Archive for the 'public policy' Category

The Tax Credits system needs fixing: addressing Universal Credit is not enough

Sam Royston, author of Broken benefits, argues that the government must reform the  flawed Tax Credits system before they can even begin to improve Universal Credit.

It is tempting to think that a “devastating picture of administrative chaos, computer errors and political misjudgements” in the social security system must be a reference to Universal Credit over the last few months. It well could be, but this is, in fact from George Osborne back in 2005 emphasising that problems with the Tax Credits system had become so serious he believed that there were serious questions over the future of the responsible Minister.

Many of the problems were to do with the way in which Tax Credits are calculated and paid. Whilst, as we shall see, many of the problems were addressed at the time, cuts to the benefits system mean that they have been rapidly re-emerging in recent years.

Why were Tax Credits such a mess when they were first introduced?

Tax Credits are an annual award – the total amount a claimant is entitled to is calculated for the whole year. However, people, and particularly those living on the lowest incomes, need to receive payments more frequently than once a year. For this reason, they are normally paid on a weekly or four weekly basis, based on an estimated entitlement for the whole of the year.

Since Tax Credits are means-tested, the claimant’s household earnings over the course of the year can affect the overall amount due – predicted annual entitlement is based on what the claimant thinks their income will be for the year.

“At the height of the Tax Credit problems, around £1.9 billion was overpaid to households in receipt of Tax Credits.”

The difficulty arises at the end of the year, when the award amount is checked against the household’s actual income for the year. If the household’s income is lower than the estimate, then the award may have been underpaid and is topped up to the actual entitlement. If the household’s income is higher than the estimate, then this can result in the award being classed as overpaid and the government asking for some of the money back.

We aren’t talking about small amounts of money – in 2004, at the height of the Tax Credit problems, around £1.9 billion was overpaid to households in receipt of Tax Credits.

To reduce the likelihood of overpayments occurring, the Tax Credit system has a built in “buffer zone” (known as the “income disregard”) which means that a household’s income can rise by up to a given amount during a year without affecting their Tax Credit entitlement. In the mid 2000s, as a result of the amount of Tax Credits being overpaid, the government decided to increase the income disregard from £2,500 to £25,000. In effect this meant that if a claimant had been paid Tax Credits for a few months at the start of the year based on their previous year’s earnings of £10,000, and then changed job so that by the end of the year they had earned £35,000, their overall Tax Credit entitlement wouldn’t be affected.

Some overpayments are in fact impossible to avoid without a buffer zone – a household that has a low income for most of the year and then gets a sharp but unforeseeable increase in income may have already had more than their yearly entitlement before the rise in their income.

What’s gone wrong with welfare reform?

Despite this positive effect, following the 2010 election, the coalition government decided to reduce the size of the overpayments buffer zone – first from £25,000 to £10,000, and then to £5,000.

“They are treated as if their earnings are the same as the previous year – which could cost them more than £1,000 at a time.”

Astonishingly, the coalition government also decided to introduce the reverse of a buffer (an anti-buffer?) which disregarded falls in income of up to £2,500 from 2012. This means that when (for example) a worker sees their hours reduced so that they earn £2,500 less than they did the previous year, the earnings figure used to calculate Tax Credits is not immediately adjusted down. Instead they are treated as if their earnings are the same as the previous year – which could cost them more than £1,000 at a time when they are likely to be struggling.

As the income disregard has been reduced, overpayments (again, unsurprisingly) have increased. As large a proportion of Tax Credit claimants face overpayments than during the height of Tax Credit problems in 2005, with one in three claimants facing an overpaid award, and £1.6 billion of overpayments in 2015-16. This includes some exceptionally large overpayments – including around 50,000 families overpaid by more than £5,000.

Tax Credit awards overpaid as a proportion of total awards
2003/04 – 2015/16

awards-overpaid

In 2005 when these problems were first recognised, the then shadow (and later actual) Chancellor of the Exchequer called for the resignation of the Minister responsible. The response of the government was dramatic – not only did the Prime Minister apologise, but the large increase in the size of the income disregard was a direct response.

In 2015, when he himself was faced with a similar scale of problems within the system, the response of the Chancellor was to further reduce the level of the income disregard, back to the 2003-4 level of £2,500. We don’t yet know the impact that this will have on overpayments, but the Chancellor expects to save quarter of a billion pounds from this measure at its peak in 2018-19.

Giving credit where credit’s due

“It isn’t good enough to just focus on improving Universal Credit – the Tax Credits system needs fixing.”

It is tempting to think of the Tax Credits system as a thing of the past, focussing instead on the profound mess which is being made of the introduction of Universal Credit. However, it is important to remember that more than 4 million families (with more than 7 million children), still rely on vital Tax Credits to make ends meet – and will do for the next few years at least.

Nor will these families escape their overpayments when they transfer over to Universal Credit – they will come with them and be automatically deducted from their Universal Credit entitlement.

It isn’t good enough to just focus on improving Universal Credit – the Tax Credits system need fixing. For a Government which wants to improve the fairness and simplicity of the benefits system, removing vital income disregards which prevented families from falling into benefit debt is a move in entirely the wrong direction.

 

Broken benefits by Sam Royston is available with 20% discount on the Policy Press website. Order here for just £12.00.

Find out more about impact, influence and engagement at Policy Press here.

Policy Press newsletter subscribers receive a 35% discount – sign up here.

The views and opinions expressed on this blog site are solely those of the original blog post authors and other contributors. These views and opinions do not necessarily represent those of the Policy Press and/or any/all contributors to this site.

Why we need social entrepreneurs

Chris Durkin, co-author of Social entrepreneurship; A skills approach, reflects on his experience of redundancy and how the uncertainty it brings is representative of life in the ‘gig economy’. He highlights the urgent need to teach new skills, creativity and resilience and how social entrepreneurs can show us the way.

Christopher Durkin

I have been very lucky throughout my working life and only recently experienced the indignity of being made redundant. What was apparent was that redundancy has a formality, which goes through various stages – notification, ‘consultation’ and final notice – a process that involves you in attending various meetings, both as a group and as an individual.

What sticks out for me on a personal level was that throughout the process there was a high level of uncertainty, a complete loss of confidence and a feeling of anger, loss and failure; feelings that are both natural and individual.

Continue reading ‘Why we need social entrepreneurs’

What effect do sanctions & conditionality have on disabled people?

Guest editor Ben Baumberg Geiger introduces the new Journal of Poverty and Social Justice special issue, focusing on disability and conditional social security benefits.

 

Ben Baumberg Geiger

“There are times that policy runs ahead of academic knowledge.

Indeed, this is often the case, for policies must first be introduced before social scientists can study them – and if policy makers were restricted to policies that had been tried and tested, then policy innovation would be impossible.

Yet such innovation can come with considerable risks, as new policies can be introduced and widely imitated, only for social scientists – after some delay – to show that such policies are difficult to implement, can fail to achieve some of their aims, and may even have unforeseen and harmful consequences.

In a new special issue of the Journal of Poverty and Social Justice, we focus on one area where this might be happening: conditionality for sick and disabled social security claimants. While, historically, disabled benefit claimants were largely exempt from seeking work, high-income countries from Australia to Norway have increasingly required disabled claimants to take steps towards finding work, under the threat of financial penalties.

“…high-income countries from Australia to Norway have increasingly required disabled claimants to take steps towards finding work, under the threat of financial penalties.”

The conventional wisdom repeated by bodies such as the OECD is that this is a necessary step towards reducing high benefit claim rates, and, moreover, helps improve the finances, health, and social inclusion of disabled people themselves.

However, there are several challenges to this story. By any principle of justice, claimants cannot reasonably be required to perform actions that they are incapable of doing, but it is difficult for benefits agencies to know exactly what someone can or can’t do. If they get this wrong, conditionality for disabled people can create injustices, and inflict considerable stress on disabled people. Moreover, conditionality may move disabled people further away from work, by both undermining their relationship with their employment support caseworker, and making them less willing to take risks in performing tasks that they are not sure they are capable of doing.

 

Two conflicting stories – but what does the evidence say?

Until now, there has been very little published research trying to establish which of these accounts is correct. This is the aim of the special issue, which includes four research papers looking at experiences from around the world. In the UK, Aaron Reeves looks at on the impacts of conditionality for disabled people claiming unemployment benefit. In Denmark and Sweden, Sara Hultqvist & Iben Nørup look at the different forms of conditionality implemented for young disability benefit claimants. In Germany, Patrizia Aurich-Beerheide & Martin Brussig look at the (failed) implementation of conditionality for disabled people in Germany. And my own paper (see below) brings together these papers with a wider review of evidence and practice, to come to some initial conclusions about what we know so far.

“It is crucial for the wellbeing of disabled people around the world that deeper knowledge and more informed policy go hand-in-hand.”

The special issue also includes four further, slightly more unusual papers about the UK, perhaps the country where these issues have become most hotly contested. Indeed, conditionality for disabled people has been the subject of an award-winning film (I, Daniel Blake) and an award-winning play (Wish List), both of which are reviewed in the special issue (by Alison Wilde and Kim Allen respectively). Jed Meers covers a recent Supreme Court judgement about the ‘bedroom tax’ in the Supreme Court. And we felt it was important to convey the lived experience of conditionality, so a team from the Welfare Conditionality project describe two real-life stories of people who took part in their research.

So at the end of this, what do we know? In my (open access) review paper, I summarise the evidence into four ‘stylized facts’:

1. Requirements for disability benefit claimants are common, but sanctioning is rare (particularly outside of the UK and Australia).

2. Assessment and support are critical in making conditionality work on the ground, and can be combined into ‘passive’, ‘supportive’, ‘demanding’ or ‘compliance-based’ systems.

3. The limited but robust existing evidence suggests that sanctioning may have zero or even negative impacts on work-related outcomes for disabled people.

4. Individual case studies in ‘compliance-based’ systems suggest that sanctioning in the absence of other support can lead to destitution, and that conditionality can harm mental health.

While we need to know more, it is already clear that we cannot assume that conditionality for disabled benefit claimants is easy to implement, nor that it will have purely positive consequences. Policy may have run ahead, but research is now starting to catch up. It is crucial for the wellbeing of disabled people around the world that deeper knowledge and more informed policy go hand-in-hand from this point.

This is an edited version of the (free) introduction to the special issue, and is simultaneously being posted on the Policy Press blog and my own Rethinking Incapacity blog. The full special issue can be accessed here.

 

You can read the Disability and Conditional Social Security Benefits’ special issue of the Journal of Poverty and Social Justice here. 

For all the latest Journal news and free articles:

• Sign up to the Journal of Poverty and Social Justice newsletter

• Follow @JPSJ_Journal on Twitter.

Taxation, inequality and post-industrial society

Ruane4Jul17

Sally Ruane

In this blog post, Sally Ruane, co-author of Paying for the Welfare State in the 21st Century, explains why we need to challenge the political culture surrounding taxation to effectively tackle inequality.

 

“The dramatic electoral developments in the US, France and most recently the UK, point to a state of flux in which there is a high degree of uncertainty regarding future direction and outcomes.

These political symptoms emerge following the transition of advanced Western countries from industrial to post-industrial societies, a transition managed in such a way that economic inequality has deepened and financial deregulation has brought about a destabilisation of the whole system.

The rise of in-work poverty

In the UK, from 1980 to 2003, median income began to lag behind economic growth, rising at the rate of only 70% of national economic growth; and in the five years leading up to the financial crash, household income stagnated despite economic growth during the period. More recently, the Institute for Fiscal Studies found that in the seven years after the crash, average gross employment income had yet to recover its pre-recession levels. Into this mix we must add that, unlike the postwar period when poverty was associated with a problematic or disrupted relationship to the labour market, most people living in poverty today are living in households where at least one person is working. What is more, average pensioner household income is now higher than average income in working age households. Meanwhile, at the top end of the scale, the best off 1% of households has raced away, holding 7.9% of all income in 2014/15 against 5.7% 1990.

“Average pensioner household income is now higher than average income in working age households.”

Tax and the allocation of resources

The allocation of resources in society is an outcome not just of ‘market incomes’ but also of the totality of fiscal policy. This entails government spending on benefits and in-kind services, on the one hand, and the tax system on the other. The social policy gaze has tended to focus on the former rather than the latter but to understand questions of inequality we have to examine taxation. The tax system encompasses more than the entities taxed, the taxes levied, and the rates and thresholds at which those taxes are levied. It entails also attitudes to the payment of tax, the capacity to and vigour with which the tax collection authority pursues those who owe tax and the infrastructure through which income and wealth are handled, disclosed (or not) and made subject (or not) to tax liability.

‘Flexible’ working and rising inequality

The way in which the tax system works not only is influenced by the nature of the wider socio-cultural and economic system but at the same time influences that wider system.

The acceptance of a model of globalisation in which the financial system was deregulated and many relatively well paid working class jobs were transferred to other, low wage economies, reinforced by a strong pound which suited the interests of the financial sector, gave rise to exhortations that labour must be flexible to attract capital investment. ‘Flexibility’ meant that the wages and terms and conditions of workers were systematically worsened to the advantage of capital. New Labour’s revival of Speenhamland type policies in which the low wages of those in work were supplemented by tax credits afforded a degree of redistribution but at the expense of establishing the acceptability of paying low wages, reinforcing the problem of in work poverty. In other words in addressing workplace exploitation, the tax system has simultaneously exacerbated it.

“… in addressing workplace exploitation, the tax system has simultaneously exacerbated it.”

The cost of tax avoidance

The increasing effectiveness with which corporate and financial interests have been able to lobby ministers has given rise to criticism of Her Majesty’s Revenue and Customs for lacking zeal in its pursuit of complex and sophisticated forms of tax avoidance and evasion, reinforcing the resources which corporations can bring to bear in further lobbying of ministers. The debilitation of the organised working class through acceptance of the dominant globalisation model has weakened the countervailing forces which might have checked concessions to big business and big finance. The success with which large corporations and affluent individuals are able to avoid and evade paying taxes materially affects the resources governments claim are available for funding social security and public services. The resulting austerity erodes the social wage and further weakens the base for social democratic policies.

“Challenging the political culture surrounding taxation is essential if inequality is to be effectively tackled.”

These are just some of the inter-linking examples of the way in which the tax system is both shaped by wider cultural and social factors as well as recursively shaping that wider society.

We argue in Paying for the Welfare State in the 21st Century that reforming the tax system goes beyond altering rates and bands and that challenging the political culture surrounding taxation is essential if inequality is to be effectively tackled and some of the destructive consequences of the shift to post-industrial society are to be reversed.

 

Paying for the welfare state in the 21st century [FC]Paying for the welfare state in the 21st Century by David Byrne and Sally Ruane is available with 20% discount on the Policy Press website.  Order here for just £10.39.

Find out more about impact, influence and engagement at Policy Press here.

Policy Press newsletter subscribers receive a 35% discount – sign up here.

The views and opinions expressed on this blog site are solely those of the original blog post authors and other contributors. These views and opinions do not necessarily represent those of the Policy Press and/or any/all contributors to this site.

Indigenous peoples and a liberal politics of potential

Following last month’s call for a new formal body to represent Australia’s indigenous peoples in parliament, Dominic O’Sullivan, author of Indigenity: a politics of potential – out today – examines indigeneity and what it can achieve.

Dominic

Dominic O’Sullivan

“Indigeneity is a politics of potential; a theory of human agency that provides an indigenous framework for thinking about how to engage liberal societies in discourses of reconciliation, self-determination and sovereignty. It is both political theory and political strategy. It transcends the limits of indigenous rights as a sub-set of ethnic minority politics. Instead, it claims a distinctive and enduring indigenous share in the sovereign authority of the state.

The claim is grounded in on-going and inalienable rights of prior occupancy; rights to land, language, culture, the maintenance and protection of decision-making processes, and the right to participation in state affairs as genuinely and substantively equal citizens. Unless it recognises prior occupancy, liberal democracy cannot uphold these rights as measures of justice. It cannot think creatively or reasonably about the terms of indigenous belonging to the modern state; the basic questions of citizenship – who belongs and on whose terms?

Continue reading ‘Indigenous peoples and a liberal politics of potential’

Election focus: how can the Left re-engage the people?

simon-winlow

Simon Winlow

In the second of our blog pieces focusing on the fast-approaching General Election, Simon Winlow, co-author of The rise of the right asks how it can be that, against a background of social, financial and environmental catastrophe, a political party dedicated to the neoliberalism seem set to secure a large majority. How can the Left get the people on side again?

There’s a terrible air of nihilism, cynicism and acceptance about the upcoming election. The Conservatives have made huge gains in the local council elections, and UKIP and Labour have lost quite badly. Of course, the general election could be very different. More people will vote, and the local issues that can sway council elections tend to be forgotten as the big issues of the day take precedence.

Theresa May has clearly timed the election to take advantage of disarray in the Labour Party, and in the hope carrying a large mandate into the upcoming Brexit negotiations. Pollsters are predicting a landslide for the Tory party, with UKIP disappearing as an electoral force and Labour continuing its slide toward oblivion.

Continue reading ‘Election focus: how can the Left re-engage the people?’

Election focus: Housing policy predictions & radical solutions

In the run up to the General Election we will be bringing you insightful pieces from our authors on policy-relevant subjects, including housing, health, welfare and, underpinning it all, increasing social inequality.

Let’s look beneath the distraction of Brexit and Labour’s disarray and examine the issues we really need to be thinking about as we put our cross in the box on the 8th June.

DB pic

Duncan Bowie

In this piece, Duncan Bowie, author of Radical solutions to the housing supply crisis looks at what housing policies may be included in the party manifestos and explains the radical solutions we need.

“The focus on Brexit and the negotiations on withdrawal from the European Union has meant that housing has not, at least as yet, become the key issue in the election campaign that perhaps would have been expected had the referendum not taken place.

Debates so far have focused far too much on the contrast between Theresa May’s advocacy of ‘strong and stable leadership’ and whether or not the Labour Party leader is fit to be Prime Minister or the divided Labour Party is ‘fit to govern’. There has been little focus on policy issues, though (at the time of writing), the main party manifestos have not been published.

The political parties, including the Conservatives, were all caught on the hop by the election announcement and consequently the drafting of the various electoral offers have been somewhat of a rushed process. Even a matter of weeks before the election was called, Labour housing spokespersons were reluctant to make any policy statements policy on the basis that it would be premature to give commitments before 2020, even though housing was bound to be a key issue in the local and city region Mayor elections, which were scheduled. Labour was even hesitant to commit to repealing the 2016 Housing and Planning Act, despite the fact they had opposed it in parliament.

Continue reading ‘Election focus: Housing policy predictions & radical solutions’


Enter your email address to follow this blog and receive notifications of new posts by email.

Twitter Updates

Archives

Creative Commons License

Republish our articles for free, online or in print.

The work on the Policy Press blog is licensed under a Creative Commons licence.