A Survey of the UK Benefit System
IFS Briefing Note BN13
James Browne
Andrew Hood
A Survey of the UK Benefit System
Updated by James Browne and Andrew Hood
November 2012
Institute for Fiscal Studies
Acknowledgements
This briefing note is a revision of earlier versions by Claire Crawford, Carl Emmerson,
Michelle Jin, Greg Kaplan, Andrew Leicester, Peter Levell, Richard May, Cormac O’Dea,
David Phillips, Jonathan Shaw, Luke Sibieta and Alexei Vink. A version by the original
authors, Carl Emmerson and Andrew Leicester, can be downloaded from
http://www.ifs.org.uk/bns/benefitsurvey01.pdf. The paper was funded by the ESRC Centre
for the Microeconomic Analysis of Public Policy at IFS (grant ES/H021221/1). The authors
would like to thank Stuart Adam, Rowena Crawford and Robert Joyce for their help and
advice during revision of this briefing note. The paper has been copy-edited by Judith Payne.
All remaining errors are the responsibility of the authors.
*Addresses for correspondence: andrew_h@ifs.org.uk, james_browne@ifs.org.uk
© Institute for Fiscal Studies, 2012
ISBN: 978-1-903274-99-6
Contents
1.
Introduction ................................................................................................ 3
2.
Government spending on social security benefits .................................. 4
3.
A description of the current benefit system ................................................... 8
3.1. Benefits for families with children ...................................................................... 9
3.2. Benefits for unemployed people ...................................................................... 16
3.3. Benefits for people on low incomes ................................................................. 21
3.4. Benefits for elderly people................................................................................ 32
3.5. Benefits for sick and disabled people ............................................................... 41
3.6. Benefits for bereaved people ........................................................................... 52
4.
Trends in social security spending ................................................................ 56
4.1. Social security spending, 1948–49 to 2011–12 ................................................ 56
4.2. Changes in the composition of social security spending .................................. 58
4.3. Major reforms since 1948 ................................................................................. 60
4.4 Future benefit reforms....................................................................................... 62
5.
Conclusions ............................................................................................... 71
Appendix A. Benefit expenditure from 1948–49 to 2011–12 ................................. 72
Appendix B. Benefits available only to existing claimants ..................................... 73
Appendix C. The Social Fund ................................................................................. 80
Appendix D. War pensions and AFCS .................................................................... 84
© Institute for Fiscal Studies, 2012
2
1. Introduction
This briefing note provides a survey of the benefit system in Great Britain.1 We begin
in Section 2 with an overview of the current system, giving total expenditure on
social security and the cost of individual benefits. In Section 3, we look closely at the
present system, examining each benefit in turn. Benefits are arranged into six broad
categories based on the primary recipients: families with children, unemployed
people, those on low incomes, elderly people, sick and disabled people, and
bereaved people. Current benefit rates are for the financial year 2012–13,
expenditure figures are out-turns (where possible) or estimates for the financial year
2011–12, and claimant data are for February 2012 unless otherwise noted.
Whenever possible, expenditure and claimant figures relate to Great Britain.
In Section 4, we look at how the system has evolved to its present state and assess
how the patterns of expenditure on social security have changed over the past 50 or
60 years. We also present a brief discussion of upcoming reforms to the social
security system, in particular the introduction of Universal Credit. Section 5
concludes.
Further details on benefit eligibility and information about relevant legal issues can
be found in the Child Poverty Action Group’s Welfare Benefits and Tax Credits
Handbook 2012/2013.2 Current benefit rates, numbers of claimants and expenditure
figures are given in the Department for Work and Pensions (DWP)’s Annual Reports,
Benefit Expenditure Tables and annual press release detailing new benefit rates.3 In
addition, much of the information contained herein can be found on the DWP
website, http://www.dwp.gov.uk.
1
Note that the benefit system in Northern Ireland is extremely similar but is managed by the Department for
Social Development of Northern Ireland (DSDNI), which does not provide comparable indices of claimants and
expenditure.
2
Hereafter referred to as CPAG 2012/13.
3
Department for Work and Pensions, Benefit Expenditure Tables,
http://research.dwp.gov.uk/asd/asd4/index.php?page=medium_term.
Department for Work and Pensions, Benefit Rates, http://www.dwp.gov.uk/docs/benefitrates2012.pdf.
© Institute for Fiscal Studies, 2012
3
2. Government spending on social security benefits
In 2011–12, over £200 billion was spent on social security benefits in Great Britain
(henceforth GB).4 This amounts to approximately £3,324 for every man, woman and
child in the country, or 13.5% of GDP. At 29%, expenditure on social security
represents by far the largest single function of government spending.5
Approximately 30 million people in the UK – approximately half the total population
– receive income from at least one social security benefit. For means-tested benefits
such as Income Support, receipt of the benefit usually depends on the claimant’s
family income, together with their family circumstances and personal characteristics.
For contributory benefits such as state pensions, eligibility usually depends on the
claimant having paid sufficient National Insurance contributions (NICs) during their
lifetime. NICs are made by employees whose earnings are above a threshold (£146
per week in 2012–13), although the government usually treats those earning
between the lower earnings limit (LEL, £107 in 2012–13) and £146 per week as
though they were making contributions.6 Some benefits, such as Disability Living
Allowance, are neither contributory nor means-tested and are universally available
to all people who meet some qualification criteria.
All benefits require some residence conditions to be met (usually that the person be
present and resident in the UK), although different degrees of ‘residence’ are
required for different benefits. By and large, people ‘subject to immigration control’
(i.e. people who require leave to enter or to remain in the UK but who do not have
it) are unable to claim benefits. As the UK was a signatory to the 1951 UN
Convention on the Status of Refugees, refugees in the UK have the right to claim
certain benefits, such as Income Support. However, the Asylum and Immigration Act
1999 removed asylum seekers from mainstream benefit payments, and they now
have payments administered by the National Asylum Support Service.
4
Some spending data are on a UK basis because those for GB are not available, as explained in the notes below
Table 2.1. Appendix A provides details of government spending on social security from 1948–49 to 2011–12.
5
Sources: Great Britain population estimate from http://www.ons.gov.uk/ons/publications/allreleases.html?definition=tcm:77-22371; GDP from http://www.hm-treasury.gov.uk/data_gdp_fig.htm;
government expenditure from http://www.hm-treasury.gov.uk/pespub_natstats_july2012.htm. The quoted
13.5% is calculated based on an estimate of GB GDP, whilst some tax credit figures included here are for the UK;
it is therefore a slight overestimate. Unfortunately, tax credit expenditure for Great Britain only is not readily
available.
6
For more about the National Insurance system, see J. Browne and B. Roantree, A Survey of the UK Tax System,
IFS Briefing Note 9, 2012 (http://www.ifs.org.uk/bns/bn09.pdf). Entitlement conditions for contributory benefits
are complex – see chapter 35 of CPAG 2012/13.
© Institute for Fiscal Studies, 2012
4
Table 2.1. GB expenditure and claimant figures for all benefits and tax credits, 2011–12
Expenditure (£m)
Benefits for families with children
Child Benefit (including former One Parent Benefit)
Child Tax Credit
Statutory Maternity Pay
Maternity Allowance
Guardian’s Allowance
Education Maintenance Allowance (no longer available)h
Total benefits for families with children
Benefits for unemployed people
Income-based Jobseeker’s Allowance
Contribution-based Jobseeker’s Allowance
Job Grant
In Work Credit
Return to Work Credit
New Deal (no longer available)k
Total benefits for unemployed people
Benefits for people on low incomes
Income Support
Working Tax Credit
Housing Benefit
Council Tax Benefit
Social Fund payments
Total benefits for people on low incomes
Benefits for elderly people
Basic State Pension (contributory)
Basic State Pension (non-contributory)
Additional state pension
Pension Credit
Winter Fuel Payments
Over-75s television licences
Total benefits for elderly people
Benefits for sick and disabled people
Statutory Sick Pay
Incapacity Benefit
Employment and Support Allowance
Severe Disablement Allowance
Disability Living Allowance
Attendance Allowance
Carer’s Allowance
Independent Living Funds
Motability grants
Industrial injuries benefits
War pensions and AFCS
Total benefits for sick and disabled people
Benefits for bereaved people
Widows’ and bereavement benefits
Industrial Death Benefit
Total benefits for bereaved people
Other benefits
Christmas Bonus
TOTAL
© Institute for Fiscal Studies, 2012
5
a
% of total
expenditure
b
Claimants
12,222c,d
22,036c,d,f
2,203
361
2c,d
174i
36,998
6.08%
10.96%
1.10%
0.18%
0.00%
0.09%
18.41%
7,884,760d,e
5,186,200d,g
229,000
53,400
Not available
Not applicable
4,175
732
54
116
41
47
5,164
2.08%
0.36%
0.03%
0.06%
0.02%
0.02%
2.57%
1,199,000
254,000
Not available
58,700j
Not available
Not applicable
6,925
6,889c,d
22,736l
4,928
334m
41,811
3.45%
3.43%
11.31%
2.45%
0.17%
20.80%
1,509,350
2,516,000
5,051,120
5,922,130
8,703,000 awards
58,033
62
16,124o
8,068
2,146
578
85,011
28.88%
0.03%
8.02%
4.01%
1.07%
0.29%
42.30%
12,672,860n
34,780
Not available
2,615,540
12,650,000
4,361,000
49
4,910
3,619
878
12,578
5,322
1,728
325p
18q
853r
935d,t
31,215
0.02%
2.44%
1.80%
0.44%
6.26%
2.65%
0.86%
0.16%
0.01%
0.42%
0.47%
15.53%
Not available
1,385,630
991,190
217,030
3,243,530
1,600,670
594,860
18,387
c. 600,000
321,460s
162,595
590
33
623
0.29%
0.02%
0.31%
65,110u
7,000
155
200,978
0.08%
100%
15,545
Notes to Table 2.1
a
Figures are estimated out-turns, from DWP Benefit Expenditure Tables unless otherwise stated. Out-turns and
percentages may not sum exactly due to rounding. Source:
http://research.dwp.gov.uk/asd/asd4/index.php?page=medium_term.
b
Details of sources and of the date on which the claimant count for each benefit was taken are given in the
relevant part of Section 3 of this survey.
c
Source: HMRC 2011–12 Annual Report and Accounts (http://www.hmrc.gov.uk/about/annual-report-accounts1112.pdf).
d
UK figure.
e
Number of families, covering 13,721,160 children in total as at 31 August 2011. Source: HM Revenue and
Customs, Child Benefit Geographical Statistics: August 2011 (http://www.hmrc.gov.uk/statistics/child-geogstats/chb-geog-aug11.pdf).
f
Note that, unlike the figure for the number of families (see note g), the expenditure figure does not include
payments made to out-of-work families receiving the equivalent amounts via benefits from DWP, which is
included in spending figures for benefits for unemployed people.
g
Number of families, covering 9.27 million children as at 1 April 2012. This figure includes out-of-work families
receiving the Child Tax Credit or the equivalent amount via Income Support (see Appendix B). Source: HM
Revenue and Customs, Child and Working Tax Credits Statistics, April 2012
(http://www.hmrc.gov.uk/statistics/prov-main-stats/cwtc-apr12.pdf).
h
Education Maintenance Allowance was abolished in England at the end of the academic year 2010–11.
i
Figure is for England only. Source: http://www.parliament.uk/briefing-papers/SN05778.
j
This is the number of new starts in 2011–12.
k
The Work Programme replaced New Deal benefits from June 2011.
l
This is the sum of Housing Benefit and discretionary housing payments (see Sections 3.3.3 and 3.3.5).
m
This is the sum of net expenditure on individual benefits, as detailed in Appendix C. Source: Annual Report by
the Secretary of State for Work and Pensions on the Social Fund 2011/2012
(http://www.dwp.gov.uk/docs/2012-annual-report-social-fund.pdf).
n
This figure includes all claimants of a contributory state pension, both basic and additional.
o
Sum of expenditure on S2P and Graduated Retirement Benefit.
p
GB expenditure in Independent Living Fund, Quarterly User Profile Analysis: June 2011 / September 2011 /
December 2011 / March 2012 (http://www.dwp.gov.uk/ilf/publications/corporate-publications/statistics/).
q
Source: Table 4 of Motability, Annual Report and Accounts 2011/12 (http://www.motability.co.uk/aboutus/annual-reports/).
r
Includes Industrial Injuries Disablement Benefit, as well as £1 million of other industrial injuries benefits (see
Section 3.5.7 and Appendix B).
s
Figure is for Industrial Injuries Disablement Benefit and Reduced Earnings Allowance, as of March 2012. The
figure includes 56,730 people who were receiving both IIDB and REA. Source: Department for Work and
Pensions, Industrial Injuries Disablement Benefit Quarterly Statistics: March 2012
(http://research.dwp.gov.uk/asd/index.php?page=iidb).
t
Most recent data available are for 2010–11 UK expenditure. Includes both War Disablement and War
Widow(er)’s Pensions. Does not include AFCS spending. Source: Ministry of Defence, MOD Annual Report and
Accounts 2010-11
(http://www.mod.uk/DefenceInternet/AboutDefence/CorporatePublications/AnnualReports/).
u
This figure includes claimants of Bereavement Allowance and Widowed Parent’s Allowance; claimants of War
Widow(er)’s Pension are included in the war pensions statistics (see note t above).
© Institute for Fiscal Studies, 2012
6
Figu
ure 2.1. Expe
enditure byy recipient ass a percentage of total, 2011–12
2
Sick and disabled
15..5%
Widows
0.3%
Others
0.1%
Families
18.4%
Unem
mployed
2
2.6%
Lo
ow income
20.8%
Elderly
42.3%
Families
Unemployed
d
Low Incom
me
Elderly
Sick and Dissabled
Wido
ows
Otherss
Sourcces: As for Table 2.1, includingg notes.
Table 2.1 preseents a breakkdown of estimated exxpenditure for each beenefit for 20
011–
7
12 and
a a claim
mant countt for Februaary 2012, organised by primaryy recipient. The
cateegories are: families with
w childreen, unemplo
oyed peoplle, those on
n low incom
mes,
eldeerly people, sick and disabled peeople, bere
eaved people, and oth
hers. Figure
e 2.1
also
o provides a breakdow
wn for theese groups. Retiremen
nt pensionss are the most
m
expensive beneefit, accoun
nting for jusst under 37
7% of total expenditure
e
e. The ‘top five’
nefits – retirement pensions, Hou
using Benefit, Child Taax Credit, D
Disability Liiving
ben
Allo
owance and Child Beneefit – togeth
her make up
p over 70% of total exp
penditure.
Notte that altho
ough most of
o the figures in Table 2.1 relate to
t Great Britain, figures for
som
me benefits were only available on
o a UK bassis, e.g. Child Benefit aand tax cre
edits.
How
wever, sincee total Nortthern Irelan
nd benefit expenditure
e
e is only aro
ound £4 billion,
figures for Greaat Britain would
w
not bee significanttly differentt for these b
benefits.
7
Feb
bruary 2012 is the date on which the claimantt count was takken in most cases. See Section
n 3 for details off
excep
ptions.
© In
nstitute for Fisscal Studies, 2012
7
3. A description of the current benefit system
We look at the benefit system by dividing it into six major categories of primary
recipient: families with children, unemployed people, those on low incomes, elderly
people, sick and disabled people, and bereaved people. Each subsection starts with a
table that summarises every benefit in terms of whether it is taxable or non-taxable,
contributory or non-contributory, and whether or not receipt is means-tested. We
also give details of total expenditure and the total number of claimants.
The Christmas Bonus is the only national benefit not included in any of these
sections. This is a one-off payment of £10 to the recipients of certain benefits in the
week beginning the first Monday of December. Only one bonus can be received per
person, although in couples where both partners receive qualifying benefits, two
separate payments can be made. If both partners are over the State Pension Age,
then both will receive the Christmas Bonus under certain conditions, even if only one
receives a qualifying benefit.8 Total expenditure on the Christmas Bonus was
estimated to be £155 million in 2011–12, with around 15.5 million claimants.
8
This is the case if the only benefit claimed is Pension Credit, or if the individual in receipt of a qualifying benefit
is entitled to an increase in that benefit for their partner.
© Institute for Fiscal Studies, 2012
8
3.1. Benefits for families with children
3.1.1
3.1.2
3.1.3
3.1.4
3.1.5
8
8
9
8
Claimants, as at
Feb. 2012a
7,884,760c
Not available
5,186,200e
229,000g
Expenditure,
2011–12 (£m)b
12,222d
2d
22,036f
2,203g
8
53,400h
361
Benefit
T
C
M
Child Benefit
Guardian’s Allowance
Child Tax Credit
Statutory Maternity,
Paternity and Adoption Pay
Maternity Allowance
8
8
8
8
8
8
8
9
8
9
T = taxable, C = contributory, M = means-tested
a
Unless otherwise specified.
b
Source: DWP Benefit Expenditure Tables unless otherwise stated
(http://research.dwp.gov.uk/asd/asd4/index.php?page=medium_term).
c
Number of families, covering 13,721,160 children in total as at 31 August 2011. Source: HM Revenue and
Customs, Child Benefit Geographical Statistics: August 2011 (http://www.hmrc.gov.uk/statistics/child-geogstats/chb-geog-aug11.pdf). UK figure.
d
Source: HMRC 2011–12 Annual Report and Accounts (http://www.hmrc.gov.uk/about/annual-report-accounts1112.pdf). UK figure.
e
Number of families, covering 9.27 million children as at 1 April 2012. This figure includes out-of-work families
receiving the Child Tax Credit or the equivalent amount via Income Support (see Appendix B). Source: HM
Revenue and Customs, Child and Working Tax Credits Statistics, April 2012
(http://www.hmrc.gov.uk/statistics/prov-main-stats/cwtc-apr12.pdf). UK figure.
f
Source: HMRC 2011–12 Annual Report and Accounts (http://www.hmrc.gov.uk/about/annual-report-accounts1112.pdf). Note that, unlike the figure for the number of families (see note e), the expenditure figure does not
include payments made to out-of-work families receiving the equivalent amounts via benefits from DWP. UK
figure.
g
Figures are for Statutory Maternity Pay only. Claimants in 2011–12; source: table 1c of
http://research.dwp.gov.uk/asd/asd4/index.php?page=medium_term.
h
As at 30 November 2011. Source: Maternity Allowance Quarterly Statistics: November 2011
(http://statistics.dwp.gov.uk/asd/asd1/ma/index.php?page=ma_quarterly_nov11).
3.1.1. Child Benefit
Non-taxable, Non-contributory, Non-means-tested9
Approximately 7.9 million families received Child Benefit (CB) in August 2011,
covering nearly 14 million children. Introduced in April 1977 to replace the Family
Allowance and the Child Tax Allowance, CB has remained universal (though will be
gradually withdrawn for families with at least one individual earning over £50,000
from January 2013), payable to all families with children regardless of income. It is
paid at a higher rate for the eldest or only child, and then at a lower rate for all
subsequent children. For the purposes of receiving CB, a ‘child’ is someone under the
age of 16, between 16 and 20 and in full-time non-advanced education or training, or
16 or 17 and registered for work, education or training with an approved body. CB
9
Child Benefit will be gradually withdrawn for families with at least one individual earning over £50,000 from
January 2013.
© Institute for Fiscal Studies, 2012
9
does not count as income for the entitlement calculation of other benefits and tax
credits.
Table 3.1.1. Current rates of Child Benefit, £ per week
Eldest or only childa
Subsequent children (each)
a
20.30
13.40
Prior to 6 July 1998, an additional payment for the eldest (or only) child was available to lone parents. This
higher rate remains available to claimants who were eligible to receive it prior to the policy change (and who
remain so today).
CB rates have conventionally been uprated annually in line with the Retail Prices
Index (RPI). However, it was announced in the June Budget that these rates would be
frozen for three years from April 2011. This freeze is forecast to save almost
£1 billion per year by 2014–15.10 From January 2013, CB will be withdrawn through
an income tax charge from families where one parent’s income is above £50,000.
Claimants will lose 1% of their CB for every £100 over that level, meaning families
with an individual earning £60,000 or more will receive no CB. This is expected to
save £1.7 billion each year from 2014–15.11 In 2011–12, Child Benefit is estimated to
have cost the exchequer £12.22 billion.
3.1.2. Guardian’s Allowance
Non-taxable, Non-contributory, Non-means-tested
Guardian’s Allowance (GA) is a benefit paid in addition to Child Benefit to families
bringing up a child or children whose parents have died. If only one parent has died,
GA may still be payable if the whereabouts of the other parent is unknown. The
claimant need not be the child’s legal guardian, but the child must be living with the
claimant or the claimant must be making contributions for the maintenance of the
child of at least £15.55 per week. A step-parent does not count as a parent and so
may be entitled to receive GA for raising a stepchild if both natural parents have
died. Adoptive parents count as parents, and so cannot receive GA in most cases.
The rules concerning who counts as a child are the same as for Child Benefit (see
Section 3.1.1).
Expenditure on Guardian’s Allowance amounted to an estimated £2.0 million in
2011–12.
10
Source: Table 2.1 in HM Treasury, Budget 2010, June 2010 (http://www.hmtreasury.gov.uk/d/junebudget_complete.pdf
11
Source: Tables 2.1 and 2.2 in HM Treasury, Budget 2012, March 2012 (http://cdn.hmtreasury.gov.uk/budget2012_complete.pdf).
© Institute for Fiscal Studies, 2012
10
Table 3.1.2. Current rate of Guardian’s Allowance, £ per week
All children (each)
15.55
3.1.3. Child Tax Credit
Non-taxable, Non-contributory, Means-tested
The Child Tax Credit (CTC) combines support previously provided by the Children’s
Tax Credit, child credits in the Working Families’ Tax Credit,12 child additions to most
non-means-tested benefits, and the child elements (i.e. child additions and family
premiums) of Income Support and income-based Jobseeker’s Allowance.13 CTC is
paid on top of Child Benefit (see Section 3.1.1) and directly to the main carer in the
family (as with the childcare element of Working Tax Credit (WTC) – see Section
3.3.2). Since CTC is a tax credit, it is administered by HM Revenue and Customs
(HMRC). Under international accounting conventions, tax credits are counted as
negative taxation to the extent that they are less than the income tax liability of the
family and as government expenditure for payments exceeding the tax liability. For
our purposes, however, we count all tax credit expenditure as if it were a cash
benefit (and therefore public spending).
CTC is made up of a number of elements: a family element (the basic element), a
child element, a disabled child additional element and a severely disabled child
element (see Table 3.1.3). The baby element (for families with children under 1) was
abolished from April 2011. Entitlement to CTC does not depend on employment
status, but does require that the claimant be responsible for at least one child under
the age of 16 (or aged 16–19 and in full-time education). As with WTC, certain
changes in family circumstances (for example, a single claimant becoming part of a
couple, or vice versa) must be reported immediately to HMRC if penalties are to be
avoided.
CTC and WTC are subject to a single means test operating at the family level.
Families with annual pre-tax income of £6,420 or less (£15,860 for families eligible
only for CTC, i.e. not for WTC) are entitled to the maximum CTC and WTC payments
appropriate for their circumstances (see Section 3.3.2 for details of WTC). Income
from most other benefits (including Child Benefit, Housing Benefit, Disability Living
Allowance and Council Tax Benefit) is not included in the CTC–WTC calculation, while
entitlement to Income Support, income-based Jobseeker’s Allowance, income12
For details of these, see A. Dilnot and J. McCrae, Family Credit and the Working Families’ Tax Credit, IFS Briefing
Note 3, 1999 (http://www.ifs.org.uk/bns/bn3.pdf).
13
The non-means-tested ones include the Basic State Pension, Incapacity Benefit, Severe Disability Allowance
and Widowed Parent’s Allowance. Some existing claimants still receive child increases rather than CTC; further
details can be found in Appendix B.
© Institute for Fiscal Studies, 2012
11
related Employment and Support Allowance or Pension Credit acts as an automatic
passport to maximum CTC14. From April 2012, claims can only be backdated by one
month, compared with a previous maximum of three months; this change is
expected to save over £300 million per year.15 In-year increases in income are
disregarded for this calculation if they are below £10,000. This income disregard will
be reduced to £5,000 from April 2013. From April 2012, in-year falls in income are
disregarded if the change is less than £2,500, which is expected to save over £500
million per year.16
Table 3.1.3. Current rates of Child Tax Credit
Family element
Child element (each)
Disabled child additional element (each)
Severely disabled child element (each)
£ per annum
545
2,690
2,950
1,190
£ per week
10.45
51.59
56.58
22.82
6,420
15,860
41%
123.12
304.16
41%
Income below which maximum CTC is payable
Income below which maximum payable if not entitled to WTC
Withdrawal rate
Note: Weekly numbers are calculated based upon there being 365/7 weeks a year.
For those with an annual family pre-tax income above £6,420, CTC and WTC awards
are tapered away at a rate of 41%. WTC entitlement apart from the childcare
element is withdrawn first, then the childcare element of WTC, then the child and
disability elements of CTC, and finally the family element of CTC.
Tax credits have suffered a significant problem of overpayments. One important
reason is that entitlement values are not finalised until about 12 months after the
tax year in which entitlements are accrued. Tax credits awards are initially assessed
and paid on a provisional basis based on circumstances and estimated income
reported at the time the claim was made. HMRC then relies on families to report
their actual incomes and circumstances by the following July (or, in some cases,
January).17 This means a large number of overpayments and underpayments are
generated each year due to changes in circumstances between the date of the claim
14
Source: HM Revenue and Customs, A Guide to Child Tax Credit and Working Tax Credit, April 2010
(http://www.hmrc.gov.uk/leaflets/wtc2.pdf).
15
Source: HM Treasury, Budget 2010 Policy Costings, June 2010 (http://www.hmtreasury.gov.uk/d/junebudget_costings.pdf).
16
Source: HM Treasury, Budget 2010 Policy Costings, June 2010 (http://www.hmtreasury.gov.uk/d/junebudget_costings.pdf).
17
Most families have until 31 July following the end of the entitlement year to report their finalised incomes for
the year in question. However, families where someone completes an income tax self-assessment return
(generally the self-employed) have until 31 January of the following year to do this.
© Institute for Fiscal Studies, 2012
12
and the dates awards are paid. While underpayments are often repaid afterwards,
overpayments are difficult to recover. The scale of this problem has been reduced
since the first two years of operation of CTC and WTC, but HMRC still overpaid
between £2.08 billion and £2.46 billion (and underpaid between £0.17 billion and
£0.29 billion) in 2010–11.
HMRC estimates that expenditure on the Child and Working Tax Credits were
£22.04 billion and £6.89 billion respectively in 2011–12. These figures reflect the
initial awards authorised for 2011–12 but do not include any adjustments that take
place for under- and over-payments in the finalisation process the following year,
since these cannot be reliably estimated. In addition, just under half a billion pounds
was paid in equivalent child additions to some pre-2004 claimants of out-of-work
benefits (see Appendix B).
As at 1 April 2012, CTC (or the equivalent amount in out-of-work benefits) was
received by 5.186 million families, containing 9.27 million children.18 That includes
1.47 million families where no adult works, 1.93 million in-work families who were
also receiving WTC and 1.78 million in-work families receiving CTC only.
3.1.4. Statutory Maternity Pay, Statutory Paternity Pay and Statutory Adoption Pay
Non-taxable, Contributory, Non-means-tested
Statutory Maternity Pay (SMP) is a legal minimum amount that employers must pay
to their employees during maternity leave, although almost all the cost can be
recouped from the government. Many women receive more than the minimum, but
this is paid for by employers and not by the government. To claim, the woman must
have been in continuous employment with the same employer for at least 26 weeks
up to and including the 15th week before the week the baby is due. She must also
have earned at least the lower earnings limit for National Insurance contributions
(currently £107 per week) on average during the eight weeks up to and including the
15th week before the week in which the baby is due. To claim SMP, the woman need
not intend to return to work.
SMP can be paid for up to 39 weeks: the first six weeks’ pay will be at a higher rate,
and the remaining 33 at a lower rate (see Table 3.1.4). The period of payment can
begin at any time from the 11th week before the baby is due until the day after the
birth itself (to coincide with maternity leave). Some special circumstances, such as
absence from work, might change the start of the SMP period.19
18
Source: HM Revenue and Customs, Child and Working Tax Credits Statistics, April 2012
(http://www.hmrc.gov.uk/statistics/prov-main-stats/cwtc-apr12.pdf). UK figure.
19
Rules for deciding the SMP period are available at http://www.dwp.gov.uk/publications/specialistguides/technical-guidance/ni17a-a-guide-to-maternity/statutory-maternity-pay-smp/when-smp-is-paid/.
© Institute for Fiscal Studies, 2012
13
Government expenditure on SMP in 2011–12 is estimated to have been
approximately £2 billion, with around 229,000 claimants.
Table 3.1.4. Current rates of Statutory Maternity, Paternity and Adoption Pay,
per week
Higher rate of SMP
Lower rate of SMP, SPP, SAP
90% of the claimant’s average weekly earnings
The lesser of £135.45 or 90% of average weekly earnings
Statutory Paternity Pay (SPP) and Statutory Adoption Pay (SAP) were introduced on 6
April 2003. Both are legal minimum amounts that employers must pay to their
employees during paternity/adoption leave, and most of the cost can be reclaimed
from the government. SPP is usually paid to individuals whose partner has given
birth, but can also be paid when a child is adopted. SAP can only be claimed by one
parent (the other may be able to claim SPP).
The eligibility requirements for SPP and SAP are very similar to those for SMP, except
that they include more stringent employment conditions. For SPP (birth), the
claimant must satisfy the 26-week employment rule (see above), and must also be
continuously employed by the same employer from the end of the 15th week before
the child is due until the child is born. For SPP (adoption) and SAP, the claimant must
have been continuously employed for at least 26 weeks ending the week in which
notification is received that a child has been matched for adoption. For SPP
(adoption) only, employment must then continue with the same employer until the
day of the adoption placement.
Both SPP and SAP are payable at the lower SMP rate. Ordinary SPP is available for up
to two consecutive weeks between the date of birth or adoption and eight weeks
after that date. Additional SPP has been introduced from 6 April 2010, applicable to
children due or matched on or after 3 April 2011. It enables eligible fathers to take
up to 26 weeks additional paternity leave and get paid the lower rate of SPP if the
mother/partner returns to work (the additional SPP leave should be taken between
20 weeks and one year after the child is born or placed for adoption, and the
additional SPP is payable during the mother/partner’s SMP period, Maternity
Allowance period or SAP period).20 SAP is available for up to 39 weeks, starting no
later than when the child arrives and no earlier than two weeks beforehand.
Claimant and expenditure figures for SPP and SAP are not recorded centrally.
20
Source: http://www.dwp.gov.uk/publications/specialist-guides/technical-guidance/ni17a-a-guide-to-maternity.
© Institute for Fiscal Studies, 2012
14
3.1.5. Maternity Allowance
Non-taxable, Contributory, Non-means-tested
Maternity Allowance (MA) may be payable to pregnant women and new mothers
who are unable to claim SMP. To be eligible for MA, claimants must satisfy both an
employment test and an earnings condition. To satisfy the employment test, the
claimant must have been employed or self-employed (not necessarily continuously
or for the same employer) for at least 26 of the 66 weeks up to and including the
week before the baby is due (known as the employment test period). The earnings
condition requires that average weekly earnings in any21 13 of the previous 66 weeks
are at least equal to the MA threshold that applies at the start of the employment
test period; the MA threshold is currently £30.00 per week.
MA (and SMP) claimants receiving certain means-tested benefits may also be
entitled to receive a Sure Start Maternity Grant from the regulated Social Fund (see
Section 3.3.6 and Appendix C for further details).
MA is payable for up to 39 weeks. The period in which this can begin is normally the
same as for SMP, i.e. from the 11th week before the baby is due until the day after
the birth itself. The start date is affected by special circumstances such as claiming
Employment and Support Allowance or Severe Disablement Allowance.22
Table 3.1.5. Current rates of Maternity Allowance, per week
Standard rate
The lesser of £135.45 or
90% of average weekly earnings
Claimants used to be entitled to an additional payment for a dependent spouse or
other dependent adult who cares for at least one of their children, which was only
available if the dependant’s earnings were not too high. This extra payment for an
adult dependant (£41.35 per week) has been abolished for those beginning to claim
MA on or after 6 April 2010. Increases for child dependants have, since 6 April 2003,
been replaced by the Child Tax Credit for all new claimants.
As at 30 November 2011, 53,400 women were receiving MA.23 The total expenditure
for the year 2011–12 was estimated at around £361 million.
21
The 13 weeks do not have to be in a row, and can be chosen in order to maximise the average weekly earnings.
22
Rules for deciding the MA period are available at http://www.dwp.gov.uk/publications/specialistguides/technical-guidance/ni17a-a-guide-to-maternity/maternity-allowance-ma/when-ma-is-paid/#mapaid.
23
The most recent figures available, from Maternity Allowance Quarterly Statistics: November 2011, at
http://statistics.dwp.gov.uk/asd/asd1/ma/index.php?page=ma_quarterly_nov11.
© Institute for Fiscal Studies, 2012
15
3.2. Benefits for unemployed people
Benefit
T
C
M
Claimants, as at
Feb. 2012a
Expenditure,
2011–12 (£m)b
9
8
9
1,199,000c
4,175
9
9
8
254,000c
732
3.2.2
3.2.3
Income-based
Jobseeker’s Allowance
Contribution-based
Jobseeker’s Allowance
Job Grant
In Work Credit
8
8
8
8
9
9
Not available
58,700d
54
116
3.2.4
Return to Work Credit
8
8
9
Not available
41
3.2.1
T = taxable, C = contributory, M = means-tested
a
Unless otherwise specified.
b
Source: DWP, Benefit Expenditure Tables unless otherwise stated
(http://research.dwp.gov.uk/asd/asd4/index.php?page=medium_term).
c
Figures for 2011–12. Both numbers include 21,000 people who receive both the income-based JSA and the
contribution-based JSA. Source: http://research.dwp.gov.uk/asd/asd4/index.php?page=medium_term.
d
This is the number of new starts in 2011–12. Source: DWP, In-Work Credit Statistics, August 2012
(http://statistics.dwp.gov.uk/asd/asd1/in_work_credit/index.php?page=in_work_credit_arc).
3.2.1. Jobseeker’s Allowance
Taxable, either Contributory or Means-tested
Jobseeker’s Allowance (JSA) replaced Unemployment Benefit and Income Support
(IS) for unemployed people from 7 October 1996. There are two main types of JSA:
contribution-based JSA is paid to individuals who have satisfied the National
Insurance contribution (NIC) conditions; income-based JSA is paid to claimants who
satisfy a family income-based means test (more details below).24
To qualify for either type, the claimant must be aged 18 or over but below State
Pension Age;25 some 16- and 17-year-olds may qualify for JSA in special cases.26 In
addition, the claimant must not be working for 16 hours or more per week, and must
be capable of starting work immediately and of actively taking more than two ‘steps’
a week to find a job, such as attending interviews, writing applications or seeking job
information. They must also have a current ‘jobseeker’s agreement’ with Jobcentre
Plus, which includes such information as hours available for work, desired job and
any steps that the claimant is willing to take to find work. Claimants must be
prepared to take a job that would involve working for at least 40 hours per week and
24
A third type of Jobseeker’s Allowance, joint-claim JSA, is paid to members of joint-claim couples. It is very
similar to income-based JSA. Figures for income-based JSA include joint-claim JSA.
25
Those above pension age are entitled to Pension Credit, which is more generous than JSA. Male claimants over
the female State Pension Age are entitled to a premium of £71 per week.
26
For details, see section 5, chapter 19 of CPAG 2012/13.
© Institute for Fiscal Studies, 2012
16
have a reasonable prospect of securing employment (i.e. they must not place too
many restrictions on the type of work they are willing to undertake). If a claimant
refuses to take up a job offer without good cause, they may be denied further
payments of JSA.
Income Support (IS) and JSA cannot be claimed at the same time. Income-based JSA
cannot be claimed at the same time as Pension Credit (PC) or income-related
Employment and Support Allowance (ESA). If one member of a couple claims IS,
income-related ESA or PC, the other may claim contribution-based JSA but not
income-based JSA.
After claiming JSA for a certain length of time, claimants have to take part in the
Work Programme. This is the case after 9 months for claimants aged 18–24 and 12
months for those aged 25 and over. As participants in the Work Programme,
claimants are assigned to non-governmental providers, who help them into work by
providing help with CVs, job applications and more substantial barriers such as drug
and alcohol problems. These providers are paid on the basis of their record in
moving claimants into sustained employment.
Contribution-based Jobseeker’s Allowance
Contribution-based JSA can be paid for up to 182 days. To claim contribution-based
JSA, the individual must have paid sufficient Class 1 National Insurance contributions
in the two tax years prior to the beginning of the year in which they sign on and
claim benefit.27 The individual must not have earnings above a specific level (see
below). If the claimant qualifies, they can receive contribution-based JSA irrespective
of savings, capital or partner’s earnings.
If the claimant has any part-time earnings, £5 per week is disregarded (or up to £20
for some occupations). Any earnings over this disregarded amount are deducted
from contribution-based JSA entitlements pound for pound. Thus the most someone
aged 25 or over could earn per week and still receive contribution-based JSA is
£75.99 (assuming that they are not in one of the special occupations). The rate of
contribution-based JSA is also reduced by the amount of weekly pension above
£50.00 per week. Other types of income do not affect the amount of contributionbased JSA.
The number of individuals claiming contribution-based JSA has remained constant
over the last two years at around 250,000. Contribution-based JSA cost the
government around £732 million in 2011–12.
27
For details, see section 4, chapter 35 of CPAG 2012/13.
© Institute for Fiscal Studies, 2012
17
Table 3.2.1. Current rates of contribution-based Jobseeker’s Allowance, £ per week
Age of claimant:
Under 25
25 or over
56.25
71.00
Income-based Jobseeker’s Allowance
Those who do not qualify for contribution-based JSA may be able to receive incomebased JSA if they have sufficiently low income. Only one partner in a couple can
receive income-based JSA, and the partner of the claimant must not be working for
more than 24 hours per week (as described above, both forms of JSA require that
the claimant is not working 16 hours or more per week). Couples without children
must claim JSA jointly. This means that both usually have to sign on and meet the
conditions for benefit.28
Income-based JSA is designed to top up the claimant’s income to a specified level
(called the ‘applicable amount’), which is intended to reflect the needs of the
claimant’s family. The applicable amount is the sum of personal allowances,
premiums and some housing costs (primarily mortgage interest payments29). The
amount for each individual is usually identical to that for Income Support (see Table
3.3.1).30 Clearly, to be eligible, the claimant’s income (minus an earnings disregard31)
must be less than their applicable amount. The level of JSA payable is just the
applicable amount minus the income.
Income-based JSA is only payable if the claimant’s savings and other capital (ignoring
their home) do not exceed £16,000. Capital up to £6,000 is ignored (£10,000 for
those in care homes). Between these two thresholds, income-based JSA entitlement
is reduced by £1 for every £250 of capital exceeding the lower threshold. Incomebased JSA is payable for as long as the qualifying conditions are met.
The expenditure on income-based JSA rose from £3.7 billion in 2010–11 to
£4.2 billion in 2011–12. There are currently nearly 1.2 million claimants. Receipt of
income-based JSA automatically entitles individuals to free school meals, health
benefits (including free prescriptions, dental treatment and sight tests), maximum
28
In certain circumstances, a joint-claim couple can qualify for JSA even if one of them does not satisfy all the
rules for claiming JSA. For details, see page 396 of CPAG 2012/13.
29
Some housing costs can be met by not only income-based JSA but also Income Support (Section 3.3.1), incomerelated ESA (Section 3.5.2) and Pension Credit (Section 3.4.3). The weekly amount covered is the home loan –
subject to an upper limit and restrictions – multiplied by a centrally set standard rate of interest, currently 3.63%.
More details on calculating housing costs can be found in chapter 38 of CPAG 2012/13.
30
There is a 104-week limit on help with certain types of housing costs for JSA claimants if the 13-week waiting
period applies. In contrast, those on IS, ESA or PC may get help with housing costs indefinitely. For details, see
chapter 38 of CPAG 2012/13.
31
The earnings disregard is £20, £10 or £5 depending on the circumstances of the claimant. For details, see pages
913–14 of CPAG 2012/13.
© Institute for Fiscal Studies, 2012
18
Council Tax Benefit, maximum Housing Benefit and certain Social Fund payments
(including the Sure Start Maternity Grant and funeral payments; see Appendix C for
further details).
Table 3.2.2. Current rates of income-based Jobseeker’s Allowance, £ per week
Personal allowance – single person:
Aged 16–24
Aged 25 or over
56.25
71.00
Personal allowance – lone parent:
Aged 16–17
Aged 18 or over
56.25
71.00
One or both aged 16–17
Both aged 18 or over
Variesa
111.45
Personal allowance – couple:
a
If both members of the couple are under 18, there are two rates: £56.25 and £84.95 (payable in special
circumstances). If only one is under 18, there are three rates: £56.25 (if the other is 18–24), £71.00 (if the other
is 25 or over) and £111.45 (payable in special circumstances). For details, see pages 817–19 of CPAG 2012/13.
3.2.2. Job Grant
Non-taxable, Non-contributory, Means-tested
The Job Grant is a one-off, tax-free payment to individuals who move directly from
benefit into work of at least 16 hours a week. An individual also qualifies for a Job
Grant if their partner starts working at least 24 hours a week and as a result their
benefit stops. The payment is £100 in the case of single people and couples without
children and £250 for those with children. To be eligible, the job must be expected to
last for at least five weeks, and applicants must have been receiving a qualifying
benefit such as Jobseeker’s Allowance (Section 3.2.1), Income Support (Section
3.3.1), Employment and Support Allowance (Section 3.5.2), Incapacity Benefit or
Severe Disablement Allowance (Appendix B) for the 26 weeks immediately before
moving into work. There will be no new Job Grant payments from 1 April 2013.
In 2011–12, approximately £54 million was paid out in Job Grants.
3.2.3 In Work Credit
Non-taxable, Non-contributory, Means-tested
In Work Credit is a fixed tax-free payment of £40 per week (£60 in London) for lone
parents who start work. To qualify, the claimant should be bringing up at least one
child under 16 on their own. They also need to end a claim to a qualifying benefit
that has lasted for at least 52 weeks. The qualifying benefits are Jobseeker’s
Allowance, Income Support, and Employment and Support Allowance (in certain
circumstances). In London, the set of qualifying benefits is widened to include all
cases of ESA, Incapacity Benefit and Severe Disablement Allowance. The
employment being taken up must be for at least 16 hours per week, be expected to
© Institute for Fiscal Studies, 2012
19
last more than five weeks and pay at least the National Minimum Wage. The In Work
Credit payment is on top of other benefits and is not taxable, and it is payable for up
to 12 months. There will be no new awards of In Work Credit from 1 October 2013.
In 2011–12, In Work Credit cost the government approximately £116 million, with
around 60,000 new starts.
3.2.4 Return to Work Credit
Non-taxable, Non-contributory, Means-tested
The Return to Work Credit is a fixed tax-free payment of £40 per week for those who
return to work after illness or despite a disability. The work must be for at least 16
hours a week (including self-employment) and expected to last at least five weeks.
The claimant must be paid at least the National Minimum Wage, but not more than
£1,250 gross a month (£288.46 a week). They also need to end a claim to a qualifying
benefit that has lasted at least 13 weeks. The qualifying benefits are Incapacity
Benefit, Employment and Support Allowance, Income Support (on grounds of illness
or disability), Severe Disablement Allowance and Statutory Sick Pay. The Return to
Work Credit is on top of other benefits and is not taxable, and it is payable for up to
12 months. There will be no new payments of Return to Work Credit from 1 October
2013.
Return to Work Credit cost the government £41 million in 2011–12.
© Institute for Fiscal Studies, 2012
20
3.3. Benefits for people on low incomes
Appendix C
3.3.1
3.3.2
3.3.3
3.3.4
3.3.5
3.3.6
Benefit
T
C
M
Income Support
Working Tax Credit
Housing Benefit
Council Tax Benefit
Discretionary housing payments
Social Fund payments:
Regulated:
Sure Start maternity grants
Cold weather payments
Funeral payments
Discretionary:
Community care grants
Budgeting loans
Crisis loans
8
8
8
8
8
8
8
8
8
8
8
8
9
9
9
9
9
9
Claimants, as
at Feb. 2012a
1,509,350c
2,516,000d
5,051,120f
5,922,130f
Not available
Expenditure,
2011–12 (£m)b
6,925
6,889e
22,706
4,928
30
89,000g
5,167,000g
38,000g
45.3
129.2
46.3h
216,000g
1,122,000g
2,071,000g
139.2
–11.1h
–15.2h
T = taxable, C = contributory, M = means-tested
a
Unless otherwise specified.
b
Out-turn figures from DWP Benefit Expenditure Tables unless otherwise stated
(http://research.dwp.gov.uk/asd/asd4/index.php?page=medium_term). Expenditure figures for Social Fund are
from the Annual Report by the Secretary of State for Work and Pensions on the Social Fund 2011/2012
(http://www.dwp.gov.uk/docs/2012-annual-report-social-fund.pdf).
c
Source: DWP, Income Support tabulation tool, available at http://83.244.183.180/100pc/is/tabtool_is.html.
d
Number of families (including 581,700 families without children and 1,934,300 families covering 3,456,400
children), as at April 2012. Source: HM Revenue and Customs, Child and Working Tax Credits Statistics, April
2012 (http://www.hmrc.gov.uk/statistics/prov-main-stats/cwtc-apr12.pdf).
e
Source: HMRC 2011–12 Annual Report and Accounts (http://www.hmrc.gov.uk/about/annual-report-accounts1112.pdf). UK figure.
f
Source: Department for Work and Pensions, First Release: Housing Benefit & Council Tax Benefit Statistics,
November 2012 (http://statistics.dwp.gov.uk/asd/index.php?page=hbctb).These figures refer to claimants in
August 2012.
g
Number of awards made in 2011–12. Source: Annual Report by the Secretary of State for Work and Pensions on
the Social Fund 2011/2012 (http://www.dwp.gov.uk/docs/2012-annual-report-social-fund.pdf).
h
Net expenditure in 2011–12. This differs from gross expenditure mainly because loans are recovered. In
addition, £0.4 million of funeral payments was recovered from estates and therefore excluded in net
expenditure. Source: Annual Report by the Secretary of State for Work and Pensions on the Social Fund
2011/2012 (http://www.dwp.gov.uk/docs/2012-annual-report-social-fund.pdf).
3.3.1. Income Support
Non-taxable, Non-contributory, Means-tested
Income Support (IS) is a benefit paid to people on low incomes, although it is not
available to the unemployed (who may be able to claim Jobseeker’s Allowance) or
© Institute for Fiscal Studies, 2012
21
those in ‘full-time’ paid work32 (who may be able to claim Working Tax Credit). IS is
thus mainly payable to lone parents with a child under 5 and carers (although some
other individuals are also eligible).33 Claimants should be between 16 and the age
they can get Pension Credit. IS cannot be claimed at the same time as JSA or
Employment and Support Allowance (ESA). The partner of an IS cannot claim
income-based JSA (including joint-claim JSA), income-related ESA or Pension Credit.
The level of IS payable depends on the family’s needs (the ‘applicable amount’) and
their income. The applicable amount is the sum of basic personal allowances and
premiums (see Table 3.3.1 and Appendix B) and housing costs for owner-occupiers
(rent is provided for through Housing Benefit; see Section 3.3.3).34 To be eligible, the
claimant’s family income (minus any earnings disregards) must be less than their
‘applicable amount’. The level of IS payable is just the applicable amount minus
income.
Some benefits are not counted as income for the purpose of the IS calculation (e.g.
Attendance Allowance and Housing Benefit), and recipients of certain benefits may
have up to £20 of their income disregarded for the entitlement calculation.35 IS is not
payable if the claimant and the claimant’s partner together have more than £16,000
of capital. Capital up to £6,000 is ignored (£10,000 for those in care homes).36
Between these two thresholds, IS entitlement is reduced by £1 for every £250 of
capital exceeding the lower threshold.
In the past, IS provided support to a wider group of claimants: disabled people now
on the whole claim Employment and Support Allowance (though IS is still available to
certain groups such as those in receipt of Statutory Sick Pay (SSP)); the elderly now
claim Pension Credit (though in a small number of cases pensioner premiums are still
payable under IS, e.g. when a claimant aged under 60 has a partner aged over 60);
32
‘Full-time paid work’ for the purposes of Income Support normally means at least 16 hours per week for the
claimant and at least 24 hours per week for their partner. This definition does not apply to special situations such
as being on holiday or sick leave. For details, see page 353 of CPAG 2012/13.
33
To qualify for IS, one needs not only to satisfy the conditions on income, working hours, age, residency etc., but
also to fit into one of the groups of people who can claim IS. The groups include sick and disabled people, people
with childcare responsibilities and carers, students on training courses, and others. (Details on eligibility are
provided in chapter 17 of CPAG 2012/13.)
34
Housing costs are calculated in the same way as for income-based JSA (see Section 3.2.1). Deductions from
housing costs are made for non-dependants in the same way as for Housing Benefit (see Section 3.3.3 and Table
3.3.3).
35
For details, see pages 913–14 of CPAG 2012/13.
36
None of these thresholds includes the value of owner-occupied property.
© Institute for Fiscal Studies, 2012
22
lone parents whose youngest child is aged 5 and over now claim JSA; and Child Tax
Credit has replaced child additions to IS.37
Table 3.3.1. Current rates of Income Support, £ per week
Personal allowance – single person:
Aged 16–24
Aged 25 or over
56.25
71.00
Aged 16–17
Aged 18 or over
56.25
71.00
One or both aged 16–17
Both aged 18 or over
Variesa
111.45
Personal allowance – lone parent:
Personal allowance – couple:
Premiums :
Disability
Severe disabilityb
Enhanced disabilityc
Carerd
Pensioner
Single/Couple
30.35/43.25
58.20/116.40
14.80/21.30
32.60/65.20
NA/106.45
a
If both members of the couple are under 18, there are two rates: £56.25 and £84.95 (payable in special
circumstances). If only one is under 18, there are three rates: £56.25 (if the other is 18–24), £71.00 (if the other
is 25 or over) and £111.45 (payable in special circumstances). For details, see pages 817–19 of CPAG 2012/13.
b
The severe disability premium is paid to those receiving either of the two highest rates of the care component
of Disability Living Allowance (see Section 3.5.3) who have no one living with them to care for them. The couple
rate only applies when both partners qualify.
c
The enhanced disability premium is payable where the claimant or a family member receives the highest rate
of Disability Living Allowance (care component) – see Section 3.5.3 – and is aged 60 or below.
d
The higher rate only applies if both members of the couple are eligible for Carer’s Allowance
In February 2012, around 1.5 million people received IS, with total expenditure in
2011–12 estimated at £6.9 billion. Receipt of IS automatically entitles individuals to
free school meals, health benefits (including free prescriptions, dental treatment and
sight tests), maximum Council Tax Benefit, maximum Housing Benefit and certain
Social Fund payments (including the Sure Start Maternity Grant and funeral
payments; see Appendix C for further details).
37
Prior to November 2008, most lone parents were eligible for IS. In order to encourage lone parents to work, an
upper age limit on the youngest child has been introduced for IS eligibility. Eligibility was initially restricted to
lone parents with a child under 12, in October 2009 to those with a child under 10, and in October 2010 to those
with a child under 7. As of 21 May 2012, Income Support for lone parents is restricted to those with children
under 5. There are transitional arrangements that allow lone parents with older children to continue claiming IS
for a certain period of time. For details, see page 352 of CPAG 2012/13. More circumstances are listed in DWP, A
Guide to Income Support (http://www.dwp.gov.uk/docs/is-20.pdf).
© Institute for Fiscal Studies, 2012
23
3.3.2. Working Tax Credit
Non-taxable, Non-contributory, Means-tested
Working Tax Credit (WTC) has been available since 6 April 2003 and provides in-work
support for low-paid working adults. It replaced the adult and childcare-cost
elements of the Working Families’ Tax Credit, Disabled Person’s Tax Credit and the
New Deal 50-Plus employment credit, and extended in-work support to cover
households without children. Since WTC is a tax credit, it is administered by HM
Revenue and Customs. Under international accounting conventions, tax credits are
counted as negative taxation to the extent that they are less than the income tax
liability of the family and as government expenditure for payments exceeding the tax
liability. For our purposes, however, we count all tax credit expenditure as if it were
a cash benefit (and therefore public spending).
WTC requires the claimant (or the partner) to be in full-time paid work. Normally,
claimants aged 25 or over are only eligible if they work at least 30 hours per week.
More lenient rules apply to disabled workers, those over 60, lone parents and
couples with children. The first three of these groups are eligible for WTC provided at
least one adult in the household works 16 or more hours per week. To be eligible for
WTC, couples with children must, in addition to meeting that condition, work for a
combined total of at least 24 hours. This additional requirement is waived if the nonworking partner is entitled to Carer’s Allowance, incapacitated or in prison.
Table 3.3.2. Current rates of Working Tax Credit
Disability element
Severe disability element
2,790
1,190
£ per week
36.82
37.40
15.15
175.00
300.00
53.51
22.82
Income below which maximum WTC is payable
Withdrawal rate
6,420
41%
123.12
41%
Basic element
Couple and lone-parent element
30-hour element
Childcare elementa
£ per annum
1,920
1,950
790
One child
Two or more children
a
70% of eligible childcare payments are payable (up to the maximum shown).
Note: Weekly numbers are calculated based upon there being 365/7 weeks per year.
WTC is made up of a number of components (see Table 3.3.2). There is a basic
element, with an extra payment for couples and lone parents (i.e. for everyone
except childless single people), as well as an additional payment for those working at
least 30 hours per week (30 hours in total for couples). WTC also includes
supplementary payments for disability and severe disability. Severe disability
© Institute for Fiscal Studies, 2012
24
supplements are payable where the recipient or their partner receives the highest
rate of the care component of Disability Living Allowance (see Section 3.5.3) or the
higher rate of Attendance Allowance (see Section 3.5.4).
The maximum amount of WTC payable is calculated by adding together all applicable
elements. Claimants are automatically entitled to the maximum amount of WTC if
they receive Income Support, income-based JSA, income-related ESA or Pension
Credit, although it should be noted that there are few situations in which any of
those four benefits can be claimed at the same time as WTC (due to the working
restrictions). WTC also counts fully as income in calculations for all those four
benefits.
WTC that either includes a disability element or is received with Child Tax Credit
passports recipients to a number of health benefits, including free prescriptions,
dental treatment, and sight tests and glasses. The childcare element of WTC is
available to lone parents working 16 hours or more per week and to couples where
both partners work for 16 hours or more per week (or if one is incapacitated or in
prison and thus unable to care for children and the other works for 16 hours or more
per week). This element is payable until the first week in September following the
child’s 15th birthday (16th birthday for disabled children), and care must be given by
approved providers such as registered childminders, nurseries and after-school
clubs. The childcare component provides 70% of eligible childcare expenditure of up
to £175 per week for families with one child or £300 for families with two or more
children (i.e. up to £122.50 or £210 per week respectively). Unlike the rest of WTC,
which is necessarily paid to the individual in full-time work (or to the individual
agreed upon by the couple where both are in full-time work), the childcare credit is
paid directly to the main carer, as with Child Tax Credit (CTC).
WTC is subject to a joint means test with CTC (see Section 3.1.3). The claimant must
be in paid work at the time the claim is made, or expect to start work within 7 days
of making the claim. The claim runs from the date it is received by HM Revenue and
Customs. A claim for WTC can usually be backdated for up to a month. In some
instances, changes to personal circumstances affect WTC entitlement, and HMRC
must be notified within one month of the date of change or the date the claimant
becomes aware of the change. Examples include a single claimant becoming part of a
couple (or vice versa), or where childcare costs are reduced by £10 per week or more
for four consecutive weeks. Other changes to circumstances can be disclosed either
at the time that they occur or at the end of the tax year, although the latter course
may subsequently lead to irrecoverable underpayments because most changes that
increase the entitlement can only be backdated for three months. Overpayments as
a result of delayed notification will usually be recovered.
© Institute for Fiscal Studies, 2012
25
The changes that have been made to both WTC and CTC are discussed in Section
3.1.3. Recent reforms to WTC in particular are:
•
freezing the basic and 30-hour elements for three years from 2011–12, saving
over £1 billion a year by 2015–16;38
•
reducing the percentage of childcare costs payable from 80% to 70% from
April 2011, saving around £400 million a year by 2015–16;39
•
abolishing the 50-plus return-to-work bonus from April 2012, saving around
£35 million a year;40
•
introducing the requirement for a combined total of at least 24 hours in work
for couples with children from April 2012, saving around £550 million a
year.41
In April 2012, approximately 1.9 million families were receiving both WTC and Child
Tax Credit (see Section 3.1.3) and 581,700 families were receiving WTC only (as they
had no dependent children). For 2011–12, expenditure on WTC is expected to be
around £6.9 billion (see Section 3.1.3 for more details on the problem of
overpayment).
3.3.3. Housing Benefit
Non-taxable, Non-contributory, Means-tested
Housing Benefit (HB) is payable to families with low incomes who rent their homes
(for families who own their own homes, mortgage interest payments may be met
through Income Support, JSA, ESA or Pension Credit).
The level payable depends on the ‘maximum HB’, the ‘applicable amount’, and the
claimant’s income and capital. The maximum level of HB is equal to ‘eligible rent’
minus possible deductions made for any non-dependants because they are expected
to contribute towards the rent. An amount is deducted for each non-dependant
aged at least 18 based on their gross weekly income.42 (Since April 2011, these have
38
Source: HM Treasury, Budget 2011, March 2011 (http://cdn.hm-treasury.gov.uk/2011budget_complete.pdf).
39
Source: HM Treasury, Budget 2011, March 2011 (http://cdn.hm-treasury.gov.uk/2011budget_complete.pdf).
40
Source: HM Treasury, Budget 2012, March 2012 (http://cdn.hm-treasury.gov.uk/budget2012_complete.pdf).
41
Source: HM Treasury, Budget 2012, March 2012 (http://cdn.hm-treasury.gov.uk/budget2012_complete.pdf).
42
No deductions are made for any non-dependant if either the claimant or the claimant’s partner is blind, or
receives Attendance Allowance or the care component of Disability Living Allowance. No deductions are made for
an individual non-dependant when the non-dependant is a full-time student, or under 25 and on IS or incomebased JSA, or in a range of other situations. A single deduction is made for non-dependent couples. For further
details, see pages 265–9 of CPAG 2012/13.
© Institute for Fiscal Studies, 2012
26
been uprated in line with the Consumer Prices Index (CPI), having previously been
frozen at 2002–03 levels.) Eligible rent is the weekly contractual rate of rent less
ineligible charges included in the rent (such as certain fuel charges, service charges
for washing, cleaning, etc., and water charges), and subject to rent restrictions. Note
that these restrictions depend on the tenancy type (see below).
Table 3.3.3. ‘Applicable amounts’ for Housing Benefit, £ per week
Under 25
Aged 25 or over
Qualifies for PC but under 65
Aged 65 or over
56.25a
71.00b
142.70
161.25
Both aged 16–17
One or both aged 18 or over
One or both attained the PC
qualifying age but both under 65
One or both aged 65+
84.95
111.45c
217.90
Personal allowance – single person:
Personal allowance – couple:
Personal allowance – child:
Premiums:
Family-related:
241.65
Under 20
64.99
Familyd
Family (lone parent)e
17.40
22.20
Disability-related:
Disabled child (each)
Disability
Enhanced disability:f child (each)
adult
Severe disabilityg
Carer
ESA components:i
Work-related activity
Support
Single/Couple
56.63
30.35/43.25
22.89
14.80/21.30
58.20/116.40
32.60/65.20h
28.15
34.05
a
This is also the allowance for lone parents aged under 18.
b
This is also the allowance for those on main phase ESA (including lone parents) and for lone parents aged 18 or
over.
c
This is also the allowance for those on main phase ESA.
d
A family premium is payable if there are any dependent children in the household.
e
The lone-parent premium, £4.80 on top of the standard family premium, is now available only to existing
claimants, further details of which can be found in Appendix B.
f
The enhanced disability premium is payable where the claimant or a family member receives the highest rate
of Disability Living Allowance (care component) and is aged 60 or below.
g
The severe disability premium is paid to those receiving either of the two highest rates of the care component
of Disability Living Allowance who have no one living with them to care for them. The couple rate only applies
when both partners qualify.
h
The couple rate only applies when both partners qualify.
i
See Section 3.5.2 for details on eligibility
© Institute for Fiscal Studies, 2012
27
People on Income Support, income-based JSA, income-related ESA or the guarantee
credit element of Pension Credit are automatically entitled to maximum HB. For
other claimants, the amount of HB payable depends upon income relative to the
‘applicable amount’ in much the same way as for IS or income-based JSA. The
individual’s applicable amount is calculated as the sum of the relevant personal
allowance, premiums and components (set out in Table 3.3.3). If income is less than
or equal to the ‘applicable amount’, maximum HB is payable. When income exceeds
this level, there is a 65% taper (so HB entitlement is equal to maximum HB minus
65% of the amount by which income exceeds the applicable amount).
Some benefits are not counted as income (e.g. Attendance Allowance, Disability
Living Allowance and Guardian’s Allowance), and recipients of certain benefits may
have up to £20 of their income disregarded for the HB entitlement calculation.
Earnings spent on childcare costs (of up to £175 per week for one child, or £300 for
two or more) are also disregarded in the cases of lone parents working 16 hours a
week or more and couples who both work 16 hours or more. Since October 2009,
Child Benefit has been disregarded in the calculation of income for both Housing
Benefit and Council Tax Benefit, but tax credits are counted as income.
If the claimant and their partner together have capital that exceeds the upper limit
(£16,000), no HB is normally payable. But for individuals receiving the guarantee
credit element of Pension Credit, all capital and income are fully ignored. Capital
under the lower limit – £10,000 for those above the female State Pension Age or
living in a care home, and £6,000 for others – is ignored. Between the two limits,
every £250 is assumed to generate £1 of income for those under pension age,
compared with every £500 for those above female State Pension Age.
Rent restrictions apply if the claimant is not a local authority tenant. For most private
sector tenants, the eligible rent is the lower of the Local Housing Allowance (LHA)
rate applicable to the claimant and the ‘cap rent’. The LHA rate is based on the
amount of rent at the 30th percentile in the local rental market for the number of
bedrooms to which the claimant is entitled, which is itself determined by household
composition.43 As of April 2011, LHA rates have been subject to an absolute cap,
ranging from £250 per week for a one-bedroom property to £400 per week for a
four-bedroom property. The ‘cap rent’ is the rent that the claimant is liable to pay
for his/her home. For tenants renting mobile homes, those whose rent includes
board and attendance, and some housing association tenants, eligible rents are
43
From April 2012, single claimants under 35 are only entitled to one-bedroom shared accommodation
(previously the age cut-off was 25). Room entitlement more generally depends on the number of adults and the
gender and age of any children, and it is currently capped at four bedrooms. For details, see page 309 of CPAG
2012/13.
© Institute for Fiscal Studies, 2012
28
restricted according to the local reference rent rules.44 A rent officer determines the
claim-related rent (what the landlord could reasonably expect on the open market)
and the local reference rent (the mid-point of reasonable market rents in the local
area). The claimant’s eligible rent is then the lower of these two determinations.
There is transitional protection for those whose claims began before the
introduction of new restrictions, i.e. HB is not cut for existing claims.
There are a number of upcoming reforms to Housing Benefit:
•
LHA rates will be increased in line with the Consumer Prices Index (CPI) each
year from 2013–14, rather than in line with local rents.
•
From April 2013, HB for working-age people in social sector housing will be
reduced by a fixed percentage of their eligible rent if they are underoccupying their property (living somewhere too large for them). The
reduction will be 14% for one extra bedroom and 25% for two or more.
Roughly 5 million people received HB in August 2012, of whom around 65% also
received IS, income-based JSA, income-related ESA or the guarantee credit of
Pension Credit (and were therefore entitled to maximum HB).45 Expenditure on HB in
2011–12 was £22.7 billion.
3.3.4. Council Tax Benefit
Non-taxable, Non-contributory, Means-tested
Council Tax Benefit (CTB) is payable to families with low incomes that are liable to
pay council tax on a property in which they are resident. Many of the conditions for
claiming are the same as those for Housing Benefit (see Section 3.3.3), including
those on capital thresholds, income, applicable amounts and premiums (although
since nobody under the age of 18 is liable for council tax, nobody under 18 can claim
CTB).
There is also an alternative benefit, known as the Second Adult Rebate, which is
payable instead of so-called ‘main’ CTB to people who have a low-income adult living
with them who is not liable for council tax and who does not pay rent. The amount
of the Second Adult Rebate depends on the income of the second adult(s). Claimants
eligible both for CTB and for the Second Adult Rebate are paid whichever is of higher
44
Whether a claimant’s eligible rent is subject to restriction to the local reference rent is partially determined by
whether their local authority considers their rent to be unreasonably high. For details, see page 319 of CPAG
2012/13.
45
Source: Department for Work and Pensions, First Release: Housing Benefit & Council Tax Benefit Statistics,
November 2012 (http://statistics.dwp.gov.uk/asd/index.php?page=hbctb).
© Institute for Fiscal Studies, 2012
29
value. Second Adult Rebate is claimed by far fewer people than main CTB and will be
ignored for the remainder of this section.
People on Income Support, income-based JSA, income-related ESA or the guarantee
element of the Pension Credit are automatically entitled to maximum CTB. Maximum
CTB is the weekly cost of council tax, worked out as the annual bill divided by the
number of days in the year and multiplied by seven. If there is more than one person
in the house eligible to pay council tax, the maximum benefit is the share of the total
bill that each benefit unit is eligible for. So, for example, if there were a married
couple and a third person all eligible to pay council tax for a given property, one
member of the couple would be entitled to claim up to a two-thirds share of the
weekly tax, and the third person could claim a one-third share. As with Housing
Benefit, there may be deductions for non-dependants, with the amount of the
deduction based on their gross weekly income.46 For people not on Income Support
or income-based JSA with an income above their applicable amount, the taper rate is
20% (so CTB entitlement is equal to maximum CTB minus 20% of the amount by
which income exceeds the applicable amount).
From April 2013, responsibility for council tax support will be localised; local
authorities in England and the Scottish and Welsh Governments will have to design
their own schemes to help low-income individuals with council tax. While the default
scheme is identical to current CTB, local authorities have been given grants that are
worth 10% less than the current centrally administered programme (though they are
free to spend more or less than this amount on their schemes).
In August 2012, approximately 5.92 million people received main CTB, of whom
around 66% also received IS, income-based JSA, income-related ESA or the
guarantee credit of Pension Credit (and were therefore entitled to maximum CTB).47
Expenditure on CTB in 2011–12 was around £5 billion.
3.3.5. Discretionary housing payments
Non-taxable, Non-contributory, Means-tested
Discretionary housing payments are payable to those entitled to Housing Benefit,
Council Tax Benefit or Local Housing Allowance, who require additional financial
assistance as perceived by their local authorities. The amount and duration of
payments vary. No one has a right to discretionary housing payments, and awards
46
Deductions for non-dependants are made on a similar basis to those outlined for Housing Benefit (see Section
3.3.3), except that all non-dependants on IS or income-based JSA (not just those under 25) are ignored in the
calculation of deductions. These are, however, significantly smaller.
47
Source: Department for Work and Pensions, First Release: Housing Benefit & Council Tax Benefit Statistics,
November 2012 (http://statistics.dwp.gov.uk/asd/index.php?page=hbctb).
© Institute for Fiscal Studies, 2012
30
are made by local authorities out of a cash-limited budget. Government expenditure
increased by £11 million to £30 million in 2011–12.
3.3.6. Social Fund payments
Non-taxable, Non-contributory, Means-tested
The Social Fund was introduced in 1987 to provide money for people in need under a
variety of circumstances. Some of the payments from the Social Fund (including cold
weather payments, funeral payments and Sure Start maternity grants) constitute a
legal entitlement under certain conditions for certain people. Other payments
(including community care grants, budgeting loans and crisis loans) are discretionary
and budget-limited, and are paid out to people who satisfy the qualifying rules on a
case-by-case basis. The various payments from the Social Fund are described in
Appendix C. For 2011–12, the total net expenditure on the Social Fund – adding up
the six components – was approximately £334 million. As of April 2013, the
discretionary Social Fund will be abolished, with budgeting loans and ‘alignment’
crisis loans being replaced by ‘short-term advances’, while community care grants
and all other crisis loans will be replaced by local provision.
© Institute for Fiscal Studies, 2012
31
3.4. Benefits for elderly people
Benefit
3.4.1
3.4.2
3.4.3
3.4.4
3.4.5
Basic State Pension
Earnings-related state
pensions:
Graduated Retirement
Benefit
SERPS and State Second
Pension (S2P)
Pension Credit
Winter Fuel Payments
Over-75s TV licences
8
Claimants, as
at Feb. 2012a
12,707,640c
Expenditure,
2011–12 (£m)b
58,095d
9
8
10,645,000e
1,930
9
9
8
9,535,000e
14,195
8
8
8
8
8
8
9
8
8
2,615,540f
12,650,000g
4,361,000g
8,068
2,146
578
T
C
M
9
Part
9
T = taxable, C = contributory, M = means-tested
a
Unless otherwise specified.
b
Out-turn figures from DWP Benefit Expenditure Tables unless otherwise stated
(http://research.dwp.gov.uk/asd/asd4/index.php?page=medium_term).
c
This figure is for all recipients of the state pension, both basic and additional. Source: DWP, State Pension
tabulation tool, available at http://83.244.183.180/100pc/sp/tabtool_sp.html.
d
Including £58,033 million contributory BSP and £62 million non-contributory BSP (Category D).
e
Claimants in 2011–12. Both figures include the many pensioners entitled to both GRB and SERPS/S2P. Source:
State Pension tables in http://research.dwp.gov.uk/asd/asd4/index.php?page=medium_term.
f
Including about 1 million claimants receiving both savings and guarantee credit, another 1 million receiving the
guarantee credit only and 600,000 receiving the savings credit only. Source: DWP, Pension Credit tabulation
tool, available at http://83.244.183.180/100pc/pc/tabtool_pc.html.
g
Claimants in 2011–12. Source: Table 1c in
http://research.dwp.gov.uk/asd/asd4/index.php?page=medium_term.
3.4.1. Basic State Pension
Taxable, Partly contributory, Non-means-tested
There have been significant changes to the rules on state pensions, with new rules
applicable to people who become eligible for state pensions on or after 6 April 2010.
That covers all individuals who reach State Pension Age (SPA) after that date, those
who reached SPA before that date but have deferred their claims, and the spouses
and partners of the former two groups (if the spouses/partners qualify for Category
B; see below). This section discusses the new rules. For details of the old rules, see
the first edition of this Benefit Survey.48
The Basic State Pension (BSP) was introduced in 1948, following the Beveridge
Report, with the aim of providing an income for old-age pensioners based upon their
record of National Insurance contributions. Originally, the idea was for the BSP to
48
The first edition, by Carl Emmerson and Andrew Leicester, can be downloaded from
http://www.ifs.org.uk/bns/benefitsurvey01.pdf.
© Institute for Fiscal Studies, 2012
32
operate on a funded basis, with each generation paying for its own pensions through
NICs. This was abandoned immediately on introduction so that the pension could be
made payable to the existing generation of pensioners. This left the current ‘pay-asyou-go’ pension system, whereby the NICs from those currently in work fund the
pensions paid out to the generation currently in retirement.
The Basic State Pension is payable from the State Pension Age, which from 1948 to
March 2010 was 60 for women and 65 for men. From April 2010, the pension age for
women has been increasing by one month every two months, reaching 63 in April
2016; it will then increase to 65 at a rate of three months in every four months. From
December 2018, there will be a single State Pension Age for both men and women. It
will then increase at one month in every two months from 65 until it reaches 66 in
October 2020. Current legislation prescribes further increases to 67 between 2034
and 2036 and to 68 between 2044 and 2046, but the 2011 Autumn Statement
proposed implementing the increase to 67 between 2026 and 2028.49 The
government has also consulted on possible mechanisms for more automatic
increases in the State Pension Age in line with longer life expectancy, although no
formal policy along these lines has yet been laid out.50 All pensions are paid for life.
There are now three categories of state pension: Category A based on the
individual’s own National Insurance contribution record; Category B based on the
NIC record of their spouse or civil partner or late spouse or civil partner; and
Category D for those over 80 who are not entitled to any state pension. The rates
applicable to different types are listed in Table 3.4.1. For example, if only one
member of a couple has sufficient NICs (see below), the other spouse or civil partner
will be entitled to £64.40.51 (The latter can, of course, claim Category A BSP based on
his/her own NICs if that is higher than the lower rate in Category B.) The spouse or
partner will inherit the full amount (£107.45 per week) if the contributor has died.
The less generous Category D pension is non-contributory, and it applies if this is
more than the entitlement based on the individual’s own contribution record.
49
Source: Page 6 of HM Treasury, Autumn Statement 2011, November 2011 (http://cdn.hmtreasury.gov.uk/autumn_statement.pdf).
50
See chapter 4 of DWP, A State Pension for the 21st Century, April 2011 (http://www.dwp.gov.uk/docs/statepension-21st-century.pdf).
51
Prior to 6 April 2010, it was not possible for married men and female civil partners to claim state pensions
based on the contribution records of their wives/partners. Before that date, married women could not claim
state pensions based on their husband’s NIC records either, if husbands were deferring their claims. Thus, the
new rules extended coverage to include some married individuals and civil partners who reached pension age
before 6 April 2010 but were not receiving BSP.
© Institute for Fiscal Studies, 2012
33
Table 3.4.1. Current rates of Basic State Pension, £ per week
Category A
Category B for widow / widower / surviving civil partner
Category B for spouse / civil partner
Category D
107.45
107.45
64.40
64.40
A new single contribution condition has been introduced for Category A and B
retirement pensions from 6 April 2010.52 In order to qualify for the full BSP, the
contributor must have paid sufficient Class 1, 2 or 3 NICs, or received NI credits, for
at least 30 years. If the condition is met for at least one year but less than 30 years,
proportional reductions of the BSP will be made. Individuals may get NI credits when
looking for a job, claiming certain state benefits or caring for someone. Thus, the
new rules have made it easier for individuals, especially women with children, to
qualify for a full BSP.
Individuals can choose to defer receipt of the BSP in return for a higher rate of
pension. From April 2005, the rules became more generous: an individual can defer
pension payments for as long as they like, as compared with a maximum of five years
before then. If an individual puts off claiming their state pension for at least 12
months, they can choose one of two options when they do finally claim. The first
option is to earn extra state pension at 1% for every five weeks they put off claiming.
The second option is a one-off taxable lump-sum payment based on the amount of
normal weekly state pension they would have received, plus interest added each
week and compounded.53 Individuals then also get their state pension when they
claim it, paid at the normal rate. Individuals must put off claiming their state pension
for at least 12 consecutive months to be able to choose a lump-sum payment. If an
individual is claiming a means-tested benefit while deferring their pension, they do
not build up any additional entitlement.
Both of these options use any additional state pension (see Section 3.4.2) that the
individual is eligible to receive in calculating their higher state pension or lump-sum
payment.
Until the early 1970s, the level of the BSP was uprated on an ad-hoc basis, but by
more than enough to keep pace with increases in average earnings. It was then
formally linked to the faster of growth in prices or growth in earnings and remained
52
The new rule applies to those reaching pension age on or after 6 April 2010. It applies to Category B only for
widows, widowers and surviving civil partners, and on the conditions that the contributor had not reached
pension age before 6 April 2010 and died after that date.
53
The compounded rate will be 2 percentage points above the Bank of England’s base rate (so as the base rate is
currently 0.5%, the annual rate of return is 2.5%). As the Bank of England base rate may change from time to
time, the rate of interest used to calculate the lump sum could also change.
© Institute for Fiscal Studies, 2012
34
so until 1981, when it was formally linked to price inflation. The value of the BSP
relative to earnings has therefore changed considerably over time, from just under
14% when it was first introduced, before getting as high as 20% in the early 1980s.
The BSP is now subject to a ‘triple lock’ whereby it is increased every year by the
highest of growth in average earnings, CPI inflation or 2.5%.
Costing over £58 billion in 2011–12 and received by about 12.7 million pensioners in
February 2012, the BSP is the largest single benefit, constituting approximately 29%
of expenditure on all benefits and tax credits. The Christmas Bonus is payable with
BSP.
3.4.2. Earnings-Related State Pensions
Taxable, Contributory, Non-means-tested
Graduated Retirement Benefit
The Graduated Retirement Benefit (GRB) scheme operated between April 1961 and
April 1975. It involved an earnings-related element to NICs, on top of the then
standard flat-rate contribution. This was designed to entitle individuals to an
earnings-related element to their state pension. Initially, all individuals had to
contribute to the scheme. This requirement changed from 5 October 1966, so that
individuals who were members of an occupational pension scheme could contribute
at a reduced rate, in return for which they received a reduced rate of GRB. Average
payments under this scheme are relatively ungenerous, not least because
entitlements were frozen in cash terms between April 1961 and November 1978
during which period prices quadrupled. The largest Graduated Retirement Benefit
that beneficiaries can receive is £10.76 a week.54 Once the claimant reaches the age
of 80, they are entitled to an additional 25 pence per week. The GRB is payable even
if the individual is not in receipt of the Basic State Pension. The Christmas Bonus is
payable with GRB.
In 2011–12, expenditure on the GRB was over £1.9 billion, with around 10.6 million
pensioners having some entitlement to the GRB.
State Earnings-Related Pension Scheme
The State Earnings-Related Pension Scheme (SERPS) was introduced in 1978 to
provide additional retirement income to around half the workforce, whose
employers did not provide an occupational pension scheme. Despite being
introduced with cross-party support, perhaps its most noticeable feature is how
short-lived it was: SERPS was cut dramatically in the Social Security Acts of both 1986
54
Authors’ calculations using http://www.dwp.gov.uk/docs/benefitrates2012.pdf.
© Institute for Fiscal Studies, 2012
35
and 1995, before being replaced by the State Second Pension (S2P) from 2002 (see
below for more details). As of April 2002, no future SERPS benefits are being
accrued. SERPS is payable even if the claimant is not in receipt of the basic pension.
In order to avoid crowding out existing private pension provision, those who were
members of a defined benefit (final salary) pension were allowed to ‘opt out’ of
SERPS on its introduction in 1978. In return, their employer made lower National
Insurance contributions on their behalf and the individual’s contribution rate was
also reduced. In addition, from 1988, individuals were allowed to ‘opt out’ of SERPS
into a defined contribution (money purchase) pension scheme, in return for which a
proportion of their NICs were paid into the individual’s pension fund. This led to
rapid growth in personal pensions, particularly among the young, for whom SERPS
represented a worse deal.55
The original SERPS formula took individuals’ earnings in each year and uprated them
by average earnings growth to the year before the individual reached state
retirement age. The lower of this amount and the annualised upper earnings limit
(UEL) in the year before retirement was used in the SERPS calculation, with the value
of the annualised lower earnings limit (LEL) in the year prior to retirement then
deducted from this figure. The SERPS pension that an individual would receive was
equal to one-quarter of this amount, averaged over the best 20 years’ earnings of
their life. No SERPS was paid on earnings below the LEL, since it was deemed that
these were covered by the Basic State Pension. No additional SERPS was paid on
earnings above the UEL, since those who were contracted out of SERPS only received
a rebate on NICs between the LEL and the UEL. Importantly, while contributions
were indexed in line with earnings between the year in which they were made and
the year of retirement, once in payment SERPS was indexed to price inflation. In
addition, surviving partners could inherit the full amount of their spouse’s
entitlement.
The 1986 Social Security Act cut future SERPS expenditure (and hence generosity).
Individuals will now receive one-fifth rather than one-quarter of their revalued
earnings between the UEL and the LEL. In addition, this will be averaged over their
entire lifetime, rather than their best 20 years of earnings. These cuts were phased in
between April 1999 and April 2009, although earnings from before April 1988 will
continue to accrue at the more generous level. The 1986 Social Security Act also
reduced the amount that a surviving partner could inherit, from 100% to 50% of
their spouse’s pension. Originally, this was to apply to surviving partners from 6 April
2000, but due to government documentation failing to inform individuals of the
change, it was delayed until October 2002, and then phased in gradually until
55
For more details, see R. Disney and E. Whitehouse, The Personal Pensions Stampede, Institute for Fiscal
Studies, London, 1992 (http://www.ifs.org.uk/publications/396).
© Institute for Fiscal Studies, 2012
36
October 2010. The maximum percentage that one can inherit thus depends on the
date when the deceased person reached pension age.56
The 1995 Social Security Act further reduced the generosity of SERPS. This was the
result of two changes. The first was the increase in the State Pension Age for women,
the timetable for which has been accelerated in more recent legislation. Second,
there was a technical change to the SERPS formula. This meant that, instead of
subtracting the LEL in the year before retirement, now the actual LEL is deducted
from earnings before they are uprated by average earnings growth. This is less
generous for those retiring now and for several years to come, since the LEL being
deducted now is essentially being uprated in line with earnings to the current year
while the LEL that was previously being used was increased only in line with prices.
State Second Pension
From 6 April 2002, SERPS was replaced (for new contributions) by the State Second
Pension (S2P), essentially a more generous version of SERPS. The original formula
used to calculate the amount of S2P entitlement was much the same as that used for
SERPS, except that it deliberately favoured lower earners. It has been simplified for
those retiring after April 2010, but is still quite complex as earnings made before and
after that date are treated differently.57 For pre-April-2010 earnings, S2P divides
earnings into three bands using the lower earnings threshold (LET) and the upper
earnings threshold (UET) in addition to the LEL and the UEL. Those with earnings
between the LEL and the LET (along with carers and those with home
responsibility58) qualified for S2P worth 40% of the difference between LET and LEL,
regardless of actual earnings. An individual qualified for an additional 10% of
earnings between the LET and the UET, and an additional 20% of earnings between
the UET and the annualised UEL; all thresholds were uprated annually.59 This
structure was at least as generous as the previous SERPS structure and meant lower
earners accrued higher entitlements. In April 2009, the UEL was replaced for the
purposes of S2P by an upper accrual point (UAP) fixed at the UEL for 2008–09 (£770
per week). A further simplification in April 2010 eliminated the UET, leaving only two
earnings bands. While rules regarding earnings between the LEL (£107 per week in
2012–13) and LET remained the same, individuals earning above the LET (£146 per
week in 2012–13) now simply qualify for 10% of the amount of actual earnings (up to
the UAP) minus LET. April 2012 saw the introduction of two changes. First, it is no
56
A table of the maximum percentages can be found on page 539 of CPAG 2012/13.
57
Additionally, earnings of those retiring before April 2009 accrued different entitlements from those of people
retiring after that date. Further details can be found in A. Bozio, R. Crawford and G. Tetlow, The History of State
Pensions in the UK: 1948 to 2010, IFS Briefing Note 105, 2010 (http://www.ifs.org.uk/bns/bn105.pdf).
58
See the briefing note in the preceding footnote for further details.
59
See previous surveys for the threshold levels before 2009–10.
© Institute for Fiscal Studies, 2012
37
longer possible to contract out of S2P to a defined contribution pension scheme.
Second, earnings in the lower band are now treated as producing a flat-rate amount
(currently £88.40 each year). As the LET rises with earnings towards the fixed UAP,
S2P will increasingly resemble a flat-rate top-up to the state pension, becoming just
that when the two thresholds converge in around 2030.
A widow, widower or surviving civil partner can only inherit a maximum of 50% of
their spouse/partner’s State Second Pension. There is a cap (£161.94 per week for
2012–13) on the amount of additional pension (both SERPS and S2P) an individual
can receive. This cap applies to the sum of their own additional pension and any
additional pension inherited.
In 2011–12, combined expenditure on SERPS and S2P was over £14 billion, with over
9.5 million pensioners having some entitlement.
3.4.3. Pension Credit
Non-taxable, Non-contributory, Means-tested
Pension Credit (PC) was introduced in place of Income Support for the pensioner
population (also known as the Minimum Income Guarantee, MIG) on 6 October 2003
in an attempt to improve the incentives to save for retirement. Before PC,
pensioners with income in excess of the Basic State Pension but less than the MIG
faced a 100% marginal withdrawal rate (£1 of support lost for every additional £1 of
their own income). Pension Credit reduces this disincentive to save, by introducing a
savings credit with a marginal withdrawal rate of 40%.
Table 3.4.2. Current rates of Pension Credit guarantee credit, £ per week
Standard amount:
Single person
Couple
Each additional spouse in a
polygamous marriage
142.70
217.90
75.20
Severe disability
Carer
Housing costs
Transitional
58.20a
32.60a
Variesb
Variesc
Additional amounts:
a
Double this amount is payable if both partners qualify.
b
Housing cost payments are very similar to those for income-based JSA (see Section 3.2.1). Detailed rules on the
calculation of housing costs are discussed in chapter 38 of CPAG 2012/13.
c
A transitional element is paid to those previously on Income Support, income-based Jobseeker’s Allowance or
income-related ESA who would be made worse off by moving onto PC. The transitional payment covers the
difference between the applicable amount of the previous benefit and the PC appropriate minimum guarantee
(aside from a few adjustments).
© Institute for Fiscal Studies, 2012
38
There are two elements to the PC: guarantee credit and savings credit. Claimants
may be entitled to one or both elements. Guarantee credit works much like the MIG,
topping up income to a specified minimum level (called the ‘appropriate minimum
guarantee’). The appropriate minimum guarantee is the sum of a standard amount
and additional amounts for special needs or housing costs (see Table 3.4.2). To
receive guarantee credit, claimants must have reached the minimum (women’s)
qualifying age for the Basic State Pension (this will increase to 65 between 2010 and
2018 – see Section 3.4.1) and have family income below the appropriate minimum
guarantee. The sum payable is the difference between family income and the
appropriate amount. As with other means-tested benefits, capital is assumed to yield
a flow of income, but the PC rules are more generous: capital below £10,000 is
disregarded, and above this level every £500 of capital is assumed to provide £1 of
income. There is no upper limit on the amount of capital that can be held, and usual
owner-occupied housing is excluded from the calculation.
Recipients of guarantee credit are automatically entitled to maximum Housing
Benefit (see Section 3.3.3), maximum Council Tax Benefit (see Section 3.3.4), health
benefits (including free prescriptions, dental treatment and sight tests) and certain
Social Fund payments (see Appendix C). Recipients of the savings credit may also be
entitled to some Social Fund payments. The Christmas Bonus is payable with the
guarantee credit.
Savings credit rewards people aged 65 or over who have saved for retirement. Only
those with ‘qualifying income’ (excluding guarantee credit) that exceeds the
appropriate savings credit threshold (see Table 3.4.3) are eligible.60 Whereas below
the threshold an individual faces a 100% withdrawal rate as private income
increases, the withdrawal rate is only 40% above that threshold. This withdrawal rate
implies the maximum amounts given in Table 3.4.3.
Table 3.4.3. Current rates of Pension Credit savings credit, £ per week
Savings credit thresholds:
Single person
Couple
Single person
Couple
Maximum savings credit:
Withdrawal rate
111.80
178.35
18.54
23.73
40%
60
The ‘qualifying income’ for calculating entitlements to savings credit is all income that counts for guarantee
credit (total income) except a few non-qualifying benefits, such as contributory ESA, Incapacity Benefit and
Working Tax Credit. The ‘total income’ is any income that counts for PC purposes and includes those nonqualifying benefits for savings credit. See page 513 of CPAG 2012/13.
© Institute for Fiscal Studies, 2012
39
Spending on the Pension Credit was £8 billion in 2011–12, and it was claimed by
around 2.6 million people as of February 2012.
In both April 2011 and April 2012, the standard guarantee credit in Pension Credit
was increased by the cash rise in a full Basic State Pension (which was increased in
line with the Retail Prices Index in both those years); it is usually uprated in line with
earnings. The maximum savings credit award has been frozen in cash terms from
April 2011 until April 2014.
3.4.4. Winter Fuel Payment
Non-taxable, Non-contributory, Non-means-tested
Lump-sum Winter Fuel Payments (WFPs) were introduced in 1997 and are available
to GB residents over the qualifying age for Pension Credit on the third Monday of
September.
The payment for 2012–13 will be between £100 and £300, depending on personal
circumstances.61 The regular payment is £200 for those below 80 and £300 for those
aged 80 or over. When more than one person in a household qualifies, each
payment is halved. But if one claimant receives Pension Credit, income-related ESA
or income-based JSA, then this claimant (with his/her partner) will be entitled to the
regular amount regardless of whether anyone else in the household qualifies.
Those in residential care homes and not receiving Pension Credit, income-based JSA
or income-related ESA are entitled to half the regular payment (£100 if aged 60–79;
£150 if aged 80 or over). Those in residential care and receiving one of these benefits
will not qualify for WFP.
In 2011–12, approximately 12.7 million WFPs were made, at an estimated cost of
£2.1 billion.
3.4.5. Concessionary Television Licences
Non-taxable, Non-contributory, Non-means-tested
Since September 2000, households including an individual aged 75 or over have not
had to pay for a television licence. There are also reduced fees for residents of care
homes and for people who are registered blind. As of October 2012, the cost of a
colour television licence is £145.50. In 2011–12, over 4 million households benefited
from a free TV licence, at a cost of around £578 million.
61
Rules on the amount payable are listed at https://www.gov.uk/winter-fuel-payment/what-youll-get.
© Institute for Fiscal Studies, 2012
40
3.5. Benefits for sick and disabled people62
3.5.1
3.5.2
3.5.3
3.5.4
3.5.5
3.5.6
3.5.7
3.5.8
Benefit
T
C
Statutory Sick Pay
Employment and Support
Allowance
Disability Living Allowance
Attendance Allowance
Carer’s Allowance
War pensions and AFCS
Industrial injuries benefits
Motability: Specialised
Vehicle Fund
9
Part
9
Part
8
8
9
8
8
8
8
8
8
8
8
8
Claimants, as
at Feb. 2012a
8
Not available
Part
991,190c
M
8
8
9
8
8
8
Expenditure,
2011–12 (£m)b
49
3,619
3,243,530d
1,600,670e
594,860f
135,330g
321,460i
c. 600,000k
12,578
5,322
1,728
n/ah
853j
18k
T = taxable, C = contributory, M = means-tested
a
Unless otherwise specified. Source: DWP tabulation tool http://83.244.183.180/100pc/tabtool.html unless
otherwise specified.
b
Out-turn figures from DWP Benefit Expenditure Tables unless otherwise stated
(http://research.dwp.gov.uk/asd/asd4/index.php?page=medium_term).
c
Including those receiving National Insurance credits rather than monetary payments.
d
This is the number of cases in payment, while the number of all DLA entitlements is 3,272,350.
e
This is the number of cases in payment as of August 2011 (more recent data are not available). The number of
all AA entitlements in August 2011 was 1,763,710.
f
This is the number of cases in payment, while the number of all CA entitlements is 1,038,800.
g
As at 31 March 2012. Includes those claiming War Disablement Pensions, those receiving an Allowance for
Lowered Standard of Occupation (ALSO) and those receiving a Guaranteed Income Payment under the Armed
Forces Compensation Scheme (AFCS), but excludes war widow(er)s. UK figure. Sources: War Pensions Quarterly
Statistics, 31 March 2012, June 2012
(http://www.dasa.mod.uk/applications/newWeb/www/index.php?page=48&thiscontent=500&pubType=1&da
te=2012-06-07&PublishTime=09:30:00);
Armed Forces Compensation Scheme Statistics, 31 March 2012, June 2012
(http://www.dasa.mod.uk/applications/newWeb/www/index.php?page=67&pubType=0&thiscontent=1330&d
ate=2010-09-09).
h
Total expenditure on war pensions (including War Disablement and War Widow(er)’s Pensions) for 2010–11
(the latest data available) was £935.066 million in the UK.
i
Figure is for Industrial Injuries Disablement Benefit and Reduced Earnings Allowance, as of March 2012. It
includes 56,730 people who were receiving both IIDB and REA. Source: DWP, Industrial Injuries Disablement
Benefit Quarterly Statistics: March 2012 (http://research.dwp.gov.uk/asd/index.php?page=iidb).
j
Includes Industrial Injuries Disablement Benefit, as well as £1 million of other industrial injuries benefits (see
Section 3.5.7 and Appendix B).
k
Source: Motability Annual Report and Accounts 2011/12 (http://www.motability.co.uk/about-us/annualreports/). More precise figures on beneficiaries are not available.
62
Details of Severe Disablement Allowance, which was abolished for new claimants in April 2001, are given in
Appendix B.
© Institute for Fiscal Studies, 2012
41
3.5.1. Statutory Sick Pay
Taxable, Contributory, Non-means-tested
Statutory Sick Pay (SSP) is a benefit paid by employers for a maximum of 28 weeks to
employees who are incapable of work. It is a legal minimum, and many employers
will pay more than this amount. As with Statutory Maternity, Paternity and Adoption
Pay (see Section 3.1.4), much of the cost of SSP is reclaimed from the government.
To be incapable of work, an employee must be unable to do work that they could
reasonably have been expected to do under the terms of their employment contract.
Even if the employee is not actually incapable of work, SSP may still be payable
under some circumstances (for example, if a doctor has stated that the employee
should not work in order to rest or convalesce after a period of illness). SSP is only
payable if there is a period of incapacity for work of at least four days. SSP is then
payable from the fourth day of incapacity (the first three days are treated as
‘qualifying days’).
There is now no age limit for entitlements to SSP.63 SSP cannot be claimed if weekly
earnings are less than the lower earnings limit, currently £107 per week. SSP is
treated like any other earnings, so tax and National Insurance contributions are paid
as usual. If an individual was recently entitled to Employment and Support Allowance
(ESA) or Incapacity Benefit (IB) or is currently claiming either of those benefits, they
cannot also claim SSP. However, if they are still too sick to work after the SSP ends,
they might be able to claim ESA or IB.
SSP is currently payable at a weekly rate of £85.85. The total cost of SSP in 2011–12
was around £49 million.
3.5.2. Employment and Support Allowance
Partially taxable, Partially contributory, Partially means-tested
Employment and Support Allowance (ESA) replaced Incapacity Benefit and Income
Support on grounds of disability for new claimants in October 2008. Like Jobseeker’s
Allowance, there are two forms of ESA: a contributory form and an income-related
form. Contributory ESA is only paid to claimants who meet the appropriate National
Insurance conditions. Until May 2012, young people were able to claim ‘ESA in
youth’ – a form of contributory ESA – without meeting the contribution criteria, but
this is no longer available. Income-related ESA is paid to claimants who have not
satisfied the contribution criteria but have passed a means test. An increase for
partners is included in income-related ESA but not in contributory ESA (see rates in
Table 3.5.1). Claimants must be aged 16 or over but under Basic State Pension age.
63
Before 1 October 2006, SSP was only payable to employees between 16 and 65.
© Institute for Fiscal Studies, 2012
42
Table 3.5.1. Current rates of Employment and Support Allowance, £ per week
Assessment phase
Main phase
Under 25
25 or over
56.25
71.00
71.00
71.00
Lone parent (income-related ESA only)
Under 18
18 or over
56.25
71.00
71.00
71.00
Couple (income-related ESA only)
One or both under 18
Both 18 or over
Variesa
111.45
Variesb
111.45
Single person
a
If both members are under 18, the claimant receives £56.25 per week during the assessment phase or £84.95 if
they are responsible for a child (or fulfil certain other conditions). If one is under 18 and the other is over 18,
there are two rates – £56.25 (if the older of the two is aged 18–24) and £71.00 (if the older member is 25 or
over); under certain conditions, the rate may be £111.45.
b
If both members are under 18, there is a standard rate of £71.00 and a rate for those who are responsible for a
child of £111.45. If only one is under 18, the rate is £71.00; under certain conditions, the rate may be £111.45.
Note: For further details, see pages 818–19 of CPAG 2012/13.
When claimants first apply for ESA, they must go through an ‘assessment phase’,
which usually lasts for 13 weeks after the claim is made. During the assessment
phase for contributory ESA, the claimant is entitled to a basic allowance: £56.25 if
under 25 and £71 if 25 or over. Entitlements to income-related ESA are calculated in
the same way as for Income Support (see Section 3.3.1), topping up income to a
specified level (called the ‘applicable amount’), which is intended to reflect the
needs of the claimant’s family. The applicable amount is the sum of personal
allowances (which depend on age), premiums (as in Table 3.5.2) and some housing
costs (primarily mortgage interest payments). It is possible to receive contributory
ESA topped up with income-related ESA in the event that the entitlement for
income-related ESA is higher than that for contributory ESA.
The process of medical assessment is called the ‘work capability assessment’. Its first
component is the ‘limited capability for work test’, which determines whether the
individual can be awarded ESA or should apply for Jobseeker’s Allowance instead.
The second component of the work capability assessment tests whether the
individual has ‘limited capability for work-related activity’. This divides claimants into
two groups: the work-related activity group and the support group.
Claimants who have been placed in one of these two groups receive ‘main phase’
ESA. This includes either the ‘work-related component’, which is conditional on
attending work-focused interviews, or the ‘support component’, for those deemed
unable to work. Some claimants also receive a higher basic allowance on moving to
the main phase (see Table 3.5.1). There is a one-year limit on contributory ESA for
© Institute for Fiscal Studies, 2012
43
those in the work-related activity group, which includes the 13-week assessment
phase, as of April 2012.
The government plans to assess all existing claimants of Incapacity Benefit, Severe
Disablement Allowance (see Appendix B) and Income Support on the grounds of
disability, and transfer them onto ESA if the work capability assessment is passed.
Table 3.5.2. Current premiums for Employment and Support Allowance, £ per week
Components of ESA:
Work-related activity component
Support component
28.15
34.05
Pensioner:
single
couple
Variesa
Variesb
Enhanced disability:
single
couple
14.80
21.30
Severe disability:
58.20c
Carer:
32.60c
Premiums (income-related ESA):
a
In the assessment phase, this is £71.70 per week. In the main phase, it is £43.55 if the claimant is entitled to the
work-related activity component of ESA and £37.65 if they are entitled to the support component.
b
In the assessment phase, this is £106.45 per week. In the main phase, it is £78.30 if the claimant is entitled to
the work-related activity component of ESA and £72.40 if they are entitled to the support component.
c
If both partners qualify, the premium is doubled.
Contributory ESA is taxable whereas income-related ESA is not. The Christmas Bonus
is payable with ‘main phase’ contributory ESA. ESA cannot be claimed at the same
time as Income Support, JSA or Pension Credit.
Receipt of income-related ESA automatically entitles individuals to free school meals,
health benefits (including free prescriptions, dental treatment and sight tests),
maximum Council Tax Benefit, maximum Housing Benefit and certain Social Fund
payments (including the Sure Start Maternity Grant and funeral payments; see
Appendix C for further details).
In 2011–12, the total expenditure on ESA was estimated at around £3.6 billion, a
sharp rise from £1.3 billion in 2009–10. As at the end of February 2012, ESA had
around 991,190 claimants and 921,250 beneficiaries.64
64
Beneficiaries are claimants who are receiving money. Claimants include those beneficiaries plus those receiving
National Insurance credits and no monetary payment.
© Institute for Fiscal Studies, 2012
44
3.5.3. Disability Living Allowance
Non-taxable, Non-contributory, Non-means-tested
Disability Living Allowance (DLA) has two components, a care component and a
mobility component.65 Each element is available at different weekly rates depending
upon the severity of the claimant’s disability.
Disability Living Allowance care component
There are three rates of DLA (care).
For the lowest rate of DLA (care), the claimant must be 16 or over and so disabled
that they cannot prepare a cooked main meal for themselves if given the ingredients.
Alternatively, they must be so disabled that they require attention from another
person for a significant part of each day in connection with bodily functions.
For the middle rate of DLA (care), the claimant must require frequent attention from
another person throughout the day or night in connection with bodily functions, or
continual daily or prolonged nightly supervision to avoid substantial danger to
themselves or others.
For the highest rate of DLA (care), the claimant must be so severely disabled that
they require constant supervision or attention throughout the day and night with
respect to bodily functions, or to prevent danger to themselves or others.
For each rate, the individual must have satisfied the conditions throughout the three
months prior to claiming, and they must be likely to continue to satisfy these
conditions for at least six months after the claim has been made. Children under the
age of 16 must satisfy an additional disability test in order for DLA (care) to be
awarded (unless they are terminally ill – see below).
Once DLA (care) has been awarded, there is no upper age limit on continued
payment; however, no new claims can be made after the age of 65, except where
the individual is already in receipt of DLA (mobility) and their condition worsens
sufficiently to be eligible for the middle or higher rate of DLA (care).
Table 3.5.3. Current rates of Disability Living Allowance (care), £ per week
Highest rate
Middle rate
Lowest rate
65
77.45
51.85
20.55
The individual only has to make one claim in order to be considered for both components of DLA.
© Institute for Fiscal Studies, 2012
45
Terminally ill claimants with a life expectancy of six months or less are automatically
entitled to the highest rate of DLA (care) and do not have to satisfy the qualifying
period.
Disability Living Allowance mobility component
To qualify for DLA (mobility), claimants must be aged between 5 and 65 (3 and 65 for
the higher rate) when making the claim, and must show that they would benefit
from taking outdoor journeys. Further, they must satisfy the relevant disability
conditions (outlined below). Children under the age of 16 applying for lower-rate
DLA (mobility) must also satisfy an additional disability test. There are two rates of
DLA (mobility).
To claim lower-rate DLA (mobility), the claimant must show that they cannot walk
outside without substantial supervision or guidance.
To claim higher-rate DLA (mobility), the claimant must be (virtually) unable to walk
because of their disability, or be deaf and blind, or be severely mentally impaired
with severe behavioural problems and qualify for the highest rate of DLA (care).
For both rates of DLA (mobility), the claimant must have satisfied the same threemonth qualifying condition and the forward test as for DLA (care). Terminally ill
claimants with a life expectancy of six months or less are not guaranteed to receive
DLA (mobility), but if they are entitled to it, they do not have to satisfy any qualifying
period.
Table 3.5.4. Current rates of Disability Living Allowance (mobility), £ per week
Higher rate
Lower rate
54.05
20.55
Both components of DLA are not payable to people in hospital. The care component
is not payable once the claimant has been a resident in a care home for 28 days. DLA
is not counted as income when calculating entitlements to means-tested benefits
such as IS, income-based JSA, income-related ESA, HB, CTB and PC. The Christmas
Bonus is payable with DLA.
In February 2012, over 3.2 million people were receiving DLA. Of these, 418,940
people received only the care component, 464,520 received only the mobility
component and 2,360,070 people received both components. Table 3.5.5 shows the
combinations of care and mobility components received by DLA claimants. DLA
payments are estimated to have cost the exchequer approximately £12.6 billion in
2011–12.
© Institute for Fiscal Studies, 2012
46
Table 3.5.5. Cases in payment of Disability Living Allowance, as at February 2012
Care rate
Mobility rate
None
Highest
Middle
Lowest
None
45,650
115,580
257,720
Higher
361,220
526,720
475,620
427,480
Lower
103,300
198,240
506,120
225,890
Total
464,520
770,610
1,097,310
911,090
Total
418,940
1,791,040
1,033,550
3,243,530
Source: DWP, Disability Living Allowance tabulation tool, available at
http://83.244.183.180/100pc/dla/tabtool_dla.html.
3.5.4. Attendance Allowance
Non-taxable, Non-contributory, Non-means-tested
Attendance Allowance (AA) is a benefit paid to individuals over the age of 65 with
care or supervision needs. To qualify for AA, the claimant must satisfy the relevant
disability conditions for a period of six months before the award.
AA is paid at two rates: the lower rate is paid if the disability conditions for the
middle rate of DLA (care) are met (i.e. the claimant has day or night needs) and the
higher rate is paid if the conditions for the highest rate of DLA (care) are met (i.e. the
claimant has day and night needs). There is no mobility component to AA. AA is not
counted as income when calculating entitlements to means-tested benefits such as
IS, income-based JSA, income-related ESA, HB, CTB and PC.
People with a terminal illness and/or those with a life expectancy of less than six
months are automatically eligible for the higher rate of AA and do not have to satisfy
the six-month qualifying period.
In February 2012, approximately 1.7 million people were entitled to AA at an
estimated cost of just over £5.3 billion in 2011–12. The Christmas Bonus is payable
with AA.
Table 3.5.6. Current rates of Attendance Allowance, £ per week
Higher rate
Lower rate
77.45
51.85
3.5.5. Carer’s Allowance
Taxable, Non-contributory, Means-tested
Carer’s Allowance (CA), previously known as Invalid Care Allowance, is payable to
people aged 16 or over who are giving substantial and regular care (usually defined
© Institute for Fiscal Studies, 2012
47
as at least 35 hours per week) to a person receiving the highest or middle rate of DLA
(care), or AA, or Constant Attendance Allowance under the war pensions or
industrial injuries scheme (see Sections 3.5.6 and 3.5.7 and Appendix D). The
claimant must not earn more than £100 per week or be in full-time education.
For new claimants after April 2010, there is only the basic payment. The additional
allowance for adult dependants is payable if the individual was receiving the increase
before 6 April 2010. Child dependant payments were incorporated into the Child Tax
Credit on 6 April 2003 and are only available to existing (and continuous) claimants
(see Appendix B). Individuals caring for more than one disabled person cannot claim
additional awards of CA.
In February 2012, CA was claimed by 594,860 people, with expenditure in 2011–12
coming to around £1.7 billion. The Christmas Bonus is payable with CA.
Table 3.5.7. Current rates of Carer’s Allowance, £ per week
Basic benefit
Adult dependantsa
Child dependant, first childa
Child dependant, each subsequent childa
a
58.45
34.40
8.10
11.35
These additions are payable to existing claimants only; see Appendix B.
3.5.6. War pensions and AFCS
Non-taxable, Non-contributory, Non-means-tested
Individuals who have suffered injury or disability as a result of service in the Armed
Forces before 6 April 2005 are entitled to war pensions, consisting of a number of
allowances and supplements (see Appendix D for a detailed breakdown of the
various benefits available). Pensions are also available to widows, widowers and
dependants of those killed in service (see Section 3.6.5 and Appendix D). As of 31
March 2012, there were almost 135,000 claimants of the War Disablement Pension
in the UK.
From 6 April 2005, the War Pensions Scheme has been replaced by the Armed Forces
Compensation Scheme for injuries and death suffered after that date. Illness and
injuries are graded into 15 tariff levels, depending on how severe the conditions are.
A lump sum of at least £1,200 and up to £570,000 is paid according to the tariff level.
For those who have lost earnings capacity and already been awarded the lump sum
in tariff levels 1 to 11 (the more severe cases), a Guaranteed Income Payment (GIP)
is payable for life. The amount of GIP depends on the tariff level and is uprated
annually in line with the Retail Prices Index (RPI). As at 31 March 2012, 530
Guaranteed Income Payments were in payment.
© Institute for Fiscal Studies, 2012
48
Survivors’ GIPs are paid to surviving partners and children in cases of death caused
by the service. See Sections 3.6.4 and 3.6.5 and Appendix D for more details on AFCS
and war pensions.
3.5.7. Industrial Injuries Benefits
Non-taxable, Non-contributory, Non-means-tested
Industrial injuries benefits are payable to individuals who have suffered injury in an
industrial accident, or who have contracted an industrial disease while at work, and,
as a result, experience loss of faculty and are consequently considered to be at least
partially disabled. The main benefit is Industrial Injuries Disablement Benefit (IIDB). A
number of benefits might be paid as increases to IIDB, with the most important
being Constant Attendance Allowance (CAA) and Exceptionally Severe Disablement
Allowance (ESDA); see below.
In the case of injury, benefit is payable only for an industrial ‘accident’, such that an
injury that accumulates over a number of years, through, for example, heavy manual
labour, will not normally attract benefit. To receive payment in the case of disease,
the claimant must prove that the disease was caused by the occupation itself. In
practice, however, onset of disease within a month of last working in the prescribed
occupation is normally regarded as sufficient evidence. In addition, a period of 90
days must have elapsed after the onset of the disease, or the time of the accident,
before IIDB can be claimed.
The maximum rates of IIDB are shown in Table 3.5.8. The benefit actually paid
depends upon the extent of disablement (assessed on a percentage basis). To qualify
for IIDB, disablement usually has to be at least 14%. Above this level, benefit is paid
at the appropriate fraction of the maximum rate, except that disablement of
between 14% and 20% counts as 20%, and all assessments above 20% are rounded
to the nearest 10% (multiples of 5% are rounded upwards). Thus a person who is
63% disabled would receive 60% of the appropriate maximum rate, while 78%
disability attracts 80% of the maximum, and so on. Increases for dependants are only
available if the claimant is also receiving Unemployability Supplement (US), a benefit
which was abolished for new claimants of IIDB in April 1987; US can still be claimed
by some war pensioners (see Appendix D).
Table 3.5.8. Current maximum rate of Industrial Injuries Disablement Benefit,
£ per week
100% disablement
© Institute for Fiscal Studies, 2012
Claimant aged under 18,
no dependants
96.90
49
All other claimants
158.10
To be eligible for Constant Attendance Allowance (CAA), the claimant must be
entitled to the maximum level of IIDB and must also require constant attendance as
a result of their disablement. To receive the higher rate of CAA, the claimant must be
entirely (or almost entirely) dependent on such attendance and must be likely to
remain so for a prolonged period. For the lower rate, constant attendance must be
required to a ‘substantial extent’ over a prolonged period. Exceptionally Severe
Disablement Allowance (ESDA) is payable if the individual is in receipt of the higher
rate of CAA and is likely to remain so on a permanent basis. The weekly amount paid
is £63.30.
In addition, Reduced Earnings Allowance (REA) is payable if the individual had an
accident or disease before 1 October 1990 and as a result has been earning less.
Retirement Allowance (RA) is available for pensioners. For more details on these
elements, see Appendix B.
In March 2012, there were 321,460 claimants of Industrial Injuries Disablement
Benefit and Reduced Earnings Allowance.66 Over £850 million was spent on industrial
injuries benefits (including REA) in 2011–12.
Table 3.5.9. Current rates of Constant Attendance Allowance, £ per week
Higher rate
126.60
Intermediate rate
Payable if disablement is exceptionally
severe (but not enough for the higher rate)
If attendance is part-time
63.30
94.95
31.65
3.5.8. Motability
Non-taxable, Non-contributory, Non-means-tested
Motability is an independent charity set up as a partnership between the
government, charities and the private sector. It oversees the Motability Scheme,
which enables disabled people to use their higher-rate DLA (mobility) allowances or
war pensioners’ Mobility Supplement to hire or hire-purchase facilities on cars,
electric wheelchairs and electric scooters. Extra money is available to help finance
the adaptation of vehicles to suit particular types of disabilities through the
Specialised Vehicle Fund, administered by the charity.
66
This figure includes 56,730 people who were receiving both IIDB and REA, 211,100 receiving IIDB only and
53,660 receiving REA only. Source: Department for Work and Pensions, Industrial Injuries Disablement Benefit
Quarterly Statistics: March 2012 (http://research.dwp.gov.uk/asd/index.php?page=iidb).
© Institute for Fiscal Studies, 2012
50
The Motability Scheme has over 600,000 beneficiaries. The Department for Work
and Pensions gave £16.28 million to Motability to fund grants to disabled people,
primarily through the Specialised Vehicle Fund. In addition, DWP paid £1.82 million
to Motability to help cover its administrative and support costs.67
67
Source: Motability Annual Report and Accounts 2011/12 (http://www.motability.co.uk/about-us/annualreports/).
© Institute for Fiscal Studies, 2012
51
3.6. Benefits for bereaved people68
3.6.1
3.6.2
3.6.3
3.6.4
3.6.5
Expenditure,
2011–12 (£m)
8
8
8
Claimants, as
at Feb. 2012a
Not available
20,290
44,810
8
8
535e
Not available
8
8
26,730f
n/ag
Benefit
T
C
M
Bereavement Payment
Bereavement Allowanceb
Widowed Parent’s
Allowanced
Armed Forces Compensation
Scheme
War Widow(er)’s Pension
8
9
9
9
9
9
9
8
590c
T = taxable, C = contributory, M = means-tested
a
Unless otherwise specified. Source: DWP tabulation tool http://83.244.183.180/100pc/tabtool.html unless
otherwise specified.
b
Bereavement Allowance replaced the Widow’s Pension for new claimants from 9 April 2001. However, there
were still over 34,800 claimants of the Widow’s Pension in February 2012. See Appendix B for more on
Widow’s Pension. Source: Widow’s Allowance tabulation tool, available at
http://83.244.183.180/100pc/wb/tabtool_wb.html.
c
Expenditure on both widow(er)s’ and bereavement benefits (not counting War Widow(er)’s Pension).
d
Widowed Parent’s Allowance replaced the Widowed Mother’s Allowance from 9 April 2001 (see Appendix B).
However, there were still almost 5,000 claimants of the Widowed Mother’s Allowance in February 2012.
Source: Widow’s Allowance tabulation tool, available at http://83.244.183.180/100pc/wb/tabtool_wb.html.
e
Source: Armed Forces Compensation Scheme Statistics, 31 March 2012
(http://www.dasa.mod.uk/applications/newWeb/www/index.php?page=67&pubType=0&thiscontent=1330&d
ate=2010-09-09). UK figure.
f
Figure for March 2012, including war orphans, war parents and those only receiving child allowances. Source:
War Pensions Quarterly Statistics
(http://www.dasa.mod.uk/applications/newWeb/www/index.php?page=48&thiscontent=500&pubType=1&da
te=2012-06-07&PublishTime=09:30:00).
g
Total expenditure on war pensions (including War Disablement and War Widow(er)’s Pensions) for 2010–11
(the latest data available) was £935.066 million in the UK.
3.6.1. Bereavement Payment
Non-taxable, Contributory, Non-means-tested
Bereavement Payment is a one-off, lump-sum payment of £2,000 available to
widows and widowers (including surviving civil partners) who claim within 12 months
of their spouse’s death. Claimants must be under pensionable age when their
spouse/partner died, unless the latter was not entitled to Category A state pension
(see Section 3.4.1). Furthermore, the late spouse/partner must have actually paid
(rather than been credited with) National Insurance contributions (NICs) in the tax
year before their death producing an earnings factor of at least 25 times the lower
earnings limit.69 If they died as the result of an industrial illness or accident, this NIC
68
Details of Industrial Death Benefit are given in Appendix C.
69
For Class 2 and 3 NICs, this condition is met if 25 contributions are made in the year. For Class 1 NICs, total
earnings in the year (excluding those over the upper earnings limit) must be at least 25 times the lower earnings
limit.
© Institute for Fiscal Studies, 2012
52
condition is automatically regarded as being satisfied. Bereavement Payment can be
paid in addition to Widowed Parent’s Allowance or Bereavement Allowance (see
Sections 3.6.3 and 3.6.2).
3.6.2. Bereavement Allowance
Taxable, Contributory, Non-means-tested
Bereavement Allowance (BA) replaced the Widow’s Pension from 9 April 2001 and is
payable to men and women widowed on or after this date. Different rules apply to
men and women widowed before that date, as described in Appendix B. From 5
December 2005, surviving civil partners are treated the same as widows for the
purposes of the payment of bereavement benefits.
Claimants must be under pensionable age, but aged at least 45 when their spouse
died. The late spouse or partner must either have satisfied the NIC conditions or
have died as a result of an industrial injury or disease. BA is payable for up to 52
weeks after the date of death, unless the claimant remarries in that time (in which
case, entitlement ceases).
BA cannot be claimed at the same time as Widowed Parent’s Allowance (WPA),
although recipients of WPA may become entitled to BA once they are no longer
eligible to receive WPA.
The basic rate of BA is £105.95 per week for claimants aged 55 or over and where
the NIC conditions are satisfied in full. For every year under that age, the claimant
receives 7% less, i.e. 93% of the basic rate at age 54 (£98.53 per week), down to 30%
of the basic rate at age 45 (£31.79 per week). If the spouse has made insufficient
NICs, then the amount of BA payable is reduced proportionally.
In February 2012, approximately 20,290 people were claiming BA.
3.6.3. Widowed Parent’s Allowance
Taxable, Contributory, Non-means-tested
Widowed Parent’s Allowance (WPA) replaced Widowed Mother’s Allowance from 9
April 2001 and is a weekly benefit payable to men and women who were widowed
on or after this date.70 Claimants must be pregnant or have qualifying children
(under the same definition as for Child Benefit – see Section 3.1.1). The late partner
must either have satisfied the NIC conditions (see Section 3.6.1) or have died as a
70
A male widower whose partner died before 9 April 2001 can still receive WPA if he satisfies the conditions on
children, age and National Insurance contributions. Women widowed before that date can, however, continue to
receive the more generous Widowed Mother’s Allowance; see Appendix B for a detailed description.
© Institute for Fiscal Studies, 2012
53
result of an industrial injury or illness. Claimants must be under Basic State Pension
age.
The basic rate of WPA is £105.95 per week. There is also an additional earningsrelated payment if the late partner’s NIC record qualifies. Payment can continue until
the claimant no longer receives Child Benefit. Details of increases for child
dependants (now available only to existing claimants) can be found in Appendix B. A
lower basic rate of WPA may be payable if the late spouse’s NIC record is insufficient.
WPA acts as a passport to the Christmas Bonus.
In February 2012, 44,810 people claimed WPA.
Expenditure on widows’ and bereavement benefits in 2011–12 amounted to
approximately £590 million.
3.6.4. Survivors’ Guaranteed Income Payment in AFCS
Taxable, Non-contributory, Non-means-tested
This is a component of the Armed Forces Compensation Scheme (AFCS; see
Appendix D) payable to surviving dependants of individuals who died as a result of
service in the Armed Forces on or after 6 April 2005. Those entitled to war pensions
for injuries or death suffered prior to that date continue to receive war pensions, as
described in Section 3.6.5 and Appendix D.
‘Surviving dependants’ include spouses, civil partners, children, and unmarried
partners if a substantial relationship can be demonstrated. Unlike the Guaranteed
Income Payment paid to former members of the Armed Forces, Survivors’
Guaranteed Income Payment (SGIP) is taxable. The amount of SGIP payable depends
on the age when the serviceman or servicewoman died and their salary. The formula
can be found in the Armed Forces and Reserve Forces (Compensation Scheme) Order
2005.71 As at 31 March 2012, 535 Survivors’ Guaranteed Income Payments were in
payment.
3.6.5. War Widow(er)’s Pension
Non-taxable, Non-contributory, Non-means-tested
The War Widow(er)’s Pension (WWP) is payable to widow(er)s of those who have
died as a result of service in the Armed Forces before 6 April 2005. Widow(er)s of
war pensioners can also claim if their spouse received Constant Attendance
Allowance (see Appendix D) at the time of their death, or was assessed as at least
80% disabled and in receipt of the Unemployability Supplement of the War
71
Available at http://www.legislation.gov.uk/uksi/2005/439/made.
© Institute for Fiscal Studies, 2012
54
Disablement Pension (see Appendix D) upon death. Payment is normally for life
unless the widow or widower remarries.
The basic WWP is payable at two rates. The higher rate is paid if the claimant is aged
40 or over, or is aged under 40 but has children or is unable to support themselves
financially. It is also automatically payable to all claimants whose spouses were
ranked above Major (or equivalent). Childless claimants under the age of 40 receive
the lower rate (until they reach 40, whereupon they graduate to the higher rate).
WWP rates vary according to the rank of the late spouse. Full details of rates payable
can be found in Appendix D.
Additional payments are made for dependent children and for recipients reaching
the ages of 65, 70 and 80. WWP is not payable in addition to a contributory Widow’s
Pension or Bereavement Allowance (see Section 3.6.2), but it can be paid with a
basic retirement pension (see Section 3.4.1) earned by the widow(er)’s own
contributions. The Christmas Bonus is payable with WWP.
A number of other groups are also entitled to a war pension. These include
unmarried dependants who lived as a spouse with the deceased, child orphans and
infirm adult orphans.
In March 2012, 26,375 widow(er)s were claiming WWP, with 40 claimants of War
Orphan’s or War Parent’s Pension and 315 claimants only receiving the child
allowance. Total UK expenditure on all war pensions in 2010–11 stood at £953.1
million.
© Institute for Fiscal Studies, 2012
55
4. Trends in social security spending
In this section, we look at how spending on benefits has changed over time, both in
terms of how total expenditure has changed and in terms of how the targeting of the
spending has altered with respect to the recipient groups defined in Section 3. We
then go on to discuss intended reforms of the UK benefit system.
4.1. Social security spending, 1948–49 to 2011–12
Social security spending increased almost continuously as a share of national income
from 1948 to the early 1980s. As shown in Figure 4.1, social security spending was
just over 4% of GDP in 1948–49, but had reached over 11.5% of GDP by 1983–84.
This was due to an increase in the generosity of many state benefits, as well as an
increase in the numbers eligible to claim them. Perhaps the best example of this is
the Basic State Pension, which increased in generosity from around 14% of average
male earnings in 1948–49 to nearly 20% in the early 1980s. At the same time, the
number of people over Basic State Pension age increased from 6.8 million in 1951 to
10 million in 1981.72
Figure 4.1. Social security expenditure as a percentage of GDP, 1948–49 to 2011–12
16
Percentage of GB GDP
14
12
10
8
6
4
2
1948-49
1950-51
1952-53
1954-55
1956-57
1958-59
1960-61
1962-63
1964-65
1966-67
1968-69
1970-71
1972-73
1974-75
1976-77
1978-79
1980-81
1982-83
1984-85
1986-87
1988-89
1990-91
1992-93
1994-95
1996-97
1998-99
2000-01
2002-03
2004-05
2006-07
2008-09
2010-11
0
Note: Includes Working Tax Credit and Child Tax Credit, where appropriate.
Sources: Department for Work and Pensions; authors’ calculations; GDP from http://www.hmtreasury.gov.uk/data_gdp_fig.htm.
72
Source: Government Statistical Service, Annual Abstract of Statistics, 2000 edition.
© Institute for Fiscal Studies, 2012
56
Figure 4.2. Average annual real increases in social security spending over five-year
periods, 1957–58 to 2011–12
Average annual percentage growth rate
8%
7%
6%
5%
4%
3%
2%
1%
0%
56/5761/62
61/6266/67
66/6771/72
71/7276/77
76/7781/82
81/8286/87
86/8791/92
91/9296/97
96/9701/02
01/0206/07
06/0711/12
Sources: Department for Work and Pensions; authors’ calculations; GDP deflators from HM Treasury website,
http://www.hm-treasury.gov.uk/data_gdp_fig.htm.
The late 1980s saw the first substantial fall in social security spending as a share of
GDP since 1948–49. This was the result of rapid economic growth and the associated
fall in claimant unemployment, combined with the fact that many benefits, the most
notable of which was the Basic State Pension, were only increased in line with
inflation. The economic downturn in the early 1990s, however, saw the economy
contract and unemployment rise to 2.9 million. This led to another dramatic rise in
the share of national income spent on social security, which reached an historic high
of almost 13 per cent in 1993–94. After that, social security spending fell as a share
of GDP, as the economy grew and the unemployment count dropped. The
proportion of GDP allocated to social security expenditure gradually increased
following the turn of the millennium, despite continued economic growth. This was
mainly due to the increasing generosity of benefits targeted at pensioners (e.g. the
Pension Credit) and families with children (e.g. the Child Tax Credit). Largely as a
result of the recent recession, expenditure as a proportion of GDP rose substantially
from 11.37% in 2007–08 to 13.77% in 2009–10 (due to both an increase in benefit
payments to the newly unemployed and the lower level of GDP). As of 2011–12, the
cuts to the welfare budget being implemented by the coalition government have
arrested the rise in the proportion of GDP spent on welfare (at a time of flat or falling
GDP), but are yet to result in a substantial decrease in that figure.
As with the share of GDP, real expenditure on benefits has risen almost continuously
since the 1940s. Figure 4.2 shows the average annual real increases in social security
spending seen over each five-year period since 1956–57. Over this period, social
© Institute for Fiscal Studies, 2012
57
security spending has grown (on average) in real terms by around 4.5% per year;
however, there have been large fluctuations in the pattern of this growth,
particularly over the last 25 years.
4.2. Changes in the composition of social security spending
Not only have there been substantial increases in social security spending since
1948–49; there have also been large changes in the composition of that spending, as
shown in Figure 4.3. Retirement and bereavement benefits have been easily the
largest components of benefit spending since 1948–49. They made up 40% of social
security spending at the beginning of the period, then rose to nearly 60% by the mid1970s, as the population aged and there were real increases in the generosity of the
Basic State Pension, before falling to 35% by 1995–96. The recent rise to almost
42.6% by 2011–12 largely reflects the repackaging of Income Support for the elderly
(which we classify as support for those on low incomes) as Pension Credit (which we
allocate to the elderly).
Figure 4.3. Share of total expenditure by benefit type, 1948–49 to 2011–12
100%
Other social security benefits
90%
80%
Tax credits and predecessors
70%
Benefits for housing and local taxes
60%
Sickness, invalidity and incapacity
Benefits
50%
40%
Disability and carers' benefits
30%
Family Allowance and Child Benefit
20%
10%
Income Support, Jobseeker's
Allowance and predecessors
2008-09
2004-05
2000-01
1996-97
1992-93
1988-89
1984-85
1980-81
1976-77
1972-73
1968-69
1964-65
1960-61
1956-57
1952-53
1948-49
0%
Retirement and bereavement
benefits
Sources: 1948–2001: Department of Social Security, The Changing Welfare State: Social Security Spending, 2000.
2001–2012: As for Table 2.1, including notes.
It is worth emphasising at this point that such issues of classification mean that these
breakdowns must be treated with caution. Another example is the introduction of
Child Tax Credit (CTC) in 2003–04 which, like the introduction of Pension Credit,
involved a repackaging of part of Income Support (amongst other things; see
Appendix B) as well as an increase in generosity. The gradual transfer of existing
© Institute for Fiscal Studies, 2012
58
claims to CTC in the past few years helps explain the recent increase in the share of
benefits expenditure spent on tax credits, shown in Figure 4.3.
A clearer change in the allocation of
benefits to relieve housing costs and
dramatic increase in Housing Benefit
rapid increases in private rents and
rents are usually lower).
spending is the large increase in the share of
local taxes. This increase is largely due to the
expenditure, which is itself the result of both
the declining social housing stock (for which
Figure 4.4a. Composition of benefit spending on non-pensioners,
1978–79 to 2011–12
Real expenditure (2012/13 £s)
120,000
100,000
80,000
Means tested
Child Benefit
Sick and disabled
Contributory
60,000
40,000
20,000
0
Figure 4.4b. Composition of benefit spending on pensioners, 1978–79 to 2011–12
Real expenditure (2012/13 £s)
120,000
100,000
Means tested
Other
Sick and disabled
Contributory
80,000
60,000
40,000
20,000
0
Source: DWP, Benefit Expenditure Tables (http://research.dwp.gov.uk/asd/asd4/index.php?page=medium_term)
for DWP-administered benefits; same as Table 2.1 (including notes) for HMRC benefits and tax credits.
© Institute for Fiscal Studies, 2012
59
An important distinction between different types of benefits is the extent to which
they are non-contributory rather than contingent on having made National Insurance
contributions.73 Less than half of benefit expenditure (42.1%) currently goes on
contributory benefits, compared with over 65% in 1978–79. In fact, these figures
overestimate expenditure on benefits for which contributions have been made, since
individuals can be credited with NICs without having actually paid them. This can
occur for several reasons: for example, periods spent in full-time education or as
registered unemployed are credited with contributions having been made. Also,
since April 2000, individuals earning between the lower earnings limit and the
earnings threshold do not have to pay any NICs, but are credited as if a contribution
has been made.
The declining relative importance of contributory benefits has largely been the result
of the growth of means-tested benefits since the late 1970s. In real terms (2011–12
prices), expenditure on income-related benefits has increased from £10.96 billion in
1978–79 to £79.02 billion in 2011–12, an increase of just over 620%. Expenditure on
non-contributory non-income-related benefits has, over the same period, grown by
around 230%. In contrast, real expenditure on contributory benefits increased from
£42.26 billion in 1978–79 to £84.53 billion in 2011–12, an increase of almost exactly
100%. Figures 4.4a and 4.4b illustrate that the growth in real expenditure on
contributory benefits is entirely due to the state pension, with the rapid growth in
means-tested benefits primarily benefiting those of working age.
4.3. Major reforms since 1948
There have been substantial changes to the benefit system since 1948. Box 4.1
summarises those that are already in place. Changes that are yet to take effect or are
still under review will be discussed in Section 4.4.
Since 2010, there have been no changes to individual benefits of a similar
significance to those documented in Box 4.1. However, from 2011–12, almost all
benefits, tax credits and public service pensions have been indexed to the Consumer
Prices Index (CPI). The CPI tends to increase more slowly than both the Retail Prices
Index (RPI) – which previously uprated universal benefits – and the Rossi Index (RPI
without housing costs), which uprated means-tested benefits. This change to
indexation rules is expected to save over £5.8 billion in 2014–15.74 The government
73
For details of the current system of NICs, see J. Browne and B. Roantree, A Survey of the UK Tax System, IFS
Briefing Note 9, 2012 (http://www.ifs.org.uk/bns/bn09.pdf). A Social Security Select Committee report also
looked at the contributory principle: Fifth Report, 2000, available at
http://www.publications.parliament.uk/pa/cm199900/cmselect/cmsocsec/56/5602.htm.
74
Table 2.1 of HM Treasury, Budget 2010, June 2010 (http://cdn.hm-treasury.gov.uk/junebudget_complete.pdf).
© Institute for Fiscal Studies, 2012
60
has claimed that the CPI better reflects the inflation experience of benefit
recipients.75
Box 4.1. Major changes to the UK benefit system since 1948
Families with children
ƒ
Child Benefit replaced Family Allowance and the Child Tax Allowance from April 1977. While Child Benefit
is currently payable to all qualifying children, Family Allowance was payable only to the second and
subsequent children.
ƒ
Child Tax Credit replaced Children’s Tax Credit (and the additional child elements of a number of other
benefits, including those in Working Families’ Tax Credit) from April 2003. Children’s Tax Credit was
originally introduced in April 2001.
Unemployed people
ƒ
Jobseeker’s Allowance replaced Unemployment Benefit and Income Support for the unemployed from
October 1996.
People on low incomes
ƒ
Income Support replaced Supplementary Benefit from April 1988. Supplementary Benefit replaced National
Assistance from November 1966.
ƒ
Working Tax Credit replaced Working Families’ Tax Credit and Disabled Person’s Tax Credit in April 2003.
Working Families’ Tax Credit replaced Family Credit in October 1999, and Family Credit replaced Family
Income Supplement in April 1988. Family Income Supplement was introduced in 1971. Disabled Person’s
Tax Credit replaced the Disability Working Allowance in October 1999.
ƒ
Between 1948 and 1966, many local authorities provided recipients of means-tested benefits with additional
help for rent and local taxes. In 1966, a national rebate scheme was introduced. This was reformed many
times prior to 1990. Since then, help with rents has been delivered through Housing Benefit, while rebates
for local taxes were available from 1990 through Community Charge Benefit and, since 1993, through
Council Tax Benefit.
Elderly people
ƒ
Pension Credit replaced Income Support for people aged 60 or over from October 2003.
ƒ
Although the Basic State Pension has been in place since 1948, the system of retirement pensions as a
whole has been subject to some major changes. Between April 1961 and April 1975, the Graduated
Retirement Benefit was running to provide an earnings-related element on top of the basic pension rate. In
1978, the State Earnings-Related Pension Scheme (SERPS) was introduced for people who were not
members of an occupational pension scheme. SERPS was replaced by the State Second Pension (S2P) in
2002.
Sick and disabled people
ƒ
Incapacity Benefit replaced Invalidity Benefit and Sickness Benefit from April 1995.
ƒ
Disability Living Allowance replaced Mobility Allowance and Attendance Allowance for those aged under
65 from April 1992.
ƒ
Employment and Support Allowance replaced Incapacity Benefit and Income Support on grounds of
disability for new claimants in October 2008.
Bereaved people
ƒ
Bereavement benefits replaced widows’ benefits in April 2001. Prior to this, the one-off Widow’s Payment
replaced Widow’s Allowance and Industrial Death Benefit for cases where the husband died on or after 11
April 1988.
75
For discussion of this claim, see T. F. Crossley, A. Leicester and P. Levell, ‘A tale of 3 indices: further thoughts on
benefit indexation’, IFS Observation, October 2010 (http://www.ifs.org.uk/publications/5301).
© Institute for Fiscal Studies, 2012
61
4.4 Future benefit reforms
The reforms implemented or announced since the coalition government came into
office will cut an estimated £18 billion from the welfare budget by the end of the
current parliament.76 The majority of the existing changes have taken the form of
freezes or reductions in payments or tighter restrictions on eligibility, such as the
numerous changes that have been made to tax credits. However, the second half of
the parliament will see much more sweeping reforms, designed to fundamentally
reshape the welfare system as well as reduce costs. This section will discuss four
major reforms in turn, before listing all other announced changes to the uprating and
eligibility conditions of benefits.
4.4.1. Universal Credit77
The government plans that Universal Credit will replace six of the seven main meanstested welfare benefits and in-work tax credits designed for working-age adults:
income-based Jobseeker’s Allowance, income-related Employment and Support
Allowance, Income Support, Housing Benefit, Working Tax Credit and Child Tax
Credit. Means-tested support for adults aged over the State Pension Age is not
directly affected by the reform.78
Universal Credit will be administered by the Department for Work and Pensions
(DWP), in contrast to the current system where HM Revenue and Customs (HMRC)
manages tax credits and DWP administrates most means-tested benefits. Having a
single body in charge of a single benefit should make reporting easier and simpler for
households (saving them time, and possibly reducing error and increasing take-up)
and make benefit claims easier to check (reducing error and fraud).
The structure of Universal Credit will resemble a negative income tax administered
at the family level. Each family will receive a personal amount with additional
amounts for children and those with disabilities, and those in rented accommodation
will receive an additional amount for housing costs. The personal amount will be
higher for couples than for single people (though not twice as high) and lower for
some young people, as is currently the case in IS, income-based JSA and income76
This is the sum of reductions in welfare spending in the 2010 June Budget and the 2010 Spending Review.
Sources: http://cdn.hm-treasury.gov.uk/junebudget_complete.pdf and http://cdn.hmtreasury.gov.uk/sr2010_completereport.pdf.
77
This section draws heavily on M. Brewer, J. Browne and W. Jin, ‘Universal Credit: a preliminary analysis of its
impact on incomes and work incentives’, Fiscal Studies, 33, 39–71, March 2012.
78
The government plans to combine Housing Benefit for those over the State Pension Age with Pension Credit
(the main means-tested benefit for those over the State Pension Age) and to abolish Housing Benefit entirely
when Universal Credit is fully phased in. The government has also said that families will be able to claim Pension
Credit rather than Universal Credit only if all adults are aged over the female pension age, rather than the current
requirement that only one adult need be over the pension age. This means that couples where one person is
aged over the female State Pension Age and the other is aged under it will lose out from the reform.
© Institute for Fiscal Studies, 2012
62
related ESA. The housing component will be similar to Housing Benefit (see Section
3.3.3), and child additions will be based on Child Tax Credit rates (see Section 3.1.3).
This means that most out-of-work welfare claimants with no other sources of
income or savings will see their entitlements to benefits unaffected by the move to
Universal Credit. Disability premiums will be simplified when Universal Credit is
introduced, in a way that will be revenue neutral overall but that will create winners
and losers among those with disabilities.79
Under Universal Credit, earned income will be subject to a taper rate of 65%, but
applied to earned income having deducted income tax and National Insurance (social
security) contributions (NICs). An individual earning less than the income tax
threshold who earns an additional pound will lose 65p of Universal Credit. An
individual liable for National Insurance and paying income tax at the main rate (of
20%) who earns an additional pound will have to pay an additional 20p in income tax
and 12p in NICs and will then lose 65% of the 68p of additional net earnings (or
44.2p) in Universal Credit, meaning that they would lose a total of 76.2p of each
additional pound earned. Under the present system, such a person would lose
between 73p and 96p of each additional pound earned, depending on whether they
were entitled to Housing Benefit and Council Tax Benefit on top of tax credits.
Some earnings will be disregarded before the taper applies, with the size of the
disregard depending on personal circumstances, as set out in Table 4.1. The
maximum disregards will apply to those who do not claim for rental costs, with the
minimum disregards applying to those who do. This feature helps prevent Universal
Credit from extending far up the earnings distribution for those entitled to a large
housing element. In the current system, the same is achieved by having those
entitled to Housing Benefit facing a higher total withdrawal rate than those who are
not, but with the same earnings thresholds.
The earnings disregards are very important parameters in Universal Credit. Since the
government has said it will set the basic entitlement to Universal Credit at levels that
match entitlement to the current set of out-of-work benefits, and that there will be
only one withdrawal rate for earnings in Universal Credit (65%) across all family
types and all ranges of earnings, it follows that the only way in which the
government can vary Universal Credit entitlements across different family types for a
given level of earnings is through the earnings disregards.
79
Currently, ‘enhanced’ and ‘severe’ disability premiums exist in most means-tested benefits. The enhanced
disability premium is paid to those with the highest needs for care (those claiming the highest rate of the care
component of Disability Living Allowance) and the severe disability premium is paid to those receiving either of
the two highest rates of the care component of Disability Living Allowance who have no one living with them to
care for them (most recipients are single). When Universal Credit is introduced, these additional premiums will
be abolished and the support group premium in Employment and Support Allowance will be substantially
increased.
© Institute for Fiscal Studies, 2012
63
Table 4.1. Maximum and minimum earnings disregards for Universal Credit (per year)
Claimant type
Single adult
Couple without children
Couple with at least one child
Maximum
disregard
0
£3,000
£5,700
Lone parent
£7,700
Disabled person (if a claimant or
either partner in a couple is disabled)
£7,000
Minimum
disregard
0
£520
£1,040 + £260 for each of the
second and subsequent children
£2,080 + £260 for each of the
second and subsequent children
£2,080
Unearned income (mainly income from pensions and maintenance payments from
divorcees’ former partners, but not interest income, which has a special treatment –
see below) will not be subject to a disregard at all, and will reduce entitlement to
Universal Credit pound for pound. In most cases, this is identical to its current
treatment under the means-tested welfare benefits, but it represents a stricter
means test than the current treatment under tax credits, where unearned income is
subject to, at most, a 41% taper.80 The treatment of capital is also identical to the
way that means-tested benefits (IS, income-based JSA, income-related ESA, HB and
CTB) currently operate. But it is different from the current treatment of such income
in tax credits, where investment income below £300 per year is ignored altogether,
and investment income above £300 per year, as well as all other unearned income, is
subject to, at most, a 41% taper. The most extreme difference between this and the
Universal Credit treatment of investment income and capital is for a family with
savings in excess of £16,000: such families will never be entitled to any Universal
Credit, but currently could be entitled to tax credits; indeed, with an interest rate of
3%, savings of £16,000 would reduce tax credit entitlement by £1.42 a week,81 but
the same level of savings would mean that a family will lose all entitlement to
Universal Credit. Having capital limits in Universal Credit limits the payment of
Universal Credit to those who have both a low income and low levels of savings. But
the mechanism will give some families an extremely strong incentive to lower their
financial capital to £16,000 or below, and will give others an extremely strong
incentive not to accumulate more than this amount.
80
Some income, such as divorcees’ maintenance payments from former partners (which are particularly
important for lone parents), currently does not count as income for the purpose of tax credits but will be counted
as unearned income under the Universal Credit system. Other types of income, such as widow(er)s’ pensions and
private pensions, do count as unearned income for both tax credits and Universal Credit, but will be tapered at
100% under Universal Credit compared with at most 41% under tax credits currently.
81
{(0.03 × 16,000) – 300} × 0.41 = £73.80/year or £1.42/week.
© Institute for Fiscal Studies, 2012
64
New claimants will start to receive Universal Credit from October 2013, with all
existing recipients moved across over the subsequent four years. Households will be
protected from cash losses at the point of transition as long as their circumstances
do not change. The short-run cost to government, including that of providing
transitional protection, will depend on how quickly the government transfers
existing recipients of benefits and tax credits over to Universal Credit and on the
precise details of the scheme. In the long run, the government has estimated that
expenditure on benefits will increase by £2 billion a year. Expenditure is expected to
rise by £4 billion a year as a result of higher entitlements and take-up but fall by
£2 billion a year as a result of reduced fraud, error and overpayments.82 An example
of the kind of saving the government is hoping to make is given in the 2010 Spending
Review, where it is estimated that £300 million will be saved in 2014–15 by the
migration of a quarter of tax credit claimants to real-time PAYE as part of the
introduction of Universal Credit.83
4.4.2. Personal Independence Payment84
From April 2013, Personal Independence Payment (PIP) will replace Disability Living
Allowance (DLA) for new working-age claimants. Attendance Allowance will continue
for those over 65 or the State Pension Age (whichever is higher), and the
government has committed to a separate consultation before any move to extend
the PIP to include those children currently entitled to DLA.
PIP will be similar in structure to DLA, comprising a daily living component and a
mobility component, just as DLA has both a mobility and a care component.
However, both components will only be available at two rates, standard and
enhanced, dependent on the assessed level of disability. This is in contrast to the
three levels of DLA (care) currently available. The government has said that the
disability test for PIP will involve an assessment of the ability of an individual to
participate fully in society rather than of the severity of impairment. This means that,
unlike in DLA, there will be no medical conditions that will lead to an automatic
entitlement to PIP. Second, the mobility component will be allocated on the basis of
a claimant’s ability to plan or follow a journey, rather than a simple assessment of
their ability to walk unaided.
82
See the Universal Credit Impact Assessment (http://www.dwp.gov.uk/docs/universal-credit-wr2011-ia.pdf).
83
See the policy costings for the 2010 Spending Review (http://www.hmtreasury.gov.uk/spend_sr2010_policycostings.htm).
84
Further information on the PIP is available at http://www.dwp.gov.uk/policy/disability/personalindependence-payment/.
© Institute for Fiscal Studies, 2012
65
The PIP will also involve objective and continuing assessment of claimants’ needs. In
order to make a claim, an individual is required to submit a form detailing the effect
their disability has on their day-to-day life, along with documentation and/or
references from medical professionals and carers. It is expected that, in most cases,
a face-to-face consultation with an independent assessor will also be required. The
assumption is that the PIP will be awarded for a fixed term, of between a year and 10
years, rather than being awarded for life. Claimants will automatically be reassessed
at the end of their term, as well as during that term if circumstances change.
The PIP will also act as a passport to disability premiums in a number of meanstested benefits, corresponding to the current role of DLA (see Table 3.3.1). All
claimants of the PIP will be entitled to the disability premium, those claiming the
daily living component will be entitled to the severe disability premium, and those
claiming the enhanced daily living component will be entitled to the enhanced
disability premium. However, there will be no such premiums in Universal Credit.
Instead, entitlement to additional support for adults will be accessed through the
work capability assessment (currently used for ESA claimants); the government plans
to increase the supplement paid to those in the support group to £7785 (from its
current level of £34.05) to compensate for the abolition of the other premiums.
Receipt of the mobility component at the enhanced rate will act as a gateway to the
Motability Scheme.
The transition to the PIP is scheduled to take place over the four years from 2013 to
2016. New claimants will be assessed for entitlement to the PIP from March 2013,
while the reassessment of existing DLA claimants will begin in October 2013 and is
expected to be completed by the end of 2016. It is not envisaged that all claimants of
DLA will be entitled to PIP – indeed, the 2010 June Budget assumes that 20% of DLA
claimants will not be eligible for PIP, saving the exchequer £360 million in 2013–14
and £1,075 million in 2014–15.86
4.4.3. The single-tier pension
The government’s plans to reform the state pension will become much clearer after
the publication of a White Paper detailing the reforms, scheduled for publication in
mid-December 2012. The following is based on the 2011 Green Paper, A State
Pension for the 21st Century,87 and should therefore be treated as preliminary.
85
Source: http://www.dwp.gov.uk/docs/ucpbn-1-additions.pdf.
86
See HM Treasury, Budget 2010 Policy Costings, June 2010 (http://www.hmtreasury.gov.uk/junebudget_costings.htm).
87
See http://www.dwp.gov.uk/docs/state-pension-21st-century.pdf
© Institute for Fiscal Studies, 2012
66
The core proposal is to replace the current two-tier pension (the Basic State Pension
and the State Second Pension) with a single flat-rate pension set at a level above the
Pension Credit minimum guarantee (currently £142.70 per week for a single person).
This amount would be uprated according to the ‘triple lock’ currently in place for the
Basic State Pension (see Section 3.4.1). To qualify for the full amount, people would
have to build up 30 years of National Insurance contributions or credits, including
those accrued through self-employment. The large range of creditable activities,
such as being in receipt of Child Benefit for a child under 12, being a registered carer
or being entitled to a range of income- and disability-related benefits, ensures that
the vast majority of people would qualify for the full amount. Additional provision
for married, divorced and bereaved individuals would be abolished, with everyone’s
entitlement based on their own contribution record. For those who made partial
contributions, the single-tier pension would be reduced pro rata, although those
with less than 7 years of contributions would not receive anything. There would be
no increase in entitlement for those who contributed for more than the required 30
years.
The introduction of a single-tier pension would entail the abolition of ‘contracting
out’. Currently, employees and employers can pay lower National Insurance
contributions if they decide to accrue pension entitlement in an employer-provided
defined benefit scheme, rather than in the State Second Pension (S2P). The
government suggests that those who have ‘contracted out’ of the S2P will not be
entitled to the full amount of the single-tier pension, but will instead be expected to
top up their state pension using the private pension wealth they accrued while
contracted out. In contrast, those whose existing S2P entitlements mean that their
total pension entitlement under the current system exceeds the single-tier pension
will still receive the entitlements they had already accrued in retirement.
The proposals also include the abolition of the savings credit component of Pension
Credit. The rationale is that, since the government estimates that under the scheme
90% of people would retire with an income greater than the Pension Credit
minimum guarantee, the role of savings credit in encouraging private saving would
no longer be required.
The government estimates that the move to a single-tier pension set at the level of
the Pension Credit minimum income guarantee would be cost neutral. No timetable
has yet been set for the implementation of this reform.
© Institute for Fiscal Studies, 2012
67
4.4.4. Localising support for council tax88
The government is proposing to localise support for council tax from 2013–14,
abolishing Council Tax Benefit (CTB) across Britain and giving local authorities in
England and the Scottish and Welsh governments grants to create their own systems
for rebating council tax to low-income families. However, entitlements for
pensioners in England will still be set nationally and maintained at their existing
level.
Each local authority in England, and the Scottish and Welsh governments, will be
given a grant based on 90% of what would have been spent on CTB in that area.
There is no obligation for them to spend exactly the amount of this new grant on
council tax support: they may, for example, choose to maintain support at its existing
level for non-pensioners as well as pensioners and find the necessary savings
elsewhere, or even to cut entitlements by more and use the surplus for other
purposes.
4.4.5. Other announced reforms
•
From April 2013, some working-age households will be subject to a
household-level cap on the total amount of benefits they can receive. The
cap is set at around the net median earnings for working households, with
the initial levels being £500 per week for couples and lone parents and £350
per week for singles. Households in receipt of Disability Living Allowance or
Constant Attendance Allowance or that contain an individual in the support
group for Employment and Support Allowance will be exempt from the cap,
as will war widows. There will be a ‘grace period’ of nine months before they
are subject to the cap for those who were in employment for at least 12
months before they began claiming benefits. The cap is expected to save
between £200 million and £300 million each year.89
•
From April 2013, entitlement to Housing Benefit will be restricted for
working-age claimants living in the social rented sector whose
accommodation is considered larger than their household requires. A
claimant’s eligible rent will be reduced by 14% if the accommodation is
under-occupied by one bedroom, and by 25% if it is under-occupied by two
88
For a comprehensive discussion of the reforms, see S. Adam and J. Browne, Reforming Council Tax Benefit, IFS
Commentary 123, May 2012 (http://www.ifs.org.uk/comms/comm123.pdf).
89
See HM Treasury, Budget 2010 Policy Costings, June 2010 (http://www.hmtreasury.gov.uk/junebudget_costings.htm).
© Institute for Fiscal Studies, 2012
68
or more. This is expected to save the exchequer £30 million in 2013–14 and
£60 million in 2014–15.90
•
Partly in the light of the two changes above, the government is to increase
the annual budget for discretionary housing payments by £40 million in
2013–14.91
•
From January 2013, some Child Benefit will be withdrawn from all households
where someone has an income over £50,000, and those where someone
earns over £60,000 will lose all their Child Benefit. This will save the
government around £1.7 billion in 2014–15.92 Rates of Child Benefit will
remain frozen until 2014–15.
•
The discretionary Social Fund will be abolished in April 2013. Budgeting loans
and some crisis loans will be replaced by ‘short-term advances’, while
community care grants and other crisis loans will be provided in the form of
locally administered assistance from the local authority.
•
Increases in income of up to £10,000 within a tax year are currently ignored
in the calculation of tax credits. From April 2013, this will be reduced to
£5,000.
•
From April 2013, Local Housing Allowance (LHA) rates will be uprated in line
with CPI inflation each year rather than in line with local rents.
•
The Job Grant will be abolished in April 2013.
•
The maximum savings credit payable in Pension Credit is being frozen from
April 2011 to April 2014, saving £330 million by 2014–15.93
•
The basic and 30-hour elements in Working Tax Credit are frozen for three
years from 2011–12, saving £820 million each year from 2014–15.94
90
Source: HM Treasury, Budget 2012 Policy Costings, March 2012 (http://cdn.hmtreasury.gov.uk/budget2012_policy_costings.pdf).
91
Source: HM Treasury, Budget 2010 Policy Costings, June 2010 (http://www.hmtreasury.gov.uk/d/junebudget_costings.pdf).
92
Source: Tables 2.1 and 2.2 in HM Treasury, Budget 2012, March 2012 (http://cdn.hmtreasury.gov.uk/budget2012_complete.pdf).
93
Source: HM Treasury, Spending Review Policy Costings, October 2010 (http://www.hmtreasury.gov.uk/spend_sr2010_policycostings.htm).
94
Source: HM Treasury, Spending Review Policy Costings, October 2010 (http://www.hmtreasury.gov.uk/spend_sr2010_policycostings.htm).
© Institute for Fiscal Studies, 2012
69
•
The female State Pension Age is increasing from 60 to 65 over the period
from 2010 to 2018. Further increases up to 68 in the State Pension Age for
both sexes have been legislated for. See Section 3.4.1 for details of the timing
and speed of these increases.
© Institute for Fiscal Studies, 2012
70
5. Conclusions
The next decade is likely to see the most comprehensive reform of the social security
system since the Second World War. The replacement of six of the seven main
means-tested benefits for those of working age with the single Universal Credit
should simplify the benefits system and rationalise work incentives. Currently,
means-tested benefits and tax credits are administered by three different
government departments. There are three separate income-replacement benefits
for those out of work and separate benefits for those working more or less than 16
hours per week. This is complicated and burdensome for claimants, who have to
submit the same information multiple times, and creates uncertainty about how
much better off they will be from moving into work. Having overlapping benefits
(where families receive more than one means-tested benefit at the same time) adds
to the confusion for claimants, and can lead to situations where claimants benefit
very little from increasing their earnings. A single integrated benefit should be
simpler for claimants, reduce administrative costs and, by replacing a jumble of
overlapping means tests with a single one, ensure that overall effective tax rates
cannot rise too high, thus eliminating the very highest rates that can exist under the
current system. However, this simplification will be undermined by the decision to
retain support for council tax outside Universal Credit. The introduction of a singletier pension also represents a simplification of the benefits system and will give
people greater certainty about what they can expect from the state in retirement,
providing greater clarity for private savings decisions.
Concurrently to these major structural reforms, the social security system will also
see the largest real reductions in expenditure in its history. The welfare budget is
being cut by £18 billion during the current spending review period, and the
Chancellor and the Secretary of State for Work and Pensions wish to make
£10 billion of further savings by 2016–17. This will involve a trade-off between
reducing support for those with the lowest incomes and weakening work incentives
by reducing support for those in work. These decisions, as much as larger structural
reforms, will shape the benefit system in the years to come.
© Institute for Fiscal Studies, 2012
71
Appendix A. Benefit expenditure from 1948–49 to 2011–12
Table A.1. Spending on benefits in cash terms and real terms (2011–12 prices), real
increases and spending as a share of GDP
1948–49
1949–50
1950–51
1951–52
1952–53
1953–54
1954–55
1955–56
1956–57
1957–58
1958–59
1959–60
1960–61
1961–62
1962–63
1963–64
1964–65
1965–66
1966–67
1967–68
1968–69
1969–70
1970–71
1971–72
1972–73
1973–74
1974–75
1975–76
1976–77
1977–78
1978–79
1979–80
a
Cash
terms
(£m)
Real
terms
(£m)
471
598
611
642
775
817
839
942
981
1,051
1,287
1,350
1,390
1,553
1,646
1,891
1,962
2,322
2,457
2,790
3,172
3,392
3,637
4,230
4,898
5,505
6,902
9,338
11,114
13,367
15,873
18,777
11,428
14,190
14,169
14,462
16,136
15,946
15,960
17,557
17,323
17,824
21,308
22,229
22,500
24,520
25,246
28,632
28,473
32,233
32,810
36,351
39,578
40,262
39,970
42,790
45,752
48,083
50,473
54,450
57,008
60,335
64,595
65,496
Real rise % of
(%)
GDPa
24.16
-0.14
2.07
11.57
-1.18
0.09
10.01
-1.34
2.90
19.54
4.32
1.22
8.98
2.96
13.41
-0.56
13.20
1.79
10.79
8.88
1.73
-0.73
7.05
6.92
5.10
4.97
7.88
4.70
5.84
7.06
1.39
4.00
4.80
4.62
4.39
4.91
4.85
4.69
4.86
4.73
4.79
5.68
5.57
5.41
5.76
5.81
6.21
5.90
6.52
6.50
6.97
7.30
7.27
7.01
7.30
7.43
7.48
7.85
8.53
8.69
8.98
9.32
9.17
1980–81
1981–82
1982–83
1983–84
1984–85
1985–86
1986–87
1987–88
1988–89
1989–90
1990–91
1991–92
1992–93
1993–94
1994–95
1995–96
1996–97
1997–98
1998–99
1999–00
2000–01
2001–02
2002–03
2003–04
2004–05
2005–06
2006–07
2007–08
2008–09
2009–10
2010–11
2011–12
Cash
terms
(£m)
Real
terms
(£m)
Real rise
(%)
% of
GDPa
22,658
27,698
31,628
35,332
38,251
41,768
44,918
46,701
47,318
50,314
56,479
66,303
75,257
82,438
84,859
88,707
92,212
93,342
95,557
100,283
106,016
114,424
120,229
129,998
135,484
142,032
148,987
158,141
172,286
188,728
196,932
200,978
66,826
74,558
79,722
85,302
87,938
91,169
95,276
94,028
89,442
89,101
93,353
102,894
114,305
122,566
124,370
126,539
127,628
126,647
127,022
130,963
137,703
145,843
149,503
158,162
160,108
164,094
167,627
173,600
184,103
198,684
201,537
200,978
2.03
11.57
6.93
7.00
3.09
3.67
4.50
-1.31
-4.88
-0.38
4.77
10.22
11.09
7.23
1.47
1.74
0.86
-0.77
0.30
3.10
5.15
5.91
2.51
5.79
1.23
2.49
2.15
3.56
6.05
7.92
1.44
-0.28
9.71
10.79
11.27
11.56
11.63
11.56
11.61
10.84
9.88
9.59
10.02
11.17
12.28
12.69
12.35
12.20
11.91
11.33
10.99
10.87
10.97
11.35
11.27
11.50
11.42
11.41
11.31
11.37
12.32
13.77
13.62
13.46
The ‘% of GDP’ figures slightly overestimate the true figures since we divide our measure of benefit expenditure
(which includes expenditure on tax credits in Northern Ireland) by GB GDP. (Figures on expenditure on tax
credits in GB are not available.)
Note: Figures should be interpreted with care since many changes have occurred to the ways in which
government support for individuals is delivered. For more details, see Appendix C of Department of Social
Security, The Changing Welfare State: Social Security Spending, London, 2000, available by emailing a request to
Electronic-Archive@dwp.gsi.gov.uk.
Sources: Department for Work and Pensions for benefit expenditure figures, available at
http://research.dwp.gov.uk/asd/asd4/medium_term.asp; HMRC for tax credit and recent Child Benefit figures,
available at http://www.hmrc.gov.uk/statistics/benefits-credits.htm; HM Treasury for GDP figures, available at
http://www.hm-treasury.gov.uk/data_gdp_fig.htm.
© Institute for Fiscal Studies, 2012
72
Appendix B. Benefits available only to existing claimants
Incapacity Benefit
Partly taxable, Contributory, Partly means-tested
Incapacity Benefit (IB) is payable to individuals who cannot work due to sickness or
disability. It was replaced by Employment and Support Allowance (ESA; see Section
3.5.2) for all new claimants from 27 October 2008.95 The transfer of existing
claimants onto ESA began in October 2010, and will be complete by April 2014. It is
also possible to claim for IB if you are already claiming Income Support on the
grounds of disability.
To qualify, claimants must be incapable of work. Capability for work is determined by
the ‘own occupation test’ for the first 28 weeks of incapacity, which determines
whether or not the claimant is capable of returning to the type of job that they were
doing before they became incapacitated. After 28 weeks, the claimant must satisfy
the ‘personal capability assessment’, which tests ability to perform a range of
activities. Claimants of IB are usually exempt from the personal capability
assessment if they are in receipt of another benefit related to some severe
condition, such as the highest rate of the care component of Disability Living
Allowance (DLA; see Section 3.5.3).
Entitlement to IB requires that the claimant has paid or been credited with enough
National Insurance contributions (NICs), with exceptions applicable to some widows
and widowers and those who became incapable of work in youth.96 IB claimants
must be at least 16 years old; for the short-term rates, they cannot be more than five
years above State Pension Age; for the long-term rate, they cannot be above State
Pension Age.
Rates of IB are given in Table B.1. The lower short-term rate – the only rate of IB that
is tax-free – is payable for the first 28 weeks of sickness if the claimant is not entitled
to Statutory Sick Pay (SSP), and the higher (taxable) short-term rate is payable from
weeks 29 to 52. After a year of entitlement, the (taxable) long-term rate becomes
payable. Recipients of the long-term rate may be entitled to an age-related addition
to their benefit, depending on their age when entitlement to IB or SSP began. People
who are terminally ill or who are entitled to the highest rate of the care element of
DLA (see Section 3.5.3) can receive an amount equal to the long-term rate of IB after
95
The Welfare Reform Act 2007 (http://www.opsi.gov.uk/Acts/acts2007/pdf/ukpga_20070005_en.pdf).
96
Individuals under the age of 20 (25 with a spell in full-time education), who may not be able to fulfil the NIC
requirements for IB eligibility, may still be entitled to claim.
© Institute for Fiscal Studies, 2012
73
28 weeks of eligibility instead of one year. Since 6 April 2001, there has been a 50%
withdrawal rate of IB for certain pension income above £85 a week.97
In 2011–12, total expenditure on IB was around £4.9 billion, with 1.39 million people
claiming the benefit in February 2012. Of these, 1,620 were on the lower short-term
rate, 1,780 were on the higher short-term rate and 802,480 were on the long-term
rate (with the remaining 579,740 claiming ‘Incapacity Benefit credits’).98 Recipients
of long-term IB are entitled to the Christmas Bonus.
Table B.1. Current rates of Incapacity Benefit, £ per week
Short-term IB (lower rate)
Increase for dependants:
Standard
Adulta
Claimant under
pensionable age
74.80
44.85
Short-term IB (higher rate)
Increase for dependants:
Standard
Adulta
88.55
44.85
99.15
55.45
Long-term IB
Increase for dependants:
Standard
Adulta
99.15
57.60
–
–
Age-related addition:
Under 35
Under 45
11.70
5.90
n/a
n/a
a
Claimant over
pensionable age
95.15
55.45
Increases for child dependants have, since 6 April 2003, been replaced by Child Tax Credit (CTC) for all new
claimants; however, existing claimants may still be entitled to claim these additions via IB rather than CTC (see
below).
Child-related benefit increases
Child Tax Credit (Section 3.1.3) replaced increases for child dependants from 6 April
2003 (for a range of benefits) or from 6 April 2004 (for IS and JSA).
The first wave of benefits includes the Basic State Pension (excluding Category D; see
Section 3.4.1), Incapacity Benefit (see above), Carer’s Allowance (Section 3.5.5),
Severe Disablement Allowance (see below) and Widowed Parent’s Allowance
(Section 3.6.3). The rate of increase is £8.10 for the eldest child and £11.35 for each
of the subsequent children. Existing claimants might still be entitled to the increases
if the eligibility conditions for the benefit increase in question have been met
continuously since the date of the policy change.
97
Details on the reduction of IB for pension payments can be found on page 343 of CPAG 2012/13.
98
Those 579,740 claimants receive National Insurance credits but not monetary payments. Source: Department
for Work and Pensions, Incapacity Benefit tabulation tool (http://83.244.183.180/100pc/ib/tabtool_ib.html).
© Institute for Fiscal Studies, 2012
74
Child additions to Income Support (IS) and income-based JSA are still payable to
claimants who had been claiming for IS or income-based JSA continuously since 6
April 2004, on the condition that the previous claims included amounts for
dependent children. These can include a child personal allowance of £64.99, as well
as the premiums above. Their claims cease to include the child dependency increases
once they claim and are awarded CTC, and they may be automatically transferred to
CTC by the government. As of late 2010, the transfer process for JSA claims has been
completed.99 The rates of increases vary depending on family circumstances, such as
whether the child is disabled (see Table 3.1.3). But for any claimant, the amount of
payment under IS child additions is equivalent to that under CTC. Expenditure on the
child-related premiums in IS in 2011–12 was around £458 million. The number of
families receiving child additions to IS is not available, but is included in the CTC
claimant figure in our Table 2.1.100
Adult dependency increases
Increases for adult dependants in Carer’s Allowance (Section 3.5.5) and Category A
state pension (Section 3.4.1) have been abolished for new claimants since 6 April
2010. Entitlements to the increases before that date will continue until the qualifying
conditions are no longer satisfied or 5 April 2020, whichever is first.
Widow’s Pension & Widowed Mother’s Allowance
Taxable, Contributory, Non-means-tested
Widow’s Pension and Widowed Mother’s Allowance (WMA) were replaced in April
2001 by Bereavement Allowance (BA; Section 3.6.2) and Widowed Parent’s
Allowance (WPA; Section 3.6.3). However, women whose husbands died before 9
April 2001 can continue to claim the old benefits, which are more generous. Just as
BA and WPA are not payable at the same time, neither are Widow’s Pension and
WMA.
Widow’s Pension is payable at the same rate as BA (men cannot claim Widow’s
Pension), and widows can receive this pension until they reach the age of 65,
whereas BA is payable for only one year. The Christmas Bonus is also payable with
the Widow’s Pension, but not with BA.
Women receiving WMA before 9 April 2001 (men were not eligible) can continue to
do so as long as they have an eligible child. Unlike WPA, WMA does not have an
99
Information courtesy of the Department for Work and Pensions.
100
Because the amount via IS or JSA is equivalent to CTC. Source: HM Revenue and Customs, Child and Working
Tax Credits Statistics, April 2012 (http://www.hmrc.gov.uk/statistics/prov-main-stats/cwtc-apr12.pdf).
© Institute for Fiscal Studies, 2012
75
upper age limit. WMA is payable at the same rate as WPA per week, and attracts the
Christmas Bonus.
As of February 2012, approximately 34,800 women were claiming Widow’s Pension
and 5,000 were receiving WMA.101
Lone-parent increase in the family premium (HB and CTB)
Non-taxable, Non-contributory, Means-tested
A lone-parent premium (currently £4.80) has been payable only to existing claimants
of Housing Benefit and Council Tax Benefit since 6 April 1998. To qualify for this
increase, the claimant must remain continuously entitled to HB/CTB as a lone parent,
and does not become entitled to a disability premium or pensioner premium. Since 6
April 1998, new lone-parent Housing Benefit claimants have been entitled to the
standard family premium alone (currently £17.40). See Section 3.3.3 for details of
the main benefit.
Severe Disablement Allowance
Non-taxable, Non-contributory, Non-means-tested
Severe Disablement Allowance (SDA) is payable to individuals who are incapable of
work but were unable to claim Incapacity Benefit because they failed to satisfy the
National Insurance contribution conditions. It has been abolished for new claimants
since 6 April 2001. However, people who were entitled to SDA before that date may
continue to claim it. From 31 January 2011, a claimant cannot requalify for SDA after
a break in their entitlement, since all new claims for SDA are treated as claims for
Employment and Support Allowance (ESA). Recipients of SDA are entitled to the
Christmas Bonus.
The capability tests to determine eligibility for SDA are the same as those for
Incapacity Benefit (see above), with people claiming SDA prior to 12 April 1995
exempt from the personal capability assessment. Three groups of people can qualify
for SDA (the qualifying conditions must have been met prior to 6 April 2001):
•
those who are incapable of work for a consecutive 28-week period that began on
or before the claimant’s 20th birthday;
•
those who have been incapable of work for a consecutive 28-week period and
are at least 80% disabled (including registered blind people);
101
Source: DWP tabulation tool http://83.244.183.180/100pc/tabtool.html.
© Institute for Fiscal Studies, 2012
76
•
those who were entitled to claim non-contributory invalidity pension before
November 1984.
Claimants must be aged between 16 and 65, although there is no upper limit on the
age at which entitlement can continue once an award has been made. Claimants
under the age of 20 on 6 April 2001 were transferred to long-term Incapacity Benefit
by 6 April 2002, with no requirement to have satisfied the requisite NIC conditions
(see above).
Table B.2. Current rates of Severe Disablement Allowance, £ per week
69.00
Basic benefit
Increases for child dependants:
Eldest or only child
Subsequent children (each)
Increase for adult dependanta
Age-related addition:
a
Under 40
40–59 inclusive
8.10
11.35
34.60
11.70
5.90
The adult dependant increase is not paid if, in the previous week, the dependant’s earnings were sufficiently
high.
SDA comprises two elements: a basic allowance and an age-related addition
dependent upon the age at which the incapacity for work began. Increases for
dependent children were abolished on 6 April 2003; however, those who were
entitled to these prior to this date can still claim them.
In the future, the government intends to reassess those claiming SDA with a pension
date before 6 April 2014, moving those who qualify onto Employment and Support
Allowance (see Section 3.5.2 and Sections 4.4.1 and 4.4.2 on policy changes for
disabled people).
In February 2012, an estimated 217,030 people received SDA, and expenditure was
estimated to be around £878 million in 2011–12.102
Independent Living Fund
The Independent Living Fund (1993) is a government-financed trust to help severely
disabled people live at home rather than move into residential care. From December
2010, the ILF has been permanently closed to new applications. The conditions for
continued payments to existing claimants are that they must be entitled to the
highest rate of DLA (care), and living independently rather than in residential care. As
long as the claimant is receiving at least £340 worth of services each week from
social services, they are eligible to receive up to an extra £475 or £815 per week
102
Source: Beneficiary number from IB/SDA combined information in DWP tabulation tool
http://83.244.183.180/100pc/tabtool.html.
© Institute for Fiscal Studies, 2012
77
from the Fund to help pay for care assistance, depending on when they applied.103
Payments are discretionary and depend on weekly care requirements and available
income (excluding earnings from work). Claimants with savings or capital greater
than £23,250 are not eligible for assistance from the Fund. Expenditure on the
Independent Living Fund for 2011–12 was around £325 million, with 18,387
beneficiaries on 30 September 2012.104
Industrial injuries benefits (elements of)
Non-taxable, Non-contributory, Non-means-tested
The Reduced Earnings Allowance (REA) is a supplement payable only to those
assessed as 1% or more disabled as a result of an industrial injury or disease that can
be proved to have happened before 1 October 1990. The payment is made to
compensate people for loss of earnings since they are unlikely to be able to return to
their regular occupation or to employment of an equivalent standard. The amount of
REA payable is the difference between the wage earned in their previous regular
employment and the wage in a job they are likely to be able to do, given their
disability, up to a maximum of £63.24 a week. The total received from REA and
Industrial Injuries Disablement Benefit (IIDB; Section 3.5.7) cannot exceed 140% of
the maximum IIDB award.
Retirement Allowance (RA) is effectively a reduced form of REA for individuals over
pension age (for whom REA is not payable). Recipients of REA of at least £2 per week
who reach pensionable age and give up regular employment are entitled to RA. The
amount payable is the lower of 25% of the REA that was being paid or £15.81 per
week.
In March 2012, there were 53,660 claimants of REA alone and 56,730 claimants
receiving it in addition to IIDB.105
Industrial Death Benefit
Taxable, Non-contributory, Non-means-tested
Industrial Death Benefit (IDB) is payable to widows of men who died as a result of an
industrial accident or disease before 11 April 1988. After this date, other
bereavement benefits (mainly Bereavement Payment and Widowed Parent’s
103
https://www.gov.uk/independent-livingfund/what-youll-get.
104
GB figures from Independent Living Fund, Quarterly User Profile Analysis
(http://www.dwp.gov.uk/ilf/publications/corporate-publications/statistics/).
105
Source: DWP, Industrial Injuries Disablement Benefit Quarterly Statistics: March 2012
(http://research.dwp.gov.uk/asd/index.php?page=iidb).
© Institute for Fiscal Studies, 2012
78
Allowance) are payable instead. Recipients of IDB are entitled to the Christmas
Bonus.
IDB is payable to existing recipients at one of two rates, depending upon the age at
which they were widowed. Allowances are also payable for dependent children. An
age addition of 25 pence per week is payable at age 80, as long as this addition is not
being received with any other social security benefit.
In 2011–12, approximately 7,000 people received IDB,106 at a total cost to the
exchequer of approximately £33 million.
Table B.3. Current rates of Industrial Death Benefit, £ per week
Basic rates:
Children’s allowances:
106
Higher rate
Lower rate
107.45
32.24
Eldest or only child
Subsequent children (each)
8.10
11.35
Source: http://research.dwp.gov.uk/asd/asd4/medium_term.asp (under industrial injuries benefits).
© Institute for Fiscal Studies, 2012
79
Appendix C. The Social Fund
Below is a detailed breakdown of all Social Fund payments for 2011–12 (see Section
3.3.6). Figures for awards and expenditures are taken from the Annual Report by the
Secretary of State for Work and Pensions on the Social Fund 2011/2012.107
Budgeting loans
Cold weather payments
Community care grants
Crisis loans
Funeral paymentsb
Sure Start maternity grants
Discretionary
9
Regulated
Repayablea
9
9
9
9
9
9
a
All repayable loans are interest-free.
b
Funeral payments are recoverable from any money from the deceased person’s estate.
9
9
Budgeting loans
Budgeting loans are interest-free loans available to people on Income Support,
income-based JSA, income-related ESA or Pension Credit to help them cover specific
intermittent expenses that may be difficult to budget for. Loans are made from a
limited budget. To be eligible, claimants must have been claiming one of the above
benefits throughout the previous 26 weeks (short breaks are ignored). Loans vary
between £100 and £1,500 depending on the applicant’s circumstances. If the
applicant has capital over £1,000 (or £2,000 if the claimant or their partner is aged
60 or more), the maximum available loan is reduced by the amount of the excess
capital. The loan must be repaid, and, indeed, likelihood to repay is one of the
criteria on which allocation of available funds is determined. Normally, an
individual’s total debt to the Social Fund (including both budgeting loans and crisis
loans) should be repaid with 104 weeks.
In 2011–12, 1.58 million people applied for a budgeting loan. Of these applications,
1.12 million (70.9% of initial decisions) resulted in a loan being awarded, the average
size of which was £394.108 Gross expenditure was £447.5 million, and £458.7 million
was recovered from previous loans; therefore net expenditure on budgeting loans in
2011–12 was –£11.1 million.
107
http://www.dwp.gov.uk/docs/2012-annual-report-social-fund.pdf.
108
For the regulated Social Fund, the method of calculating average awards is to divide gross expenditure by the
number of awards (including those made after reconsideration or appeal). For the discretionary Social Fund, the
method of calculating average awards is to divide initial gross expenditure (excluding the value of review awards)
by the number of initial awards.
© Institute for Fiscal Studies, 2012
80
Cold weather payments
Cold weather payments are available to all those who receive Pension Credit and
certain subgroups of those receiving income-related ESA, income-based JSA or
Income Support, chiefly those with children who are disabled or under 5.109
The system links all eligible individuals to one of 92 national weather centres. If the
daily mean temperature (the average of the maximum and minimum temperatures
recorded) at the relevant station is, or is forecast to be, 0°C or below for seven
consecutive days, the cold weather payment of £25 (for each seven-day period
between 1 November and 31 March) is automatically payable.
Clearly, the total cost of this payment is greatly influenced by factors outside the
control of the government. For the winter of 2011–12, only around 5.2 million
payments were made at a cost of £129 million, compared with 17.2 million payments
at a cost of £431 million in 2010–11.110
Community care grants
Community care grants (CCGs) are payable to people in a wide range of special
circumstances who need community care. CCGs are designed to help people live
independently in the community, i.e. to prevent residential care from becoming
necessary, or to ease transition back into the community following a residential-care
placement. Grants can also be paid to help with the care of prisoners on temporary
release, to help with travel expenses, to help people set up home as part of a
planned resettlement programme, or to help ease pressure on individuals and their
families when community care is involved. To be eligible, the claimants must be in
receipt of Income Support, income-related ESA, income-based JSA or Pension Credit,
or be likely to start getting one of the above benefits within the next six weeks.
The minimum award is £30, unless it is for living or travel expenses. There is no legal
maximum. Claimants with capital over £500 (£1,000 for those aged 60 or above) may
have their entitlement reduced pound for pound. In 2011–12, 588,000 applications
were received and 216,000 awards made (36.9% of initial decisions). The average
award was £509, with total expenditure on CCGs of around £139 million.
Crisis loans
Crisis loans are interest-free and are available to people who have suffered an
emergency or disaster and as a result need help to meet immediate short-term
need. Applicants should show that they have no other means of preventing serious
109
For further details, see page 582 of CPAG 2012/13.
110
Annual Report by the Secretary of State for Work and Pensions on the Social Fund 2011/2012
(http://www.dwp.gov.uk/docs/2011-annual-report-social-fund.pdf).
© Institute for Fiscal Studies, 2012
81
damage and risk to the well-being of themselves or their family. It is not necessary
for the applicant to be in receipt of any other benefits to qualify for a crisis loan.
There is no minimum payment, and the maximum amount depends on what the
applicant can afford to repay. There is an overall limit of £1,500 less any outstanding
Social Fund loan (such as a budgeting loan) to the applicant or their partner.
In 2011–12, there were 2.586 million applications and 2.571 million initial decisions
regarding crisis loans, with 2.071 million awards being made (80.6% of initial
decisions). The average award was £64, with total expenditure of £133.3 million.
Given recoveries of £148.4 million, there was net expenditure of –£15.2 million on
crisis loans in 2011–12.
Funeral payments
Funeral payments can be awarded to claimants who are (for good reason)
responsible for organising a funeral, but who are unable to meet such a large
expense. Claimants (or their partners) must be in receipt of Income Support, incomerelated ESA, income-based JSA, Housing Benefit, Council Tax Benefit, Child Tax Credit
(at a rate exceeding the family element), Working Tax Credit (including a disability
element) or Pension Credit. The amount payable covers the costs of burial or
cremation, documentation necessary for the release of the deceased’s assets, some
travel expenses and up to £700 for other costs (e.g. flowers or funeral director’s
fees).
In 2011–12, there were 69,000 applications, with 38,000 awards (54.5% of
applications). The average award was £1,241 and gross expenditure was
£46.7 million, with £0.4 million being recovered (funeral payments can be recovered
from the deceased person’s estate), giving net expenditure of £46.3 million.
Sure Start maternity grants
Individuals are eligible for a Sure Start maternity grant if they (or a member of their
family) are pregnant, or have given birth in the last three months; or if the claimant
(or their partner) has adopted a child who is less than 12 months old, or received a
parental order enabling them to have a child by a surrogate mother. The grant is only
available if there are no other children (under 16) in the family, but a grant can be
awarded for each child of a multiple birth. Claimants (or their partner) must also be
in receipt of Income Support, income-related ESA, income-based JSA, Child Tax
Credit (at a rate exceeding the family element), Working Tax Credit (including a
disability payment) or Pension Credit, and must prove that they have received health
and welfare advice from a health professional. The amount payable is £500 per child.
There are no capital limits.
© Institute for Fiscal Studies, 2012
82
In 2011–12, there were 198,000 applications for the Sure Start maternity grant, of
which 89,000 (44.9% of initial decisions) resulted in an award. Total expenditure was
£45.3 million at an average of £507 per award (the additional £7 is due to multiple
births).
© Institute for Fiscal Studies, 2012
83
Appendix D. War pensions and AFCS
War pensions are replaced by the Armed Forces Compensation Scheme (AFCS) as a
complete package of financial compensation for injuries and death that occurred on
or after 6 April 2005 and are attributable to service in the Armed Forces. Both
schemes provide long-term payments to disabled former servicemen/women as well
as surviving spouses/partners.
AFCS is simpler than war pensions. AFCS consists of a lump sum and a Guaranteed
Income Payment (GIP) for the injured/disabled (Section 3.5.6); and a Survivors’
Guaranteed Income Payment (SGIP; Section 3.6.4) for surviving dependants when
death results from service. The actual amounts are calculated by formulas, which can
be found in the Armed Forces and Reserve Forces (Compensation Scheme) Order
2005.111
Because recipients of war pensions as a result of injuries and death prior to 6 April
2005 are not affected by the policy change, a much larger number of people are
currently entitled to war pensions than to AFCS. As at 31 March 2012, there were
only 1,060 recipients of GIP and SGIP.
The following is a brief description of the various pensions and allowances available
to war pensioners. Figures for recipients of each payment are taken from the
Defence Analytical Services Agency’s War Pensions – Quarterly Statistics.112 Rates
information comes from the Service Personnel and Veterans Agency publication,
Leaflet-9,113 and is applicable from April 2012. Unfortunately, no figures for
expenditure on each allowance are available.
War Disablement Pension
War Disablement Pension (WDP) is payable to individuals who have become at least
20% disabled (as assessed by Department for Work and Pensions doctors) while
serving in HM Forces. It is payable at varying rates according to the degree of
disablement (to the nearest 10%), with a one-off gratuity (lump-sum payment)
available to those who are less than 20% disabled. The current maximum rate of
WDP is £8,756 per annum for officers and £167.80 per week for other ranks, payable
111
Available at http://www.legislation.gov.uk/uksi/2005/439/made.
112
Edition 31 March 2012, released 7 June 2012
(http://www.dasa.mod.uk/applications/newWeb/www/index.php?page=48&thiscontent=500&pubType=1&date
=2012-06-07&PublishTime=09:30:00).
113
Service Personnel and Veterans Agency, Rates of War Pensions and Allowances, 2012-2013, April 2012
(http://www.veterans-uk.info/pdfs/publications/va_leaflets/valeaflet9.pdf).
© Institute for Fiscal Studies, 2012
84
to those assessed as 100% disabled.114 As at 31 March 2012, 134,430 people were
receiving WDP, of whom 53% were aged 70 or over. Approximately five out of six
(86%) disablement pensioners were assessed as 50% disabled or less, and only
around 3% (4,115) were assessed as 100% disabled. The Christmas Bonus is payable
with WDP if the recipient is aged 65 or over.
Unemployability Supplement
Unemployability Supplement (US) is payable to war pensioners who are (virtually)
unemployable as a result of their disability. New claimants must be under the age of
65, with disability assessed to be at least 60%. The current rate of US is £5,408 per
annum for officers and £103.65 per week for other ranks, with increases available for
both adult and child dependants.115 As at 31 March 2012, 6,910 people were
receiving US. The Christmas Bonus is payable with US.
Recipients of US may also be entitled to receive Invalidity Allowance, at a rate that
depends upon the age at which unemployability began. There are three rates for
Invalidity Allowance: the highest rate (if aged under 40) is £20.55 per week, the
middle rate (if aged between 40 and 49) is £13.30 per week and the lowest rate (if
aged between 50 and 59) is £6.65 per week – £1072, £694 and £347 per annum
respectively. Invalidity Allowance was received by 6,035 people as at 31 March 2012.
Constant Attendance Allowance / Exceptionally Severe Disablement Allowance
Constant Attendance Allowance (CAA) is payable to war pensioners who need daily
care and attention, and whose War Disablement Pension is payable at the 80% rate
or above. CAA is payable at four rates: the part-time (half-day) rate of £31.65 per
week for other ranks (£1,651 per annum for officers) if attendance is required for
half a day or less; the normal maximum rate of £63.30 per week for other ranks
(£3,303 per annum for officers) if attendance is needed for more than half a day; the
intermediate rate of £94.95 per week for other ranks (£4,954 per annum for officers)
for those who are severely disabled and require extra attendance; and the
exceptional rate of £126.60 per week for other ranks (£6,606 per annum for officers)
for very severely disabled people who are entirely dependent upon full-time
attendance for their everyday needs. The Christmas Bonus is payable with CAA.
Claimants of either the intermediate or the exceptional rate of CAA whose need for
constant attendance is likely to be permanent may also qualify for the Exceptional
114
For those assessed as 20% disabled (the minimum level for receipt of WDP), the rates are £1,751 per annum
for officers and £33.56 per week for all other ranks.
115
A rate of £57.60 per week is payable for an adult dependant of a non-officer (£3,006 per annum for the
dependant of an officer); £13.40 per week is payable for the oldest (and £15.75 for each subsequent) child of a
non-officer (£699 and £822 per annum respectively for the children of officers).
© Institute for Fiscal Studies, 2012
85
Severe Disablement Allowance (ESDA) of £63.30 per week for other ranks (£3,303
per annum for officers). In March 2012, 2,480 people received CAA; of these, 550
also received ESDA. Recipients of either of the highest two rates of CAA who are still
in gainful employment may also be entitled to the Severe Disablement occupational
Allowance of £31.65 per week for other ranks (£1,651 per annum for officers),
although there have been no claims for this since September 2011.
Allowance for Lowered Standard of Occupation
An Allowance for Lowered Standard of Occupation is payable to war pensioners with
reduced earnings capacity if their disablement prevents them from pursuing their
regular occupation. Claimants must be under 65 and must have a disablement of at
least 40% (but less than 100%). The maximum allowance payable to other ranks is
£63.24 per week (£3,300 per annum for officers), and 11,150 people received this
allowance in March 2012.
Age Allowance
Age Allowance is payable to war pensioners aged 65 or over whose disablement is
assessed to be 40% or more. The amount varies according to the degree of disability,
with the maximum rate (for 100% disability) currently standing at £34.50 per week
for other ranks (£1,800 per annum for officers). In March 2012, 30,935 people
claimed Age Allowance.116
Clothing Allowance
An annual Clothing Allowance (currently £216) may be payable to war pensioners if
they are an amputee or if their disability causes exceptional wear and tear on
clothing. In March 2012, there were 3,115 awards of Clothing Allowance in payment.
Comforts Allowance
Comforts Allowance may be payable to a severely disabled war pensioner receiving
CAA or US, to help with the extra expenses associated with severe disablement. It is
payable at a higher rate of £27.20 or a lower rate of £13.60 per week for other ranks
(£1,419 and £710 per annum for officers). Comforts Allowance was paid to 7,645
people in March 2012.
116
Including 1,000 disablement pensioners and widow(er)s receiving an addition at age 80 in Northern Ireland.
© Institute for Fiscal Studies, 2012
86
Mobility Supplement
The Mobility Supplement is payable to war pensioners who are at least 40% disabled
and have severe difficulty walking. In March 2012, 13,350 people received the
Mobility Supplement. The current rate is £60.40 per week for other ranks (£3,152
per annum for officers). The Christmas Bonus is payable with Mobility Supplement.
War Widow(er)’s Pension
There were 26,375 War Widow(er)’s Pensions in payment as at 31 March 2012.
Table D.1. Current maximum rates of War Widow(er)’s Pension
Rank of late husband/ wife
Private, Corporal, Sergeant, Staff Sergeant,
Warrant Officer Class I and II
First or Second Lieutenant
Captain
Major
Lieutenant-Colonel
Colonel
Brigadier
Major-General
d
Supplementary pension:
Officers
Other ranks
Age allowances:
Officers:
Lower ratea
Standard rateb
£30.48 p.w.
£127.25 p.w.
£1,843 p.a.
£6,713 p.a.
£2,096 p.a.
£6,741 p.a.
£2,350 p.a.
£6,766 p.a.
£6,817 p.a.c
£6,853 p.a.c
£6,955 p.a.c
£7,060 p.a.c
£4,441.56 p.a.
£85.12 p.w.
Aged 65–69
Aged 70–79
Aged 80+
£757 p.a.
£1,456 p.a.
£2,158 p.a.
Aged 65–69
Aged 70–79
Aged 80+
£14.50 p.w.
£27.90 p.w.
£41.35 p.w.
Increases for children:
Officers:
Eldest or only child
Subsequent children (each)
£1,041 p.a.
£1,166 p.a.
Other ranks:
Other ranks:
Eldest or only child
Subsequent children (each)
Maximum rent allowance:
Officers
Other ranks
a
For those under 40 with no children.
b
For those over 40 and for those under 40 with children.
£19.95 p.w.
£22.35 p.w.
£2,502 p.a.
£47.95 p.w.
c
The rates are slightly higher for widows of those who served in the 1914 War.
d
Payable to widow(er)s of Forces personnel whose service ended before 31 March 1973.
Source: Service Personnel and Veterans Agency, Rates of War Pensions and Allowances, 2012-2013, April 2012
(http://www.veterans-uk.info/pdfs/publications/va_leaflets/valeaflet9.pdf).
© Institute for Fiscal Studies, 2012
87