administration if that was an opportunity for them.

  Mr Duncan Smith: Yes, that is pretty much the point that I am making. It gives them localisation, but the key thing is the work incentives, which is the issue from our standpoint. I don't have a strong view that says it shouldn't go out—I am actually quite in favour of localising—but my point is, only as long as we don't lose the work incentives. That will be the test.

  Q143 Chair: May I ask a question on behalf of the British Legion? They have been very keen to get Council Tax Benefit renamed, as Council Tax Rebate. It was in legislation passed by the previous Government, and the British Legion are frustrated that this hasn't happened. They are now worried that they will have to negotiate with over 300 local authorities to try to get the name changed. They feel that it is very important, particularly for an older population who are put off claiming a benefit, when in fact it's not a benefit but a rebate. Has the Department put any thought into this?

  Mr Duncan Smith: I have not discussed it myself although I can understand the nature of their concern. It is one that I missed within the evidence sessions that you took. I am certainly happy to go back and have another look at this. Have I missed something?

  Neil Couling: We reflected the Royal British Legion's view in the White Paper. I think that the sense of Council Tax Benefit, localised, is that it would have to be a rebate—I don't see how it wouldn't be.

  Q144 Chair: It is the actual name. They want it printed.

  Mr Duncan Smith: I missed the point about the name, to be honest with you.

  Q145 Chair: They are not arguing one way or another about how it should be administered. It is the name.

  Mr Duncan Smith: Let me come back to you about this because it is certainly something that I completely missed. I will definitely have a look at it to see what scope there is to make changes to reflect that.

  Q146 Glenda Jackson: How far will localism be allowed to go? Will individual authorities be able to change the rates of Council Tax Benefit and/or rebate, or will this be set nationally?

  Mr Duncan Smith: These are matters that we are in discussion about at the moment. That is my point about where we end up.

  Chair: I think we will have to come back to this.

  Mr Duncan Smith: I definitely will come back to you. I promise you that. I understand your concern.

  Q147 Alex Cunningham: It has been put to us that Universal Credit would need to cover at least 80% of child care costs to match the sums currently available through Housing and Council Tax Benefit for child care, in addition to the child care element of the Working Tax Credit. Sam Royston from Family Action calculated that if it is introduced at 70% and there was no additional help, a lone parent with two children, £100 rent and £20 council tax and earnings of £15,000 a year, working 30 hours with child care costs of £200 would be £35 a week worse off. I appreciate that that is quite a mouthful, but what he is actually saying is that there are real examples of people who will be worse off. Do you agree with the assessment that the 80% of child care costs needs to be sustained?

  Mr Duncan Smith: Do either of you want to pick up the details of this? There is a whole series of figures to be given on this one, so why don't you start?

  Neil Couling: A change is happening in the current tax credit system in April, where the overall limit for child care costs will go down from 80% to 70%, which takes it back to the 2006 levels. As we said in the White Paper, child care arrangements are currently anchored on the 16-hour point for lone parents. If we are to make our proposals work and get more lone parents into work for fewer than 16 hours, we think we need to extend in some way the child care arrangements down the hours scale. We have tried to find the best ways of doing that within the current envelope of spending. We have not reached any conclusions on that yet, but that is the thing we are wrestling with.

  Q148 Alex Cunningham: So additional help could still be built in to ensure that that family unit does not lose £35 a week.

  Mr Duncan Smith: We are looking at all of that right now. I cannot give any guarantees on that. The principal area that we want to deal with, which is why I want to give the figures first, is to look at a way in which we can—this will be the key change—put this care down the scale as we open up the hours. We need to try to support people in the lower hours groups at the moment, as they go back to work. That will be an issue. The honest truth is that we have not completely reached conclusions on how best to do that. We will be quite happy to share them with you, but at the moment that is where we sit. How we answer that question depends on what the balance of arguments comes down to.

  Q149 Alex Cunningham: This is not an example of someone on low hours. This is someone on quite high hours—30 hours a week.

  Mr Duncan Smith: I accept that. It is part of the whole review that we are looking at the moment.

  Q150 Alex Cunningham: Have you decided which of the three options for providing support for child care in the Universal Credit you want to go for?

  Mr Duncan Smith: Not exactly, no.

  Q151 Alex Cunningham: Can you give us a clue?

  Mr Duncan Smith: I will give you a clue when we are a bit closer to the finalised detail. I'm not sure that there is much more I can say on it. We have had a lot of representation on it and I want to be clear about what we think the balance should be before we announce where we are. We are taking everybody's comments into consideration. There have been a lot of different comments about the best way to do it, so if I start trying to give you a steer, we may not end up in that direction. It is still an ongoing discussion, and I guarantee that we will let you know as soon as we reach what we think is a balanced conclusion.

  Q152 Chair: That kind of detail is not going to be on the face of the Bill, then—it will be done through regulations.

  Mr Duncan Smith: It's not something that we will write on the face of the Bill, but as the passage of the Bill takes place, we will become clearer about it and we will certainly let everybody know.

  Q153 Chair: So, the principle that child care will be included in the Universal Credit will be on the face of the Bill, but not the mechanism that will be used.

  Mr Duncan Smith: Yes. We want to figure out exactly the best way to do this, and we still don't think that we are far enough forward with understanding everybody's concerns.

  Q154 Alex Cunningham: How will work-associated costs and passported benefits be treated under Universal Credit, to ensure that people are always better off in work, with eye tests, their teeth, and so on?

  Mr Duncan Smith: Passported benefits are slightly complicated, because not all the elements that we deal with are within our responsibilities, so we're dealing with such things as free school meals and other areas, and we are having to discuss all that with different Departments to see how we will reflect this best. We still know and believe that we have to reflect it through the income process. Again, we have to try and get other Departments to agree with us on how best we can do this. Then we can take it within Universal Credit, so people don't lose out, but also so it is able to derive a proper balance on the taper, so that people who are eligible for these passported benefits actually get what they need. That is, again, an ongoing process. I don't know whether anybody wants to add anything.

  Neil Couling: What we are trying to avoid is a kind of bundling up. There are about five or six different main passported benefits. If we were to adopt the same trigger point for that, they would have a big disincentive effect for individuals and families considering work. We are engaged in various discussions across Whitehall, and we are trying, effectively, to stagger the points of withdrawal, so that they act less as disincentives to work—if that makes sense.

  Q155 Chair: That is important. At the moment, you can be in work and not qualify for free school meals, or you can be out of work and qualify for them. Actually, the net income is the same.

  Mr Duncan Smith: We agree. That's why we are taking our time. I'm sorry that I am not able to be clear on this, but we haven't reached an absolute conclusion about how best to do this. We will do it, but—

  Q156 Chair: The hope is that such things as Universal Credit will solve some of this. I promise that now you are in the home straight. Karen has the last section of questions.

  Q157 Karen Bradley: I want to turn to tapers and disregards, which we have touched on throughout the course of the evidence session. On the taper rate, 21st Century Welfare proposed 75%. Clearly, the Centre for Social Justice's (CSJ) Dynamic Benefits paper talked about a 55% taper rate. We are now talking about—

  Mr Duncan Smith: 65%.

  Q158 Karen Bradley: I am curious as to why we got to a 65% rate when 55% and 75% had been proposed.

  Mr Duncan Smith: Can I say two things about this? I read the evidence about this, and a representative from the IFS, Stephen Brien (of CSJ), and a representative from Reform—I think—were in front of you. To be honest, I didn't agree with what the individual from Reform said about some of this stuff. The IFS was about right, and obviously Stephen, who was involved in this with us before, understood it. Stephen's answer is the answer that stands, which is that this is a balance of what we can afford and what gives us the best advantage on the taper to still incentivise work, or working extra hours.

  We should be clear about this: bear in mind that the disregard is what affects the back-to-work choice, which is this thing that we call a participation tax rate, and that is a new concept from just the marginal tax rate. It is the starting point. How do you make that smoothing, so the disregard allows that incentive process to begin? The taper is then about how people find that increasing the hours and working longer becomes as advantageous all the way up.

  It is important not to lose sight of the key thing about Universal Credit, which is that in future, once we get Universal Credit in, any Government—whoever they are—will make decisions that are very transparent around those two things. Gone will be the days when the Government do an uprating statement and everybody glazes over in the Chamber because they lost track of half of it.

  You will be able to pin a Government down over those two things—where is the taper? If you think it is important to incentivise people even further up the chain to move into work, you will set your tone around a lower taper; if you don't, it is a higher taper. If you think the key question is back to work, your disregards will change. It is important to grasp that simplicity around those two things helps people understand it better.

  Moving on to the 65%, I hope that it is not lost on the Committee that I disagree with the gentleman from Reform when he said that this has all been tried elsewhere and that the incentives haven't worked. First, we have not calculated dynamic effect in this, but in the Dynamic Benefits paper from the Centre for Social Justice, we calculated—we believe reasonably—that there was a dynamic effect on costs.

  But none of that is in this; we are looking at this as a flat system, so our issues about households back to work and about children moving out of poverty are based on take-up. But this is not a dynamic process; we are not forecasting that there will therefore be more people. The gentleman from Reform seemed to indicate that that was the point, but it is not—we haven't. I happen to believe that this will have a dynamic effect, but between us and the Treasury, we have not calculated that—that does not exist, so his point that somehow this didn't work was a mistake.

  The second point about the 65% is that it is a political decision—that is what it amounts to now, much like the upper and lower rates of taxation are. The brilliance of this, if we describe it as brilliant, is its simplicity. If the Government say, "We are going to raise it," you can have an argument about whether that is unhelpful, and if they lower it, that is a clear statement that they are investing money in getting people back to work and you will all be able to understand that very simply.

  For us, the 65% still gives us an incentive to get people back to work, and the calculation on so-called winners and notional losers—because, obviously, everyone is cash-protected—comes off the back of that. But again, as I say, if you get hooked up on the 65%, you lose the point that, if another Government come in, they can make a decision about whether it is 55, 60, 63 or 72. It is their decision.

  Q159 Karen Bradley: You haven't modelled, for example, the impact of the cliff edge, the 16 hours, the 30 hours—that people might change their working patterns to reflect the fact that, in absolute terms, they would be worse off except for the cash protection on the transitional arrangements?

  Mr Duncan Smith: The IFS was good on this. As it pointed out, what has happened as a result of the tax credits subsidy of those hours is that you have clumping taking place around those artificial hours of work. I say "artificial" because all the evidence we have seen, particularly from lone parents, for example, suggests that if they had the scope, they wouldn't necessarily choose 16 hours. In fact, most parents, lone or otherwise, want to find a way of combining work and care. You would pick the hours that meet the needs of the care and as your child gets older, you could do more work.

  That is what the Universal Credit allows people to do and this is why at present, with the tax credit system, you see such a lot of churning taking place, because lone parents can only go for a job that says 16 hours—it is simply not worth their while, for the most part, to take anything else. We favour smoothing that out. That means if you are at the 16 hours, if you look at the lines, you will be a notional loser, because we are not going to meet that spike, but either side of the line you will be a gainer.

  So when people say they might change their hours, yes, the cash protection sits like the back of a seat to them, which says, "Look, at this present moment you don't have to worry about changing your hours because we're protecting your position, but as you reflect on this and think about what you want to do in terms of where you are, you might choose to change the hours you're working and you will be much better off doing it than you would have been before, when you wouldn't have had that option". That is the way I would see it.

  The cash protection is not just about saying to people, "We will buy you off for a while"; it is actually giving people time to reflect on what their own needs are. They may then say, "In fact, I really only want to do 13 hours. There is a job here with 13 hours; I'll take that". Or, "I'll downscale two hours from this firm—they've agreed it and I'll be better off. I couldn't have done that before, because I'd have lost dramatically on the cliff edge". So the cliff edge is gone, and what you end up with is a smoother line. That's the point of the taper.

  Q160 Karen Bradley: But you have not modelled that in the current assumptions that people will change their hours. Is that what you meant when you said you hadn't modelled the dynamic impact?

  Mr Duncan Smith: No. The point about the dynamic impact is that what we haven't allowed for is that as a result of the improved incentives to work, an extra number of people will suddenly start changing and moving their circumstances. I believe that will happen, but we haven't displayed that. What we have is absolutely flat; where people stand now, cash protected, they're there. Others will be in work earning higher levels of income at certain points because of the change in the taper and the withdrawal rates and marginal tax rates.

  Q161 Karen Bradley: That is what I thought you meant, so that confirms what I thought you were saying.

  I turn to the earnings disregard. I will make sure that this is the last question, given the time. The CSJ indicated that the earnings disregard was the important point about getting people into work, but it wasn't a policy decision to try to help people to progress through work; it was about getting people out of workless households. Is that something you would concur with?

  Mr Duncan Smith: That is the point about the disregard and the taper. The disregard is the participation tax rate issue. What we find is there is a cliff edge for people going into work right now, which is a disincentive for them to take that decision. I have always argued that it is one thing to wag our finger at people who are unemployed and say that they must go to work, with a sort of moral purpose to that. Of course it is quite meaningless to someone if you are telling them that and they think they are going to lose money, or certainly not gain any money, and they may have some travel-to-work expenses. The disregard is what meets that sharp entry point, and that is what it's there for.

  The taper deals with how that spreads itself up the line. At the moment, to go back to work as a lone parent, say, you would have to go for 16 hours to make it in any way worth while, and then you would have a real problem in moving up the hours, if you had more hours, until you get to 30 hours. I am simply saying that from now on that won't be a choice that people can't make, because the taper will allow for that choice by smoothing it out.

  The argument about where the taper lies is simply about how much of an incentive there is to move on up, and further up the scale do you incentivise people the way things are? That's why, as I said, the number of gainers is down at the lower end of the income scale, and the number of notional losers is further up the income scale. That is a choice of the taper, but any Government can change that.

  Q162 Kate Green: I have a question about the self-employed, where you are working on the basis of using the national minimum wage as the assumed income for a calculation of people's entitlement to Universal Credit. Will there be any mechanism for recognising where somebody might actually be in receipt of substantially less income from self-employment—particularly, for instance, when they are starting off?

  Mr Duncan Smith: This is an issue over which we have been hard at discussion, because that group is often difficult to map. I don't know if the others want to say specifically what changes will be made, but we are looking at that right now and we are conscious that that area is the slight blip in the system.

  Neil Couling: We are looking at flexing the policy. We recognise that if you're starting up a business your cash flow may be incredibly low at the start. It's not the role of the Universal Credit system to support businesses, but clearly we want people to go self-employed where they can, so we are trying to strike the balance between those two conflicting aims.

  Q163 Alex Cunningham: Save the Children asked a couple of things. What assessment has been made of the potential impact of Universal Credit on child poverty levels if the taper was lowered to 60%, then 55%? Is it the intention of the Secretary of State to move down that scale if the fiscal position improves?

  Mr Duncan Smith: The point that I was making earlier was that once Universal Credit is in, it is a much simpler decision to take about adjusting that. The figures we released about the effects on child poverty are absolutely clear about the number of households that will move out and the number of children—350,000—that should be lifted out of poverty. This does not include the dynamic effect.

  I still personally believe that the dynamic effect will actually make those figures better, because it will act as a real suck in to work for people. Obviously, the two things that change that are the taper and the disregard. If you set your disregards further up, you will affect those figures more positively. If you set them further back, you make that a slightly more negative position. We are where we are with the 65%, but it would be incumbent on any Government to decide, if this was their target, that one of the ways in which you could attack child poverty would be by changing the disregards or the tapers.

  Q164 Chair: May I ask about the effect of in-work poverty? The tax credit system was clearly to tackle in-work poverty—we can argue about how effective it was, but that was its specific point. That is going to go, and I am not sure how the Universal Credit will help alleviate in-work poverty. It does nothing for income rates or anything, and apart from tapering away more gently, it will not have the dramatic impact that some tax credit payments had in some families.

  Mr Duncan Smith: On the specific tax credits with regard to the hours at work, in a sense, we have smoothed that out. You can argue that it doesn't necessarily change in the sense of the interventions—

  Q165 Chair: There is a cut off if anybody has £16,000 in the bank. That is going to affect young couples who are saving for a deposit for their first house. It effectively means that they will not get the benefit.

  Mr Duncan Smith: But even the IFS's report was reasonably clear that people on the lowest incomes will benefit to the greatest degree under Universal Credit as things stand now. These are obviously decisions taken about how far up the income scale you want to go. Obviously, in a perfect world, and if we weren't in the economic situation that we are in, we might well have been able to go slightly further on this. We may yet be able to do that—who knows? My point is that the Universal Credit as set right now—again, I fall back on the IFS for this—has been described as "progressive". It will be more helpful to people on lower incomes, because they will be able to retain more of their income, and thus they will be better off, by definition. That is how we affect the child poverty figures and the number of households coming out of poverty. So my answer is that I think it does improve that situation. The tax credit was so focused on specific areas that it forgot an awful lot of people who couldn't make that and then got left behind. My point about this is that they will retain more of their income on the other hours, and that is why the IFS said that it was a progressive measure to help people on low incomes.

  Q166 Chair: But they will only retain that income if the disregards are right. There was a question earlier about whether it is possible to get a list of the different disregards. There are all sorts of disregards on Housing Benefits, such as those for war pensioners, child care and so on. But what those disregards are at present, and what they will look like under the Universal Credit, would be interesting—

  Mr Duncan Smith: Fine, but can I draw attention back to the taper point? The taper rate changes that dramatically for people on lower incomes. That bit materially affects the amount of money that they hold in their purse.

  Q167 Chair: Until you look at the child care costs, but I'm sure we will argue about that in the weeks to come. On behalf of the Committee, thank you very much for coming along this morning. It has been a long but extremely worthwhile session. Obviously, we are sad people who await the publication of a Bill with bated breath. One word on benefits or welfare and most people's eyes glaze over, and we get excited. Thank you for coming along.

  Mr Duncan Smith: I know, Chair, that you are all going off to America soon, so I will endeavour to get you the details that we have not been able to tell you today as soon as possible, even if that means communicating them to you in the rough circumstances in which you find yourselves in America.

  Chair: Thank you very much.

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1   Around 80% to 90% of Working and Child Tax Credits recipients use the internet. Around 65% to 70% of working-age DWP customers use the internet, the majority (around 85%) of these accessing the internet at home. The numbers are broadly similar for Housing and Council Tax Benefit recipients, in part due to the overlap between these customer bases. Back

2   That is, 80%-90% of tax credit recipients and 65-70% of DWP working age customers. Back

3   A very small number of vulnerable customers currently apply for benefits face to face and this is not expected to change under Universal Credit. Customers who are unable to claim online may claim by telephone or an alternative channel. We will continue to offer face to face back to work support. Back

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Prepared 7 March 2011