Written evidence submitted by Barnardo's
INTRODUCTION
1. Barnardo's works directly with more than 100,000
children, young people and their families every year in 415 services
across the UK. These services are located in some of the most
disadvantaged neighbourhoods. We work with children affected by
today's most urgent issues: poverty, homelessness, disability
and abuse. Barnardo's aims to reduce the impact of poverty on
children, young people, families and communities through social,
economic and community action - around one third of our work focuses
on the alleviation of poverty, and it is an inescapable element
of nearly all our services.
2. In early 2009 we published Below the Breadline,
a year long study which followed 16 families, and provided a detailed
insight into the day to day lives of children growing up in poverty.[229]
Issues with the benefits system, and barriers to entering work,
came out as significant themes from this research. Reform of the
benefits system is critical if we are to break the entrenched
culture of unemployment that can exist in some communities and
ensure the Government meets its target of eliminating child poverty
by 2020.
SUMMARY
3. Barnardo's welcomes the White Paper and the
proposal to improve work incentives in the benefits system by
the introduction of a Universal Credit. We believe the proposal
could go some way to reducing complexity in the current system
and ensure that families are always better off in paid work than
on benefits, even if that work is only for a few hours a week.
However, such a radical reform of the benefits system requires
careful planning and consideration of a range of issues and while
we are supportive of the proposals we have some concerns about
the detail. Our main concerns are as follows:
- Help with childcare costs.
Families should be provided with sufficient help with childcare
costs, in a way which is transparent and that facilitates parents
moving into and progressing in work.
- Changes to council tax benefit.
The proposal to localise council tax benefit should not undermine
the basic principles behind Universal Credit, particularly the
aim to encourage paid work through the introduction of lower marginal
deduction rates for most families.
- Means testing of child benefit.
There should be a single mechanism for means testing benefits.
As such we believe that child benefit should be paid and means
tested through Universal Credit rather than through the tax system.
- Introducing harsh sanctions for families who
do not undertake reasonable steps to find work.
The White Paper outlines a significant increase in sanctions for
families who do not take reasonable steps to find employment including
a mandatory requirement to undertake work. While broadly supportive
of these principles, changes to this regime should not be such
as to make life worse for the most vulnerable children in the
UK.
4. We would welcome the opportunity to give oral
evidence to the committee.
HELP WITH
CHILDCARE COSTS
5. Evidence continues to show that access to
affordable, good quality childcare is a key element in the decision
to return to work for many families with children, particularly
lone parents. A report by the Equality and Human Rights Commission[230]
revealed that 28% of all non-working parents said they are not
working because of inadequate childcare provision, while more
than half of non-working lone mothers say they would prefer to
work if they could find good quality, affordable and reliable
childcare. This same report revealed that the cost of childcare
was a significant issue for families with around one in five parents
who pay for childcare saying that they struggle to meet their
childcare costs.
6. This research backs up findings from Barnardo's
which show that the availability and affordability of childcare
are absolutely key in the decisions of parents to enter and remain
in the workforce. In our response to the Green Paper 21st Century
Welfare we highlighted the following case study of a family
where the mother has had to give up work completely due to lack
of help with childcare costs - which under the current system
is only given to parents working at least 16 hours a week.
Michelle has four children aged 18, 14, 11 and 4.
She left her job as a youth worker because her hours were cut
from 16 to 7. This meant she couldn't claim working tax credit
and didn't qualify for other benefits such as housing benefit
and free school meals for her children. It no longer paid Michelle
to stay in work. As Michelle explains, there are not many opportunities
for youth work in the area:
"Hours, not enough hours. Sometimes they
start off with six or seven - depending on the funding they might
be able to give you a couple more hours here. If the funding runs
out you have no job."
7. The White Paper remains vague on how the Government
proposes support with childcare to be given under the new Universal
Credit system. Current Government thinking suggests a number of
options are under consideration, which include:
- Option one: allowing
childcare costs to be disregarded for the purpose of calculating
taper rates under Universal Credit.
- Option two: adding
a childcare element to the basic Universal Credit payment for
families requiring help with childcare costs.
- Option three: dealing
with childcare support outside the system of Universal Credit,
either through a voucher or discount based system.
8. Barnardo's believes the Government should
establish a set of guiding principles when developing a system
for supporting childcare costs. As a minimum we would hope for
a system which:
- is transparent and simple to understand;
- supports the provision of high quality childcare;
and
- supports a move into and progression through
work for parents.
As a minimum the Government should aim for a system
which provides a level of support with childcare costs which is
at least equivalent to the level provided under the current system.
In the Comprehensive Spending Review the Government announced
a reduction in support for childcare costs given through the working
tax credit from 80% to 70%. Any further cuts to this budget will
affect work incentives for many families at a time when the Government's
stated objective is to improve them.
9. Considering these principles we believe that
option one provides the worst option for families as it fails
to support a move into and progression through work for certain
groups of parents, while making many others worse off than under
the current system. Options two or three are more effective as
they involve giving families a direct payment to help pay their
childcare costs.
10. Dealing with childcare costs through the
disregard would make many families worse off than under current
working tax credit measures. This is because in reality even if
childcare was disregarded at a rate of 100%, this would effectively
give families a maximum level of help of 65% (the level of the
taper rate), and many families would gain significantly less than
that. This compares to a maximum level of help of 70% under working
tax credit. This point is illustrated in example one below.
Example one: single parent with two children
Wage: £5.93
Hours worked per week: 20
Assuming low childcare costs of only £40 per week and maximum
entitlement to Universal Credit equivalent to levels under the
current system of around £300 per week.
Under proposals in the White Paper assuming housing
costs of £72 per week (equivalent to social housing for a
family of that size), and childcare disregarded at 100% then a
family would end up with the equivalent of around £23 a week
to help with childcare through the disregard.
However under the current system the family would
receive the full amount of childcare costs given under working
tax credit and so would gain 70% of their childcare costs, and
receive an extra £28 for childcare. Thus the family gains
less help for childcare under the disregard system than currently.
11. In addition we also believe that there are
two main groups of families who would face particularly poor work
incentives under this system (particularly in comparison to a
system more in line with option two or three). Again this would
be the case even if childcare was disregarded at the generous
rate of 100%; these are:
- families working only a few hours a week for
a small amount of money ie those in "mini jobs"; and
- families with high childcare costs, particularly
those with more than one child, those with younger children under
the age of two, or those living in London.
FAMILIES WORKING
ONLY A
FEW HOURS
A WEEK
12. One of the aims of the proposals in the White
Paper is to ensure families have an incentive to undertake some
paid work, even if this is only for a few hours. We applaud that
principle and look forward to it being implemented. However, under
the current system many families face very poor work incentives
for working less than 16 hours a week (when they become entitled
to working tax credit). The Government recognises that childcare
is an important part of this stating that "The aim would
be to allocate some of the current support to those working fewer
than 16 hours, so that all types of work are rewarded". However
under a system which only gives support with childcare costs through
the disregard it is highly unlikely that many of these families
would qualify for any support with childcare at all as example
two illustrates.
Example two: single parent with one child
Wage: £5.93 per hour
Hours worked per week: 8
Assuming childcare costs of £48 a week and a maximum Universal
Credit entitlement of £230
Under proposals in the white paper, assuming housing
costs of £67 a week (equivalent to social housing for a family
of that size), the family income of £2467 a year would be
less than the disregard they would get even if there were no childcare
costs - which is £2,474.
This mother would therefore gain no extra help with
her childcare costs and as childcare will in this case exceed
her wages of £47.44 a week, then she would be better off
on benefits with no childcare costs than working and paying childcare.
FAMILIES WITH
HIGH CHILDCARE
COSTS
13. A second group disadvantaged by this system
would be families with large childcare costs, particularly if
they are earning only slightly more than the disregard. This will
have a disproportionate impact on lone parents with more than
one child, and those with children under two for whom the average
cost of full time nursery care in England is £176 a week.[231]
Example three: single parent with two children
Wage: £5.93
Hours worked per week: 35
Assuming childcare costs per week: £200 and a maximum entitlement
to Universal Credit entitlement: £300
Under proposals in the white paper assuming housing
costs of £72 per week (equivalent to social housing for a
family of that size), the family would still only be entitled
to 300 a week Universal Credit even after childcare is disregarded
at 100%. However the net wage is only £180 a week after tax,
and since this family has to pay £200 a week in childcare,
they have only £280 a week to live on after childcare costs,
less than the £300 a week they would get if they did not
work, did not pay childcare and just gained the full amount of
Universal Credit.
Under the current system this lone parent would still
be getting around £140 a week towards childcare costs through
the working tax credit payments, making them better off in work
despite the high childcare costs.
Given the issues highlighted above we would strongly
urge the government to consider
14. Given the issues highlighted above we urge
the Government to provide families with a specific additional
benefit payment towards childcare costs. Given that the amount
families receive would need to be means tested it would seem easiest
to do this as part of their Universal Credit payment, and would
represent an amount added to the basic Universal Credit award
for working families. Alternatively, Barnardo's would work with
Government and other experts to consider how proposals to pay
through a voucher system may work in practice. If childcare was
added to the basic Universal Credit award at a rate of 70%, this
would provide a better take home income after childcare per week
than under the disregard, for all of the examples given below.
- Example one: under
the disregard the parent would have a take home income after childcare
of £353, whereas they would have a take home income of £358
if childcare is added to Universal Credit.
- Example two: Under
the disregard the parent would have a take home income after childcare
of £229, whereas they would have a take home income after
childcare of £262 if childcare is added to Universal Credit.
- Example three: under
the disregard the parent would have a take home income after childcare
of £280, whereas they would have a take home of £332
if childcare is added to Universal Credit
15. As a minimum the amount added to Universal
Credit should represent around 70% of childcare costs for the
poorest families, equivalent to the support provided under working
tax credit after the reforms announced in the Spending Review
are implemented. In reality even this would result in a reduction
in childcare help for many families since under the current system
childcare can also be disregarded for the purposes of housing
benefit payments; as such help at 80% would reflect more accurately
current levels of support for families.
COUNCIL TAX
BENEFIT
16. Barnardo's would be very concerned at any
proposal to place council tax benefit outside the Universal Credit
system. As a means tested benefit, the introduction of a separate
system for applying for and calculating levels of council tax
(including separate disregard and tapering system) could significantly
undermine the Government's intention to introduce a single coherent
benefit system, introducing added complexity and the possibility
of reducing work incentives for those who would otherwise have
gained through the introduction of Universal Credit.
17. The key difficulty with keeping council tax
outside Universal Credit is that it will require a separate tapering
system. Under current Universal Credit proposals no family would
face marginal deduction rates of more than 76%. However if separately
for every £1 earned the family would lose not only 65p of
Universal Credit but 20p of council tax benefit (a taper rate
similar to that in place now), then overall including tax and
NI once a family income reached the disregard level then for every
£1 earned the family would keep only 4p of it giving a marginal
deduction rate of 96% significantly decreasing work incentives.
18. While we understand the Government wishes
to give local authorities more control over council tax benefit
payments we would strongly urge that this is not allowed to undermine
the very valuable principles outlined in Universal Credit. As
a minimum we would suggest that even if overall eligibility and
level of council tax benefit is decided at a local level, it is
still added to basic Universal Credit payments, thus enabling
it to be amalgamated into the proposed system of disregards and
tapers already in place. This would ensure that the proposal doesn't
interfere with the objective of improving work incentives and
reducing marginal deduction rates for poor families.
CHILD BENEFIT
19. Following proposals outlined at the Conservative
Party conference and confirmed in the Spending Review the Government
has made the decision to means test child benefit by removing
this payment from families with a higher rate tax payer. Barnardo's
has been supportive of restricting child benefit payments to higher
income families. In difficult fiscal circumstances we believe
that the best approach to reducing the cost of the welfare system
is to ensure better targeting of the limited resources available,
thus protecting those most in need while redistributing benefit
payments currently given to higher earning families.
20. We feel that the proposal to remove child
benefit payment from households with higher rate tax payers was
a step in the right direction. However there are a number of policy
anomalies with this decision, particularly in that the benefit
is not tapered but given either in full or not at all. This means
that for individuals whose income is approaching the higher tax
band they would be better off not earning more money, refusing
extra hours, or a promotion, rather than earning slightly over
the threshold since the extra income earned will not make up for
the benefit lost, particularly in households with several children.
This runs in direct contradiction to the policy of ensuring that
work always pays and that earning more pays more.
21. The introduction of Universal Credit provides
the ideal opportunity to simplify the issues surrounding child
benefit, by paying it alongside other means tested benefits. This
would remove current anomalies and allow for further targeting.
At present some households earning £80,000 can still qualify
for the benefit. We have always stated that the savings which
could be achieved through means testing child benefit could amount
to around £5 billion - this is £2.5 billion more than
the savings proposed by means testing through the tax system.
Saving a further £2.5 billion would provide valuable extra
income which could be used to increase benefit payments to the
poorest families and possibly lift significant numbers of children
out of poverty.
22. The payment of child benefit through Universal
Credit would simplify the system of payment for families and would
remove the need for low income families to make a separate claim
for child benefit.
CHANGES TO
THE CONDITIONALITY
REGIME
23. It is entirely reasonable that long term
recipients of unemployment benefits should be required to work
when a suitable job is identified for them and this is a well
established principle in the current system. Many conditionality
requirements proposed in this White Paper are not new and there
have always been sanctions for non compliance. We know from the
current system that the number of times sanctions are applied
are small (about 3% of all JSA cases).
24. However we do have concerns about elements
of some of these proposals and how they could impact on vulnerable
families:
- Will lone parents with a child under the age
of 13 be exempt from the requirement to undertake full time work
even when placed in the active job search group? At present these
parents are only required to look for a job covering normal school
hours (not full time) and it would therefore be unfair to expect
them to undertake mandatory full time work in preparation for
getting a part-time job. Childcare costs could also be an issue
for this group, depending on the Government's final decision on
how help with childcare costs should be determined.
- Will proposals to reform the hardship payments
take away vital support to families most in need? Even if a family
has conditionality applied to them they are still able to make
a claim for a hardship payment to avoid serious destitution. The
Government proposals for hardship payments in the new regime are
vague. The White Paper suggests that in certain circumstances
the payments may be given as loans and perhaps taken away from
some people all together if there is an overreliance on them.
Barnardo's would be very concerned if these payments of last resort
were not available to families who could be in desperate financial
circumstances. While we support the Government in its desire for
parents to work, some protection should be provided to prevent
vulnerable children suffering as a result of the conditionality
regime.
December 2010
229 Barnardo's, Below the Breadline: A year in the
life of families in poverty (July 2009), available online
at http://www.barnardos.org.uk/11325_breadline_report_final.pdf
Back
230
Equality and Human Rights Commission (2010) Childcare Matters:
Improving Choices and Chances for Parents and Children available
on line at:
http://www.equalityhumanrights.com/uploaded_files/research/working_better_childcare_matters.pdf Back
231
Daycare Trust (2010) Childcare Cost Survey 2010 available
on line at:
http://www.daycaretrust.org.uk/data/files/publications/34/Childcare-costs-survey-2010.pdf Back
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