21St. Century Welfare

21st. Century Welfare

Response of the Royal National Institute of Blind People to the Department for Work and Pensions consultation paper

1. Introduction

1.1 RNIB has over 10,000 members, who are blind, partially sighted or the friends and family of people with sight loss. 80 per cent of our Trustees are blind or partially sighted. We encourage members to be involved in our work and regularly consult with them on Government policy and their ideas for change.

1.2 The Department for Work and Pensions (DWP)[1] consultation paper, 21st. Century welfare[2], is potentially of great importance to blind and partially sighted people. It essentially proposes a major re-shaping of means-tested benefits and tax credits. Disabled people, not least those with sight loss, tend to have lower incomes than does the general population. They are therefore disproportionately likely to qualify for means-tested assistance with essential living costs, including housing, as well as the extra costs of disability. We therefore very much welcome the opportunity to contribute to this debate.

1.3 RNIB is doubtless not alone in taking the view that "we wouldn't start from here". Our Trustees have been clear, in the parallel debate on social care, that they would prefer an approach that entailed more progressive taxation coupled with more emphasis on non-means-tested provision. One might add, in the context of work incentives, that there could be a much greater role for the National Minimum Wage.

1.4 However, we recognise that such an approach is not on the Government's agenda and that within its own context - rationalising means-tested benefits and tax credits and improving work incentives - 21st. Century welfare has positive things to say. This is in welcome contrast to the June 2010 Budget statement[3], which primarily emphasised opportunities for cuts.

1.5 These issues of course do need to be seen in the context of Government strategies to reduce the current financial deficit. The Government's approach is to rely on spending cuts to a much greater extent than tax increases and this inevitably has major implications for the benefit system.

1.6 The consultation paper (ch. 1, para. 1) says that the June Budget "set out the first steps" towards the aims of the Secretary of State for Work and Pensions "to simplify the benefits system in order to improve incentives to work". In truth, though, the Budget often pulls in the opposite direction - for example, cutting in-work Housing Benefit and increasing the Working Tax Credit taper. This reflects differences between the Treasury and the DWP regarding the welfare reform agenda. The Treasury essentially sees opportunities for savings, whereas the DWP under its current Secretary of State is attempting something more sophisticated.

1.7 The Budget introduced changes to:

- Benefit and tax credit upratings;

- Child Benefit (CB);

- Child Tax Credit (CTC);

- Council Tax Benefit (CTB);

- Disability Living Allowance (DLA);

- Employment and Support Allowance (ESA);

- Health in Pregnancy Grant (HIPG);

- Housing Benefit (HB);

- Income Support (IS);

- Income Tax (threshold);

- Jobseeker's Allowance (JSA);

- Non-Dependant Deductions (NDDs);

- Pension Credit (PC);

- Retirement Pension (RP);

- Sure Start Maternity Grant (SSMG);

- Value Added Tax (VAT);

- Working Tax Credit (WTC).

1.8 The changes to the uprating formulae for most benefits and tax credits are disadvantageous to the claimant, at least for the foreseeable future, although there is a potentially advantageous minimum uprating guarantee for RP.

1.9 The change to the child element of CTC is advantageous, but the overall impact on tax credits is disadvantageous, as are the 3-year freeze on CB, the cuts to the SSMG and abolition of HIPG.

1.10 The proposed new assessment system for DLA will be designed to make it harder to qualify, thereby significantly reducing the number of recipients.

1.11 The HB changes (with one minor exception) represent something of an onslaught on the system, especially in the private rented sector[4]. The move to restore high and rising NDDs is also a setback mainly for HB (although it also affects CTB, IS and some versions of ESA, JSA and PC). There are also disadvantageous changes to help with mortgage interest.

1.12 The change to the Income Tax threshold is advantageous to low-paid workers, although its impact is blunted by high benefit and tax credit tapers, which in many cases will remove most of the extra income. The increase in VAT will impact disproportionately on people on low incomes.

1.13 There is a continuing problem of income loss among disabled people unlikely to find work, due to their being shifted inappropriately onto the less favourable JSA regime (or onto no benefit at all).

1.14 Finally, in setting the scene, we should not assume that the Budget and the current consultative paper are the end of the story - there is likely to be a process of continuous change for some time to come.

2. Problems with the current system

2.1 The "two key problems" raised by the consultation paper are that "work incentives for some groups are poor" and that "the system is too complex".

2.2 These are not new observations. Discussion of the disincentive effects of high tapers for in-work means-tested benefits dates back to the early 1970s; and the concern that welfare should not compete with low wages is as old as the earliest welfare systems.

Complexity

2.3 The complexity of the benefit system is another hardy perennial. Every few years, the problem is rediscovered, but changes advertised as simplification generally result in greater complexity, for reasons discussed below.

2.4 This comment was made in 1993, not long after the “simplifying” changes of 1988:

“Cross-references - to sub-sections, to other sections, to schedules, to a myriad of regulations and indeed to other Acts - proliferate. One finds exceptions to exceptions to exceptions. Double and even triple negatives almost seem like a badge of honour: no self-respecting section is complete without one”[5].

Or as Lord Justice Glidewell put it, in a case concerning the severe disability premium:

“It is deplorable that legislation which affects some of the most disadvantaged people in society should be couched in language which is so difficult for even a lawyer trained and practising in this field to understand”[6].

In 1981, shortly after the introduction of detailed regulations into the means-tested benefits, replacing extensive discretion and associated weighty tomes of guidance, Tony Lynes, in his Penguin Guide to Supplementary Benefits, referred to “a mass of fiendishly complicated regulations”.

Also instructive is T.S. Newman and A.G. Lee’s National Health Insurance Manual (McCorquodale & Co., 1934). Running to 358 pages and brimming with complexity, it includes a foreword by David Lloyd George:

“Being responsible, in 1911, for the introduction of legislation for the prevention and cure of sickness among the wage-earning population of this country, I have naturally followed, with great interest, the developments of my original scheme for over 20 years”. It has become, he says, a “complicated piece of legislation”.

The authors of this guide refer to a “tangled skein of legislation” and in his preface, Sir Thomas Neill, President of the National Conference of Industrial Assurance Approved Societies, remarks:

“Whatever difference of opinion exists on National Health Insurance Law by those engaged in its administration, there will, I am sure, be general agreement that its complexities increase rather than diminish, and that the need for real simplification still remains. Legislation which has been introduced since 1929, both by statute and regulation, has added immensely to the difficulties of interpretation”.

2.5 To some extent, complexity is inherent in means-tests, contribution tests and tests of disability.

2.6 However, there is no doubt that much complexity is unnecessary, deriving from historical factors, the collision of incompatible systems and the lack of a plain English culture in the drafting of legislation and guidance.

2.7 These problems are also overlaid with administrative failures which we ought to be able to overcome. These have a huge impact on the real life experiences of claimants and are as much a deterrent to changing one's employment status as are structural issues such as tapers and earnings disregards. (See consultation paper, ch. 2, para. 19 onwards).

2.8 A key problem in seeking to tackle complexity is that major simplifying changes tend to be either very expensive (for example, if lots of caveats, limitations, restrictions and conditions are dropped) or involve lots of politically controversial losers (if “rough justice” is imposed). Transitional protection, although necessary, can also involve complexity at its most impenetrable.

Work incentives

2.9 The consultation paper identifies earnings disregards, tapers and the effects of qualifying hours thresholds as problematic.

2.10 Earnings disregards and tapers are in fact crucial to the widespread misunderstanding of incentive effects around HB. It is often said that HB permits people to afford housing when out of work that they could not afford in work. But how can this be, when the needs allowances ("applicable amounts") and eligible rents are the same in and out of work?

2.11 The problem lies in the tapers and earnings disregards. Tapers have been increased to punitive levels to save money, so that claimants are in effect expected to spend 85% of earnings above basic benefit levels on rent and council tax. Earnings disregards are low and non-index-linked, so that work-related expenses can indeed take claimants below basic benefit levels (as the consultation paper acknowledges - see ch. 2, para. 16).

2.12 Restriction of eligible rents - frequently advanced as a solution to the disincentive issue - is therefore irrelevant to it (except insofar as it reduces the band of income above basic benefit levels within which taper-related income loss operates).

2.13 It should be noted that non-dependant deductions act as a work disincentive: for example, a young person living with his or her parents and taking up a job will trigger often severe cuts to the family's HB and CTB. Ending the freeze on NDDs to save money is short-sighted in this context.

2.14 The consultation paper devotes several paragraphs (ch. 2, para. 16 onwards) to an exploration of the issue of very high marginal deduction rates (up to 95.95% following the adverse effects of the June 2010 Budget) arising from increased income tax and national insurance contributions and reduced in-work benefits and tax credits. Official treatment of these issues has not always been perceptive, so the DWP should be congratulated for facing up to them squarely in this paper. ("A system that produces this result cannot be right" - ch. 2, para. 18).

2.15 As noted above, benefit and tax credit administrative failure in transitions in and out of work also act as a disincentive. Claimants often have perfectly justified fears that they will risk financial crisis if they take a chance on a low-paid and possibly insecure job.

2.16 These structural and administrative problems can also encourage failure to declare earnings, even among those who would prefer to play by the rules (as the consultation paper acknowledges at ch. 2, para. 22).

3. Principles and options for reform

3.1 This section begins with a statement of principles. Some of these are very welcome - for example making work pay, tackling poverty.

3.2 However, it is difficult to sign up to the whole list unconditionally, as there are ambiguities. For example, what does "fairness" mean as between "recipients" and "taxpayers" (especially since, one way or another, most recipients are also taxpayers)? And what assumptions lie behind "affordable" in relation to benefit and tax credit costs?

3.3 One striking omission is the need to ensure clarity of communication with claimants and maximisation of take-up.

3.4 The necessity for prompt, accurate and objective decision-making, with the right to an independent appeal, also merits specific mention here.

3.5 The consultation paper goes on to consider a possible "Universal Credit". This would bring together in-work and out-of-work means-tested benefits and tax credits.

3.6 There is a brief description of the Universal Credit, which is not sufficiently detailed to permit close analysis. However, some "pros and cons" can be noted at this stage:

- The possibility of a single, less punitive taper and more adequate earnings disregards is welcome.

- If we are to assume that the Universal Credit would be based on current net income, rather than historic gross income as per tax credits, then this would solve a number of problems (provided it were efficiently administered).

- If the housing costs element were a standard figure rather than related to actual liabilities, then this would cause problems for some claimants in the social rented sector (although shortfalls are of course long established in the private rented and owner-occupied sectors). Moreover, failure to uprate the housing costs element in line with a housing-related index would potentially exacerbate poverty on the "after housing costs" measure.

- One interpretation is that local authority administration of HB and CTB would cease. Administration of these benefits has often left much to be desired, but a great deal of work has been done in recent years to drive up standards, so best practice should be protected and emulated, insofar as anything resembling these benefits remains part of the system.

- The future of CTB will also be influenced by developments in local government taxation.

- Transition from the old systems to the new arrangements

would risk the administrative chaos that has occurred at times in the past (the new HB scheme in the early 1980s; the Child Support system; the introduction of tax credits). It would be essential to plan carefully and guard against this, if a Universal Credit is not to be discredited from the outset.

- National Insurance benefits would continue to run

alongside, which is welcome (but see 4.4 below). Similarly, Attendance Allowance and DLA should continue as non-means-tested payments, recognising their enormously important role in promoting independent living.

3.7 The consultation paper then considers an alternative model, the Single Unified Taper, whereby a single taper would be superimposed on something like the existing means-tested benefit and tax credit structure. The scope for administrative malfunction here, as different organisations and benefit structures with different sets of rules try to link their operations, will be obvious to those familiar with the practicalities of benefits administration and we are not attracted to this option.

3.8 The consultation paper then considers briefly a number of options put forward by various organisations, all of which seem to us to have significant drawbacks compared with the Unified Credit model:

- The Institute of Public Policy Research's Single Working Age Benefit would abolish working age National Insurance benefits, greatly extending means-testing, and would leave in place a separate tax credit system.

- The Institute for Fiscal Studies Mirrlees model and the TaxPayers' Alliance single benefit/ negative income tax model are complex and seem to involve significant losses for a number of claimants.

4. Other areas of reform

4.1 The consultation paper considers conditionality in relation to jobseeking and how this might translate into a different benefit structure. There is no acknowledgement that the existing operation of conditionality has problems, often reducing the benefits of people who have little realistic prospect of work. We would prefer to see a much more positive approach, with the emphasis on high quality employment services rather than benefit reduction. As regards disabled people, this would build upon the success of Access to Work, as well as tailoring support to specific impairments and circumstances.

4.2 There is also a very brief consideration of the case for greater localisation of benefits administration. Such a major issue cannot be addressed in the two short paragraphs devoted to it, but we might note in passing that there are real risks in greater local discretion, as evidenced by the much-criticised local variation in the provision of social care.

4.3 Under the heading, "linkages with other forms of labour market and welfare support", there is then half a paragraph each on skills training and affordable housing. It is not clear what purpose is served here by such hasty treatment of these major topics.

4.4 A brief paragraph on contributory benefits states ominously that "reforms will need to consider the balance between contributory benefits and targeting support on those with the lowest incomes" (ch. 4 para. 11). It should be recognised that weakening of the coverage of National Insurance benefits in favour of more means-testing would exacerbate the problems that the consultative paper is trying to address.

5. Delivery of a reformed system

5.1 The consultation paper recognises the problems of claimants' having to deal with several agencies in order to make claims and report changes of circumstances. Advice agencies have long argued that modern information and communications technology (ICT) should be able to deliver a "tell one, tell all" capability to address the problems of multiple applications and reporting. This could be achieved through a single claiming/ reporting point or effective communications between different benefit/ tax credit administrations. The consultation paper confirms that movement away from multiple applications and repetitive provision of information is the direction of policy.