Green Party – evidence to 21st Century

CarerWatch support this evidence 100%. We look forward to hearing Caroline Lucas speak in the Cuts debate on 20th October 2010.

Response to ‘21st Century Welfare’ from Anne Gray on behalf of the Green Party.  

The Green Party of England & Wales broadly welcomes the response below by Anne Gray. More detail of the Green Party position here

1. What steps should the Government consider to reduce the cost of the welfare system and reduce welfare dependency and poverty?

The direct costs of the welfare system depend on a number of factors, only some of which are considered in the proposals:-

1) the number of claimants, which crucially depends on the state of the economy. The downsizing of the public sector is far less of a fiscal saving than it appears when the direct and indirect impacts on unemployment are considered. The future of the welfare system cannot be divorced from overall fiscal policy. To try to secure any substantial reduction in claimant numbers by tightening eligibility criteria, or by increasing sanctions and conditionality, during the deepest recession for a generation is a cruel way of placing the burden of fiscal adjustment on the unemployed themselves. This burden needs to be fairly shared by upper income groups, in the form of higher taxes on those who can afford it.

2) the length of time for which claimants remain benefit dependent. This is not merely a question of the effectiveness or otherwise of Job Centre Plus and private providers of ‘back to work’ programmes, still less of the ‘lifestyle choices’ of the unemployed. It also depends on claimants’ state of health (including mental health) the attitudes of employers towards disadvantaged or long-term jobseekers, the extent of competition from migrants coming from elsewhere in the EU, and barriers to mobility arising from the housing market. Measures to reduce and prevent alcohol and drug dependency, and to reduce discrimination against ethnic minorities, disabled people and ex-offenders, are critically important in reducing long-duration unemployment spells. Some degree of ‘positive action’ with preference for disabled people in certain categories of public sector jobs would be helpful (for example museum attendant, telephone receptionist, library assistant).

3) the amount of maximum benefit per person, which in the case of JSA is already very low by European standards, with a replacement ratio of less than 25% when housing benefits are not included. It is hard to see how this could be reduced without very serious hardship, although the Mirrlees model suggests a reduction in allowances for the wholly unemployed, which would be completely unacceptable.

4) the proportion of people receiving enhanced rates of benefit because of disability and the eligibility criteria for this. Current government policy seeks to reduce this proportion drastically, but the procedures for doing so are widely criticised by disabled people and their advocacy organisations as being harsh, insensitive and often inaccurate in their assessment of work capacity. To prioritise a reduction in disability claims, particularly through the current practice of routinised mass testing by a contractor using relatively unqualified staff,  risks penalising the most vulnerable people and appears quite contrary to the ‘21st Century Welfare’ promise of maintaining levels of income for the most vulnerable. The current target of reducing claimants of incapacity related allowances by one million by 2015 is an arbitrary one which puts the goal of saving public money above the needs of the most vulnerable people.
5) the number of people in work who are receiving a wage subsidy of some kind. The cost of tax credits (around £25bn p.a.) dwarfs the cost of JSA (less than £5bn p.a.). But tax credits are costly partly because wages are low. During the last few years, the wage rates of the poorest have improved substantially due to the National Minimum Wage. However, the existence of tax credits enables some well resourced companies to attract labour at wage rates well below what would be needed to do so if the government was not subsidising low earners. In effect, taxpayers’ money is being used to subsidise the employers, rather than the employees at the lower end of the income scale. A rise in the National Minimum Wage would ‘free up’ considerable sums from saving in tax credits which could be devoted to support or tax exemptions of various kinds for small firms, thus encouraging job creation. A fall in the minimum wage for some categories of trainee, as envisaged in the expected Training Wage Bill, will have the opposite effect and will lead to extra tax credit costs.

6) the number of workers who are receiving public money because they are not working the maximum number of hours they could. This includes those who receive tax credits because they are working part-time. The ‘21st Century Welfare’ proposals on conditionality target this variable by envisaging some conditionality of benefit payments for those who work part-time. Conditionality of this form would risk undue pressure on carers and their dependents, as well as on people who are working part-time because of fragile health. Better to target people who are doing no work at all, and try to draw them into part-time work by better incentives. The most important change to make in this respect would be to raise the ‘disregard’ level of earnings for those claiming out of work benefits. The Mirrlees model by proposing a ‘disregard’ of £90 would make a vast improvement on the current situation. However, if such a large disregard could only be afforded by reducing the allowance for those unable to get any work at all, it is too high. This point is considered in more detail further on in this submission.

7) the administrative costs of the benefits system.
Much of the ‘21st Century Welfare’ paper is concerned with simplification and reduction of administrative costs. This is laudable, but inconsistent with spending such vast sums on private contractors engaged in aspects of administration. For example Atos medical assessment services cost £100 million p.a. (reply by Chris Grayling to a Parliamentary Question from Anne Begg on 6.9.2010). This seems quite disproportionate to the amount of money that can be saved by moving an expected 60,000 people per year onto JSA  , which would barely compensate for the cost of the assessment services.

8) the cost of ‘back to work’ programmes
This variable is ignored by ‘21st Century Welfare’. However, this is another area where the cost of contractors’ services may represent poor value for money. A recent social Market Foundation report states that the largest ‘provider’, A4E, achieved an average job entry rate of only 20% in 2008-9. Focussing the tendering process on a small number of contractors may have achieved some economies of scale but has handed huge bargaining power to the successful providers, who are likely to demand additional payments as they find the recession makes it more and more difficult to achieve their targets.  Given a rather small wage-elasticity of demand for labour in recession, and given the high responsiveness of EU jobseeking migration to any improvement in the labour market, the best efforts of back – to – work providers are likely to be in competition with each other and with unassisted unemployed jobseekers for a limited pool of vacancies. The vast sums being spent on the back-to-work ‘industry’ (up to £6700 per 13 week sustained job outcome in central London) would be better spent on supporting job creation in small firms and in the voluntary sector.
In short, of the eight factors mentioned above which have an impact on the cost of supporting the unemployed or under-employed, the first two are not considered in ‘21st Century Welfare’ and the remainder are not fully analysed at all.

2. Which aspects of the current benefits and Tax Credits system in particular lead to the widely held view that work does not pay for benefit recipients?

The consultation paper lays too much emphasis on problems of over-payment. The problem is rather under-payment and delay in payment, particularly with regard to housing benefit. It would be sensible for someone’s out-of-work housing benefit to simply continue at the same rate for say three months after they enter work, to give a breathing space to find alternative accommodation or simply to avoid any ‘hassle’ of re-application and re-assessment (often with associated delays in payment) at a difficult time.
There need to be better guarantees of uninterrupted income cash flow when circumstances change, backed by adequate administrative resources and systems.
Whilst the paper considers amalgamating tax credits and JSA into a single ‘universal credit’ it is not clear how this fits with the present division between JSA and ESA, and the existence of medical tests to determine entitlement to ESA. As long as there are two separate benefits, being transferred from one to the other entails re-application for housing and council tax benefits, which can lead to interrupted cash flow.
Another problem not considered is the dependence of homeless people’s hostels on their clients receiving maximum housing benefit, which makes it impractical for them to encourage clients to enter work, leaving vulnerable people in fear of losing their lodgings if they take a job.  Homeless accommodation needs to be funded in ways which are not dependent on short-term changes in the individual client’s employment status or income.
The consultation paper is mistaken in its attachment to the idea of a ‘single taper.’ There is a trade-off between disregard size and the size of a single taper. To make the ‘single taper’ suitably small, it is necessary to restrict the size of the ‘disregard’ limit on earnings. But increasing the disregard is one of the most important ways of improving incentives to work, so it is undesirable to restrict it just in order to have the apparent simplicity of a single taper. Better to have a progressive taper – a high rate on the first few pounds of earnings, with a lower proportion being withdrawn as income rises towards the income tax threshold.
There is considerable advantage in defining the disregards and the tapers in terms of hours worked, rather than in money terms. For example the first five hours worked in any week (or say 65 hours in any 13 week period) could be allowed without any reduction in benefit, the next five hours worked would lead to 5/30 of weekly benefit being deducted, the next five hours to a further loss of 5/30 of benefit, until no benefit was being paid when the person worked 35 hours. This system entails a lower withdrawal rate for higher rates of hourly pay, thus preserving an incentive for the individual to seek the best available job rather than ‘crowding’ into entry level vacancies. It is also very simple to understand, whilst it achieves a reduction in the percentage of wages offset by withdrawn benefit as the number of hours worked rises, as shown in the illustration in Fig. 1.  In this illustration, unwaged benefit would consist of a universal credit of £20 per week given regardless of employment status, plus £1.50 per hour not worked out of a maximum of 30. The maximum rate of benefit for a single adult would thus be £65, approximately the same as JSA at present and also almost the same as the ‘basic element’ of Working Tax Credit (£64 per week, dividing the annual amount by 52). Average benefit withdrawal rates vary from 12.5% down to less than 4% as work hours rise, and the marginal withdrawal rate above the disregard level would be 25% for people earning around the NMW per hour, although only 15% for someone earning £10 per hour. The combined benefit withdrawal rate at the margin for NMW level wages above the income tax threshold would be 31% (income tax and NI) plus 25% loss of benefit, with total 56%, whilst for people with higher hourly wage rates it would be less.
3. To what extent is the complexity of the system deterring some people from moving into work?

The problem is not always one of complexity. Fears about adequacy of childcare and other caring arrangements require sensitive, tailored treatment. Likewise support for disabled people in work. Simplification leads to a ‘one size fits all’ approach which is inappropriate for the most vulnerable amongst parents, carers, disabled. D
However, the divide between ESA and JSA (as in example of Man B in the text) is a key flaw. There should be ONE benefit like the income support we used to have, even if ‘conditionality’ needs to be re-assessed from time to time with changes in circumstances.
Another deterrent to take work is the fear of being subsequently denied benefit because of leaving a job ‘voluntarily’. The current JSA rules provide a brief window of opportunity between the 6th and the 12th week in work to do this without being sanctioned for it, whilst ‘work trials’ are very short. There should be no sanction for leaving a job in the first six months – if an individual is challenged to demonstrate that they left unreasonably, this could lead to requests for evidence from the employer which could critically damage the individual’s chance of getting a reference.

4 To what extent is structural reform needed to deliver customer service improvements, drive down administration costs and cut the levels of error, overpayments and fraud?

If by ‘structural reform’ is meant a unified benefit incorporating JSA, ESA and tax credits, this is in principle an idea with many advantages, including reduced administration cost. However the bulk of administration costs at present are associated with conditionality – with the surveillance of job search, ‘back to work’ programmes mainly delivered by private providers, and the medical assessments of eligibility for ESA and capacity for work. Both types of provision are a source of profit for the provider companies but a source of great dissatisfaction to many ‘clients’. They are of questionable value for money. Many claimants find that the routinised job search support offered by ‘back to work’ providers is not helpful and obliges them to spend time in meaningless tasks through which the providers pay lip service to secondary targets. At the same time the JSA rules often impede them from doing useful activities like gaining experience through voluntary work of their own choosing, or participating in FE college courses, on the grounds that these actions restrict their ‘availability for work.’ 
‘ Reforms’ should include ways of creating real work, mainly in the voluntary sector and paying at least the hourly national minimum wage, for the long term unemployed and for the ESA activity group. This should not be on the basis of making people work for their benefit, but provide them with a substantial increase in income over and above benefit levels. For example if the new unified benefit, combining tax credit and JSA/ESA, is set at £x per week for a single person, anyone doing say 10 hours work in a special subsidised job should achieve an income of 10 times the NMW per hour in addition to their unified benefit.

5. Has the Government identified the right set of principles to use to guide reform?

No. Neglected main purpose of benefits system which is social protection. Neglected main need of a ‘back to work help’ system which is to ensure enough jobs, adequate distribution of work and positive action for vulnerable groups esp. disabled. This however should not be seen as a call for compulsory workfare placements as in the USA [cite the several arguments and anecdotes about workfare systems

6. Would an approach along the lines of the models set out in chapter 3 improve work incentives and hence help the Government to reduce costs and tackle welfare dependency and poverty? Which elements would be most successful? What other approaches should the Government consider?

Proposals hard to assess unless know the size of the disregard. Risk that disregard and high levels of benefit alongside wages subsidise bad wages unless NMW and other labour protection laws rigorously enforced. Sanctions counter-productive. See comments elsewhere on size of taper, wasteful nature of privatisation, need for more vacancies. See comments elsewhere about volunteering and voluntary sector jobs.
Some specific comments on the structure of negative income tax and similar proposals are offered under question 2 above.

7. Do you think we should increase the obligations on benefit claimants who can work to take the steps necessary to seek and enter work?

No – conditionality is already very harsh in the present system. It leads to fear of advisers, and to the effectiveness of training sessions for willing participants being jeopardised by the presence in the group of some other people who feel ‘conscripted’ and behave accordingly. The evidence of government sponsored research on the New Deal for Young People is that advice is productive, but sanctions (as in removal of benefit) are likely to drive people out of the advice-receiving system into homelessness, drug dependence or crime . In the USA, requiring welfare recipients to enter compulsory job placements as a condition of receiving their allowance has led to some disastrous incidents of child injuries and even deaths because the mother did not dare skip her placement when childcare arrangements broke down. Claimants can be forced into placements which are incompatible with their health status, with sometimes horrendous consequences .  For conditionality to be genuinely helpful, rather than merely providing a deterrent to remaining on benefit too long, it must entail access to quality advice and quality training. However, as back to work programmes have been progressively privatised and ‘availability for work’ conditions tightened, fewer claimants have been able to access college courses, especially those leading to NVQ3. The result of a tight conditionality regime which drives people to accept any kind of work very quickly is crowding of jobseekers into low level vacancies; it forces them to compete more fiercely with each other for these vacancies to no avail, whilst wasting the ‘human capital’ that inheres in their existing skills, experience and educational potential.

8. Do you think that we should have a system of conditionality which aims to maximise the amount of work a person does, consistent with their personal circumstances?

No – see arguments about sanctions under point 7.
Great caution needs to be used in relation to any measure to increase working hours within the 16 plus band, that is people currently eligible for tax credits. Pressuring people to move from part time to full time work to reduce wage subsidy bill will actually increase the benefits bill by impeding work sharing in a recession.
Voluntary work can make a valuable social contribution and can help individuals gain work experience, training and references. There should be encouragement, not intolerance, of volunteering as an activity freely chosen by the claimant outside of ‘back to work industry’ placements. There should be a system for voluntary organisations to register placements as suitable work experience and to offer them through job centres. Support is needed for claimants who are in voluntary work to seek funding, together with their placement organisation, to turn the volunteer placement into a paid job.
Training opportunities that people find for themselves may be of better quality and/or more relevant to their personal career plan than the very basic and general training offered by many back to work providers. But JSA and ESA claimants often find they are discouraged or even prevented from following training of their own choice.

9. If you agree that there should be greater localism what local flexibility would be required to deliver this?

HB must be much higher in central London and these boroughs should be obliged to provide a certain quota of social housing within their borders. Otherwise they tend to ‘export’ their homeless and poor by renting from private landlords in areas with low rents, which then become unbalanced communities over-burdened with people who have high levels of need for social work support, special educational provision etc.
Levels of conditionality should be much less in areas of high unemployment.
Localisation is however antithetical to simplification. What happens if people move ?  or if their area of residence is contested, due to for example being in process of divorce, moving house, or looking for a job in a different area from the one of their previous residence ?

10. The Government is committed to delivering more affordable homes. How could reform best be implemented to ensure providers can continue to deliver the new homes we need and maintain the existing affordable homes?

There should be a levy on large employers or an obligation for them to lend a certain proportion of turnover at capped interest rates to social housing investment organisations. See also the last point on central London boroughs. It would be legitimate to fund social housing in high-income areas like Central London by extra real estate tax on owners of residential property in these areas, many of who are foreigners or investors (see for example the latest UNISON proposal). There should be an obligation on all new build schemes to provide a certain percentage of affordable rented housing. The government should preserve the Supporting People fund.

11.What would be the best way to organise delivery of a reformed system to achieve improvements in outcomes, customer service and efficiency?

12. Is there anything else you would like to tell us about the proposals in this document?

The foreword talks about removing the root causes of poverty. But what measures are envisaged to address addiction, mental distress, discrimination against disabled by employers, or the prevalence of occupational diseases ranging from back pain to stress which make people unable to work at their normal/previous job ?
The compatibility of work and care requires detailed attention – but the document is almost silent on this area. This is not just an issue of childcare; informal/family carers of the disabled and elderly are under special strain due to budget cuts in social care, which was inadequate in the first place. Any pressure from the welfare system to move from part-time to full-time work, or to take on paid work in a situation where caring responsibilities should take priority, may lead to distress for both carer and dependent, and lead to unmanageable demands on public services.

Large employers (e.g. supermarkets) benefit from a wage subsidy via tax credits which they do not need. The effect of this subsidy should be reserved for small firms, by requiring large companies to contribute to a special social investment fund with contributions inversely dependent on the margin of their wage rates above the minimum wage, so that those paying least (and thus depending more on the existence of tax credits/benefits to make recruitment viable) would pay more. This fund would be used for social housing investment and to create jobs in voluntary organisations. Large companies would be encouraged to do these things anyway and to benefit from any associated publicity from their sponsorship.

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