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The Government uses means testing to distribute at least £87 billion of benefits to claimants each year, around 13% of total public spending. The poorest fifth of households rely on means-tested benefits for a third of their net income. The Government is undertaking fundamental reforms of the benefits system, including the introduction of a new means-tested Universal Credit that will replace a number of existing means-tested benefits. In doing this the Government should ensure that it learns from the lessons of the past and coordinates benefits effectively in order to safeguard value for money for taxpayers and claimants.
No one department has overall responsibility for means testing and for ensuring consistency of approach. The issue is dealt with on a department by department basis, with 30 different means tested benefits being managed by nine departments and 152 local authorities in England. No one is responsible for determining how much assistance should be provided through means-tested benefits rather than through other forms of support, or for thinking through the implications of reforms across departments. For example, reforms to higher education, and the resultant bursaries provided by higher education institutions, could have important implications for families who claim means-tested benefits, impacting on incentives to work or to increase hours of work.
Departments currently have a limited understanding of how their design of benefits affects incentives for employment, the burden on claimants, take-up and administrative costs. The Department of Work and Pensions (DWP) and HM Revenue & Customs (HMRC) tend to focus on the impacts of their own large benefit programmes, but overlook other important benefits administered elsewhere, such as free school meals and Council Tax Benefit. Departments need to improve their understanding of how all benefits interact and how changes to eligibility rules can affect claimants. Complexity increases the burden on claimants which can harm take-up, and is likely to disadvantage the most vulnerable members of society in particular.
The Government expects Universal Credit reforms to simplify the system and improve incentives to find work. The DWP's priority is to focus on the effective delivery of these reforms. However, success will also depend on proper coordination between Universal Credit and other means-tested benefits, such as Council Tax Benefit and higher education bursaries that may now be delivered at a disaggregated and local level. In addition, DWP and HMRC are designing a real-time information (RTI) system for Universal Credit to reduce the risk of overpayments, with benefits being recalculated as soon as circumstances change. Both DWP and HMRC need to understand how the introduction of this system will impact on small businesses and the self-employed who may not have the necessary IT to administer it.
On the basis of a report by the Comptroller and Auditor General,[1] we took evidence from the Department for Work and Pensions, HM Revenue and Customs and HM Treasury, as well as witnesses from Age UK, the Child Poverty Action Group and the London School of Economics.
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