Written evidence submitted by Ferret Information
Systems Ltd
INTRODUCTION
1. Ferret Information Systems has, for almost
30 years, specialised in analysing and modelling the effects of
social security legislation and guidance for use in assessment
and advice. It has applied these skills to understanding the proposals
in the White Paper.
SUMMARY
- The White Paper itself is lacking in necessary
detail on the proposals and, more importantly, appears to contain
misleading information about the effect of the proposals.
- Universal Credit has a mixed effect but appears
regressive for the lowest earners.
- Building the Universal Credit on the core elements
of the existing benefits system creates an easier route to understanding
and migration but also embeds some problems which conflict with
the stated aim of simplification.
- There are potential problems caused by issues
of transition and duplicate systems.
- There are larger number of single elements on
which success is dependant than seems prudent.
- Housing costs reduction incentives, which seem
to be part of the policy present unfortunate side effects.
THE WHITE
PAPER
2. It is difficult to analyse the proposals
in the White Paper to a satisfactory level, for Ferret, as much
of the detail of the Universal Credit is explicitly, or implicitly,
awaiting decisions. We have modelled, as far as we have been able,
the Credit, and the path to it, and the results are commented
on later and in an attached publication.[72]
3. The White Paper appears, to us, to have
been produced without the expected thoroughness of consideration
or clarity of approach which normally characterises such policy
proposals. In an area of such importance, to individuals and to
the state, there is an impression of hurried superficiality which
leads us to hope that the Bill will be subject to extremely careful
examination, analysis and debate in its progress.
4. We are disturbed however by what seem
to be some misleading elements within the White Paper.
WHITE PAPER
FIGURE 1
5. Figure 1 on page 9 of the paper appears
within the section Poor work incentives and is referred
to in paragraph 16. It is not specified whether this chart is
meant to show the situation of a person entering employment or
already in steady-state employment, which will show a very different
pattern.
6. The second chart shows our analysis of
the same situation. We have assumed that, from the context of
work incentives, the chart is showing the situation of someone
entering employment.
7. In our analysis the white paper chart
is wrong at the 30-hours point - it should show a negative MDR,
not zero.
8. Also, the white paper chart appears to
suggest that the MDR exceeds 90% for part of the pre-30-hours
range and all of the 30-40 hours range—which it does not.
It peaks at just under 90% and is around 75% in the 30-40 hours
range, dropping to about 31% once HB has tapered away. At no point
does it reach the 96% referred to in the text.
9. The chart in the paper appears to have
applied the tax credit tapers as if any increase in gross income
caused an immediate re-assessment (as is intended to happen in
the Universal Credit proposals) which is not what happens in the
present system.
10. The (currently £25,000) year-on-year
disregard of increasing income is removed entirely from this model.
As a result it shows an artificially high disincentive to increasing
work hours or pay above the 16 hours per week mark.
11. Hours worked have little impact above 16
per week, except for the slight boost to WTC by the addition of
the 30-hour element into the total credit (and the resulting negative
MDR, not zero). Other than that, the extra hours just mean extra
gross pay. If modelling extra hours realistically for a single
parent the model should take the effect of increasing childcare
costs into account.
12. This representation of the "current
system" does not include the In Work Credit, worth a minimum
of an additional £40 per week, that a lone parent would receive
(albeit for a year only) when transitioning from under 16 to over
16 hours per week.
WHITE PAPER
FIGURE 3
13. Figure 3 of the White paper appears on page
15 of the paper and shows the effect of the reduction of increasing
earnings under Universal Credit. The taper described in the text
has a withdrawal rate of 65% from net earnings.
14. No information is given about housing costs
or other circumstances. No figures are provided.
15. In our annotated copy of the chart below
it will be seen that we estimate the taper as about 45%. It should
be not less than 75% (given stated 65% UC taper and that Earnings
are gross).
16. We estimate, crudely, that the starting,
no earnings, level is c£245. Using a rental figure of £80
pw (used in an example elsewhere in the White Paper), and a taper
of 65% against net earnings, our model, below, produces a result
where Universal Credit is extinguished at earnings of just over
£550 per week rather than continuing past £600 as shown
in the White Paper.
REGRESSIVE FOR
THE LOWEST
EARNERS
17. We refer, in following the references to
examples, to the paper Benefits in the Future—Welfare
after the White Paper published by Ferret in December 2010
and supplied to the committee in a separate hard copy.
18. It can be seen in Examples 1 and 3 that for
tenants on low earnings the effect of the UC assessment will be
clearly regressive with those on £10,000 a year gross earnings
becoming worse off in comparison with those earning £20,000
a year.
BUILDING ON
THE EXISTING
SYSTEM
19. In essence the "newness" of Universal
Credit will only be partial. Much of the structure will, at least
initially, owe much to the existing system.
20. Any means-tested benefit has three elements
- An assessment of "needs".
- An assessment of "resources".
- A calculation of entitlement based on needs and
resources.
21. The White paper tells us that Universal Credit
will share much of the first two elements with the existing system
and that it is the final calculation of entitlement which will
differentiate it and simplify the current complexities. This presumably
means that the complexities within the first two elements will
remain.
22. We broadly welcome the move towards a single
tapered withdrawal from a more universal starting point although
we have concerns about the rates of award. We particularly welcome
the effective abolition of "unemployment" as a concept
and flexibility that Universal Credit (UC) will bring to patterns
of employment.
23. We are concerned, however, about other areas
that UC will inherit from the existing system, in particular some
of the changes introduced in the Emergency Budget and the Comprehensive
Spending Review earlier this year.
24. The anomalies, and poverty traps, caused
by the introduction of a £500 benefits cap, shown in examples
22 to 24 in the Ferret paper continue in UC.
25. The effects of the High Rent cap, shown in
examples 25a and 25b are, if anything, even more exaggerated in
UC.
26. Some of these, and the effects in examples
17 to 21, may be considered outliers but dealing with them will
reduce the likelihood of achieving a simple and transparent scheme
that customers will understand easily.
TRANSITION AND
DUPLICATE SYSTEMS
27. The stated intention to introduce UC for
new claims from 2013, while continuing to run the existing benefits
system in parallel, seems unwise. We have been told that no pilot
of UC is necessary as the scheme will be so simple. Recent experiences
of transitions between schemes, such as the move from child allowances
in means tested benefits to Child Tax Credit and the move from
the "old" to "new" Child Support schemes,
have demonstrated that these tend to take longer and have more
complexities than first thought. It may also be that the introduction
of two parallel Housing Benefit schemes from April 2011 for nearly
two years may create further complexities.
28. The White Paper says "Contributory Jobseeker's
Allowance will continue in its current form but with the same
earnings rules (such as disregards and tapered withdrawal) as
Universal Credit". How this means-testing will operate is
unclear but it can only add further complexity into a system which
is intended to become simpler.
POINTS OF
FAILURE
29. A change to the benefits system of this magnitude
may be expected to have associated risks. It seems to us though
that the proposed speed of development and introduction of Universal
Credit has more risks than might be though comfortable.
30. There are risks of timing, in particular
those associated with the development of the HMRC PAYE system
which will be needed for UC to function as intended. Dame Lesley
Strathie, Permanent Secretary and Chief Executive, HM Revenue
and Customs appeared before the Public Accounts Committee in November
and it seems clear, from evidence at that session, that there
are very serious issues about the length of time it will take
to have a fully functioning system in operation.
31. There are risks in the development of detail
of the scheme. The final rules and rates will decide what the
effects on claimants will be and what the costs of the scheme
will be. A generous scheme can afford to be simple. A system which
is less generous will need to introduce complexities into its
operation to account of special needs and hard cases. Unless the
rules are developed, and tested, early in the process then there
is a danger of more, and greater, late amendment which, in turn,
will introduce feedbacks of more potential delays.
32. There are risks in the relationship between
the DWP, local authorities and devolved administrations. The movement
of responsibility and data will depend upon efficient, economical
and willing co-operation between a large number of organisations.
Such co-operation may well depend on political good will, as well
as the capabilities and systems of the different parties. In particular
the fact that housing support for tenants and Council Tax Benefit
will become much more localised and variable from place to place
will make relationships with different authorities more individual.
Councils will be able to operate their own Council Tax support
schemes while rent limits for Housing Benefit will become embedded
at different levels in different areas.
33. There are risks in the proposed move towards
internet claiming and other processes; this is an untried development
with technical and social uncertainties.
34. The length of time that transitional protection
may continue for some claimants will place more stress on the
operation of the scheme.
HOUSING SUPPORT
AND INCENTIVES
35. One of the implied policies within the White
Paper is the use of earnings disregards to reward those who have
lower housing costs. It can be seen in the Ferret paper, from
page 44, that there are some rewards for those who have a mortgage
on their homes rather than those who rent but the big rewards
are put in place for those who do not have any housing expenses.
36. As can be seen in the chart on page 51 those
fortunate enough to own their own home outright, or to have been
given one by parents, for example, will be substantially better
off from low earnings than those who are not so lucky.
CONCLUSION
37. We feel that there is much of value in these
proposals, as outlined, but that much more detail is needed to
properly evaluate them.
38. We caution against the proposed time scales
which seem unrealistically ambitious.
39. We are concerned that economic savings may
carry more weight than drivers towards an improved benefits system.
FERRET INFORMATION
SYSTEMS
40. Ferret is the world's leading company specialising
in the application of technology to advanced advice and information
for the individual. We focus on areas linked to social welfare,
assessment and support.
41. In 30 years of innovation Ferret has grown
out of a Citizens Advice Bureaux project, into a multi-award winning
company whose world's first's include the world's first large
scale roll-out of mobile technology in government and the world's
first Web based benefits assessment system—in 1995.
42. Ferret specialises in holistic assessment
of financial circumstances, coupled with a software development
methodology which offers a high level of flexibility and rapid
updating to reflect rule.
43. Ferret provides consultancy to companies,
organisations and government on the impact of legislative and
policy changes on their business and customers.
December 2010
72 Benefits in the Future-Welfare after the White Paper.
Ferret, December 2010. Back
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