Benefits after the White Paper
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Benefits after the White Paper Benefits after the White Paper Document Transcript

  • Benefits in the FutureWelfare after the White Paper Gareth Morgan Examining the effects of the changes to the UK benefits system following the Emergency Budget, the Comprehensive Spending Review and the White Paper - Universal Credit- Welfare That Works.Ferret Information Systems December 2010 1.4
  • 1 Benefits in the Future – Welfare after the White Paper Contents Benefits in the Future ............................................................................................................................. 3 The Impact of the Changes to the Benefits System ............................................................................ 3 Consolidated Cuts and Increases from the Budget and CSR............................................................... 4 Universal Credit: welfare that works ...................................................................................................... 6 Some notes on changes ...................................................................................................................... 7 Abolition of unemployment ............................................................................................................ 7 Disregards ....................................................................................................................................... 7 Mortgage Support in work .............................................................................................................. 7 Capping of total benefits................................................................................................................. 7 Self-Employed assumed to earn at least minimum wage............................................................... 7 Transitional Protection ................................................................................................................... 7 Two systems from 2013 - ? ............................................................................................................. 7 One standard deduction rate of 65% .............................................................................................. 7 Housing support goes local ............................................................................................................. 7 Sanctions and penalties .................................................................................................................. 8 On-Line benefit claims and automatic operation ........................................................................... 8 Contributory benefits time limited and means-tested ................................................................... 8 Modelling and Examples ......................................................................................................................... 9 Methodology....................................................................................................................................... 9 Examples and notes. ............................................................................................................................. 10 Steady state examples ...................................................................................................................... 11 Example 1. Steady State Employment – Tenant ..................................................................... 11 Example 2. Steady State Employment – Owner ..................................................................... 12 Example 3. Steady State Employment - Tenant 4 children .................................................... 13 Example 4. Steady State Unemployment - Owner 2 children ................................................ 14 Example 5. Steady State Unemployment - Owner 4 children ................................................ 15 Example 6. Steady State Unemployment - Tenant 2 Children ............................................... 16December 6, 2010 Example 7. Steady State Unemployment - Tenant 4 Children ............................................... 17 Example 8. Single, childless owner ......................................................................................... 18 Example 9. Single Childless Tenant.......................................................................................... 19 Examples following changes of circumstance .................................................................................. 20 Example 10. Recent Unemployment - Owner 2 Children ........................................................ 20 Example 11. Recent Unemployment - Owner 4 Children ......................................................... 21 © Ferret Information Systems 2010 1.4
  • 2 Benefits in the Future – Welfare after the White Paper Example 12. Single Childless Owner - Recently Unemployed Early 2010................................. 22 Example 13. New Employment - Home Owner 2 Children....................................................... 23 Example 14. New Employment - Tenant 2 children ................................................................ 24 Example 15. Lost Job Home - Owner 2 Children....................................................................... 25 Example 16. Lost Job - Tenant 2 children ................................................................................. 26 The Effect of Children on Benefits. ................................................................................................... 27 Example 17. Couple – Tenants, Working, £15,000 pa – Varied by Children ............................ 27 Example 18. Couple – Tenants, Unemployed – Varied by Children ......................................... 28 Example 19. Couple – Owners, Working £15,000pa – Varied by Children ............................... 29 Example 20. Couple – Owners, Unemployed – Varied by Children .......................................... 30 Example 21. Owner Employed at £20,000 by Children ............................................................ 31 Anomalies caused by Capping .......................................................................................................... 32 Example 22. 9 Children, £86.54pw Rent ................................................................................... 32 Example 23. 9 Children £200pw Rent ....................................................................................... 34 Example 24. 9 Children Mortgage £100,000, 4.5% Interest £86.54 interest pw ...................... 36 Example 25a. High Rent capping............................................................................................... 38 Example 25b. High Rent capping .............................................................................................. 40 Changes in Tax Credit Hours Rules.................................................................................................... 42 Example 26. 20 Hours Work – Owner....................................................................................... 42 Example 27. 20 Hours Work Tenant ......................................................................................... 43 Some comparisons of Universal Credit and the current system. ......................................................... 44 Couple, 2 Children, £86.54 Rent, £1250pa Council Tax ................................................................ 45 Couple, 2 Children, £86.54 Mortgage Interest, £1250pa Council Tax .......................................... 46 Couple, 2 children, No Rent or Mortgage Interest, 1250 Council Tax .......................................... 47 Disposable income after rental housing costs .............................................................................. 48 Disposable income after mortgage interest costs ........................................................................ 49 Disposable income after housing costs – No Rent or Mortgage .................................................. 50 Universal Credit Disposable Income after Housing Costs ................................................................. 51December 6, 2010 Conclusion ............................................................................................................................................. 52 Main Benefits Related Measures in the Emergency Budget ................................................................ 53 Financial Results of the Budget Measures ........................................................................................ 55 The Comprehensive Spending Review .................................................................................................. 57 Main Benefits Related Changes in the Comprehensive Spending Review ....................................... 57 Ferret Information Systems .................................................................................................................. 61 © Ferret Information Systems 2010 1.4
  • 3 Benefits in the Future – Welfare after the White Paper Benefits in the Future Not for publication without written permission. December 2010 The Impact of the Changes to the Benefits System We now have a clearer view, albeit incomplete in details, of the government’s intentions towards the future of welfare support in the UK. Three sets of announcements have given us a picture of short term cuts and a longer term ambition for a more integrated, simpler in the view of the government, Universal Credit for supporting people of working age, whether in-work or not.  The Emergency Budget of June 22nd introduced net cuts to the welfare system of £11bn a year by 2015.  The Comprehensive Spending Review of October 20th added another £7bn to that.  The White Paper Universal Credit: welfare that works published on November 11th is intended to look forward to the system which will replace the current mix of benefits for those of working age. It is important to recognise that the development of the Universal Credit has overlapped the introduction of the cuts in welfare and that there are some contradictions between the targeting of the cuts and the structure of the new benefit. In particular, some of the changes to Tax Credits seem at odds with the ‘seamless’ approach of Universal Credit. In this paper we have used a real present value approach, as described in the methodology on page 9 and carried this forward into Universal Credit. The cuts and additions made in the Budget are described in more detail on page 55 and those made in the CSR can be found on page 57. The overall impact is shown in figure 1 and figure 2. It will be seen that the largest impact is made by moving from uprating benefits in line with RPI, andDecember 6, 2010 the Rossi Index, to uprating by the, usually lower, CPI. It is for this reason that we have used present values in the modelling. © Ferret Information Systems 2010 1.4
  • 4 Benefits in the Future – Welfare after the White Paper Consolidated Cuts and Increases from the Budget and CSR Total Welfare Cuts 25.00 20.00 2.70 0.49 1.23 2.01 15.00 Other CTB 2.02 Disability benefits ESA 2.42 Housing Benefits Child Benefit 10.00 Tax Credits CPI Indexing 4.51 5.00 5.80December 6, 2010 0.00 Billions Figure 1 © Ferret Information Systems 2010 1.4
  • 5 Benefits in the Future – Welfare after the White Paper Total Additional Spending and Savings 25.00 20.00 15.00 Net Savings 17.59 Cold Weather Payments Pension reforms Child Tax Credit 10.00 5.00 1.00 2.55 0.00 BillionsDecember 6, 2010 Figure 2 © Ferret Information Systems 2010 1.4
  • 6 Benefits in the Future – Welfare after the White Paper Universal Credit: welfare that works The White Paper owes much to the work of the Centre for Social Justice and its publication of Dynamic Benefits: Towards Welfare That Works in 2009. It describes the core elements of the new benefit but much detail is yet to be described, or decided. The White Paper is less definitive than is usual and, we suspect, the scheme more susceptible to change than is normally the case. It is clear that, initially at least, the benefit will share much with the existing structure of benefits and credits. The way in which the ‘needs’ section of the means-test is determined will be an amalgam of existing benefits. So will much of the ‘means’ section mirror the way in which existing schemes look at income and capital. The major change occurs in the way in which the use of these elements to determine the amount payable will be carried out. Instead of several separate benefits carrying out their own assessments with complex interlinking, passporting and overlapping, there will be one single method of withdrawal of benefit from a maximum figure. If this can be made to work, simply and efficiently, it will be welcomed. If it can do this and meet the needs of those it helps, it will be a breakthrough. Launching the White Paper Iain Duncan Smith, the Secretary of State, said: "At its heart, the Universal Credit has a simple ambition – to make work pay, even for the poorest. This will finally make it easier for people to see they will be consistently and transparently better off for each hour they work and every pound they earn. "It will cut a swathe through the massive complexity of the existing benefit system and make it less bureaucratic to run.” However, even with the limited information given in the White Paper about the mechanics of the scheme, it is already clear that there are numbers of technical anomalies appearing, as will be seen in some of the examples. As always in areas of social support, simplicity of approach collides with the reality that people live in complex ways. Any scheme, unless it is astoundingly generous, must balance the needs of administrative and financial rigour against the special circumstances of small numbers of those within it. It is at that point that the ‘tweaking’ begins and simplicity starts to unravel. Nonetheless, there are numerous changes, some radical, many welcome, to the structure of supportDecember 6, 2010 that has been in place for over 20 years and it is worth noting some of these, from the White Paper and from announcements in the Budget and CSR. © Ferret Information Systems 2010 1.4
  • 7 Benefits in the Future – Welfare after the White Paper Some notes on changes Abolition of unemployment There will be no clear division between unemployment and employment. People will remain on the same benefit as their hours of work move up and down from zero to what is now considered full- time. Only earnings will matter, hours of work will be irrelevant for most decisions. The traps and rewards attached to certain numbers of hours will largely disappear except for some areas such as conditionality and childcare support. How this will affect some things which are passported by unemployment is unclear, even concessionary rates for tickets often use unemployment as a test. Disregards The ‘disregard’ – the amount of earnings which people are allowed to keep before it affects their benefits – will be abolished for single people but made much larger for some other groups. It will however be reduced sharply for those who need help with their housing costs. There is a clear policy intention to reward those who lower their housing costs. Mortgage Support in work Help with mortgage interest for home owners will be available to all instead of, with the current system, being limited to those ‘not in full-time work’. Capping of total benefits Total amounts of benefit, for those not in receipt of DLA, war widows or receiving Working Tax Credit, will be limited to the median level of earnings of working families. It will be seen later that, applied in the way announced, this can cause extremely large poverty traps. Self-Employed assumed to earn at least minimum wage Self-employed people will be assumed to have a minimum level of earnings under a rule being considered. Transitional Protection Transitional protection, possibly for a long period, will make sure that nobody getting benefits will move onto a lower amount when transferring to Universal Credit. Two systems from 2013 - ? The old and new systems will run in parallel for some years from 2013. No transfer from old to new systems in recent years has been achieved in the target period. Child Support and Child Tax Credit are worrying precedents. One standard deduction rate of 65%December 6, 2010 There will be one single, standard rate of deduction from net earnings, ensuring that people will keep some of the increase in earnings as they earn more. The real marginal deduction rate will be higher after tax and national insurance. Housing support goes local Housing support for tenants and Council Tax Benefit will become much more localised and variable from place to place. Councils will be able to operate their own Council Tax support schemes while rent limits for Housing Benefit will become embedded at different levels in different areas. © Ferret Information Systems 2010 1.4
  • 8 Benefits in the Future – Welfare after the White Paper Sanctions and penalties There will be more ‘conditionality’ – benefit penalties for people who do not meet job-seeking conditions. The groups which must meet these conditions will be extended. On-Line benefit claims and automatic operation Claiming Universal Credit will normally be done over the internet, be much more automated, and there will be a single place for contacting the benefits system. Universal Credit will automatically, month by month, reflect changes in earnings from employment using a new, yet to be introduced, HMRC PAYE computer system. Contributory benefits time limited and means-tested The White Paper says “Under the new system, contributory benefits would retain an insurance element, but in most circumstances would only be paid for a fixed period, only to facilitate a transition back to work”. Employment and Support Allowance will be limited to one year. The White Paper says “Contributory Jobseeker’s Allowance will continue in its current form but with the same earnings rules (such as disregards and tapered withdrawal) as Universal Credit”. How this means-testing will operate is unclear.December 6, 2010 © Ferret Information Systems 2010 1.4
  • 9 Benefits in the Future – Welfare after the White Paper Modelling and Examples This set of modelling compares the effects, for some common circumstances, of the changes to tax and benefits rules announced in the Emergency Budget of June 2010 and the Comprehensive Spending Review October 2010. It also includes assessments using the proposals for a Universal Credit as given in the White Paper, Universal Credit: welfare that works published in November 2010. Methodology The examples in this document consolidate the changes to tax and benefits rules announced in the Emergency Budget of June 2010 and the Comprehensive Spending Review October 2010. This document includes modelling for the effects of reductions in real values of benefits caused by government changes to up-rating methods. Assessments start with the current values, rules and rates in force at the time of the 2010 general election and progress from those. Values used are based on starting figures and then adjusted in 3 ways:  Earnings, other incomes, tax bands etc. use current values.  Benefits which are to be up-rated by CPI in future have their current values reduced by the cumulative year by year difference between RPI and CPI  Benefits, and elements of benefits, which have been frozen have their current values reduced by the cumulative RPI. This, crudely, allows comparison of the real future values of income to be compared with starting values. The CPI and RPI forecast figures used are those produced by the Office for Budget Responsibility. Universal Credit assessment has been modelled by using forecast benefit values together with the tapers and disregards proposed in the White Paper, Universal Credit: welfare that works Cm 7957. For LHA, the VOA current and 30th percentile national figures have been averaged and the reduction applied to rental figures. Those figures have then been treated in the same way using the CPI reduction in following years when the LHA figures will be up-rated by CPI. Examples for cases with carers, elderly or disabled claimants are not included as all are expresslyDecember 6, 2010 excluded from the White Paper proposals as they are awaiting decisions on their future structure. Changes in Council Tax Benefit, outlined in the CSR and white paper have not been included as no detail is yet available, instead the current rules are used with a 10% reduction from the proposed date. © Ferret Information Systems 2010 1.4
  • 10 Benefits in the Future – Welfare after the White Paper Examples and notes. Most of these examples are based on the situation of a couple with two children. They are both aged 45 and have 2 children aged 8 and 10. They do not have any childcare costs and make no pension contributions. They pay rent of £86.54 per week which is exactly the Local Housing Allowance (LHA) for their home (the figure is chosen to match the mortgage interest payable in the examples for home owners with a mortgage of £100,000 at an interest rate of 4.5%) They pay council tax of £1250 per annum.December 6, 2010 © Ferret Information Systems 2010 1.4
  • 11 Benefits in the Future – Welfare after the White Paper Steady state examples In these examples we are considering circumstances which have persisted for some time and which are likely to continue in the same way. The variations in the examples are largely caused by changes in the real value of benefits, because of the method of indexation, and by announced changes to some benefit rates and rules. Example 1. Steady State Employment – Tenant In the first example, we look at a ‘steady-state’ situation where one member of a couple works 35 hours a week for annual earnings of £10,000, £20,000, £30,000, £40,000 and £50,000. Gross Earnings Net Weekly Income 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015 £10,000.00 £416.78 £415.84 £405.33 £398.84 £394.71 £20,000.00 £426.57 £425.68 £423.24 £418.19 £433.48 £30,000.00 £479.33 £480.35 £479.10 £477.77 £479.25 £40,000.00 £611.95 £611.12 £609.87 £608.54 £597.15 £50,000.00 £732.84 £717.05 £684.43 £684.43 £684.43 £86.54pw Rent - Couple 2 Children £10,000pa - £50,000pa Earnings £800.00 £700.00 £10,000.00 Net Income £600.00 £20,000.00 £500.00 £30,000.00 £40,000.00 £400.00 £50,000.00 £300.00 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015December 6, 2010 Year 2014 / 2015 uses the Universal Credit in place of current benefits. The drop in income for the £50,000 a year earner from 2012 onwards is caused by the loss of Child Benefit. Note that these values are adjusted for the effect of CPI up-rating and the freezing of some elements and benefits. Headline, unadjusted figures can be presented as an increase in income for some of these assessments. © Ferret Information Systems 2010 1.4
  • 12 Benefits in the Future – Welfare after the White Paper Example 2. Steady State Employment – Owner The circumstances are identical but the housing costs, of the same amount, are mortgage interest on a mortgage of £100,000 at 4.5% per annum. Gross Earnings Net Weekly Income 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015 £10,000.00 £374.35 £380.13 £378.89 £373.17 £386.65 £20,000.00 £421.64 £423.72 £423.24 £418.19 £425.42 £30,000.00 £479.33 £480.35 £479.10 £477.77 £471.19 £40,000.00 £611.95 £611.12 £609.87 £608.54 £597.15 £50,000.00 £732.84 £717.05 £684.43 £684.43 £684.43 £100,000 Mortgage - Couple 2 Children £10,000pa - £50,000pa Earnings £800.00 £700.00 £600.00 £10,000.00 Net Income £500.00 £20,000.00 £400.00 £300.00 £30,000.00 £200.00 £40,000.00 £100.00 £50,000.00 £0.00 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015 The chart and table above include mortgage interest, at the SMI level, in the UC calculation where it is used in the same way as rent in the requirement figure and in the calculation of earnings disregards. It should be noted that the recently announced benefits cap, as we understand it, applies to the amount of benefit compared to the average income not, as some commentators have interpreted it to be, a cap on any benefits for those above average income.December 6, 2010 © Ferret Information Systems 2010 1.4
  • 13 Benefits in the Future – Welfare after the White Paper Example 3. Steady State Employment - Tenant 4 children Gross Earnings Net Weekly Income 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015 £10,000.00 £554.72 £553.26 £540.99 £531.66 £518.38 £20,000.00 £563.37 £561.05 £548.78 £540.48 £554.80 £30,000.00 £594.60 £596.22 £597.84 £590.48 £600.26 £40,000.00 £652.29 £648.14 £649.76 £642.40 £646.03 £50,000.00 £759.64 £742.99 £684.43 £684.43 £684.43 £86.54pw Rent - Couple 4 Children £10,000pa - £50,000pa Earnings £800.00 £750.00 £700.00 £10,000.00 Net Income £650.00 £20,000.00 £600.00 £550.00 £30,000.00 £500.00 £40,000.00 £450.00 £50,000.00 £400.00 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015 Note the larger effect of the loss of Child Benefit for the highest earner and the real drop in benefits of the lowest paid under Universal Credit.December 6, 2010 © Ferret Information Systems 2010 1.4
  • 14 Benefits in the Future – Welfare after the White Paper Example 4. Steady State Unemployment - Owner 2 children 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015 Unemployed £376.35 £334.42 £334.76 £328.20 £323.51 Unemployed - Owner 2 Children £390.00 £380.00 £370.00 £360.00 £350.00 £340.00 £330.00 Unemployed £320.00 £310.00 £300.00 £290.00 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015 For unemployed owners, the October 2010 reduction in the interest rate for mortgage support, which is now in force, creates the initial large drop in income.December 6, 2010 © Ferret Information Systems 2010 1.4
  • 15 Benefits in the Future – Welfare after the White Paper Example 5. Steady State Unemployment - Owner 4 children 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015 Unemployed £491.62 £455.00 £457.44 £448.56 £441.28 Unemployed - Owner 4 Children £500.00 £490.00 £480.00 £470.00 £460.00 £450.00 Unemployed £440.00 £430.00 £420.00 £410.00 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015December 6, 2010 © Ferret Information Systems 2010 1.4
  • 16 Benefits in the Future – Welfare after the White Paper Example 6. Steady State Unemployment - Tenant 2 Children 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015 Unemployed £345.97 £350.38 £343.94 £328.39 £331.57 Unemployed - Tenant £355.00 £350.00 £345.00 £340.00 £335.00 Unemployed £330.00 £325.00 £320.00 £315.00 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015 In this case Universal Credit seems likely to provide a small real increase in net income.December 6, 2010 © Ferret Information Systems 2010 1.4
  • 17 Benefits in the Future – Welfare after the White Paper Example 7. Steady State Unemployment - Tenant 4 Children 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015 Unemployed £461.23 £470.96 £466.61 £448.76 £448.24 Unemployed - Tenant £475.00 £470.00 £465.00 £460.00 £455.00 Unemployed £450.00 £445.00 £440.00 £435.00 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015 In this case the changes in the Child Tax Credit rates of children’s elements provides a real increase in the short term but this is eroded by up-rating policies and other changes to the housing benefit scheme.December 6, 2010 © Ferret Information Systems 2010 1.4
  • 18 Benefits in the Future – Welfare after the White Paper Example 8. Single, childless owner 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015 Unemployed £206.41 £158.90 £158.02 £154.68 £153.63 Unemployed - Owner £250.00 £200.00 £150.00 £100.00 Unemployed £50.00 £0.00 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015 The chart shows the situation from the date of the General Election 2010. The large drop shown from 2010 to 2011 is caused by the change in Mortgage Interest Rate which took place in October 2010. The current benefit entitlement is therefore already at the lower figure.December 6, 2010 © Ferret Information Systems 2010 1.4
  • 19 Benefits in the Future – Welfare after the White Paper Example 9. Single Childless Tenant 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015 Unemployed £176.03 £175.64 £167.97 £155.65 £161.36 Unemployed - Tenant £180.00 £175.00 £170.00 £165.00 £160.00 Unemployed £155.00 £150.00 £145.00 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015 The chart demonstrates the effect of the reduction in Housing Benefit by 90% from 2013 for those on JSA for more than 12 months. The increase in 2014 /2015 reflects the absence of an equivalent in Universal Credit as it is not known how, or whether, this would be implemented. It does not show the effect of increasing the age threshold for the Shared Room Rate in Housing Benefit from 25 to 35 nor the capping of LHA levels. The changes in LHA percentiles are averaged. These are all locally variable so would need to be assessed within individual areas.December 6, 2010 © Ferret Information Systems 2010 1.4
  • 20 Benefits in the Future – Welfare after the White Paper Examples following changes of circumstance Example 10. Recent Unemployment - Owner 2 Children 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015 Unemployed £376.35 £334.42 £264.18 £260.02 £255.17 Recently Unemployed - Owner 2 children £400.00 £350.00 £300.00 £250.00 £200.00 £150.00 Unemployed £100.00 £50.00 £0.00 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015 Complete loss of mortgage interest support due to 2 year limit of support in Job Seekers Allowance, this is carried forward into Universal Credit by assumption.December 6, 2010 © Ferret Information Systems 2010 1.4
  • 21 Benefits in the Future – Welfare after the White Paper Example 11. Recent Unemployment - Owner 4 Children 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015 Unemployed £491.62 £455.00 £386.86 £377.98 £370.70 Unemployed - Owner 4 Children £600.00 £500.00 £400.00 £300.00 Unemployed £200.00 £100.00 £0.00 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015December 6, 2010 © Ferret Information Systems 2010 1.4
  • 22 Benefits in the Future – Welfare after the White Paper Example 12. Single Childless Owner - Recently Unemployed Early 2010 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015 Unemployed £206.41 £158.90 £88.21 £84.87 £83.82 Unemployed - Owner £250.00 £200.00 £150.00 £100.00 Unemployed £50.00 £0.00 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015 The chart shows the situation from the date of the General Election 2010. The large drop shown from 2010 to 2011 is caused by the change in Mortgage Interest Rate which took place in October 2010. The current benefit entitlement is therefore already at the lower figure. The further drop is caused by the two year limit in JSA for new claimants which came into force in January 2009 and which will affect the first claimant in January 2011. The income of this person will consist solely of JSA Personal Allowance and passported Council Tax Benefit.December 6, 2010 © Ferret Information Systems 2010 1.4
  • 23 Benefits in the Future – Welfare after the White Paper Example 13. New Employment - Home Owner 2 Children Gross Earnings Net Weekly Income 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015 £10,000.00 £406.68 £402.71 £378.89 £373.17 £386.65 £20,000.00 £561.95 £502.57 £423.24 £418.19 £425.42 £30,000.00 £713.88 £554.49 £479.10 £477.77 £471.19 £40,000.00 £865.80 £611.12 £609.87 £608.54 £597.15 £50,000.00 £1,029.48 £727.47 £715.94 £684.43 £684.43 Effect on Net Income of a New Job £1,200.00 £1,000.00 £800.00 £10,000.00 Net Income £20,000.00 £600.00 £30,000.00 £400.00 £40,000.00 £200.00 £50,000.00 £0.00 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015 Taking a new job, in September 2010, after a lengthy period of unemployment. The effects of the changes to the system, and the existing rules, mean that the immediate income on taking a new job is unlikely to be constant. It may take up to two tax years before the income settles and, even then, the effect of the new proposals will make the real value variable. Typically a job taken part way through a year will offer a higher immediate income, when in-work benefits are considered than will be the long term income, because of the large disregard applied to the immediate increase in earnings. The short term increase will often be considerably larger at higher earnings levels.December 6, 2010 © Ferret Information Systems 2010 1.4
  • 24 Benefits in the Future – Welfare after the White Paper Example 14. New Employment - Tenant 2 children Gross Earnings Net Weekly Income 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015 £10,000.00 £422.84 £420.08 £405.33 £398.84 £393.61 £20,000.00 £561.95 £502.57 £423.24 £418.19 £432.38 £30,000.00 £713.88 £554.49 £479.10 £477.77 £478.15 £40,000.00 £865.80 £611.12 £609.87 £608.54 £597.15 £50,000.00 £1,029.48 £727.47 £715.94 £684.43 £684.43 Effect on Net Income of a New Job £1,200.00 £1,000.00 £800.00 £10,000.00 Net Income £20,000.00 £600.00 £30,000.00 £400.00 £40,000.00 £200.00 £50,000.00 £0.00 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015 The same comments apply as in example 13.December 6, 2010 © Ferret Information Systems 2010 1.4
  • 25 Benefits in the Future – Welfare after the White Paper Example 15. Lost Job Home - Owner 2 Children In this example, we look at a situation where one member of a couple was working 35 hours a week for annual earnings of £10,000, £20,000, £30,000, £40,000 and £50,000. Their partner has been, and remains in full time employment at £10,000pa. The first member stops work half way through the tax year, in September 2010. Their situation otherwise is as in set 1. They are both aged 45 and have 2 children aged 8 and 10. They do not have any childcare costs and make no pension contributions. They have a £100,000 mortgage at 4.5% which means £86.54 a week interest. They pay council tax of £1250 per annum. Gross Earnings Net Weekly Income 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015 £10,000.00 £344.35 £380.13 £378.89 £373.17 £386.65 £20,000.00 £312.92 £380.13 £378.89 £373.17 £386.65 £30,000.00 £275.42 £380.13 £378.89 £373.17 £386.65 £40,000.00 £237.92 £380.13 £378.89 £373.17 £386.65 £50,000.00 £237.85 £380.13 £378.89 £373.17 £386.65 1 of a Couple Loses Job - Owner £400.00 £380.00 £360.00 £340.00 £10,000.00 Net Income £320.00 £20,000.00 £300.00 £280.00 £30,000.00 £260.00 £40,000.00 £240.00 £50,000.00 £220.00 £200.00 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015December 6, 2010 The effects of one partner losing a job in a couple where both are working can mean a greater immediate drop in income than will be the long term situation. In this example, where one partner remains in full time work earning £10,000 a year, it can be seen that the immediate drop is greater, the higher the previous earnings. The increase in Universal Credit is due to the inclusion of mortgage interest support while in full time work © Ferret Information Systems 2010 1.4
  • 26 Benefits in the Future – Welfare after the White Paper Example 16. Lost Job - Tenant 2 children In this example, we look at a situation where one member of a couple was working 35 hours a week for annual earnings of £10,000, £20,000, £30,000, £40,000 and £50,000. Their partner has been, and remains in full time employment at £10,000pa. The first member stops work half way through the tax year, in September 2010. They are both aged 45 and have 2 children aged 8 and 10. Gross Earnings Net Weekly Income 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015 £10,000.00 £411.16 £415.84 £405.33 £398.84 £393.61 £20,000.00 £399.46 £415.84 £405.33 £398.84 £393.61 £30,000.00 £361.96 £415.84 £405.33 £398.84 £393.61 £40,000.00 £324.46 £415.84 £405.33 £398.84 £393.61 £50,000.00 £324.39 £415.84 £405.33 £398.84 £393.61 1 of a Couple Loses Job - Tenant £440.00 £420.00 £400.00 £10,000.00 Net Income £380.00 £20,000.00 £360.00 £30,000.00 £340.00 £40,000.00 £320.00 £50,000.00 £300.00 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015December 6, 2010 © Ferret Information Systems 2010 1.4
  • 27 Benefits in the Future – Welfare after the White Paper The Effect of Children on Benefits. One of the dangers in the proposed changes appears to be the effect on families who are outliers, exceptions to the norm. In particular this seems to affect those with high housing costs or large numbers of children. It may, in future also affect some of those with disabilities but we do not yet know the detailed proposals for those cases. We will look later at some other effects of the capping proposals but we will start with the clear effects on families with children. Example 17. Couple – Tenants, Working, £15,000 pa – Varied by Children Children Employed Net Weekly Income 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015 0 £262.00 £261.57 £257.87 £255.53 £266.07 1 £352.14 £351.03 £341.40 £336.84 £348.36 2 £421.11 £419.74 £409.23 £403.25 £411.82 3 £490.08 £488.45 £477.06 £469.66 £475.28 4 £559.05 £557.16 £544.88 £536.07 £535.49 5 £628.02 £625.86 £612.71 £602.48 £595.70 6 £696.98 £694.57 £680.54 £668.89 £655.91 7 £765.95 £763.28 £748.37 £735.30 £716.12 8 £834.92 £831.99 £816.20 £801.70 £776.33 9 £903.89 £900.70 £884.03 £868.11 £836.54 10 £964.35 £969.41 £951.86 £934.52 £896.74 Net Income by Number of Children - £15,000pa Earnings £1,200.00 0 £1,000.00 1 2 £800.00 3 Net Income 4 £600.00 5 £400.00 6 7December 6, 2010 £200.00 8 9 £0.00 10 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015 As might be expected, each child attracts a higher level of support, principally from Child Tax Credit and the equivalent factor in Universal Credit. © Ferret Information Systems 2010 1.4
  • 28 Benefits in the Future – Welfare after the White Paper Example 18. Couple – Tenants, Unemployed – Varied by Children Children Unemployed Net Weekly Income 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015 0 £213.33 £212.71 £204.54 £191.69 £196.80 1 £288.34 £290.10 £282.60 £268.21 £271.59 2 £345.97 £350.38 £343.94 £328.39 £330.47 3 £403.60 £410.67 £405.28 £388.58 £389.35 4 £461.23 £470.96 £466.61 £448.76 £448.24 5 £518.86 £531.25 £500.00 £500.00 £500.00 6 £576.49 £591.53 £500.00 £500.00 £500.00 7 £634.12 £651.82 £500.00 £500.00 £500.00 8 £691.76 £712.11 £500.00 £500.00 £500.00 9 £749.39 £772.40 £500.00 £500.00 £500.00 10 £807.02 £832.68 £500.00 £500.00 £500.00 Net Income by Number of Children - Unemployed £900.00 0 £800.00 1 £700.00 2 £600.00 3 Net Income £500.00 4 £400.00 5 £300.00 6 7 £200.00 8 £100.00 9 £0.00 10 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015 If they become unemployed however, the effect of the proposed benefits capping becomes clear. Capping, in this example, starts with 5 children. With 10 children the benefit will be capped by over £330 a week in 2012 in today’s values. Universal Credit figures are shown as capped on the same basis.December 6, 2010 © Ferret Information Systems 2010 1.4
  • 29 Benefits in the Future – Welfare after the White Paper Example 19. Couple – Owners, Working £15,000pa – Varied by Children Children Employed Net Weekly Income 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015 0 £260.15 £260.09 £257.87 £255.53 £259.11 1 £337.13 £338.63 £336.79 £332.93 £341.40 2 £397.43 £400.90 £399.65 £394.46 £404.86 3 £457.73 £463.17 £462.52 £455.99 £468.32 4 £518.02 £525.44 £525.38 £517.53 £528.53 5 £578.32 £587.71 £588.25 £579.06 £588.74 6 £638.62 £649.98 £651.11 £640.60 £648.95 7 £698.92 £712.24 £713.98 £702.13 £709.16 8 £759.22 £774.51 £776.84 £763.66 £769.37 9 £819.52 £836.78 £839.71 £825.20 £829.57 10 £877.81 £899.05 £902.57 £886.73 £889.78 Net Income by Number of Children - Employed Owner £1,000.00 £900.00 0 1 £800.00 2 £700.00 3 Net Income £600.00 4 £500.00 5 £400.00 6 £300.00 7 £200.00 8 £100.00 9 £0.00 10 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015December 6, 2010 © Ferret Information Systems 2010 1.4
  • 30 Benefits in the Future – Welfare after the White Paper Example 20. Couple – Owners, Unemployed – Varied by Children Children Employed Net Weekly Income 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015 0 £243.71 £196.75 £195.36 £191.49 £189.84 1 £318.72 £274.13 £273.42 £268.01 £264.63 2 £376.35 £334.42 £334.76 £328.20 £323.51 3 £433.98 £394.71 £396.10 £388.38 £382.39 4 £491.62 £455.00 £457.44 £448.56 £441.28 5 £549.25 £515.28 £500.00 £500.00 £500.00 6 £606.88 £575.57 £500.00 £500.00 £500.00 7 £664.51 £635.86 £500.00 £500.00 £500.00 8 £722.14 £696.14 £500.00 £500.00 £500.00 9 £779.77 £756.43 £500.00 £500.00 £500.00 10 £837.40 £816.72 £500.00 £500.00 £500.00 Net Income by Number of Children - Unemployed £900.00 0 £800.00 1 £700.00 2 £600.00 3 Net Income £500.00 4 £400.00 5 £300.00 6 7 £200.00 8 £100.00 9 £0.00 10 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015December 6, 2010 © Ferret Information Systems 2010 1.4
  • 31 Benefits in the Future – Welfare after the White Paper Example 21. Owner Employed at £20,000 by Children Children Employed Net Weekly Income 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015 0 £302.39 £306.55 £306.55 £306.55 £306.55 1 £364.01 £363.43 £361.90 £358.01 £363.29 2 £421.64 £423.72 £423.24 £418.19 £425.42 3 £480.80 £484.01 £484.58 £478.37 £487.55 4 £541.10 £546.21 £546.15 £538.82 £546.74 5 £601.40 £608.48 £609.02 £600.35 £606.95 6 £661.70 £670.75 £671.88 £661.88 £667.16 7 £722.00 £733.01 £734.75 £723.42 £727.37 8 £782.30 £795.28 £797.61 £784.95 £787.58 9 £842.59 £857.55 £806.55 £806.55 £806.55 10 £902.89 £919.82 £806.55 £806.55 £806.55 In this example, the benefits amount is capped when Working Tax Credit runs out even though they are in, what is currently termed, full time work. The amount of capping that is applied is 2012 2013 2014 9 £53.93 £39.64 £41.24 Children 10 £116.79 £101.47 £101.45 Children Net Income by Number of Children - Employed, £20,000pa £1,000.00 £900.00 0 1 £800.00 2 £700.00 3 Net Income £600.00 4 £500.00 5 £400.00 6 £300.00 7 £200.00 8December 6, 2010 £100.00 9 £0.00 10 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015 © Ferret Information Systems 2010 1.4
  • 32 Benefits in the Future – Welfare after the White Paper Anomalies caused by Capping Example 22. 9 Children, £86.54pw Rent Capping for families in work will be applied, we are told, only when Working Tax Credit is not in payment. It limits the maximum amount of most benefits to the median earnings level, about £500pw currently. For Universal Credit we have assessed whether WTC would be payable at the real levels in 2014 / 2015 and not considered capping if it would be. Gross Earnings Net Weekly Income 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015 £15,000.00 £903.89 £900.70 £884.03 £868.11 £836.54 £20,000.00 £908.22 £904.60 £806.55 £806.55 £806.55 £25,000.00 £912.55 £908.49 £871.93 £871.93 £871.93 £30,000.00 £916.87 £912.39 £904.52 £891.40 £893.57 £35,000.00 £921.20 £923.62 £930.48 £917.36 £916.45 £86.54pw Rent - Couple 9 Children £15,000pa - £35,000pa Earnings £940.00 £920.00 £900.00 £15,000.00 Net Income £880.00 £20,000.00 £860.00 £25,000.00 £840.00 £30,000.00 £820.00 £35,000.00 £800.00 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015 The tables and charts below show some of the effects that can be caused by this policy. At £15,000pa WTC is in payment so no capping applies although benefits exceed £500pw by: 2012/ 2013 £126.15 2013 / 2014 £112.59December 6, 2010 2014 / 2015 £95.37 At £20,000pa capping is applied of: 2012/ 2013 £81.38 2013 / 2014 £65.98 © Ferret Information Systems 2010 1.4
  • 33 Benefits in the Future – Welfare after the White Paper 2014 / 2015 £48.20 At £25,000pa capping is applied of: 2012/ 2013 £19.89 2013 / 2014 £5.01 2014 / 2015 £1.03 At £30,000pa benefits have fallen below £500pw and no capping takes place. The combination of the cap and net earnings creates a poverty trap where someone, in these circumstances, earning £20,000 a year will be over £75 a week worse off in net income than if they earned £5,000 a year less.December 6, 2010 © Ferret Information Systems 2010 1.4
  • 34 Benefits in the Future – Welfare after the White Paper Example 23. 9 Children £200pw Rent Gross Earnings Net Weekly Income 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015 £15,000.00 £1,017.35 £1,014.16 £988.59 £971.21 £938.19 £20,000.00 £1,021.68 £1,018.06 £806.55 £806.55 £806.55 £25,000.00 £1,026.01 £1,021.95 £871.93 £871.93 £871.93 £30,000.00 £1,030.33 £1,025.85 £937.32 £937.32 £937.32 £35,000.00 £1,034.66 £1,033.50 £1,002.70 £995.88 £1,002.70 £40,000.00 £1,044.53 £1,042.58 £1,020.96 £1,004.96 £1,041.00 £200pw Rent - Couple 9 Children £15,000pa - £35,000pa Earnings £1,050.00 £1,000.00 £15,000.00 Net Income £950.00 £20,000.00 £900.00 £25,000.00 £30,000.00 £850.00 £35,000.00 £800.00 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015 If the rent is increased to £200pw, a more realistic level for the large house needed for the family size, the effect is even clearer. At £15,000pa WTC is in payment so no capping applies although benefits exceed £500pw by: 2012/ 2013 £230.72 2013 / 2014 £215.69 2014 / 2015 £197.03December 6, 2010 At £20,000pa capping is applied of: 2012/ 2013 £185.94 2013 / 2014 £169.08 2014 / 2015 £149.86 © Ferret Information Systems 2010 1.4
  • 35 Benefits in the Future – Welfare after the White Paper At £25,000pa capping is applied of: 2012/ 2013 £124.45 2013 / 2014 £108.11 2014 / 2015 £102.69 At £30,000pa capping is applied of: 2012/ 2013 £65.47 2013 / 2014 £49.48 2014 / 2015 £57.91 At £35,000pa capping is applied of: 2012/ 2013 £9.17 2013 / 2014 No Capping 2014 / 2015 £15.41 At £40,000pa benefits have fallen below £500pw and no capping takes place. In 2012 /2013 this couple, with one person earning £15,000pa, will be over £180pw net better off than if they earned £20,000 a year. If they were to become better off in real terms they would need to earn almost £35,000 a year. These examples may be outliers but they will need to be taken account of, which will introduce more complexity into a move to a simpler system.December 6, 2010 © Ferret Information Systems 2010 1.4
  • 36 Benefits in the Future – Welfare after the White Paper Example 24. 9 Children Mortgage £100,000, 4.5% Interest £86.54 interest pw Gross Earnings Net Weekly Income 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015 £15,000.00 £819.52 £836.78 £839.71 £825.20 £829.57 £20,000.00 £842.59 £857.55 £806.55 £806.55 £806.55 £25,000.00 £865.67 £878.32 £871.93 £867.77 £866.00 £30,000.00 £888.75 £899.09 £904.52 £891.40 £886.61 £35,000.00 £911.83 £923.62 £930.48 £917.36 £909.49 £40,000.00 £940.44 £949.58 £956.44 £943.32 £932.38 £86.54pw Mortgage Interest- Couple 9 Children £15,000pa - £35,000pa Earnings £950.00 £900.00 £15,000.00 Net Income £850.00 £20,000.00 £800.00 £25,000.00 £30,000.00 £750.00 £35,000.00 £700.00 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015 At £15,000pa WTC is in payment so no capping applies although benefits exceed £500pw by: 2012/ 2013 £81.83 2013 / 2014 £69.67 2014 / 2015 £88.41 At £20,000pa capping is applied of:December 6, 2010 2012/ 2013 £53.93 2013 / 2014 £39.04 2014 / 2015 £41.24 At £25,000pa capping is applied of: © Ferret Information Systems 2010 1.4
  • 37 Benefits in the Future – Welfare after the White Paper 2012/ 2013 £9.31 2013 / 2014 Not Capped 2014 / 2015 Not Capped At £30,000pa benefits have fallen below £500pw and no capping takes place. Once again there is a clear poverty trap between £15,000 and £20,000 of earnings. The model is simpler than for that of tenants as no mortgage interest support is payable to those in full time work under the current rules. It is somewhat surprising that the introduction of mortgage support in Universal Credit has a relatively small apparent impact on income levels but it typically offsets what would otherwise be a deduction and the higher earnings disregard in Universal Credit is reduced by a multiplier of the interest support.December 6, 2010 © Ferret Information Systems 2010 1.4
  • 38 Benefits in the Future – Welfare after the White Paper Example 25a. High Rent capping Modeling the effects of high rental levels on smaller families produces interesting results. Much comment has been made on the effects of capping on such families, particularly in Inner London. This example looks at a family with 4 children and paying rent of £540pw which matches the LHA rate for Inner West London for a four bedroom house. Looking only at the ‘total benefit’s cap, ignoring the introduction of maximum LHA rates, we see, Gross Earnings Net Weekly Income 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015 £15,000.00 £1,012.51 £1,010.62 £962.79 £948.13 £941.78 £20,000.00 £1,016.83 £1,014.51 £806.55 £806.55 £806.55 £25,000.00 £1,022.73 £1,021.68 £871.93 £871.93 £871.93 £30,000.00 £1,032.83 £1,030.77 £937.32 £937.32 £937.32 £35,000.00 £1,042.92 £1,039.86 £993.71 £979.54 £1,002.70 £40,000.00 £1,053.02 £1,048.94 £1,002.79 £988.63 £1,051.22 £540pw Rent - Couple 4 Children £15,000pa - £35,000pa Earnings £1,050.00 £1,000.00 £15,000.00 Net Income £950.00 £20,000.00 £900.00 £25,000.00 £850.00 £30,000.00 £800.00 £35,000.00 £750.00 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015 At £15,000pa WTC is in payment so no capping applies although benefits exceed £500pw by: 2012/ 2013 £204.92December 6, 2010 2013 / 2014 £192.60 2014 / 2015 £200.62 © Ferret Information Systems 2010 1.4
  • 39 Benefits in the Future – Welfare after the White Paper At £20,000pa capping is applied of: 2012/ 2013 £160.14 2013 / 2014 £145.99 2014 / 2015 £153.84 At £25,000pa capping is applied of: 2012/ 2013 £103.60 2013 / 2014 £89.44 2014 / 2015 £110.64 At £30,000pa capping is applied of: 2012/ 2013 £47.31 2013 / 2014 £33.14 2014 / 2015 £68.14 At £35,000pa capping is applied of: 2012/ 2013 No Capping 2013 / 2014 No Capping 2014 / 2015 £25.64 At £40,000pa benefits have fallen below £500pw and no capping takes place. Again there is a clear poverty trap created when earnings rise enough to remove entitlement to Working Tax Credit and, again, it takes between £15,000 and £20,000 more earnings to better the overall net income received at £15,000 per year.December 6, 2010 © Ferret Information Systems 2010 1.4
  • 40 Benefits in the Future – Welfare after the White Paper Example 25b. High Rent capping This example looks at a family with 4 children and paying rent of £540pw which matches the LHA rate for Inner West London for a four bedroom house. It applies the £500 total benefits capping used in example 25a but also applies the LHA cap of £400pw for a four bedroom property. Gross Earnings Net Weekly Income 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015 £15,000.00 £872.51 £870.62 £865.13 £851.83 £846.83 £20,000.00 £876.83 £874.51 £806.55 £806.55 £806.55 £25,000.00 £882.73 £881.68 £871.93 £865.07 £871.93 £30,000.00 £892.83 £890.77 £886.96 £874.16 £910.50 £35,000.00 £902.92 £899.86 £896.04 £883.24 £933.39 £40,000.00 £913.02 £908.94 £905.13 £892.33 £956.27 £400pw Rent Cap- Couple 4 Children £15,000pa - £35,000pa Earnings £950.00 £900.00 £15,000.00 Net Income £850.00 £20,000.00 £800.00 £25,000.00 £30,000.00 £750.00 £35,000.00 £700.00 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015 At £15,000pa WTC is in payment so no capping applies although benefits exceed £500pw by: 2012/ 2013 £107.26 2013 / 2014 £96.31 2014 / 2015 £105.67December 6, 2010 © Ferret Information Systems 2010 1.4
  • 41 Benefits in the Future – Welfare after the White Paper At £20,000pa capping is applied of: 2012/ 2013 £62.48 2013 / 2014 £49.70 2014 / 2015 £58.50 At £25,000pa capping is applied of: 2012/ 2013 £5.94 2013 / 2014 No capping 2014 / 2015 £15.69 At £30,000pa benefits have fallen below £500pw and no capping takes place. Again there is a clear poverty trap created when earnings rise enough to remove entitlement to Working Tax Credit but, because of the £400 rent cap, it applies, in this example, only to the £20,000 a year earner.December 6, 2010 © Ferret Information Systems 2010 1.4
  • 42 Benefits in the Future – Welfare after the White Paper Changes in Tax Credit Hours Rules One , unexpected, change in the CSR means that from 2012 in order to claim Working Tax Credit, couples with children will require 24 hours of work a week instead of the current 16 hours. This seems to run very strongly against the proposals for Universal Credit and also counter to the philosophy of encouraging work. Example 26. 20 Hours Work – Owner Gross Earnings Net Weekly Income 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015 £10,000.00 £358.78 £364.95 £330.56 £325.99 £392.80 £20,000.00 £406.45 £409.01 £415.91 £413.21 £425.42 £30,000.00 £479.26 £480.35 £479.10 £477.77 £471.19 £40,000.00 £611.95 £611.12 £609.87 £608.54 £597.15 £50,000.00 £732.84 £717.05 £684.43 £684.43 £684.43 20 Hours Work - Owner £800.00 £700.00 £600.00 £10,000.00 Net Income £500.00 £20,000.00 £400.00 £30,000.00 £300.00 £40,000.00 £200.00 £100.00 £50,000.00 £0.00 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015 In the case of an owner on the lowest earnings, the severe loss is only offset by the increase in Council Tax Benefit. The absence of any hours rule in Universal Credit is shown by the increased net income.December 6, 2010 © Ferret Information Systems 2010 1.4
  • 43 Benefits in the Future – Welfare after the White Paper Example 27. 20 Hours Work Tenant 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015 £10,000.00 £399.97 £399.10 £382.38 £375.50 £399.76 £20,000.00 £410.14 £409.42 £415.91 £413.21 £432.38 £30,000.00 £479.26 £480.35 £479.10 £477.77 £478.15 £40,000.00 £611.95 £611.12 £609.87 £608.54 £597.15 £50,000.00 £732.84 £717.05 £684.43 £684.43 £684.43 20 Hours Work - Tenant £800.00 £700.00 £600.00 £10,000.00 Net Income £500.00 £20,000.00 £400.00 £30,000.00 £300.00 £40,000.00 £200.00 £100.00 £50,000.00 £0.00 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015 For tenants, less of an effect is seen than might be expected. At £10,000 a year income, Working Tax Credit worth £43.64 is lost in 2012 but a consequent increase in Housing Benefit of £17.66 and in Council Tax Benefit of £6.53 mitigates much of this.December 6, 2010 © Ferret Information Systems 2010 1.4
  • 44 Benefits in the Future – Welfare after the White Paper Some comparisons of Universal Credit and the current system. We have compared some of the results using the adjusted real values for the current system if it continued into 2015 and the announced rules and rates for Universal Credit in the same year. They demonstrate that individual circumstances make it difficult to identify, at this stage, groups of winners or losers. Nonetheless it is also clear that, for individuals, moving from the current system to Universal Credit may be advantageous in some circumstances and transitionally protected in others. One side effect of the lower uprating policy, using CPI, will be to erode transitional protections more slowly. As the two system will run in parallel for some time there will also be, for some at least, a better-off issue where they may be better off ending a claim for current benefits and claiming Universal Credit instead. This is likely to be a complex calculation and subject to rules about linking periods which have yet to be written.December 6, 2010 © Ferret Information Systems 2010 1.4
  • 45 Benefits in the Future – Welfare after the White Paper Couple, 2 Children, £86.54 Rent, £1250pa Council Tax Comparison of Current v UC UC Current £10,000.00 £393.61 £392.61 £20,000.00 £432.38 £412.63 £30,000.00 £478.15 £476.34 £40,000.00 £597.15 £607.11 £50,000.00 £684.43 £684.43 Rental £800.00 £700.00 £600.00 £500.00 £400.00 UC £300.00 Current £200.00 £100.00 £0.00 £10,000.00 £20,000.00 £30,000.00 £40,000.00 £50,000.00December 6, 2010 © Ferret Information Systems 2010 1.4
  • 46 Benefits in the Future – Welfare after the White Paper Couple, 2 Children, £86.54 Mortgage Interest, £1250pa Council Tax Comparison of Current v UC UC Current £10,000.00 £386.65 £367.70 £20,000.00 £425.42 £412.63 £30,000.00 £471.19 £476.34 £40,000.00 £597.15 £607.11 £50,000.00 £684.43 £684.43 Mortgage £800.00 £700.00 £600.00 £500.00 £400.00 UC £300.00 Current £200.00 £100.00 £0.00 £10,000.00 £20,000.00 £30,000.00 £40,000.00 £50,000.00December 6, 2010 © Ferret Information Systems 2010 1.4
  • 47 Benefits in the Future – Welfare after the White Paper Couple, 2 children, No Rent or Mortgage Interest, 1250 Council Tax Comparison of Current v UC UC Current £10,000.00 £371.07 £367.70 £20,000.00 £409.84 £412.63 £30,000.00 £466.38 £476.34 £40,000.00 £597.15 £607.11 £50,000.00 £684.43 £684.43 No Rent or Mortgage £800.00 £700.00 £600.00 £500.00 £400.00 UC £300.00 Current £200.00 £100.00 £0.00 £10,000.00 £20,000.00 £30,000.00 £40,000.00 £50,000.00December 6, 2010 © Ferret Information Systems 2010 1.4
  • 48 Benefits in the Future – Welfare after the White Paper Disposable income after rental housing costs Comparison of Current v UC - after housing costs UC Current £10,000.00 £283.03 £282.03 £20,000.00 £321.80 £302.05 £30,000.00 £367.57 £365.76 £40,000.00 £486.57 £496.53 £50,000.00 £573.85 £573.85 Rent £700.00 £600.00 £500.00 £400.00 UC £300.00 Current £200.00 £100.00 £0.00 £10,000.00 £20,000.00 £30,000.00 £40,000.00 £50,000.00December 6, 2010 © Ferret Information Systems 2010 1.4
  • 49 Benefits in the Future – Welfare after the White Paper Disposable income after mortgage interest costs Comparison of Current v UC - after housing costs UC Current £10,000.00 £276.07 £257.12 £20,000.00 £314.84 £302.05 £30,000.00 £360.61 £365.76 £40,000.00 £486.57 £496.53 £50,000.00 £573.85 £573.85 Mortgage £700.00 £600.00 £500.00 £400.00 UC £300.00 Current £200.00 £100.00 £0.00 £10,000.00 £20,000.00 £30,000.00 £40,000.00 £50,000.00December 6, 2010 © Ferret Information Systems 2010 1.4
  • 50 Benefits in the Future – Welfare after the White Paper Disposable income after housing costs – No Rent or Mortgage Comparison of Current v UC - after housing costs UC Current £10,000.00 £347.03 £343.66 £20,000.00 £385.80 £388.59 £30,000.00 £442.34 £452.30 £40,000.00 £573.11 £583.07 £50,000.00 £660.39 £660.39 Rent £700.00 £600.00 £500.00 £400.00 UC £300.00 Current £200.00 £100.00 £0.00 £10,000.00 £20,000.00 £30,000.00 £40,000.00 £50,000.00December 6, 2010 © Ferret Information Systems 2010 1.4
  • 51 Benefits in the Future – Welfare after the White Paper Universal Credit Disposable Income after Housing Costs UC Incomes after Housing No Housing Costs Rent Mortgage Costs £10,000.00 £283.03 £276.07 £347.03 £20,000.00 £321.80 £314.84 £385.80 £30,000.00 £367.57 £360.61 £442.34 £40,000.00 £486.57 £486.57 £573.11 £50,000.00 £573.85 £573.85 £660.39 UC After Housing Costs Income £700.00 £600.00 £500.00 £400.00 £300.00 Rent £200.00 Mortgage £100.00 No Housing Costs £0.00 The higher after housing costs income figure, where the only housing costs are Council Tax, is because, in this example, the earnings disregard figure is £109.62 while, with rent or mortgage the earnings disregard is £25.00, the floor level disregard, because 1.5 times the rent or mortgage interest is deducted from the maximum disregard. The effect of this is to reward those with lower housing costs, the policy intention, so that people will be encouraged to seek cheaper housing. Of course those fortunate enough to own their own home outright, or to have been given one by parents, for example, will benefit from this policy.December 6, 2010 © Ferret Information Systems 2010 1.4
  • 52 Benefits in the Future – Welfare after the White Paper Conclusion The combination of the changes announced in the budget and the additional changes in the comprehensive spending review are shown here to be broadly regressive when examined in terms of the real value of benefits. It is too early to be confident about the effect of Universal Credit but initial modelling shows a slight bias towards home owners. However it is clear that, as in the current system, individual circumstances will affect benefits greatly. This may be seen as a factor raising some doubt about the potential for simplification without impacting some families unfairly. Much of the effect will be felt locally; both the changes in Housing Benefit and Local Housing Allowance rules will disproportionately affect those in higher cost urban areas, particularly London. The Council Tax Benefit changes may permit some local authorities to attempt some social engineering and this has usually, historically, again been tried by the higher cost urban areas. Much has already been written about the possibility that these changes will cause a migration from inner cities outwards or to other areas entirely. The strange effect, for lower earners, of the capping rules may cause a middle element and the unemployed to be squeezed out while upper and lower earners are able to remain. It would be possible to micro-model the effects of these changes in particular authorities or BRMAs (Broad Rental Market Areas – the geographical areas used to determine market rents for Local Housing Allowance purposes) if required but that is beyond the scope of this paper. If you would like to receive further papers, or receive the detailed figures behind the examples in this paper now, please contact Ferret.December 6, 2010 © Ferret Information Systems 2010 1.4
  • 53 Benefits in the Future – Welfare after the White Paper Main Benefits Related Measures in the Emergency Budget 22nd June 2010 Benefits and tax credits to be up-rated by the consumer price index (CPI) The budget announced that all non-pensioner benefits will be up-rated by the CPI instead of the RPI or Rossi index. The CPI normally rises at a lower rate than the RPI. This means that the real value of benefits is likely to fall, or rise less than earnings, and is expected to fall compared to previous up- rating rules. The budget estimates the change will cut spending on benefits by £5.8bn a year by 2014. On the latest monthly figures the CPI was 3.4% while the RPI was 5.1%. In this paper the reduction has been modelled at 0.76% the average over the last decade. From 2012 pensioner benefits will rise in line with earnings. This continues the previous administration’s generous treatment of the elderly. An annual Child tax credit (CTC) increase of £150 above CPI in 2011-12 and £60 above CPI in 2012-13 The headline increases, for each child, will, of course, be worth less in real terms because of inflation and increased prices by the time they are introduced. Child benefit frozen for the next three years Although this is a universal benefit, it forms a higher proportion of the income of low income families and the consequent real reduction will affect such households more. Withdrawal of child tax credit for higher income families Almost two million families currently receive just the £10.50 a week family element of child tax credit. At the moment, when a household’s gross income reaches £50,000, this element starts to be reduced. From 2011 this family element will start to be reduced at a gross income of £40,000. About half a million families will stop being entitled to tax credits. From 2012, there will no longer be any flat rate entitlement to the £10.50 family element which will be tapered away as part of the normal Tax Credit assessment at lower incomes. Baby element of child tax credit abolished from 2011 Families with babies under one will lose the £545 baby element of child tax credit.December 6, 2010 Tax Credits taper rises from 39% to 41% The increased rate at which tax credit entitlement is reduced as incomes rise, means that only those on the lowest incomes will benefit from the announced increase in child tax credit. It will, however, also cut entitlement to working tax credit for households without children. Introducing a £2,500 disregard for households with a drop in income A reduction in income will not be immediately reflected in increased Tax Credits. Only if income is more than £2,500 a year lower than in the previous year will the award increase. © Ferret Information Systems 2010 1.4
  • 54 Benefits in the Future – Welfare after the White Paper Reducing the income disregard for increased income The generous income disregard which was increased from £2,500 to £25,000 in 2006/07, largely to avoid the political storm caused by the harsh recovery of overpayments caused by in-year increases of income, will be reduced to £5,000 by 2013/14. This will reduce the, sometimes large, immediate income increases in the first years of entering, or returning to, employment. Over-fifties returning to work The 50-plus element in Tax Credit is for claimants over 50 returning to work after six months or more unemployment. From April 2011, this will be abolished. Local Housing Allowance (LHA) caps and restriction to 4 bedroom rate From April 2011 the weekly LHA rates, which determine maximum Housing Benefit, will be capped at maximum figures set centrally. The impact of these caps will only affect Greater London but may be substantial for some tenants there. The higher LHA rate for families needing five bedrooms will be abolished. LHA to be set at the 30th percentile LHA is currently set at the median of local private rents in the broad market area. From October 2011 the figures will be based on the 30th percentile instead. These new rates will be used to assess claimants’ entitlements on the annual review of their LHA. The effect of this change will be to lower, on average, the rental figure from which Housing Benefit is assessed, lowering benefit levels. It will, however, be extremely variable by area, having little or no effect in some and large effects in others. CPI linking of LHA From 2013/14 LHA rates will be up-rated in line with the CPI rather than being linked to actual rental figures. Non-dependant deductions to be increased An amount is deducted from housing support in the benefits system where other people, typically relatives, share the household. These figures have not increased since 2001. From April 2011 they will be increase in steps until they reach the level they would have been had they been fully up-rated since 2001.December 6, 2010 Social rented sector limiting rents From 2013/14, working age claimants in council and housing association tenancies will be treated in the same way as private tenants, with their HB entitlement restricted to the rent for an appropriately sized property. © Ferret Information Systems 2010 1.4
  • 55 Benefits in the Future – Welfare after the White Paper HB reduced to 90 per cent of assessed entitlement after 12 months of receiving JSA From 2013/14 any claimant on JSA for more than 12 months will have their HB entitlement cut by 10 per cent. A medical assessment for Disability Living Allowance from 2013 for new and existing claimants. This will move to a more objective, less discretionary, assessment which is expected to reduce the number of recipients. Financial Results of the Budget Measures The overall annual saving from these measures is forecast to reach about £11bn by 2014/15. 2010 2011 2012 2013 2014 Specific welfare measures - Millions 385 2,010 4,710 8,150 11,040 Benefits, tax credits and public service pensions: switch to CPI indexation from 2011 - 12 0 1,170 2,240 3,900 5,840 Disability Living Allowance: reform gateway from 2013-14 0 0 0 360 1075 Lone parent benefits: conditionality extended to those with children aged 5 and above from October 2011 0 0 50 150 180 Health in Pregnancy Grant abolished 40 150 150 150 150 Sure Start Maternity Grant: applies to first child only from 2011-12 0 75 75 75 75 Support for Mortgage Interest: payments set at the average mortgage rate from October 2010 15 -75 -10 40 65 Saving Gateway: not introduced in July 2010 10 0 75 110 115 Housing Benefit reforms: Local Housing Allowance: set at the 30th percentile of local rents from 2011-12 0 65 365 415 425 Deductions for non-dependents: reverse previous freezes on uprating and maintaining link with prices from 2011-12 0 125 225 320 340 Social sector housing: limit working age entitlements to reflect size of family from 2013-14 0 0 0 490 490 Switch to CPI indexation for Local HousingDecember 6, 2010 Allowance from 2013-14 0 0 0 300 390 Reduce awards to 90% after 12 months for claimants of Jobseekers Allowance 0 0 0 100 110 Additional bedroom for carers from 2011-12 0 -15 -15 -15 -15 Local Housing Allowance: caps on maximum rates for each property size, with 4-bed limit from 2011-12 0 55 65 70 65 Additional Discretionary Housing Payments from 2011-12 0 -10 -40 -40 -40 © Ferret Information Systems 2010 1.4
  • 56 Benefits in the Future – Welfare after the White Paper Tax Credits Tax credits second income threshold: reduced to £40,000 from 2011-12 0 140 145 155 145 First and second withdrawal rates: increased to 41% from 2011-12 0 640 710 730 765 Child Tax Credit: taper the family element immediately after the child element from 2012-13 0 0 510 515 480 Child Tax Credit: remove the baby element from 2011-12 0 295 275 270 275 Working Tax Credit: remove the 50 plus element from 2012-13 0 0 35 40 40 Child Tax Credit: reversed the supplement for children aged one and two from 2012-13 0 0 180 180 180 Reduced the income disregard from £25,000 to £10,000 for two years in 2011-12 then to £5,000 from 2013-14 0 105 140 340 420 Introduced an income disregard of £2,500 for falls in income from 2012-13 0 0 550 560 585 New claims and changes of circumstances: reduce backdating from 3 months to 1 month from 2012-13 0 0 315 320 330 Child Tax Credit: increased the child element by £150 in 2011-12 and £60 in 2012-13 above indexation 0 -1200 -1845 -1930 -1995 Child Benefit: rates frozen for three years from 2011-12 0 365 695 940 975 Basic State Pension: introduce triple guarantee from 2011-12 0 0 -195 -420 -450 Pension Credit Minimum Income guarantee: matching basic State Pension cash increase in 2011-12 0 -415 -535 -535 -535 Child Trust Funds: phased abolition of Government contributions from 2010-11 320 540 550 560 560 Cuts 385 3725 7350 11090 14075 Additions 0 -1715 -2640 -2940 -3035 Total 385 2010 4710 8150 11040December 6, 2010 © Ferret Information Systems 2010 1.4
  • 57 Benefits in the Future – Welfare after the White Paper The Comprehensive Spending Review October 20th 2010. Welfare spending has been widely seen as bearing the brunt of the cuts in the CSR and Emergency Budget. As in the Budget, much of the saving is spread over future years and is achieved by up-rating more slowly and freezing some benefit rates so that inflation will reduce real values. There are some larger savings from targeting particular groups. Some of the changes are hard to quantify precisely as details have not yet been revealed. The CSR also confirmed the intention of the government to introduce a simpler, seamless Universal Credit to be phased in over the next two parliaments. The Government have expressed their intention to ensure that work really does pay more than staying on benefits. It seems strange then that the main in-work welfare benefit, WTC, is being effectively cut. Perhaps the intention is simply to ensure that in-work benefit is cut less and therefore the net gain increased The CSR has produced an additional £7bn of reduction in welfare in addition to the cuts made in the Emergency Budget. Main Benefits Related Changes in the Comprehensive Spending Review Capping benefits The government will cap household benefit payments from 2013 at around £500 per week for couple and lone parent households and around £350 per week for single adult households, so that no family can receive more in welfare than median after tax earnings for working households. All Disability Living Allowance claimants, War Widows, and working families claiming the working tax credits will be exempt from the cap. This will have the greatest effect on families with larger numbers of children or high housing costs as can be seen in later examples. Child Benefit The government will withdraw Child Benefit from families with a higher rate taxpayer from January 2013. The intention is to save £2.5 billion a year by 2014-15. This proposal has created political furore because a working couple with overall income of over £80,000 a year could continue to receive Child Benefit while a couple with single earner would lose the benefit at about £44,000. The Chancellor said that he did not propose to make any further cutbacks to child benefit. Tax CreditsDecember 6, 2010 The percentage of childcare costs that parents can claim through the childcare element of the Working Tax Credit (WTC) is being reduced from 80 per cent to 70 per cent in April 2011, saving £385 million a year by 2014-15. 60% of recipients of this help are single parents. The eligibility rules for Working Tax Credit will mean that couples with children must work 24 hours a week between them, with one partner working at least 16 hours a week in order to qualify for the WTC, saving £390 million a year by 2014-15. Previously the requirement was simply for 16 hours work. This means that couples where the hours of work are between 16 and 24 will be working too © Ferret Information Systems 2010 1.4
  • 58 Benefits in the Future – Welfare after the White Paper few hours to receive in-work benefits but, even where the claimant is working less than 16 hours, their income may be too high to receive JSA. The basic and 30 hour elements of the WTC are being frozen for three years from 2011-12, saving £625 million a year by 2014-15 The child element of Tax Credit is being increased above indexation by a further £30 in 2011-12 and £50 in 2012-13, in addition to the £150 and £60 increases provided at the June Budget. The government state that this will ensure that the overall outcome of the Spending Review will have no measurable impact on child poverty in the next two years. Pre-announcing such additions means, of course, that the real value of the increases will be reduced by the RPI index when introduced as well as the reduction in real values of the normal up-rating caused by the move to CPI from RPI Employment and Support Allowance Time limiting contributory Employment and Support Allowance for those in the Work Related Activity Group to one year is intended to save £2 billion a year by 2014-15. Those with no other resources will move onto the means-tested equivalent but those who, for example, have working partners will lose the entire income. Housing Benefit The government is increasing the age threshold for the Shared Room Rate in Housing Benefit from 25 to 35, saving £215 million a year by 2014-15. This means that single people will not qualify for the one-bedroom rate of LHA but only the lower shared room rate for another 10 years. Once again this may impact urban areas where young people tend to wish to live independently. It may be that shared accommodation is more likely to be rented furnished than self-contained properties. Council Tax Benefit The government has announced that it is reducing spending on Council Tax Benefits by 10 per cent and localising it, saving £490 million a year from 2013-14. In addition, the Government will provide greater flexibilities to local authorities to manage pressures on council tax from the same date. Council Tax Benefit will be devolved to Scotland and Wales. Although details have not been released it is understood that CTB is to be replaced by grants to local authorities in April 2013, who can then choose their own way of using money to rebate CT bills Grants are expected to be lower than current spending on CTB. This saves £0.5bn a year, but means losses amongst poor households. The move in many ways goes directly against ideas behind Universal Credit with different levels of government running different parts of the benefit system. It may create a “postcode lottery” or local authorities could use the scheme to persuade low-income households to live elsewhere. Experience shows that, as in many areas, giving policy creation powers to LAs results in radically different policies.December 6, 2010 Disability Living Allowance The government are removing the mobility component of Disability Living Allowance from people in residential care, except for those who are self-funding, saving £135 million a year by 2014. © Ferret Information Systems 2010 1.4
  • 59 Benefits in the Future – Welfare after the White Paper Pension Credit In one of the few moves affecting the elderly, the government are freezing the maximum Savings Credit award in Pension Credit for four years, saving £330 million a year by 2014-15. This is the element which rewards those who have made some provision for their retirement. Capping the maximum increases the number of people who will see a penny for penny reduction in benefit for increases in income. Support for Mortgage Interest The government is extending for a further year the temporary change to the Support for Mortgage Interest scheme, to reduce the waiting period for new working age claimants to 13 weeks and increase the limit on eligible mortgage capital to £200,000, both of which were due to expire in January 2011 No announcement has been made about extending the two year limit of SMI for Job-Seekers Allowance claimants which will first affect people in January 2011. Cold Weather Payments The Chancellor said that he was making permanent the temporary increases to Cold Weather Payments provided in the past two winters, at a cost of £50 million a year, so that eligible households receive £25 for each seven day cold spell recorded or forecast where they live. Pensions The government reiterated their promise to uprate the basic State Pension by a triple guarantee of earnings, prices, or 2.5 per cent, whichever is highest The Government will speed up the pace of State Pension Age equalisation for women from April 2016 so that Women’s State Pension Age reaches 65 in November 2018. The State Pension Age will then increase to 66 for both men and women from December 2018 to April 2020. Following the faster increase to 66, the Government is also considering future increases to the State Pension Age to manage the ongoing challenges posed by increasing longevity, and will bring forward proposals in due course. In addition, the Government says that they will improve the quality and access to pensions in the Spending Review period. Educational Maintenance Allowance The Educational Maintenance Allowance which pays 16-18 year olds to remain in education in England is to be “replaced” by “locally managed discretionary funds” to target support. More details will be given later. For families with numbers of older children, even though the payments are madeDecember 6, 2010 to the children themselves, household incomes could be severely affected. Social Housing Landlords in England will be able to set rents between social and market levels for new tenants. They will also be able to offer fixed-term tenancies rather than agreements for life. As current HB rules allow full benefit payments for social rents we would assume that this change will presage the application of LHA levels to, at least new, social rents. Again this can be expected to affect high rent, high demand urban areas most. © Ferret Information Systems 2010 1.4
  • 60 Benefits in the Future – Welfare after the White Paper CSR Measures - Millions 2011 / 2012 2012 / 2013 2013 / 2014 2014 2015 Contributory Employment and Support Allowance: time limit for those in the Work Related Activity Group to one year 0 1,025 1,530 2,010 Housing Benefit: increased age limit for shared room rate from 25 to 35 0 130 225 215 Total household benefit payments capped on the basis of average take-home pay for working households 0 0 225 270 Disability Living Allowance: remove mobility component for claimants in residential care 0 60 130 135 Savings Credit: freeze maximum award for four years from 2011-12 165 215 260 330 Support for Mortgage Interest: extend temporary changes to waiting period and capital limit until January 2012 -70 -20 0 0 Cold Weather Payments: increase rate permanently to £25 from November 2010 -50 -50 -50 -50 Council Tax Benefit:10% reduction in expenditure and localisation 0 0 485 490 Child Benefit: remove from families with a higher rate taxpayer from January 2013 0 590 2,420 2,500 Working Tax Credit: freeze in the basic and 30 hour elements for three years from 2011-12 195 415 575 625 Working Tax Credit: reduce payable costs through childcare element from 80% to 70% restoring 2006 rate 270 320 350 385 Child Tax Credit: increase the child element by £30 in 2011 and £50 in 2012 -190 -510 -545 -560December 6, 2010 Working Tax Credit: increase working hours requirement for couples with children to 24 hours 0 380 385 390 Child and Working Tax Credits: use real time information 0 0 0 300 Cuts 630 3135 6585 7650 Additions -310 -580 -595 -610 Total 320 2555 5990 7040 © Ferret Information Systems 2010 1.4
  • 61 Benefits in the Future – Welfare after the White Paper Ferret Information Systems Ferret is the world’s leading company specialising in the application of technology to advanced advice and information for the individual. We focus on areas linked to social welfare, assessment and support. In 30 years of innovation Ferret has grown out of a Citizens Advice Bureaux project, into a multi- award winning company whose world’s first’s include the world’s first large scale roll-out of mobile technology in government and the world’s first Web based benefits assessment system – in 1995. Ferret specialises in holistic assessment of financial circumstances, coupled with a software development methodology which offers a high level of flexibility and rapid updating to reflect rule changes. Ferret works in partnership with many companies and organisations using our expertise, and that of our partners, to develop effective products and services. For example our work with the Council of Mortgage Lenders in developing Fintal, the ground breaking tool for advice and compliance needs in lifetime mortgages, quickly established itself as the industry standard for this essential task. Individual advice systems Our systems are designed to enable advisers to provide information to individual customers, using our predictive rule sets. This enables users to give advice and information not only about current entitlements but also to look ahead to the individual’s situation under new rules and schemes. The systems are available on multiple platforms including mobile and the Web, and also in variants for expert and generalist advisers or for customer self-use. Our systems cover means-tested benefits, tax credits and other disability, contributory and universal benefits. Data collection, transformation and assessment For multi-agency and administrative working we have developed our own granular representation, agnostic to purpose, of a customer’s circumstances. This, extremely modular and extensible, structure enables multiple assessments in one interview but is also designed to transform and aggregate the data into directly usable data for multiple back office systems or reporting engines. It makes use of a unique, user configurable, ‘push – pull’ model of customer driven dialogue entry for speed and accuracy in collecting rich data. Sustainability and affordability Combining our predictive income modelling, the common financial statement and bespoke elements and rules we are able to generate robust assessments of affordability and sustainability in areas such as new employment and house purchase or rental. The application of this to debt advice and arrears proposals is extremely powerful.December 6, 2010 Workflow, embedding and batch processes We are able to supply ‘black-box’ systems for embedding into other systems and applications but our systems can also stand-alone as batch processing engines where complete customer sets can be run against changes in rules or rates. Pilot and local The modularity of our systems enables the easy introduction of pilot and local schemes into otherwise standard systems for individual users or areas. © Ferret Information Systems 2010 1.4
  • 62 Benefits in the Future – Welfare after the White Paper Employment and HR For employers, and employees, our unique ability to look ahead provides a real bottom-line figure for the overall income of employees from earnings, Tax Credits and benefits. Being able to see the effects of changes in rules, that will come into effect in the future, helps people to understand the situation that they will be in and to make plans with time to spare. Specialist assessments We have modules for CRAG, Fairer Charging, Disabled Facilities Grants, RAS, housing rescue and many other specialist assessments which can be integrated into our core systems or run stand-alone. Consultancy Ferret provides consultancy to companies, organisations and government on the impact of legislative and policy changes on their business and customers. Contact details Ferret Information Systems Ltd 4 Coopers Yard Curran Road Cardiff CF10 5NB Telephone: 029 2064 3333 Fax: 029 2064 3331 http://www.ferret.co.uk info@ferret.co.ukDecember 6, 2010 © Ferret Information Systems 2010 1.4