A Survey of the UK Benefit System

A SURVEY OF THE UK BENEFIT SYSTEM

Peter Levell Richard May Cormac O'DeDavid Phillip

THE INSTITUTE FOR FISCAL STUDIEBriefing Note No. 1 asS 3

Institute for Fiscal Studies, 2009

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A Survey of the UK Benefit System

UpdatedbyPeterLevell,RichardMay,CormacODeaandDavidPhillipsDecember2009

InstituteforFiscalStudies

Acknowledgements

ThisBriefingNote isarevisionofearlierversionsbyClaireCrawford,CarlEmmerson,GregKaplan,Andrew Leicester,CormacODea, Jonathan Shaw, Luke Sibieta,DavidPhillips andAlexeiVink.Aversionbytheoriginalauthors,CarlEmmersonandAndrewLeicester,canbedownloadedfromhttp://www.ifs.org.uk/bns/benefitsurvey01.pdf.ThepaperwasfundedbytheESRCCentre for theMicroeconomicAnalysisofPublicPolicyat the Institute forFiscalStudies. The authors would like to thank Stuart Adam, Mike Brewer, Claire Crawford,LorraineDearden,CarlEmmersonandMatthewWakefieldfortheirhelpandadviceduringrevisionofthisBriefingNote,andJudithPayneforcopyediting.Allremainingerrorsaretheresponsibilityoftheauthors.

*Addressesforcorrespondence:[email protected],[email protected]


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Contents

1. Introduction .................................................................................................. 3

2. Government Spending on Social Security Benefits .................................. 4

3. ADescriptionoftheCurrentBenefitSystem,200809 ................................... 8

3.1.BenefitsforFamilieswithChildren ............................................................................... 9

3.2.BenefitsforUnemployedPeople ................................................................................ 18

3.3.BenefitsforPeopleonLowIncomes .......................................................................... 23

3.4.BenefitsforElderlyPeople ........................................................................................... 33

3.5.BenefitsforSickandDisabledPeople ........................................................................ 41

3.6.BenefitsforBereavedPeople ...................................................................................... 53

4. TrendsinSocialSecuritySpending ................................................................. 56

4.1.SocialSecuritySpending,194849to200708 ....................................................... 56

4.2.ChangesintheCompositionofSocialSecuritySpending ...................................... 58

4.3.MajorReformssince1948,andtheLikelyDirectionofFutureReforms ........... 61

5. Conclusions .................................................................................................. 70

AppendixA.BenefitExpenditurefrom194849to200708 ................................... 71

AppendixB.BenefitsAvailableOnlytoExistingClaimants ..................................... 72

AppendixC.TheSocialFund .................................................................................... 78

AppendixD.WarPensions ...................................................................................... 81


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1. Introduction

ThisBriefingNoteprovidesasurveyofthebenefitsysteminGreatBritain.1Webeginin Section 2with an overview of the current system, giving total expenditure onsocialsecurityandthecostofindividualbenefits.InSection3,welookcloselyatthepresentsystem,examiningeachbenefitinturn.Benefitsarearrangedintosixbroadcategories based on the primary recipients: families with children, unemployedpeople, those on low incomes, elderly people, sick and disabled people, andbereaved people. Current benefit rates are for the financial year 200910,expenditure figuresareestimates forthe financialyear200708andclaimantdataareforFebruary2009unlessotherwisenoted.Wheneverpossible,expenditureandclaimantfiguresrelatetoGreatBritain.

InSection4,we lookathowthesystemhasevolvedto itspresentstateandassesshowthepatternsofexpenditureonsocialsecurityhavechangedoverthepasthalfcentury.Wealsopresentabrief lookaheadtohowthesystemmaychange inthenearfuture,giventhecurrentsetofgovernmentproposals.

Furtherdetailsonbenefiteligibilityand informationaboutrelevant legal issuescanbe found in the Child Poverty Action Groups Welfare Benefits and Tax CreditsHandbook2009/2010.2Currentbenefitrates,numbersofclaimantsandexpenditurefiguresaregiven intheDepartmentforWorkandPensions(DWP)sAnnualReportsandtheannualpressreleasedetailingnewbenefitrates.3 Inaddition,muchoftheinformation contained herein can be found on the DWP website,http://www.dwp.gov.uk.TheDepartmentofSocialSecurity (forerunner to theDWP)publicationsTheGrowthofSocialSecurityandTheChangingWelfareState:SocialSecuritySpendingcontainoverviewsofthetrendsseenoverthelast50years.4

1 NotethatthebenefitsysteminNorthernIrelandisidenticalbutismanagedbytheDepartmentforSocial

DevelopmentofNorthernIreland(DSDNI),whichdoesnotprovidecomparableindicesofclaimantsandexpenditure.

2 ChildPovertyActionGroup,WelfareBenefitsandTaxCreditsHandbook2009/2010,London,2009. 3 DepartmentforWorkandPensions,PressRelease,11December2008,

http://www.dwp.gov.uk/newsroom/pressreleases/2008/december2008/pens092111208.shtml. 4 DepartmentofSocialSecurity,TheGrowthofSocialSecurity,HMSO,London,1993;DepartmentofSocial

Security,TheChangingWelfareState:SocialSecuritySpending,London,2000,[email protected].


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2. Government Spending on Social Security Benefits

In200708,about158billionwasspentonsocialsecuritybenefitsinGreatBritain.5This amounts to approximately 2,580 for every man, woman and child in thecountry, and represents 25.6 per cent of total government expenditure (11.4 percent of GDP). Expenditure on social security represents by far the largest singlefunction of government spending, the next largest being expenditure on health(whichaccountsfor18.3percentoftotalexpenditure).6

Approximately30millionpeopleintheUKapproximatelyhalfthetotalpopulationreceiveincomefromatleastonesocialsecuritybenefit.Formeanstestedbenefitssuch as Income Support, receiptof thebenefitusuallydependson the claimantsfamilyincome,togetherwiththeirfamilycircumstancesandpersonalcharacteristics.For contributory benefits such as employment and support allowance, eligibilityusually depends on the claimant alone having paid sufficient National Insurancecontributions (NICs) during their lifetime. NICs are made by all employees andemployers where earnings are above 110 per week (known as the earningsthreshold), although the government usually treats those earning between 95(knownas the lowerearnings limit, LEL)and110perweekas though theyweremakingcontributions.7Somebenefits,suchaschildbenefit,areneithercontributorynor meanstested and are universally available to all people who meet somequalificationcriteria.

Allbenefitsrequiresomeresidenceconditionstobemet(usuallythatthepersonbepresent and resident in the UK), although different degrees of residence arerequiredfordifferentbenefits.Byandlarge,peoplesubjecttoimmigrationcontrol(i.e.peoplewhorequireleavetoenterortoremainintheUKbutwhodonothaveit) are unable to claim benefits. As the UK was a signatory to the 1951 UNConventionon the StatusofRefugees, refugees in theUKhave the right to claimcertainbenefits,suchasIncomeSupport.However,theAsylumandImmigrationAct1999 removed asylum seekers frommainstream benefit payments, and they nowhavepaymentsadministeredbytheNationalAsylumSupportService.

5 AppendixAprovidesdetailsofgovernmentspendingonsocialsecurityfrom194849to200708. 6 Sources:Populationfiguresfromhttp://www.statistics.gov.uk/cci/nugget.asp?id=6,GDPfrom

http://www.hmtreasury.gov.uk/economic_data_and_tools/gdp_deflators/data_gdp_fig.cfmandgovernmentexpenditure(includingbreakdownbyfunction)fromDepartmentforWorkandPensions,BenefitExpenditureTables,http://research.dwp.gov.uk/asd/asd4/medium_term.asp.Thequoted11.4percentiscalculatedbasedonanestimateofGBGDP,whilstsometaxcreditfiguresincludedhereareforUK;11.4percentisthereforeperhapsaslightoverestimate.Unfortunately,taxcreditexpenditureforGreatBritainonlyisnotreadilyavailable.

7 FormoreabouttheNationalInsurancesystem,seeS.AdamandJ.Browne,ASurveyoftheUKTaxSystem,IFSBriefingNote9,London,2009,http://www.ifs.org.uk/bns/bn09.pdf.EntitlementconditionsforcontributorybenefitsarecomplexseeChildPovertyActionGroup,WelfareBenefitsandTaxCreditsHandbook2009/10,London,2009.


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Table 2.1. GB expenditure and claimant figures for all benefits and tax credits, 200708

Expenditure(m)a %oftotalexpenditure Claimants

b

Benefitsforfamilieswithchildren Childbenefit(includingformeroneparentbenefit) 10,650c 6.73% 7,529,700d

ChildTrustFund 168c 0.11% NotavailableChildtaxcredit 13,700e,f 8.66% 5,676,000g

Statutorymaternitypay 1,469 0.93% Notavailableh

Maternityallowance 247 0.16% 52,400Guardiansallowance 2 0.00% 3,400i

Educationmaintenanceallowance 597j 0.38% 609,000jTotalbenefitsforfamilieswithchildren 26,833 16.96%

Benefitsforunemployedpeople Incomebasedjobseekersallowance 1,816k 1.15% 935,400

Contributionbasedjobseekersallowanceandunemploymentbenefit 427k 0.27% 378,200

NewDealprogrammes(YoungPeopleand25Plus) 110 0.07% 157,990Jobgrant 47 0.03% Notavailable

Totalbenefitsforunemployedpeople 2,400 1.52% Benefitsforpeopleonlowincomes

IncomeSupport 8,948 5.66% 2,045,220Workingtaxcredit 5,800e,f 3.67% 2,261,000l

Housingbenefit 15,732 9.94% 4,403,980Discretionaryhousingpayments 20 0.01% Notavailable

Counciltaxbenefit 4,023 2.54% 5,428,230SocialFundpayments 625 0.40% 12,034,100awards

Totalbenefitsforpeopleonlowincomes 35,148 22.21% Benefitsforelderlypeople

Basicretirementpension(contributory) 47,369 29.94% 12,226,260Basicretirementpension(noncontributory) 40 0.03% 26,300

Earningsrelatedretirementpension 10,184 6.44% NotavailablePensioncredit 7,463 4.72% 2,723,610

Retirementpensiontotal 65,056 41.12% Winterfuelpayments 2,071 1.31% 12,123,000

Concessionarytelevisionlicences 510 0.32% 3,993,000Totalbenefitsforelderlypeople 67,637 42.75%

Benefitsforsickanddisabledpeople Statutorysickpay 48 0.03% NotavailableIncapacitybenefit 6,658 4.21% 2,221,890

Employmentandsupportallowance m 175,810Severedisablementallowance 898 0.57% 243,200

Disabilitylivingallowance 9,867 6.24% 3,043,990Attendanceallowance 4,444 2.81% 1,578,640

Carersallowance 1,280 0.81% 502,500IndependentLivingFunds 299 0.19% 21,440

MotabilitySpecialisedVehicleFund 12 0.01% NotAvailableIndustrialinjuriesbenefits 760n 0.48% 327,260o

Warpensionsp 1,014e,q 0.64% 190,745Totalbenefitsforsickanddisabledpeople 25,280 15.98%

Benefitsforbereavedpeople Widowsandbereavementbenefits 737 0.47% 60,720r

Industrialdeathbenefit 38 0.02% 9,000Totalbenefitsforbereavedpeople 775 0.49%

Otherbenefits Christmasbonus 147 0.09% Notavailable

Othersmallbenefits 1 0.00% NotavailableTotalotherbenefits 148 0.09%

TOTAL 158,221 100


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NotestoTable2.1a Figuresareestimatedoutturns.Outturnsandpercentagesmaynotsumexactlyduetorounding.bDetailsofsourcesandofthedateonwhichtheclaimantcountforeachbenefitwastakenaregivenintherelevantpartofSection3ofthissurvey.

c Source:HMRCsAccounts,availableathttp://www.hmrc.gov.uk/about/hmrcdepacct0708.pdf.d Numberoffamilies,covering13,298,000childrenintotal,inAugust2007.e UKexpenditure.f ThesefiguresaretakenfromHMRCsAccountsfor200708.Theyrepresentfinalentitlementsratherthanpaymentsmade,andthusdonotincludeanyimpactofoverpayments.Totalpaymentsmadedifferfromfinalentitlementforworkingtaxcreditandchildtaxcreditby0.5billion;however,adetailedsplitbetweenworkingtaxcreditandchildtaxcreditisnotavailable.Notethat,unlikethefiguresforthenumberoffamilies(seenoteg),thesefiguresdonotincludepaymentsmadetofamiliesreceivingtheequivalentamountsviaoutofworkbenefits,whichareestimatedtohavetotalled1.7billionin200708(seefootnote12).Suchspendingisincludedwithintherelevantbenefits.

g Numberoffamilies,covering10.1millionchildren,asatApril2009.Thisfigureincludesbothinworkfamiliesreceivingthechildtaxcredit(4.3million)andoutofworkfamiliesreceivingthechildtaxcreditortheequivalentamountviaoutofworkbenefits(1.4million).Source:HMRevenueandCustoms,ChildandWorkingTaxCreditsStatistics:April2009,http://www.hmrc.gov.uk/stats/personaltaxcredits/cwtcapr09.pdf.

h Dataarenolongercentrallycollatedforstatutorymaternitypay.i NumberoffamiliesasatDecember2008.FigurecourtesyofHMRevenueandCustoms.j ThesefiguresarethesumoffiguresfromEngland,WalesandScotlandfor200708andrefertothosewhohavereceivedatleastonepaymentintheyear.Sources:EnglishfiguresfromLearningandSkillsCouncil,AnnualReportandAccounts200708,availableathttp://www.lsc.gov.uk/aboutus/annualreport/annualreport0708/;WelshfiguresfromtheNationalAssemblyforWalesathttp://www.assemblywales.org/el_3__1109__p1__fforwm_written_evidence_on_ema__e.pdf;ScottishfiguresfromtheScottishGovernmentathttp://www.scotland.gov.uk/Topics/Statistics/Browse/Lifelonglearning/PublicationEMA200708.

k Thesefiguresareconsiderablyhigherfor200809(risingtoaforecast2.15billionforincomebasedJSAandto733millionforcontributionbasedJSA)owingtoalargeincreaseinunemployment.

l Numberoffamilies(includingbothindividualsandcouples,regardlessofwhethertheyhavechildren).

mExpenditurefigurefor200809is140million(notincludedintotalfor200708),forecastonly.n Includesindustrialinjuriesdisablementbenefit,reducedearningsallowanceandretirementallowance(seeSection3.5.8andAppendixB).Otherbenefitsnotincludedinthisfigurearetheworkerscompensationsupplementationschemeandthepneumoconiosis,byssinosisandmiscellaneousdiseasesbenefitscheme(bothpayabletopeoplewhocontractedcertainindustrialillnessespriorto5July1948).Expenditureontheseschemesamountstoaround1million.

o Figureisforindustrialinjuriesdisablementbenefitandreducedearningsallowance,asofDecember2008;notethatmorethanoneassessmentmaybeawardedtoanindividual.Source:DepartmentforWorkandPensions,IndustrialInjuriesDisablementBenefitQuarterlyStatistics:December2008,availableathttp://statistics.dwp.gov.uk/asd/iidb.asp.

p Figuresincludebothwardisablementandwarwidow(er)spensions.q Source:http://www.mod.uk/DefenceInternet/AboutDefence/CorporatePublications/AnnualReports/MODAnnualReport0809/.

r Thisfigureincludesclaimantsofbereavementallowanceandwidowedparentsallowance;claimantsofthewarwidowspensionareincludedinthewarpensionsstatistics(seenotepabove).

Source: http://research.dwp.gov.uk/asd/asd4/medium_term.aspunlessstatedotherwiseinnotes.


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Figure 2.1. Expenditure by recipient as a percentage of total, 200708

Families17%

Unemployed2%

LowIncome22%

Elderly43%

SickandDisabled16%

Bereaved0%

Others0%

Families

Unemployed

LowIncome

Elderly

SickandDisabled

Widows

Others

Sources:AsforTable2.1,includingnotes.

Table2.1presentsabreakdownofestimatedexpenditureforeachbenefitfor200708 and a claimant count for February 2009,8 organised by primary recipient. Thecategories are: familieswith children,unemployedpeople, thoseon low incomes,elderly people, sick and disabled people, bereaved people, and others. Figure 2.1also provides a breakdown for these groups. Retirement pensions are the mostexpensivebenefit,accountingforjustover41percentoftotalexpenditure.Thetopfivebenefits retirementpensions,housingbenefit,child taxcredit,childbenefitand disability living allowance togethermake up almost threequarters of totalexpenditure. There are many other benefits on which total expenditure is quitesmall.

NotethatalthoughmostofthefiguresinTable2.1relatetoGreatBritain,figuresforsomebenefitswereonlyavailableonaUKbasis,e.g.childbenefit.However,sincetotalNorthernIrelandbenefitexpenditureisonlyaround4billion,figuresforGreatBritainwouldnotbesignificantlydifferentforthesebenefits.

8 February2009isthedateonwhichtheclaimantcountwastakeninmostcases.SeeSection3fordetailsof

exceptions.


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3. ADescriptionoftheCurrentBenefitSystem,200809

We look at the current system by dividing it into sixmajor categories of primaryrecipient:familieswithchildren,unemployedpeople,thoseonlowincomes,elderlypeople,sickanddisabledpeople,andbereavedpeople.Eachsubsectionstartswithatablethatsummariseseverybenefitintermsofwhetheritistaxableornontaxable,contributoryornoncontributory,andwhetherornot receipt ismeanstested.Wealsogivedetailsoftotalexpenditureandthetotalnumberofclaimants.

The Christmas bonus is the only national benefit not included in any of thesesections.Thisisaoneoffpaymentof10totherecipientsofcertainbenefitsintheweekbeginningthefirstMondayofDecember.Onlyonebonuscanbereceivedperperson, although in coupleswhere both partners receive qualifying benefits, twoseparate payments can bemade. Total expenditure on the Christmas bonuswasestimated at around 153 million in 200708. Claimant figures are not readilyavailable.


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3.1.BenefitsforFamilieswithChildren

Benefit T C M Claimants,asatFeb.2009a

Expenditure,200708(m)b

3.1.1 Childbenefit 8 8 8 7,529,700c 10,650d3.1.2 ChildTrustFund 8 8 8 Notavailable 168e3.1.3 Guardiansallowance 8 8 8 3,400f 1.93.1.4 Childtaxcredit 8 8 9 5,676,000g 13,700h3.1.5 Statutorymaternity,

paternityandadoptionpay8 9 8 Notavailablei 1,469j

3.1.6 Maternityallowance 8 9 8 52,400 2473.1.7 Childmaintenance

premium8 8 9 Notavailable Notavailable

3.1.8 Educationmaintenanceallowance

8 8 9 609,000k 597k

T=taxable,C=contributory,M=meanstesteda Unlessotherwisespecified.b Estimated.c Numberoffamilies,covering13,298,000childrenintotal,inAugust2007.Source:HMRevenueandCustoms,ChildBenefitQuarterlyStatistics:August2007,http://www.hmrc.gov.uk/stats/child_benefit/aug07.pdf.

dUKexpenditure.Sinceonly3.4percentofchildrenbenefitingin2007werefromNorthernIrelandhowever,figuresforGreatBritainwouldnotbesignificantlydifferent.(Source:HMRevenueandCustoms,ChildBenefitQuarterlyStatistics:August2007,http://www.hmrc.gov.uk/stats/child_benefit/aug07.pdf.)

e ThisisanestimateofUKexpenditurefor200708fromHMRCsAccounts,availableathttp://www.hmrc.gov.uk/about/hmrcdepacct0708.pdf.

f Numberoffamilies.FigureisasatDecember2008courtesyofHMRevenueandCustoms(currentlyunpublished).

g Numberoffamilies,covering10.1millionchildren,asatApril2009.Thisfigureincludesbothinworkfamiliesreceivingthechildtaxcredit(4.26million)andoutofworkfamiliesreceivingthechildtaxcreditortheequivalentamountviaoutofworkbenefits(1.42million).Source:HMRevenueandCustoms,ChildandWorkingTaxCreditsStatistics:April2009,http://www.hmrc.gov.uk/stats/personaltaxcredits/cwtcapr09.pdf.

hThisfigureistakenfromHMRCsAccountsfor200708.Itrepresentsfinalentitlementsratherthanpaymentsmade,andthusdoesnotincludeanyimpactofoverpayments.Totalpaymentsmadedifferfromfinalentitlementforworkingtaxcreditandchildtaxcreditby0.5billion;however,adetailedsplitbetweenworkingtaxcreditandchildtaxcreditisnotavailable.Notethat,unlikethefigureforthenumberoffamilies(seenoteg),thisfiguredoesnotincludepaymentsmadetofamiliesreceivingtheequivalentamountsviaoutofworkbenefits,whichareestimatedtohavetotalled1.7billionin200708.Suchspendingisincludedwithintherelevantbenefits.

i Dataarenolongercentrallycollatedforstatutorymaternity,paternityoradoptionpay.j Figureisforstatutorymaternitypayonly.k ThesefiguresarethesumoffiguresfromEngland,ScotlandandWalesfor200708andrefertothosewhohavereceivedatleastonepaymentintheyear.Source:EnglishfiguresfromLearningandSkillsCouncil,AnnualReportandAccountsfor200708,http://readingroom.lsc.gov.uk/lsc/National/natannualreport0708jul08.pdf.WelshfiguresfromtheNationalAssemblyforWalesathttp://www.assemblywales.org/el_3__1109__p1__fforwm_written_evidence_on_ema__e.pdf;ScottishfiguresfromtheScottishGovernmentathttp://www.scotland.gov.uk/Topics/Statistics/Browse/Lifelonglearning/PublicationEMA200708.


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3.1.1.ChildBenefit

Nontaxable,Noncontributory,Nonmeanstested

Just over 7.5million families received child benefit (CB) inAugust 2007, coveringover13millionchildren.IntroducedinApril1977toreplacethefamilyallowanceandthe child tax allowance, CB has remained universal, payable to all families withchildrenregardlessof income.It ispaidatahigherratefortheeldestoronlychild,and thenata lowerrate forallsubsequentchildren.For thepurposesofreceivingCB,achildissomeoneundertheageof16,orunder19andinfulltimeeducationortraining.

Table3.1.1.Currentratesofchildbenefit,perweek

Eldestoronlychilda 20.00Subsequentchildren(each) 13.20a Priorto6July1998,anadditionalpaymentfortheeldest(oronly)childwasavailabletoloneparents.Thishigherrateremainsavailabletoclaimantswhowereeligibletoreceiveitpriortothepolicychange(andwhoremainsotoday).

In200708,childbenefitisestimatedtohavecosttheexchequer10.65billion.

3.1.2.ChildTrustFund


TheChildTrustFundwasproposedintheleaduptothe2001election,andthe2003Budget announced that any child born after 1 September 2002 will receive anaccount.TheChildTrustFundisdifferentfromtraditionalcashtransferpaymentsinthat itprovides support in the formofa financialasset.More specifically,aChildTrustFundisafinancialassetthatiscreatedforeachnewlybornchild,withaninitialendowmentprovidedbythestate.Childrenwillbegivenaccesstothefundsatage18andnorestrictionswillbeplacedonhowthematuredfundcanbeused.

Allchildrenreceiveanendowmentofatleast250,andthosefromfamilieswiththelowest incomesareeligiblefor500.Thefirstpaymentsbegantobedistributed inApril 2005. Children are eligible for the larger (500) initial endowment wherehousehold income is not greater than the child tax credit threshold (16,040 in200910).Atthechildsseventhbirthday,thestatewillmakeanadditionalpaymentinto the fund. As with the initial endowment, the value of this second paymentdependsonincome,withthosewhosefamilieshaveincomeinexcessofthechildtaxcredit threshold getting 250 and thosewhose family incomes are less than thisthresholdgetting500.


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SinceApril2007,childrenunderthecareof localauthoritieshavereceivedanextrapaymentof100peryear.FromApril2009,thechildrenofthosereceivingdisabilitylivingallowancehavebeenentitledtoanadditionalannualpaymentof100(thosereceivingseveredisabilityallowancereceiveanextra200).

An HMRC consultation process9 is considering the possibility of further topuppaymentstobemadewhenchildrenreachsecondaryschoolage.Thisconsultationisconsideringtheageatwhichpaymentscouldbemade,aswellasthegenerosityandstructureofthepossiblepayments.

Familyandfriendsofthechildcanmakecontributionstotheaccountduringits18yearterm,subjecttoa limitof1,200ayear. Inasimilarwaytothetaxreliefthatapplies to funds held in individual savings accounts (ISAs), there is no tax on anyinterestorgainsaccruingtofundsinaChildTrustFund.

In 200708, the Child Trust Fund is estimated to have cost the exchequer168million.

3.1.3.GuardiansAllowance


Guardiansallowanceisabenefitpaidinadditiontochildbenefittofamiliesbringingup a child or children whose parents have died. If only one parent has died,guardiansallowancemaystillbepayable ifthewhereaboutsoftheotherparent isunknown. A stepparent does not count as a parent and so may be entitled toreceiveguardiansallowanceforraisingastepchildifbothnaturalparentshavedied.Theclaimantneednotbethechildslegalguardian,butthechildmustbelivingwiththeclaimantortheclaimantmustbemakingcontributions forthemaintenanceofthechildofatleast14.10perweek.Adoptiveparentsofanorphanedchildcannotclaim.Therulesconcerningwhocountsasachildarethesameasforchildbenefit(seeSection3.1.1).

In December 2008, 3,400 families were receiving guardians allowance, withexpenditureamountingtoanestimated1.9millionin200708.

Table3.1.2.Currentrateofguardiansallowance,perweek

Allchildren(each) 14.10

9 Informationathttp://www.hmtreasury.gov.uk/media/F/E/ctfbriefing_160305.pdf.


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3.1.4.ChildTaxCredit

Nontaxable,Noncontributory,Meanstested

The child tax credit (CTC) combines, into a single integrated benefit, supportpreviouslyprovidedbythechildrenstaxcredit,childcreditsintheworkingfamiliestax credit,10 child additions to most nonmeanstested benefits,11 and the childelements(i.e.childadditionsandfamilypremiums)ofIncomeSupportand incomebasedjobseekersallowance.12CTCispaidontopofchildbenefit(seeSection3.1.1)anddirectlytothemaincarerinthefamily(aswiththechildcareelementofworkingtaxcredit(WTC)seeSection3.3.2).

CTC ismade up of a number of elements: a family element, a baby element (forfamilieswithachildundertheageof1),achildelement,adisabledchildadditionalelementandaseverelydisabledchildsupplement (seeTable3.1.3).EntitlementtoCTCdoesnotdependonemploymentstatus,butdoesrequirethattheclaimantberesponsibleforatleastonechildundertheageof16(oraged1619andinfulltimeeducation).AswithWTC, certain changes in family circumstances (for example, asingle claimant becoming part of a couple, or vice versa) must be reportedimmediatelytoHMRevenueandCustomsifpenaltiesaretobeavoided.

Table3.1.3.Currentratesofchildtaxcredit

perannum perweekFamilyelement 545 10.45Babyelement 545 10.45Childelement(each) 2,235 42.86Disabledchildadditionalelement(each) 2,670 51.21Severelydisabledchildelement(each) 1,075 20.62 IncomebelowwhichmaximumCTCispayable 6,420 123.12IncomebelowwhichmaximumpayableifnotentitledtoWTC 16,040 307.62Firstwithdrawalrate 39% 39%Secondincomethreshold 50,000 958.90Secondwithdrawalrate 1in15 1in15

Note: Weeklynumbersarecalculatedbasedupontherebeing365/7weeksperyear.

10 Fordetailsofthese,seeS.AdamandJ.Browne,ASurveyoftheUKTaxSystem,IFSBriefingNote9,London,

2009,http://www.ifs.org.uk/bns/bn09.pdf. 11Thesebenefitsarecarersallowance,incapacitybenefit,retirementpensionandwidowedparentsallowance.

Thereisalsonochildelementofthenewemploymentandsupportallowance(whichreplacesincapacitybenefitfornewclaimants).ThosewhohavechildrenandwhoclaimincomerelatedESAmustalsoclaimCTC.

12FamiliesthathavebeenclaimingIncomeSupportorjobseekersallowancewiththesechildelementssincebeforeApril2004stillreceivetheseadditionsunlesstheyapplyforchildtaxcreditinstead.Thisispurelyforadministrativereasonstheamountreceivedisthesamewhetherpaidthroughchildtaxcreditoradditionstooutofworkbenefitsandthegovernmentintendseventuallytomigrateallthesefamiliesontochildtaxcredit,butthedateforthismigrationhasbeencontinuallypostponedsinceApril2003becauseofcontinuinguncertaintyastowhethertheITsystemoperatingtaxcreditswillbeabletocope.


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CTC and WTC are subject to a single means test operating at the family level.Familieswithannualpretax incomeof6,420or less (16,040 for familieseligibleonlyforCTC,i.e.notforWTC)areentitledtothemaximumCTCandWTCpaymentsappropriate for their circumstances. Income from most other benefits (includingchildbenefit,housingbenefit,disability livingallowanceandcouncil taxbenefit) isnot included in the CTCWTC calculation, while entitlement to Income Support,incomebasedjobseekersallowanceorpensioncreditactsasanautomaticpassporttomaximumCTC.(SeeSection3.3.2fordetailsofWTC.)

Forannual familypretax incomeabove6,420,CTCandWTCawardsare taperedawayatarateof39percent.ThemainWTCentitlementiswithdrawnfirst,thenthechildcareelementofWTC,and finallythechildanddisabilityelementsofCTC.ThefamilyelementofCTC,however,isnotwithdrawnuntilannualfamilypretaxincomeexceeds50,000,andeven thenonlyata rateof1 in15.BothCTCandWTCarerefundable,meaningthattheyarepayableeveniftheiramountexceedsthefamilysincometaxliability.

AswithWTC,CTCpassportsitsrecipientstoavarietyofotherbenefits,suchasfreeprescriptions,dentaltreatment,andsighttestsandglasses,providedannualfamilyincomedoesnotexceed15,276.Free schoolmealsarealsoavailable to those inreceiptofCTCwithannualpretaxfamily incomeof16,040or less, i.e.thosewhoreceivethemaximumamountofCTCbutarenotentitledtoWTC.

HM Revenue and Customs estimates that the total tax credit entitlement ofclaimants in 200708was 13.7 billion in CTC and 5.8 billion inWTC.However,since their introduction, childandworking tax creditshave suffered fromamajorproblem of overpayments: many families have been paid more than their trueentitlementovertheyear,eitherbecauseofadministrativeerrorsorbecausefamilycircumstanceschangedtoreducetheirentitlement(e.g.incomerose)andHMRCdidnotfindoutearlyenough(ordidnotrespondquicklyenough)tomakethenecessaryreduction in payments for the rest of the year. Largely as a result of this, actualspendingon taxcredits,at20.0billion in200708,13wassignificantlyhigher thanthe 19.5 billion of total entitlements.14 A further 1.7 billion was paid in childadditionstooutofworkbenefits.

AsatApril2009,5.7millionfamilieswerereceivingCTC(ortheequivalentamountinoutofworkbenefits),ofwhich4.3millionwereinwork.

13 Thesplitinthis20.0billionbetweenchildtaxcreditandworkingtaxcreditisnotavailable. 14 Formoreontheoperationalproblemswithtaxcreditsandattemptstosolvethem,seeM.Brewer,Tax

credits:fixedorbeyondrepair?,inR.Chote,C.Emmerson,R.HarrisonandD.Miles(eds),TheIFSGreenBudget:January2006,Commentary100,InstituteforFiscalStudies,London,2006,http://www.ifs.org.uk/budgets/gb2006/06chap7.pdf.


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3.1.5.StatutoryMaternityPay,StatutoryPaternityPayandStatutoryAdoptionPay

Nontaxable,Contributory,Nonmeanstested

Statutorymaternitypay(SMP)isalegalminimumamountthatemployersmustpayto their employees during maternity leave, although almost all the cost can berecoupedfromthegovernment.Manywomenreceivemorethantheminimum,butthisispaidforbyemployersandnotbythegovernment.Toclaim,thewomanmusthavebeenincontinuousemploymentwiththesameemployerforatleast26weeksuptoand includingthe15thweekbeforetheweekthebaby isdue.Shemusthaveearned at least the lower earnings limit for National Insurance contributions(currently95perweek)onaverageduringtheeightweeksuptoandincludingthe15thweekbeforetheweekinwhichthebabyisdue.ToclaimSMP,thewomanneednotintendtoreturntowork.

Undernew regulations setoutby theWorkand FamiliesActof2006, forwomenwhosebabiesweredueonorafter1April2007,SMPcanbepaidforupto39weeks:thefirstsixweekspaywillbeatahigherrate,andtheremaining33atalowerrate(seeTable3.1.4).Priorto1April2007,SMPwaspayableforupto26weeks:forthefirstsixweeks,atthehigherrate;fortheremaining20,atthelowerrate.Theperiodofpaymentcanbeginatanytimefromthe11thweekbeforethebabyisdueuntiltheweekafterthebirthitself(tocoincidewithmaternityleave).

Government expenditure on SMP in 200708 is estimated to have beenapproximately1.47billion.

Table3.1.4.Currentratesofstatutorymaternity,paternityandadoptionpay,perweek

HigherrateofSMP 90%oftheclaimantsaverageweeklyearningsLowerrateofSMP,SPP,SAP Thelesserof123.06or90%ofaverageweeklyearnings

Statutorypaternitypay(SPP)andstatutoryadoptionpay(SAP)wereintroducedon6April 2003. Both are legal minimum amounts that employers must pay to theiremployeesduringpaternity/adoption leave,andmostofthecostcanbereclaimedfrom the government. SPP is usually paid to individualswhose partner has givenbirth,butcanalsobepaidwhenachildisadopted.SAPcanonlybeclaimedbyoneparent(theothermaybeabletoclaimSPP).

TheeligibilityrequirementsforSPPandSAPareverysimilartothoseforSMP,exceptthat they include more stringent employment conditions. For SPP (birth), theclaimantmustsatisfy the26weekemployment rule (seeabove),butmustalsobecontinuouslyemployedbythesameemployerfromtheendofthe15thweekbeforethechildisdueuntilthechildisborn.ForSPP(adoption)andSAP,theclaimantmusthavebeencontinuouslyemployed forat least26weeksending theweek inwhichnotification is received that a child has been matched for adoption. For SPP


15

(adoption)only,employmentmustthencontinuewiththesameemployeruntilthechildarrives.

BothSPPandSAParepayableatthe lowerSMPrate.SPP isavailableforuptotwoconsecutiveweeks between the date the child arrives and eightweeks after thisdate.SAPisavailableforupto26weeks,startingnolaterthanwhenthechildarrivesandnoearlierthantwoweeksbeforehand.

ClaimantfiguresforSMP,SPPandSAP,andexpenditurefiguresforSPPandSAP,arenotrecordedcentrally.

3.1.6.MaternityAllowance

Nontaxable,Contributory,Nonmeanstested

Maternityallowance (MA) ispayable topregnantwomenwhoareunable toclaimstatutory maternity pay. To be eligible for MA, claimants must satisfy both anemployment test and an earnings condition. To satisfy the employment test, theclaimantmusthavebeenemployedorselfemployed (notnecessarilycontinuouslyor for thesameemployer) forat least26of the66weeksup toand including theweekbeforethebaby isdue(knownastheemploymenttestperiod).Theearningsconditionrequiresthataverageweeklyearningsinany13oftheprevious66weeksareat leastequaltotheMAthresholdthatappliesatthestartoftheemploymenttestperiod;theMAthresholdiscurrently30.00perweek.

MA (and SMP) claimants receiving certain meanstested benefits may also beentitledtoreceiveaSureStartmaternitygrantfromtheregulatedSocialFund(seeSection3.3.6andAppendixCforfurtherdetails).

MAispayableforupto39weeks.TheperiodinwhichthiscanbeginisthesameasforSMP,i.e.fromthe11thweekbeforethebabyisdueuntiltheweekafterthebirthitself.Claimantsmaybeentitledtoanadditionalpaymentforadependentspouseorotherdependentadultwhocares forat leastoneof theirchildren,but this isonlyavailableifthedependantsearningsarenottoohigh.

InFebruary2009,52,400womenwerereceivingMA.Thetotalexpenditurefortheyear200708wasestimatedataround247million.

Table3.1.5.Currentratesofmaternityallowance,perweek

Standardrate Thelesserof123.06or90%ofaverageweeklyearnings

Adultdependant(payableforone)a 41.35a Increasesforchilddependantshave,since6April2003,beenreplacedbychildtaxcredit(CTC)forallnewclaimants;however,existingclaimantsmaystillbeentitledtoclaimtheseadditionsviaMAratherthanCTC(seeAppendixB).


16

3.1.7.ChildMaintenancePremium


The childmaintenance premium (also known as the childmaintenance disregard)wasintroducedon3March2003asareplacementforthechildmaintenancebonus(nowonlyavailabletoexistingclaimantsseeAppendixB).Individualsareeligibleifthey (or theirpartner)startor return towork,or increasehoursworkedorhourlyearnings,suchthattheyarenolongereligibleforIncomeSupport(seeSection3.3.1)orincomebasedjobseekersallowance(seeSection3.2.1).

Inorder to reduce thedisincentive towork inducedby thewithdrawalofmeanstestedbenefitsasincomeincreases,20ofweeklychildmaintenanceisdisregardedin the calculation of eligibility for Income Support or incomebased jobseekersallowance.Figuresonthenumberofclaimantsofchildmaintenancepremium,andconsequentbenefitexpenditure,arenotreadilyavailable.15

3.1.8.EducationMaintenanceAllowance


The educationmaintenance allowance (EMA) comprises a combination ofweeklyandindividualbonuspaymentsforyoungpeoplefromlowincomefamilieswhostayonfortwoyearsofacademicorvocationalschooling(ofatleast12hoursperweek)beyond theschoolleavingageof16.Theprogrammewasextendednationwide inSeptember 2004, following a pilot scheme in a number of areas. It is currentlyavailable to anyonewhose 16th birthday falls between 1 September 2007 and 31

August2009,andwhose family income isnomore than30,810peryear.Weeklypaymentsaremadeon thebasisofattendanceandvaryaccording to the leveloffamilyincome.Bonuspaymentsof100aremadeinJanuaryandJulyofeachyearofattendance,andOctober inthesecondyear(assuming,ofcourse,thatthestudenthas returned to theprogramme).Thesepaymentsarealsoconditionalonmeetingtargetssetbythestudentstutors.16

Table3.1.6.Ratesofeducationmaintenanceallowancefortheacademicyear200910,perweek

Familyincome: Upto20,817peryear 30 20,81825,521peryear 20 25,52230,810peryear 10Note:Whencalculatingentitlementforthe200910academicyear,familyincomeforthe200809financialyearisappliedtothesethresholds.

15 Informationontherecipientsofchildmaintenanceingeneralcanbefoundat

http://www.childmaintenance.org/. 16 Source:http://ema.direct.gov.uk/ema.html.


17

Expenditure on EMA in 200708 is estimated to be around 597million inGreatBritain.Therewereover540,000claimants inEngland in200708,31,190 inWalesand37,815claimantsinScotland.


18

3.2.BenefitsforUnemployedPeople

Benefit T C M Claimants,asat

Feb.2009aExpenditure,200708(m)b

3.2.1

Incomebasedjobseekersallowance 9 8 9 935,400

c 1,816

Contributionbasedjobseekersallowanced 9 9 8 378,200

427

3.2.2 Jobgrant 8 8 9 Notavailable 473.2.3 NewDealprogrammes n/a n/a n/a 157,990e 110f

T=taxable,C=contributory,M=meanstestedaUnlessotherwisespecified.bEstimated.c Source:DepartmentforWorkandPensions,JobseekersAllowanceClaimantstabulationtool,availableathttp://83.244.183.180/5pc/jsa_prim/tabtool_jsa_prim.html.

d Figuresincludeunemploymentbenefit.eThenumbersofindividualsparticipatingintheNewDealforYoungPeopleandtheNewDeal25Pluswere101,080and56,910respectively,asatFebruary2009.Source:DepartmentforWorkandPensions,NewDealforYoungPeopleandNewDeal25plustabulationtool,availableathttp://research.dwp.gov.uk/asd/asd1/tabtools/tabtool_nd.asp.

f ThisisthesumofexpenditureonNewDealforYoungPeopleallowances(54million)andNewDeal25Plusallowances(56million).

3.2.1.JobseekersAllowance

Taxable,eitherContributoryorMeanstested

JobseekersAllowance(JSA)replacedunemploymentbenefitandIncomeSupportforunemployed people from 7 October 1996. There are two main types of JSA:contributionbased JSA is paid to individuals who have satisfied the NationalInsurancecontribution(NIC)conditions; incomebasedJSA ispaidtoclaimantswhosatisfy a family incomebasedmeans test (more details below).17 It is possible toreceivecontributionbasedJSAwithanincomebasedJSAtopup.

Toqualifyforeithertype,theclaimantmustbeunder60ifawomanorunder65ifaman,18andmustnotbereceivingIncomeSupport.Inaddition,theclaimantmustnotbeworking for16hoursormoreperweek,andmustbecapableof startingworkimmediatelyandofactivelytakingstepstofinda job,suchasattending interviews,writing applications or seeking job information. They must also have a currentjobseekers agreement with Jobcentre Plus, which includes such information ashoursavailableforwork,desiredjobandanystepsthattheclaimantiswillingtotaketofindwork.Claimantsmustbepreparedtoworkforupto40hoursperweekandhaveareasonableprospectoffindingwork(i.e.notplacetoomanyrestrictionson 17Athirdtypeofjobseekersallowance,jointclaimJSA,ispaidtomembersofjointclaimcouples.Itisvery

similartoincomebasedJSA.FiguresforincomebasedJSAincludejointclaimJSA. 18 AsofOctober2003,thoseaged6065mustclaimpensioncreditratherthanJSA.


19

thetypeofworktheyarewillingtoundertake).Ifaclaimantrefusestotakeupajobofferwithoutgoodreason,theymaybedeniedfurtherpaymentsofJSA.

Peopleaged1824whohavebeenunemployedandclaimingJSAforsixmonthsormorearerequiredtoparticipateintheNewDealforYoungPeople;thoseaged25orover must participate in the New Deal 25Plus programme if they have beenunemployedandclaimingJSAfor18months(seeSection3.2.3).

ContributionBasedJobseekersAllowance

ContributionbasedJSAcanbepaidforupto26weeks.ToclaimcontributionbasedJSA,theindividualmusthavepaidsufficientClass1NICsineachofthetwotaxyearsprior to the beginning of the year inwhich they sign on and claimbenefit.19 Theindividualmustnothaveearningsaboveaspecificlevel(seebelow).Iftheclaimantqualifies, theycanreceivecontributionbased JSA irrespectiveofsavings,capitalorpartnersearnings.

If the claimant has any earnings, 5 per week is disregarded (20 for someoccupations). Any income over this disregarded amount is deducted from thecontributionbased JSApenny forpenny.Thus themost someoneaged25orovercouldearnperweekandstillreceivecontributionbasedJSAis69.29(assumingthattheyarenot inoneofthespecialoccupations).Forthosereceivinganoccupationalor personal pension, any amount below 50.00 per week does not affectentitlement,regardlessofage.

In February 2008, 148,400 people were receiving contributionbased JSA, at anestimatedcosttotheexchequerof427million in200708.ByFebruary2009,thisfigurehadincreasedto378,200claimants,andspendingover200809isforecasttogrowto733million.

Table3.2.1.Currentratesofcontributionbasedjobseekersallowance,perweek

Ageofclaimant: Under25 50.95 25orover 64.30

IncomeBasedJobseekersAllowance

ThosewhodonotqualifyforcontributionbasedJSAmaybeabletoreceiveincomebased JSA if they have sufficiently low income.Only one partner in a couple canreceiveincomebasedJSA,andthepartneroftheclaimantmustnotbeworkingformore than24hoursperweek (asdescribedabove,both formsof JSA require that 19Formoreinformationaboutthecontributionconditionsthatmustbesatisfied,seeChildPovertyAction

Group,WelfareBenefitsandTaxCreditsHandbook2009/2010,London,2009,section31.4.


20

theclaimantisnotworking16hoursormoreperweek).AsofMarch2001,coupleswithoutchildrenmustclaim JSA jointly.Thismeans thatbothhave to signonandmeettheconditionsforbenefit.

Incomebased JSAworksmuch like IncomeSupport (seeSection3.3.1), toppingupincome to a specified level (called the applicable amount),which is intended toreflect the needs of the claimants family. The applicable amount is the sum ofpersonalallowances,premiumsandsomehousingcosts(primarilymortgageinterestpayments).TheamountallowedforeachisidenticaltothatforIncomeSupport(seeTable3.3.1).20Clearly,tobeeligible,theclaimantsincome(minusthesameearningsdisregards as for Income Support) must be less than their applicable amount.IncomebasedJSAisonlypayableiftheclaimantscapitaldoesnotexceedaspecifiedlevel.These capital limitsare the sameas for Income Support (see Section3.3.1).IncomebasedJSAispayableforaslongasthequalifyingconditionsaremet.

In February 2009, 935,400 awards of incomebased JSA were made, whileexpenditure on the benefit is forecast to be 2.15 billion in 200809. Receipt ofincomebased JSA automatically entitles individuals to free school meals, healthbenefits (including freeprescriptions,dental treatment and sight tests),maximumcouncil tax benefit, maximum housing benefit and certain Social Fund payments(includingtheSureStartmaternitygrantandfuneralpayments;seeAppendixC).

Table3.2.2.Currentratesofincomebasedjobseekersallowance,perweek

Personalallowancesingleperson:

Aged1624 50.95a

Aged25orover 64.30

Personalallowancecouple: Oneorbothaged1617 Variesb

Bothaged18orover 100.95aThisrateappliestoloneparentsagedunder18;loneparentsaged18oroverreceive64.30.bIfbothmembersofthecoupleareunder18,therearetworates:50.95and76.90(payableinspecialcircumstances).Ifonlyoneisunder18,therearethreerates:50.95(iftheotheris1824),64.30(iftheotheris25orover)and100.95(payableinspecialcircumstances).

3.2.2.JobGrant


Job grant is a oneoff, taxfree payment to individuals aged 25 or over who arestartingorreturningtofulltimework,21includingthosewhoobtainfulltimeworkaspartoftheNewDeal(seeSection3.2.3).Thepayment is100 inthecaseofsinglepeopleandcoupleswithoutchildrenand250forthosewithchildren.Tobeeligible, 20DependentchildallowancescancurrentlystillbeclaimedunderincomebasedJSA(ratherthanchildtax

credit).Thisisduetotemporarytransitionalarrangements. 21Fulltimeemploymentisdefinedas16hoursormoreperweek.


21

the jobmustbeexpected to last forat least fiveweeks,andapplicantsmusthavebeenreceivingaqualifyingbenefitsuchasjobseekersallowance(seeSection3.2.1),IncomeSupport(seeSection3.3.1),employmentandsupportallowance(seeSection3.5.3)orseveredisablementallowance(seeAppendixB)fortheprevious26weeks.

In200708,approximately47millionwaspaidoutinjobgrants.

3.2.3.NewDealProgrammes

TheNewDealprogrammesaredesignedtohelpunemployed individuals intowork.Inthepast,therewerefourdistinctprogrammes:

TheNewDealforYoungPeople(forthoseaged1824)andtheNewDeal25Plus(forthoseaged2549)werebothcompulsoryforclaimantsofJSAwhomettherelevantcriteriaafteragivenamountof time receiving JSA (sixmonths for theYoung People scheme, 18 months for 25Plus). They provided employmentsubsidiesandtraininggrantstoemployerswhotookonpreviouslyunemployedindividuals.

TheNewDeal50Pluswas voluntary andonly included a training grant (wagetopupswerealsoavailable,buthavesincebeenreplacedbythe50pluselementofworkingtaxcreditseeSection3.3.2).

TheNewDealforLoneParentswasalsovoluntary.Itofferedtraininggrantsandchildcareassistancetothosewhoqualified.

A report published in June 2004,22 however, advocated a much more flexibleapproachtotheNewDeal.Underthenewsystem,participationremainscompulsoryfor thoseaged1824after sixmonthsof receiving JSA,and for thoseaged2549after18months.Mandatoryparticipationafter18months isalsobeingconsideredfor those aged 5059 (subject to an evaluation of the impact of such anundertaking).However,thereisnowtheoptiontoreceiveNewDealassistanceonavoluntarybasisafter sixmonths receiptof JSA,aswellas theopportunity for themostdisadvantaged individualstoreceivespecialistassistanceassoonastheystartclaiming JSA.Thehelponoffer toclaimants isalsomore flexible,witha menuofoptionsavailable(includingeducation,voluntaryworkandsubsidisedpaidwork).Forthe2549agerange,pilotschemesareadditionallybeingusedtotestamandatoryshortprogrammeofassistanceatthesixmonthmark inordertoseewhetherthisenablestheseindividualstomovebackintoworkmorerapidly.

The government is introducing a new scheme called the FlexibleNewDeal. Thiscurrently operates inWales and some parts of England and Scotland. Under thescheme, claimants on jobseekers allowance for 12 months are referred to a 22DepartmentforWorkandPensions,BuildingonNewDeal:LocalSolutionsMeetingIndividualNeeds,2004.


22

specialistreturntoworkproviderfromthepublic,privateorvoluntarysector.Suchservicesarefundedonthebasisofresultsachieved.Thiswilleventuallyreplacethecurrent New Deal for Young People, New Deal 25+ and Employment Zones23programmes.

InFebruary2009,therewere157,990participantsinNewDealforYoungPeopleandNewDeal25+,withanestimatedcosttotheexchequerin200708of110million.

23 Thisisaprogrammetohelpthelongtermunemployedbacktoworkincertaindeprivedareas.See

http://www.jobcentreplus.gov.uk/JCP/Customers/outofworkhelplookingforwork/Getting_job_ready/Programmes_to_get_you_ready/014878.xml.html.


23

3.3.BenefitsforPeopleonLowIncomes

Benefit T C M Claimants,as

atFeb.2009aExpenditure,200708(m)b

3.3.1 IncomeSupport 8 8 9 2,045,220c 8,9483.3.2 Workingtaxcredit 8 8 9 2,261,000d 5,800e3.3.3 Housingbenefit 8 8 9 4,403,980f 15,7323.3.4 Counciltaxbenefit 8 8 9 5,428,230f 4,0233.3.5 Discretionaryhousingpayments 8 8 9 Notavailable 203.3.6 SocialFundpayments: 8 8 9

App

endixC

Regulated: SureStartmaternitygrants 262,600g 123

Coldweatherpayments 8,416,000g 210

Funeralpayments 40,500g 46

Discretionary: Communitycaregrants 252,000g 139

Budgetingloans 1,098,000g 50

Crisisloans 1,965,000g 57

T=taxable,C=contributory,M=meanstestedaUnlessotherwisespecified.bEstimated.c Source:DepartmentforWorkandPensions,IncomeSupporttabulationtool,availableathttp://83.244.183.180/100pc/is/tabtool_is.html.

d Numberoffamilies(includingbothindividualsandcouples,regardlessofwhethertheyhavechildren),asatApril2009.

eThisfigureistakenfromHMRCsAccountsfor200708,availableathttp://www.hmrc.gov.uk/about/hmrcdepacct0708.pdf.Itrepresentsfinalentitlementsratherthanpaymentsmade,andthusdoesnotincludeanyimpactofoverpayments.Totalpaymentsmadeexceededfinalentitlementforworkingtaxcreditandchildtaxcreditby0.5billion;however,adetailedsplitbetweenworkingtaxcreditandchildtaxcreditisnotavailable.ThefigurerelatestoUKratherthanGBexpenditure.

f Source:DepartmentforWorkandPensions,FirstRelease:HousingBenefit&CouncilTaxBenefitStatistics,August2009,http://research.dwp.gov.uk/asd/asd1/hb_ctb/FirstRelease_19082009.pdf.ThesefiguresrefertoclaimantsinMay2009.

gNumberofawardsmadein200809.Source:AnnualReportbytheSecretaryofStateforWorkandPensionsontheSocialFund2008/09,http://www.dwp.gov.uk/docs/2009annualreportsocialfund.pdf.

3.3.1.IncomeSupport


IncomeSupport (IS) isabenefitpaid topeopleon low incomes,although it isnotavailable to theunemployed (whomaybeable toclaim jobseekersallowance)orthose in fulltimework24 (whomaybeable to claimworking tax credit). IS is thus 24Theclaimantmustworklessthan16hoursperweekandtheirpartnerlessthan24hoursperweek.


24

mainly payable to lone parents and carers, disabled people, and those who areincapableofwork(althoughsomeotherindividualsarealsoeligible).

Table3.3.1.CurrentratesofIncomeSupport,perweek

Personalallowancesingleperson: Aged1824 50.95a25orover 64.30

Personalallowancecouple: Oneorbothaged1617 Variesb

Both18orover 100.95

Dependentchildcallowance: (each) 56.11

Premiums: Family 17.30Disabledchild(each) 51.24

Carer 29.50Disability:single 27.50

Couple 39.15Enhanceddisability:dchild(each)e 20.65

Single 13.40couple 19.30

Severedisabilityf 52.85Pensioner(couple) 97.50

a Loneparentsaged1824receive64.30,thesamerateassinglepeopleaged25orover.bIfbothareunder18,therearetwopossiblerates:50.95and76.90(iftheyhaveresponsibilityforachild).Ifonlyoneisunder18,theavailableratesare50.95,64.30and100.95.TheamountpayabledependsupontheageofeachpartnerandwhetheroneorbothwouldbeeligibleforIS(orincomebasedJSA)weretheysingle.

cAnindividualisclassedasachilduntiltheSeptemberfollowingtheir16thbirthday(oruntiltheir19thbirthdayiftheyareinfulltimeeducation).

dTheenhanceddisabilitypremiumispayablewheretheclaimant(ortheirpartner)receivesthehighestrateofdisabilitylivingallowance(care)andisaged60orbelow.

eThiselementofIScanonlybeclaimediftheclaimforIncomeSupportthatbeganbefore6April2004includeddependentchildrenandtheclaimanthasnotyetbeenawardedchildtaxcredit.

f Doubletheamountispayableifbothpartnersqualify.

Tobeeligible,theclaimantsfamilyincome(minusanyearningsdisregards)mustbeless than their applicable amount. The applicable amount is the sum of basicpersonalallowancesandpremiums(seeTable3.3.1)andhousingcosts.25ThelevelofISpayableistheamountneededtotopupfamilyincometotherelevantapplicableamount.Since6October2003,pensioncredithasreplacedISformostpeopleaged60 or over (see Section 3.4.3), although in a small number of cases pensionerpremiumsarestillpayableunderIS(forexample,whenaclaimantagedunder60hasapartneragedover60).Althoughallowancesandpremiumsrelatingtochildrenarebeingphasedout(tobereplacedbythechildtaxcreditseeSection3.1.4),families 25Housingcostsincludeanallowanceformortgagerepaymentsontheclaimantshouse(uptoavalueof

100,000),butexcluderent(whichistakenaccountofinanyentitlementtohousingbenefit).Deductionsfromhousingcostsaremadefornondependantsinthesamewayasforhousingbenefit(seeSection3.3.3andTable3.3.3).


25

currently inreceiptof ISmuststillclaimtherelevantchildallowancesvia IS(ratherthanCTC).26Thisalsoappliestothechildpremiumsforjobseekersallowance.

Somebenefitsarenotcountedasincome(e.g.attendanceallowance,disabilitylivingallowance27),andrecipientsofcertainbenefitsmayhaveupto20oftheir incomedisregardedfortheentitlementcalculation.ISisnotpayableiftheclaimantandtheclaimantspartnertogetherhavemorethan16,000capital.Capitalupto6,000 isignored (10,000 for those in care homes).28 Between these two thresholds, ISentitlementisreducedby1forevery250capitalexceedingthelowerthreshold.

SinceOctober2008, loneparentswhoseyoungest child isover12haveno longerbeenabletoclaimISsolelyonthegroundsofbeingaloneparent.InOctober2009,thisagewasloweredto10,andthegovernmentintendstoreduceitto7byOctober2010.29Theywill, ifeligible,be able to transfer to jobseekers allowanceorotherbenefits.

Lone parentswho have been on IS or incomebased jobseekers allowance for atleastayearareentitledtoa40perweek(60inLondon)InWorkCreditpaymentontopofotherbenefitsandtaxcreditsiftheycommenceemploymentofmorethan16 hours aweek. Payment ismade for 12months,much like the returntoworkcreditinPathwaystoWork(seenextsubsection).

InFebruary2009,2.05millionpeoplereceivedIS.Roughly56percentweredisabledand 36 per cent were lone parents. Total expenditure on IS for 200708 wasestimatedtobe8,948million.ReceiptofISautomaticallyentitlesindividualstofreeschool meals, health benefits (including free prescriptions, dental treatment andsight tests), maximum council tax benefit, maximum housing benefit and certainSocial Fund payments (including the Sure Start maternity grant and funeralpayments;seeAppendixCforfurtherdetails).

Income Support on grounds of incapacity was replaced by the employment andsupportallowancefornewclaimantsinOctober2008(seeSection3.5.3).

PathwaystoWork

ThisschemeprovidesfinancialincentivesforclaimantsofIS,incapacitybenefit,andemploymentandsupportallowancetoreturntowork,withareturntoworkcreditof40perweekifearningsarebelow15,000forthefirstyearofemploymentaftercomingoffbenefits.

26Thereisatemporarytransitionalarrangementinplaceforadministrativereasons. 27Childbenefitisalsodisregardedforthoseinreceiptofchildtaxcredit.28 Noneofthesethresholdsincludesthevalueofowneroccupiedproperty. 29 Source:TransformingBritainsLabourMarket:TenYearsoftheNewDeal,January2008.


26

WorkFocusedInterviews

In 2001, the government began introducing compulsory workfocused interviews(WFIs)forallnewclaimantsofcertainbenefits.IncomeSupportisonesuchbenefit.Thismeansthattheclaimant(andtheirpartnerinsomecases,includingpartnersofISrecipients)mustattendinterviews(theideaofwhichistohelpandencourageyouto keep in contact with the employment market and eventually begin fulltimework30) at trigger points (i.e. when certain criteria are met) as a condition ofcontinuingbenefit receipt.These interviewsarecompulsory forallclaimantsof IS,employment and support allowance (see Section 3.5.3), carers allowance (seeSection3.5.6)andbereavementbenefits (seeSection3.6),betweentheagesof18and60.31Additionally,iftheapplicantisclaimingonthebasisofincapacityforwork,thenparticipationinmorefrequentWFIsisalsocompulsoryaspartofthePathwaystoWorkscheme.

3.3.2.WorkingTaxCredit


Workingtaxcredit(WTC)hasbeenavailablesince6April2003andprovidesinworksupport for lowpaid working adults. It replaced the adult and childcarecostelements of theworking families tax credit, disabled persons tax credit and theNew Deal 50Plus employment credit, and extended inwork support to coverhouseholdswithout children. SinceWTC is a tax credit, it is administered byHMRevenueandCustoms.Under internationalaccountingconventions, taxcreditsarecountedasnegative taxation to theextent that theyare less than the income taxliabilityofthefamilyandasgovernmentexpenditureforpaymentsexceedingthetaxliability.32Forourpurposes,however,wecountalltaxcreditexpenditureasifitwerepublicspending.

Familieswithchildren,andworkerswithadisability,areeligibleforWTCprovidedatleastoneadultworks16ormorehoursperweek.Workerswithnochildrenandnodisabilityareonlyeligibleiftheyareaged25oroverandworkatleast30hoursperweek.

WTC is made up of a number of components (see Table 3.3.2). There is a basicelement, with an extra payment for couples and lone parents (i.e. for everyoneexceptchildlesssinglepeople),aswellasanadditionalpaymentforthoseworkingatleast 30 hours per week (30 hours in total for couples). WTC also includessupplementarypaymentsfordisability,severedisabilityandthoseover50returning 30Source:Page997ofChildPovertyActionGroup,WelfareBenefitsandTaxCreditsHandbook2009/2010,

London,2009. 31 Ingovernmentissuedguidelines,severedisablementallowance(SDA)isalsoincludedinthelistofbenefitsfor

whichnewclaimantsareobligedtoattendWFIs;however,SDAisnolongeravailabletonewclaimants(seeAppendixB);henceitsinclusionundertheWFIschememaybemisleading.

32Formoreinformation,seehttp://www.hmrc.gov.uk/stats/announcepage_1.htm.


27

to work. Severe disability supplements are payable where the recipient or theirpartnerreceivesthehighestrateofthecarecomponentofdisabilitylivingallowance(seeSection3.5.4)orthehigherrateofattendanceallowance(seeSection3.5.5).

Table3.3.2.Currentratesofworkingtaxcredit

perannum perweekBasicelement 1,890 36.25Coupleandloneparentelement 1,860 35.6730hourelement 775 14.86Childcareelementa Onechild 175.00

Twoormorechildren 300.00Disabledworkerelement 2,530 48.52Severedisabilityelement 1,075 20.6250plusreturntoworkpayment(1629hours) 1,300 24.9350plusreturntoworkpayment(30+hours) 1,935 37.11 IncomebelowwhichmaximumWTCispayable 6,420 123.12Withdrawalrate 39% 39%a 80percentofeligiblechildcarepaymentsarepayable(uptothemaximumshown).Note: Weeklynumbersarecalculatedbasedupontherebeing365/7weeksperyear.

ThemaximumamountofWTCpayableiscalculatedbyaddingtogetherallapplicableelements.Claimantsareautomaticallyentitled to themaximumamountofWTC iftheyreceiveIncomeSupport,incomebasedjobseekersallowanceorpensioncredit,althoughitshouldbenotedthattherearefewsituationsinwhichbothWTCandISorJSAcanbeclaimed(duetotheworkingrestrictionsplacedoneligibilityforISandJSA).WTCalsocountsfullyasincomeinpensioncreditcalculations.

WTC that either includes a disability element or is received with child tax creditpassports recipients to a number of health benefits, including free prescriptions,dentaltreatment,andsighttestsandglasses,providedgrossannualincomedoesnotexceed15,276.

ThechildcareelementofWTCisavailabletoloneparentsworking16hoursormoreperweekandtocoupleswherebothpartnersworkfor16hoursormoreperweek(or ifone is incapacitatedandthusunabletocareforchildrenandtheotherworksfor 16 hours or more per week). This element is payable until the Septemberfollowingthechilds15thbirthday(16thbirthdayfordisabledchildren),andcaremustbegivenbyapprovedproviderssuchasregisteredchildminders,nurseriesandafterschool clubs. The childcare component provides 80 per cent of eligible childcareexpenditureofupto175perweekforfamilieswithonechildor300forfamilieswithtwoormorechildren(i.e.upto140or240perweekrespectively).UnliketherestofWTC,which isnecessarilypaid to the individual in fulltimework (or to the


28

individualagreeduponbythecouplewherebothareinfulltimework),thechildcarecreditispaiddirectlytothemaincarer,aswithchildtaxcredit(seeSection3.1.4).

WTCissubjecttoajointmeanstestwithchildtaxcredit(seeSection3.1.4).ForWTCclaimsmadebeforethebeginningofataxyear,awardsapplytothewholeofthattaxyear(i.e.6Aprilto5April).Forclaimsmadeafterthetaxyearhasbegun,awardsapply to the remainder of that tax year. In some instances, changes to personalcircumstances affect WTC entitlement, and HM Revenue and Customs must benotified immediately.Examples includeasingleclaimantbecomingpartofacouple(orviceversa),orwherechildcarecostsarereducedby10perweekormore forfourconsecutiveweeks.Otherchangestocircumstancescanbedisclosedeitheratthetimethattheyoccurorattheendofthetaxyear,althoughthelattercoursemaysubsequentlyleadtoanecessaryrepaymentofoverpaidtaxcreditsifentitlementisreduced.

InApril2009,approximately2.26millionfamilieswerereceivingWTC,1.8millionofwhich were also receiving child tax credit (see Section 3.1.4). This means thatapproximately20percentofWTCrecipientshadnodependentchildren.33For200708, expenditure on WTC, based on actual entitlement, is expected to be around5.8billion(seeSection3.1.4formoredetailsoftheproblemofoverpayment).

3.3.3.HousingBenefit


Housingbenefit(HB) ispayabletofamilieswith low incomeswhorenttheirhomes(for familieswhoown theirownhomes,mortgage interestpaymentsmaybemetthrough IncomeSupport seeSection3.3.1).Peopleon IncomeSupport, incomebased jobseekersallowanceor theguaranteecreditelementofpensioncreditareautomaticallyentitledtothefulllevelofHB.Forotherclaimants,theamountofHBpayabledependsuponincomeinmuchthesamewayasforISorincomebasedJSA.

ThemaximumlevelofHBisequaltoeligiblerentminuspossibledeductionsmadeforanynondependantsbecausetheyareexpectedtocontributetowardstherent.Anamountisdeductedforeachnondependantagedatleast18basedontheirgrossweekly income.34Eligible rent is theweekly contractual rateof rent less ineligiblecharges included in the rent (such as certain fuel charges, service charges forwashing, cleaning, etc., andwater charges).However, eligible rent is capped at alocalreferencerent,therentofsuitablysizedaccommodationinthesamelocality.

33Source:HMRevenueandCustoms,ChildandWorkingTaxCreditsStatistics:April2009,

http://www.hmrc.gov.uk/stats/personaltaxcredits/cwtcapr09.pdf. 34Nodeductionsaremadeforanynondependantifeithertheclaimantortheclaimantspartnerisblind,or

receivesattendanceallowanceorthecarecomponentofdisabilitylivingallowance.Nodeductionsaremadeforanindividualnondependantwhenthenondependantisafulltimestudent,orunder25andonISorincomebasedJSA,orinarangeofothersituations.Asingledeductionismadefornondependentcouples.


29

Table3.3.3.Currentratesofhousingbenefit,perweek

Personalallowancesingleperson: Under25 50.95a Aged2559 64.30

Aged6064 130.00Aged65orover 150.40

Personalallowancecouple: Aged1659 100.95b Oneorbothaged6064 198.45

Oneorbothaged65+ 225.00

Dependentchildallowance:c (each) 56.11

Premiums: Family 17.30 Familywithchildagedunder1 27.80

Loneparentd 22.20Loneparentwithchildagedunder1d 32.70

Disabledchild(each)

51.24Disability:dsingle 27.50

couple

39.15

Enhanceddisability:echild(each) 20.65single 13.40couple

19.30Severedisabilityf 52.85

Carerf

29.50

aThisratedoesnotapplytoloneparentsaged1824.Theyreceive64.30,thesamerateassinglepeopleaged2559.

bIfbothareunder18,thisisreducedto76.90.cAnindividualisclassedasachilduntiltheSeptemberfollowingtheir16thbirthday(oruntiltheir19thbirthdayiftheyareinfulltimeeducation).

dOnlyoneofthesepremiumscanbepaidatanyonetimetoanyoneclaimant(includingtheloneparentpremium,nowavailableonlytoexistingclaimants,furtherdetailsofwhichcanbefoundinAppendixB).

eTheenhanceddisabilitypremiumispayablewheretheclaimantorafamilymemberreceivesthehighestrateofdisabilitylivingallowance(carecomponent)andisaged60orbelow.

f Doubletheamountispayableifbothpartnersqualify.

TheamountofHBactually receiveddependson the claimantshousehold incomerelative to the applicable amount and household capital. ForHB, the applicableamount isthesumofpersonalallowancesandpremiums(butnothousingcostsaswith IS and incomebased JSA). These allowances andpremiums (setout in Table3.3.3)aresimilartothoseforISandincomebasedJSA.Asof6October2003,thoseaged 60 or over and not claiming IS or incomebased JSA are entitled to higherpersonalallowances,buttheyarenolongereligibleforthepensionerpremium.Thisisduetotheintroductionofpensioncredit(seeSection3.4.3).Ifincomeislessthan


30

orequal to the sumofallowancesandpremiums,maximumHB ispayable.Whenincomeexceedsthislevel,thereisa65percenttaper(soHBentitlementisequaltomaximum HB minus 65 per cent of the amount by which income exceeds theapplicableamount).

SinceOctober2009,childbenefithasbeendisregardedinthecalculationofincomeforhousingbenefitandcounciltaxbenefit.

Some benefits are not counted as income (e.g. attendance allowance, the carecomponentofdisabilitylivingallowance),andrecipientsofcertainbenefitsmayhaveup to 20 of their income disregarded for the entitlement calculation. Somechildcarecostscanalsobededucted(upto175perweekforonechild,or300fortwoormore). If theclaimantand theirpartner togetherhavecapital thatexceeds16,000,noHBisnormallypayable.Capitalofbetween6,000(10,000forthoseinresidential care) and 16,000 is assumed to generate 1 of income per 250 ofcapital. There is no capital limit for individuals receiving the guarantee creditelementofpensioncredit,andassumed income fromcapital for thoseaged60oroveris1forevery500.InNovember2009,thelowercapitallimitwillbeincreasedto10,000forallbeneficiariesover60.

Roughly 4.4 million people received HB in May 2009, of whom 69 per cent alsoreceivedIS, incomebasedJSA, incomerelatedemploymentandsupportallowance,ortheguaranteecreditofpensioncredit(andwerethereforeentitledtomaximumHB).35ExpenditureonHBin200708was15.7billion.

The governmenthas recently introduced a reformofhousingbenefit, replacing itwith a local housing allowance (LHA) for private sector tenants. LHAwas pilotedbefore it was introduced in April 2008. Initially, the key difference between theprevioussystemandLHAisthatthelatterwasbasedonlocalrentlevels,ratherthanontheclaimantsactualrent.Tenantswereabletokeepupto15perweekofanydifferencebetween this local rent leveland the rent theypay.Thisgave themanincentivetokeeptheirrentdown,whereasbefore,marginalincreasesinrentwouldsimplyresultinhigherHBpayments.

However, it was announced in the 2009 Budget36 that, in order to cut costs,claimantswillno longerbeabletoreceivemore inLHAthantheypay inrent.ThisreversesthecentralfeatureofLHA,meaningthatthenewsystemwillbe, ineffect,nodifferentfromtheoldhousingbenefit.

35Source:DepartmentforWorkandPensions,FirstRelease:HousingBenefit&CouncilTaxBenefitStatistics,

August2009,http://research.dwp.gov.uk/asd/asd1/hb_ctb/FirstRelease_19082009.pdf. 36 Availableathttp://www.hmtreasury.gov.uk/bud_bud09_index.htm.


31

3.3.4.CouncilTaxBenefit


Council taxbenefit (CTB) ispayable to familieswith low incomes thatare liable topaycounciltaxonapropertyinwhichtheyareresident.Manyoftheconditionsforclaiming are the same as those for housing benefit (see Section 3.3.3), includingthose on capital thresholds, applicable amounts and premiums (although sincenobodyundertheageof18isliableforcounciltax,nobodyunder18canclaimCTB).In addition, if the claimant is aged60orover, andneither the claimantnor theirpartner receives income support or incomebased jobseekers allowance, thendifferent(moregenerous)rulesapply(seeSection3.4.3).

There is also an alternative benefit, known as the second adult rebate, which ispayableinsteadofsocalledmainCTBtopeoplewhohaveanadultlivingwiththemwho isnot liableforcounciltaxandwhodoesnotpayrent.ClaimantseligiblebothforCTBandforthesecondadultrebatearepaidwhicheverisofhighervalue.SecondadultrebateisclaimedbyfarfewerpeoplethanmainCTBandwillbeignoredfortheremainderofthissection.

PeopleonIS, incomebasedJSAortheguaranteeelementofthepensioncreditareautomaticallypassportedentitlementtomaximumCTB.MaximumCTBistheweeklycostofcounciltax,workedoutastheannualbilldividedbythenumberofdays inthe year andmultiplied by seven. If there ismore than one person in the houseeligible topay council tax, themaximumbenefit is the shareof the totalbill thateachbenefitunitiseligiblefor.So,forexample,iftherewereamarriedcoupleandathirdpersonalleligibletopaycounciltaxforagivenproperty,onememberofthecouplewouldbeentitledtoclaimuptoatwothirdsshareoftheweeklytax,andthethirdpersoncouldclaimaonethird share.Aswithhousingbenefit, theremaybedeductions fornondependants,with theamountof thedeductionbasedon theirgrossweekly income.37Forpeoplenoton ISor incomebased JSAwithan incomeabovetheirapplicableamountforhousingbenefit(seeSection3.3.3),thetaperis20percent.

People living inhighvalueproperties incounciltaxbandsF,GorH(housescostingover120,000 inEngland in1991)whoclaimCTBafter31March1998have theirmaximumCTBrestrictedtothatofabandEproperty.38

InMay2009,nearly5.5millionpeople receivedmainCTB. It isestimated tohavecostapproximately4billion in200708.OfthosereceivingmainCTB,69percent 37Deductionsfornondependantsaremadeonasimilarbasistothoseoutlinedforhousingbenefit(seeSection

3.3.3),exceptthatallnondependantsonISorincomebasedJSA(notjustthoseunder25),andthoseonpensioncredit,areignoredinthecalculationofdeductions.

38Formoreoncounciltaxvaluations,seeS.AdamandJ.Browne,ASurveyoftheUKTaxSystem,IFSBriefingNote9,London,2009,http://www.ifs.org.uk/bns/bn09.pdf.


32

werealsoinreceiptofIS,incomebasedJSA,incomebasedemploymentandsupportallowance,ortheguaranteecreditofpensioncredit.39

3.3.5.DiscretionaryHousingPayments


Discretionary housing payments are payments to help meet rent or council taxliabilities.Theyarepayabletothoseentitledtohousingbenefit,counciltaxbenefitor localhousing allowance,who require additional financial assistance inorder tomeettheirhousingcosts.Noonehasarighttodiscretionaryhousingpayments,andawards are made out of a cashlimited budget. The amount and duration ofpaymentsvary.In200708,thevalueofthesepaymentswasaround20million.

3.3.6.SocialFundPayments


TheSocialFundwasintroducedin1987toprovidemoneyforpeopleinneedunderavarietyofcircumstances.SomeofthepaymentsfromtheSocialFund(includingcoldweatherpayments, funeralpaymentsandSureStartmaternitygrants)constitutealegal entitlement under certain conditions for certain people. Other payments(includingcommunitycaregrants,budgetingloansandcrisisloans)arediscretionaryandbudgetlimited,andarepaidouttopeoplewhosatisfythequalifyingrulesonacasebycase basis. The various payments from the Social Fund are described inAppendixC.For200708,totalnetexpenditurefromtheSocialFundisestimatedtobe625million.

39 Source:DepartmentforWorkandPensions,FirstRelease:HousingBenefit&CouncilTaxBenefitStatistics,

August2009,http://research.dwp.gov.uk/asd/asd1/hb_ctb/FirstRelease_19082009.pdf.


33

3.4.BenefitsforElderlyPeople

Benefit T C M

Claimants,asatFeb.2009a

Expenditure,200708(m)b

3.4.1 Basicstatepension 9 Part 8 12,226,260c 47,4093.4.2 Earningsrelatedstate

pensions:

Graduatedretirementbenefit

9 9 8 69,360 Notavailable

SERPSandstatesecondpension(S2P)

9 9 8 5,655,000d 10,184

3.4.3 Pensioncredit 8 8 9 2,723,610e 7,4633.4.4 Winterfuelpayments 8 8 8 12,123,000f 2,0713.4.5 ConcessionaryTVlicences 8 8 8 3,993,000f 510T=taxable,C=contributory,M=meanstestedaUnlessotherwisespecified.bEstimated.c Source:DepartmentforWorkandPensions,StatePensiontabulationtool,availableathttp://83.244.183.180/100pc/sp/tabtool_sp.html.

d 19992000,forSERPSonly.Morerecentfiguresarenotreadilyavailable.e Source:DepartmentforWorkandPensions,PensionCredittabulationtool,availableathttp://83.244.183.180/100pc/pc/tabtool_pc.html.Justunderhalfofclaimantsreceivebothsavingsandguaranteecredit,withsimilarnumbersreceivingonetypeofcreditonly.

f Source:TableC1athttp://research.dwp.gov.uk/asd/asd4/medium_term.asp(outturn200708).

3.4.1.BasicStatePension

Taxable,Partlycontributory,Nonmeanstested

The basic state pension (BSP) was introduced in 1948, following the BeveridgeReport,withtheaimofprovidinganincomeforoldagepensionersbasedupontheirrecordofNational Insurance contributions.Originally, the ideawas for theBSP tooperateonafundedbasis,witheachgenerationpayingforitsownpensionsthroughNICs.Thiswasabandonedimmediatelyonintroductionsothatthepensioncouldbemadepayabletotheexistinggenerationofpensioners.Thisleftthecurrentpayasyougopension system,whereby theNICs from those currently inwork fund thepensionspaidouttothegenerationcurrentlyinretirement.

TheBSPispayablefromthestateretirementage,whichatpresentis60forwomenand65formen.Allpensionsarepaidforlife.Theretirementageforwomenwillbeincreasedbysixmonthseachyearfrom2010sothatequalisationat65isachievedin2020.Marriedpartnersoverthestateretirementagereceiveadependantsadditionon topof theBSP,unlesseachpartner in thecouple isable toqualify fora largerpensionon thebasisof theirown contribution record.Widowsandwidowersareable to inherit theirdeceasedpartnerspensionentitlement in full if this isworthmorethantheirownentitlement.Thosenotqualifyingforthefullamount(because


34

ofinsufficientNICsseebelow)areabletoreceiveaproportionoftheBSP,subjecttothisbeingatleast25percentofthefullamount.Thoseagedover80areabletoreceive the lessgenerousnoncontributorybasicstatepension if this ismore thantheentitlementbasedontheirowncontributionrecord.

InordertoqualifyforthefullBSP,individualsneedtohavepaidNICsfor90percentof aworking lifetime;40 however, individuals are creditedwithNICs (at the lowerearningslimit)forperiodsspentoutofthelabourmarketduetoillness,disabilityorunemploymenthencecoverageamongmalepensionersinparticularisveryhigh.41Manymarried femalepensionersdonotqualify fortheBSP,becausepriortoApril1977theycould optoutoftheBSP, inreturn forwhichtheypaida lowerrateofNationalInsurance.SinceApril1977,optingouthasbeenprohibited,andtimespentlookingafterchildrenhasreducedtheperiodforwhichcontributionsarerequired.42Combinedwithincreasingfemalelabourmarketparticipation,thismeansthatmorewomenwillqualifyfortheBSPinfuture.

FromApril2005, individuals can choose todefer receiptof theBSP foras longasthey like,as comparedwithamaximumof fiveyearsbefore then. Ifan individualputsoffclaimingtheirstatepensionforatleast12months,theycanchooseoneoftwooptionswhentheydofinallyclaim.Thefirstoptionistoearnextrastatepensionat1percentforeveryfiveweekstheyputoffclaiming(this isequivalenttoabout10.5percentextraforeveryyearcomparedwithabout7.5percentextrabefore6April2005).Thesecondoptionisaoneofftaxablelumpsumpaymentbasedontheamount of normal weekly state pension they would have received, plus interestaddedeachweekandcompounded.43 Individuals thenalsoget theirstatepensionwhentheyclaim it,paidatthenormalrate. Individualsmustputoffclaimingtheirstatepensionforat least12consecutivemonths,whichmustallhavefallenafter5April2005,tobeabletochoosealumpsumpayment.Bothoftheseoptionsuseanyearningsrelated state pension (see Section 3.4.2) that the individual is eligible toreceive in calculating theirhigher statepensionor lumpsumpayment.Additionalamounts are available to those receiving the agerelated addition for longtermincapacitybenefit (seeSection3.5.2)and to thosewithadultor childdependants(although increases for dependent children have now been replaced by child taxcreditfornewclaimantsseeSection3.1.4andAppendixB).

40Aworkinglifetimeisdefinedastheperiodinclusiveofthetaxyearinwhichthepersonturns16,upto(but

notincluding)theyearinwhichtheyreachpensionage(ortheyearinwhichtheydie).FormoreabouttheNationalInsurancesystem,seeS.AdamandJ.Browne,ASurveyoftheUKTaxSystem,IFSBriefingNote9,London,2009,http://www.ifs.org.uk/bns/bn09.pdf.

41 Itshouldbenotedthatatleastonefullyearofactualpaidcontributionsisrequiredinordertoqualifyforthecontributoryelementofthebasicstatepension.

42Forinformationonhomeresponsibilitiesprotection,seehttp://www.direct.gov.uk/en/MoneyTaxAndBenefits/BenefitsTaxCreditsAndOtherSupport/Caringforsomeone/DG_10018691.

43 Thecompoundedratewillbe2percentagepointsabovetheBankofEnglandsbaserate(soifthebaseratewere4.5percent,theannualrateofreturnwouldbe6.5percent).AstheBankofEnglandbaseratemaychangefromtimetotime,therateofinterestusedtocalculatethelumpsumcouldalsochange.


35

Until theearly1970s, the levelof theBSPwasupratedonanadhocbasis,butbymore than enough to keep pacewith increases in average earnings. Itwas thenformallylinkedtothefasterofgrowthinpricesorgrowthinearningsandremainedsountil1981,when itwas formally linked toprice inflation.Thevalueof theBSPrelativetoearningshasthereforechangedconsiderablyovertime, from justunder14percentwhen itwasfirst introduced,toaround20percent intheearly1980s,beforefallingto justunder16percenttoday.ThePensionsAct200744envisagesarelinkageofthebasicstatepensiontoaverageearningsin2012.

Costingsome47.4billion in200708andreceivedby12.2millionpensioners,theBSP is the largest single benefit, constituting approximately 30 per cent ofexpenditureonallbenefitsandtaxcredits.TheChristmasbonusispayablewithBSP.

Table3.4.1.Currentratesofbasicretirementpension,perweek

Basicstatepension 95.25Noncontributorybasicstatepension 57.05 Increasefordependants: Adult(forone) 57.05

3.4.2.EarningsRelatedStatePensions

Taxable,Contributory,Nonmeanstested

GraduatedRetirementBenefit

Thegraduated retirementbenefit (GRB)schemeoperatedbetweenApril1961andApril 1975. It involved an earningsrelated element to NICs, on top of the thenstandard flatrate contribution. This was designed to entitle individuals to anearningsrelated element to their state pension. Initially, all individuals had tocontributetothescheme.Thisrequirementchanged from5October1966,sothatindividualswhoweremembersofanoccupationalpensionschemecouldcontributeatareducedrate,inreturnforwhichtheyreceivedareducedrateofGRB.Averagepayments under this scheme are relatively ungenerous, not least becauseentitlementswere frozen in cash terms between April 1961 andNovember 1978during which period prices quadrupled. The largest graduated retirement benefitthatbeneficiariescanreceiveis328ayearforawomanand392ayearforaman.Oncetheclaimantreachestheageof80,theyareentitledtoanadditional25penceperweek.TheGRBispayableeveniftheindividualisnotinreceiptofthebasicstatepension.TheChristmasbonusispayablewithGRB.

InFebruary2009,69,360individualswerereceivingthisbenefit.

44 Availableathttp://www.opsi.gov.uk/acts/acts2007/ukpga_20070022_en_1.


36

StateEarningsRelatedPensionScheme

The State EarningsRelated Pension Scheme (SERPS) was introduced in 1978 toprovide additional retirement income to around half the workforce, whoseemployers did not provide an occupational pension scheme. Despite beingintroduced with crossparty support, perhaps its most noticeable feature is howshortlivedithasbeen:SERPSwascutdramaticallyintheSocialSecurityActsofboth1986and1995,beforebeingreplacedbythestatesecondpension(S2P)from2002(seebelow formoredetails).AsofApril2002,no futureSERPSbenefitsarebeingaccrued.SERPSispayableeveniftheclaimantisnotinreceiptofthebasicpension.

Inorder toavoidcrowdingoutexistingprivatepensionprovision, thosewhoweremembers of a defined benefit (final salary) pensionwere allowed to opt out ofSERPSon its introduction in 1978. In return, their employermade lowerNationalInsurance contributions on their behalf and the individuals contribution ratewasalsoreduced.Inaddition,from1988,individualswereallowedtooptoutofSERPSintoadefinedcontribution(moneypurchase)pensionscheme,inreturnforwhichaproportion of theirNICswere paid into the individuals pension fund. This led torapidgrowth inpersonalpensions,particularlyamong theyoung, forwhomSERPSrepresentedaworsedeal.45

TheoriginalSERPSformulatookindividualsearningsineachyearandupratedthemby average earnings growth to the year before the individual reached stateretirementage.The lowerof thisamountand theannualisedupperearnings limit(UEL)intheyearbeforeretirementwasusedintheSERPScalculation,withthevalueof the annualised lower earnings limit (LEL) in the year prior to retirement thendeductedfromthisfigure.TheSERPSpensionthatan individualwouldreceivewasequal toonequarterof thisamount,averagedover thebest20yearsearningsoftheir life.NoSERPSwaspaidonearningsbelow theLEL,since itwasdeemed thatthesewere covered by the basic state pension.No additional SERPSwas paid onearningsabovetheUEL,sincethosewhowerecontractedoutofSERPSonlyreceiveda rebate onNICs between the LEL and theUEL. Importantly,while contributionswere indexed in linewithearningsbetweentheyear inwhichtheyweremadeandthe year of retirement, once in payment SERPSwas indexed to price inflation. Inaddition, surviving partners could inherit the full amount of their spousesentitlement.

The1986SocialSecurityActcut futureSERPSexpenditure (andhencegenerosity).Individuals will now receive onefifth rather than onequarter of their revaluedearningsbetweentheUELandtheLEL. Inaddition,thiswillbeaveragedovertheirentirelifetime,ratherthantheirbest20yearsofearnings.ThesecutswerephasedinbetweenApril1999andApril2009,althoughearnings frombeforeApril1988will 45Formoredetails,see,forexample,R.DisneyandE.Whitehouse,ThePersonalPensionsStampede,Institute

forFiscalStudies,London,1992.


37

continue to accrue at themore generous level. The 1986 Social SecurityAct alsoreducedtheamountthatasurvivingpartnercould inherit,from100percentto50percentoftheirspousespension.Originally,thiswastoapplytosurvivingpartnersfrom 6 April 2000, but due to government documentation failing to informindividualsofthechange,itwasdelayeduntilOctober2002.Itisnowbeingphasedinovera10yearperiod.46,47

The1995SocialSecurityAct furtherreducedthegenerosityofSERPS.Thiswastheresultoftwochanges.Firstwastheincreaseinthestateretirementageforwomen,beingphased inbetween2010and2020.Second, therewasa technicalchange totheSERPSformula.Thismeantthat,insteadofsubtractingtheLELintheyearbeforeretirement,nowtheactualLELisdeductedfromearningsbeforetheyareupratedbyaverageearningsgrowth.Thisislessgenerousforthoseretiringnowandforseveralyearstocome,sincetheLELbeingdeductednowisessentiallybeingupratedinlinewithearningstothecurrentyearwhiletheLELthatwaspreviouslybeingusedwasincreasedonlyinlinewithprices.

In 200708, just over 10 billionwas spent on state earningsrelated pensions.Atotalof9.2millionpeoplewerereceivinganearningsrelatedstatepensionin19992000.48Approximately60percentofthesepensionerswereentitledtoSERPS,andaboutthreequartersreceivedsomeformofgraduatedpension.

StateSecondPension

From6April2002,SERPSwasreplaced(fornewcontributions)bythestatesecondpension,essentiallyamoregenerousversionofSERPS.TheformulausedtocalculatetheamountofS2PentitlementismuchthesameasthatusedforSERPS,exceptthatitdeliberatelyfavourslowerearners:in200910,individualsearningbelow13,900qualify for S2P worth 3,584 (40 per cent of the income remaining after theannualised LEL, 4,940, has been subtracted from 13,900), regardless of actualearnings.An individualqualifies foranadditional10percentofearningsbetween13,900and31,800,andanadditional20per centofearningsbetween31,801andtheannualisedUEL(currently43,875);allthresholdsareupratedannually.Thisratherstrangestructureisdesignedsothatnoonelosesoutfromthereform.

The1998PensionsGreenPaper49envisagedthattheS2Pwouldbecomeaflatratetopup to thebasicstatepension.Thiswouldcreatesome losers,asall individuals 46SeePensionService,InheritingaSERPSPension:InformationforMarriedPeopleandCivilPartners,2007,

http://www.direct.gov.uk/prod_consum_dg/groups/dg_digitalassets/@dg/@en/@over50/documents/digitalasset/dg_180215.pdf.

47FormoredetailsofSERPSandinheritancerules,seeDepartmentforWorkandPensions,WhattoDoafteraDeathinEnglandorWales,2009,http://www.jobcentreplus.gov.uk/JCP/stellent/groups/jcp/documents/websitecontent/dev_016117.pdf.

48Source:SocialSecurityStatistics.Morerecentfiguresarenotavailable. 49DepartmentofSocialSecurity,ANewContractforWelfare:PartnershipinPensions,London,1998.


38

wouldreceive40percentof13,900(againminustheLEL),regardlessoftheiractualearnings level.Originally, the changewas scheduled forApril 2007, but the 2002PensionsGreenPaper50statedthatitsintroductionwastobekeptunderreview.

3.4.3.PensionCredit


Pensioncredit(PC)wasintroducedinplaceofIncomeSupportforthoseaged60orover(alsoknownastheminimumincomeguarantee,MIG)on6October2003inanattempt to improve the incentives to save for retirement. Before this date,pensionerswithincomeinexcessofthebasicstatepension(butlessthantheMIG)faced a 100 per cent marginal withdrawal rate (1 of support lost for everyadditional 1 of their own income). Pension credit attempts to reduce thisdisincentivetosave,bycuttingthemarginalwithdrawalrateto40percent.

Table3.4.2.Currentratesofguaranteecredit,perweek

Standardamount: Singleperson 130.00 Couple 198.45

Additionalamounts: Severedisability 52.85a Carer 29.50a

Housingcosts Variesb

Transitional Variesc

aDoublethisamountispayableifbothpartnersqualify.bHousingcostpaymentsareverysimilartothoseforIncomeSupport(seeSection3.3.1).cAtransitionalelementispaidtothosepreviouslyonIncomeSupportorincomebasedjobseekersallowancewhowouldbemadeworseoffbymovingontoPC.ThetransitionalpaymentcoversthedifferencebetweenthefinalISorincomebasedJSAapplicableamountandthePCappropriateamount(asidefromafewadjustments).

There are twoelements to thePC: guarantee credit and savings credit.Claimantsmaybeentitledtooneorbothelements.GuaranteecreditworksmuchliketheMIG,toppingup incometoaspecifiedminimum level (calledthe appropriateamount).Theappropriateamount is thesumofastandardamountandadditionalamountsfor special needs or housing costs (see Table 3.4.2). To receive guarantee credit,claimantsmustbeagedatleast60(thiswillincreaseto65between2010and2020in line with the retirement age for women see Section 3.4.1) and have familyincomebelowtheappropriateamount.Thesumpayable isthedifferencebetweenfamily incomeandtheappropriateamount.AswiththeMIG,capital isassumedtoyielda flowof income,but thePC rulesaremoregenerous: capitalbelow6,000(10,000forthoseincarehomes)isdisregarded,andabovethislevelevery500ofcapitalisassumedtoprovide1ofincome.Thereisnoupperlimitontheamountof 50DepartmentforWorkandPensions,Simplicity,SecurityandChoice:WorkingandSavingforRetirement,

London,2002.


39

capitalthatcanbeheld.InNovember2009,thelowercapitallimitwillbeincreasedto10,000.

Recipients of guarantee credit are automatically entitled to maximum housingbenefit(seeSection3.3.3),maximumcounciltaxbenefit(seeSection3.3.4),healthbenefits (including freeprescriptions,dental treatmentandsight tests)andcertainSocialFundpayments(seeAppendixC).Recipientsofthesavingscreditmayalsobeentitled to some Social Fund payments. The Christmas bonus is payablewith theguaranteecredit.

Savingscreditrewardspeopleaged65oroverwhohavesavedforretirement.Onlythosewithincome(excludingguaranteecredit)thatexceedstheappropriatesavingscreditthreshold(seeTable3.4.3)areeligible.51Forthosewithincomebetweenthisamount and the appropriate amount (see above), the amount of savings creditpayableis60percentofincomeabovethesavingscreditstartingpoint.Thisimpliesamaximum savings creditpaymentof60per centof thedifferencebetween theappropriate amount and the savings credit starting point. For thosewith incomegreater thanorequal to theappropriateamount, savings credit iswithdrawnatarateof40percent.Thismeansthataclaimantwhoseincomeisexactlyequaltotheappropriate amount will receive the maximum award, but each additional 1 ofincomereducestheawardby40pence.

In 200708, spending on the pension credit was 7.46 billion. It was claimed byaround2.7millionasofFebruary2009.

Table3.4.3.Currentratesofsavingscredit,perweek

Savingscredit

Documents

A Survey of the UK Benefit System