Conclusions and recommendations
1. No single body is responsible for coordinating
means testing across government. As
a result there is limited oversight of the interactions of benefits
that are based on means testing with each other and with those
that are not. There needs to be clear responsibility for ensuring
the system as a whole works for claimants and taxpayers and addresses
the overall balance between means-tested and non-means-tested
benefits. HM Treasury has overall responsibility for ensuring
that means testing is applied in a consistent and coordinated
way across government. But the department does not intend to take
the direct lead, so it needs to allocate this responsibility to
a designated department or agency that can be held accountable
for the operation of means testing as a whole and the interaction
between different benefits, whether means tested or not.
2. It is not clear what effect some means-tested
benefits have on claimants' incentives to work.
Improving incentives to work is a key objective of Universal Credit.
At present there is no clear picture of how the entire benefit
system affects claimants' incentives to work. Instead departments
focus their attention on the core DWP and HMRC benefits and do
not look at the wider impact benefits such as free school meals
have on incentivising claimants' behaviour. We expect departments
to do more to understand what impact multiple benefits have on
an individual. In particular, HMT and DWP should ensure they understand
how the wider benefit system affects incentives when they assess
the impact of a policy change.
3. Departments do not understand the impact
of administering more means-tested benefits locally.
Many more bodies are now using means tests to determine eligibility
to benefits, including local authorities for Council Tax Benefit
and universities for bursaries. Locally determined entitlements
could have a large effect on a family's total income and incentives,
for example, if families lose entitlement to a student's university
bursary when household income rises. HM Treasury should work with
DCLG, DWP and other affected departments to ensure that guidance
to local bodies is consistent with broader welfare policies, and
to identify the impact of locally-designed benefits on claimants.
4. The benefit system is difficult to understand
and places a high burden on claimants.
Some benefits, such as savings credit for pensioners, are extremely
complex. Current reforms aim to move many claims online, and DWP
are testing online systems to ensure they are easy for claimants
to use. However, other initiatives to improve the claimants' experience
are no longer being pursued. For example, the 'Tell Us Once' programme
allows claimants to inform one government agency of a death and
that agency will then inform other public organisations. The 'Tell
Us Once' approach could be expanded to other changes in circumstances
but this option is not being actively pursued. The Department
for Work and Pensions, along with other departments with means-tested
benefits, needs to develop a better understanding of the financial
costs and other burdens placed on claimants applying for benefits.
We would expect this information to be used in delivering Universal
Credit so as to improve benefit take-up.
5. Departments don't understand why administrative
costs of means-tested benefits vary so significantly.
The estimated cost of administering a new claim for Pension Credit
is £351 while a new claim for Income Support costs £181.
There remains little confidence in departments' estimates of the
unit costs of administering claims, although DWP has made some
progress in identifying the factors that affect costs. Without
understanding the costs and benefits of different forms of means
testing it is difficult for departments to establish whether they
are achieving value for money. DWP and HMRC must build on existing
information to identify why their costs vary for different means
tests and where efficiencies can be made.
6. Real-time information systems will be difficult
to implement for small businesses. The
implementation of tax credits shows that lags in updating information
about claimants can lead to billions of pounds of unanticipated
overpayments. HMRC is developing a real-time information (RTI)
system which will be central to Universal Credit reforms but HMRC
has not established how RTI will affect employees in businesses
that do not have electronic payroll systems. HMRC must clarify
how RTI will affect small businesses and the self-employed. To
try to prevent a repeat of the problems that have affected tax
credits, HMRC should develop an effective approach for those claimants
and businesses that are likely to be outside the RTI system.
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