a survey of the uk benefit system - the institute for fiscal studies

A Survey of the UK Benefit System IFS Briefing Note BN13

James Browne Andrew Hood

© Institute for Fiscal Studies, 2012

ISBN: 978-1-903274-99-6

A Survey of the UK Benefit System

Updated by James Browne and Andrew Hood

November 2012

Institute for Fiscal Studies

Acknowledgements

This briefing note is a revision of earlier versions by Claire Crawford, Carl Emmerson, Michelle Jin, Greg Kaplan, Andrew Leicester, Peter Levell, Richard May, Cormac O’Dea, David Phillips, Jonathan Shaw, Luke Sibieta and Alexei Vink. A version by the original authors, Carl Emmerson and Andrew Leicester, can be downloaded from http://www.ifs.org.uk/bns/benefitsurvey01.pdf. The paper was funded by the ESRC Centre for the Microeconomic Analysis of Public Policy at IFS (grant ES/H021221/1). The authors would like to thank Stuart Adam, Rowena Crawford and Robert Joyce for their help and advice during revision of this briefing note. The paper has been copy-edited by Judith Payne. All remaining errors are the responsibility of the authors.

*Addresses for correspondence: [email protected], [email protected]


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Contents

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

2. Government spending on social security benefits .................................. 4

3. A description of the current benefit system ................................................... 8

3.1. Benefits for families with children ...................................................................... 9

3.2. Benefits for unemployed people ...................................................................... 16

3.3. Benefits for people on low incomes ................................................................. 21

3.4. Benefits for elderly people ................................................................................ 32

3.5. Benefits for sick and disabled people ............................................................... 41

3.6. Benefits for bereaved people ........................................................................... 52

4. Trends in social security spending ................................................................ 56

4.1. Social security spending, 1948–49 to 2011–12 ................................................ 56

4.2. Changes in the composition of social security spending .................................. 58

4.3. Major reforms since 1948 ................................................................................. 60

4.4 Future benefit reforms....................................................................................... 62

5. Conclusions ............................................................................................... 71

Appendix A. Benefit expenditure from 1948–49 to 2011–12 ................................. 72

Appendix B. Benefits available only to existing claimants ..................................... 73

Appendix C. The Social Fund ................................................................................. 80

Appendix D. War pensions and AFCS .................................................................... 84


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1. Introduction

This briefing note provides a survey of the benefit system in Great Britain.1 We begin in Section 2 with an overview of the current system, giving total expenditure on social security and the cost of individual benefits. In Section 3, we look closely at the present system, examining each benefit in turn. Benefits are arranged into six broad categories based on the primary recipients: families with children, unemployed people, those on low incomes, elderly people, sick and disabled people, and bereaved people. Current benefit rates are for the financial year 2012–13, expenditure figures are out-turns (where possible) or estimates for the financial year 2011–12, and claimant data are for February 2012 unless otherwise noted. Whenever possible, expenditure and claimant figures relate to Great Britain.

In Section 4, we look at how the system has evolved to its present state and assess how the patterns of expenditure on social security have changed over the past 50 or 60 years. We also present a brief discussion of upcoming reforms to the social security system, in particular the introduction of Universal Credit. Section 5 concludes.

Further details on benefit eligibility and information about relevant legal issues can be found in the Child Poverty Action Group’s Welfare Benefits and Tax Credits Handbook 2012/2013.2 Current benefit rates, numbers of claimants and expenditure figures are given in the Department for Work and Pensions (DWP)’s Annual Reports, Benefit Expenditure Tables and annual press release detailing new benefit rates.3 In addition, much of the information contained herein can be found on the DWP website, http://www.dwp.gov.uk.

1 Note that the benefit system in Northern Ireland is extremely similar but is managed by the Department for Social Development of Northern Ireland (DSDNI), which does not provide comparable indices of claimants and expenditure. 2 Hereafter referred to as CPAG 2012/13. 3 Department for Work and Pensions, Benefit Expenditure Tables, http://research.dwp.gov.uk/asd/asd4/index.php?page=medium_term. Department for Work and Pensions, Benefit Rates, http://www.dwp.gov.uk/docs/benefitrates2012.pdf.


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2. Government spending on social security benefits

In 2011–12, over £200 billion was spent on social security benefits in Great Britain (henceforth GB).4 This amounts to approximately £3,324 for every man, woman and child in the country, or 13.5% of GDP. At 29%, expenditure on social security represents by far the largest single function of government spending.5

Approximately 30 million people in the UK – approximately half the total population – receive income from at least one social security benefit. For means-tested benefits such as Income Support, receipt of the benefit usually depends on the claimant’s family income, together with their family circumstances and personal characteristics. For contributory benefits such as state pensions, eligibility usually depends on the claimant having paid sufficient National Insurance contributions (NICs) during their lifetime. NICs are made by employees whose earnings are above a threshold (£146 per week in 2012–13), although the government usually treats those earning between the lower earnings limit (LEL, £107 in 2012–13) and £146 per week as though they were making contributions.6 Some benefits, such as Disability Living Allowance, are neither contributory nor means-tested and are universally available to all people who meet some qualification criteria.

All benefits require some residence conditions to be met (usually that the person be present and resident in the UK), although different degrees of ‘residence’ are required for different benefits. By and large, people ‘subject to immigration control’ (i.e. people who require leave to enter or to remain in the UK but who do not have it) are unable to claim benefits. As the UK was a signatory to the 1951 UN Convention on the Status of Refugees, refugees in the UK have the right to claim certain benefits, such as Income Support. However, the Asylum and Immigration Act 1999 removed asylum seekers from mainstream benefit payments, and they now have payments administered by the National Asylum Support Service.

4 Some spending data are on a UK basis because those for GB are not available, as explained in the notes below Table 2.1. Appendix A provides details of government spending on social security from 1948–49 to 2011–12. 5 Sources: Great Britain population estimate from http://www.ons.gov.uk/ons/publications/all-releases.html?definition=tcm:77-22371; GDP from http://www.hm-treasury.gov.uk/data_gdp_fig.htm; government expenditure from http://www.hm-treasury.gov.uk/pespub_natstats_july2012.htm. The quoted 13.5% is calculated based on an estimate of GB GDP, whilst some tax credit figures included here are for the UK; it is therefore a slight overestimate. Unfortunately, tax credit expenditure for Great Britain only is not readily available. 6 For more about the National Insurance system, see J. Browne and B. Roantree, A Survey of the UK Tax System, IFS Briefing Note 9, 2012 (http://www.ifs.org.uk/bns/bn09.pdf). Entitlement conditions for contributory benefits are complex – see chapter 35 of CPAG 2012/13.


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Table 2.1. GB expenditure and claimant figures for all benefits and tax credits, 2011–12

Expenditure (£m)a % of total expenditure

Claimantsb

Benefits for families with children Child Benefit (including former One Parent Benefit) 12,222c,d 6.08% 7,884,760d,e

Child Tax Credit 22,036c,d,f 10.96% 5,186,200d,g

Statutory Maternity Pay 2,203 1.10% 229,000Maternity Allowance 361 0.18% 53,400

Guardian’s Allowance 2c,d 0.00% Not available Education Maintenance Allowance (no longer available)h 174i 0.09% Not applicable

Total benefits for families with children 36,998 18.41% Benefits for unemployed people

Income-based Jobseeker’s Allowance 4,175 2.08% 1,199,000 Contribution-based Jobseeker’s Allowance 732 0.36% 254,000

Job Grant 54 0.03% Not available In Work Credit 116 0.06% 58,700j

Return to Work Credit 41 0.02% Not available New Deal (no longer available)k 47 0.02% Not applicable

Total benefits for unemployed people 5,164 2.57% Benefits for people on low incomes

Income Support 6,925 3.45% 1,509,350 Working Tax Credit 6,889c,d 3.43% 2,516,000

Housing Benefit 22,736l 11.31% 5,051,120Council Tax Benefit 4,928 2.45% 5,922,130

Social Fund payments 334m 0.17% 8,703,000 awards Total benefits for people on low incomes 41,811 20.80%

Benefits for elderly people Basic State Pension (contributory) 58,033 28.88% 12,672,860n

Basic State Pension (non-contributory) 62 0.03% 34,780 Additional state pension 16,124o 8.02% Not available

Pension Credit 8,068 4.01% 2,615,540 Winter Fuel Payments 2,146 1.07% 12,650,000

Over-75s television licences 578 0.29% 4,361,000 Total benefits for elderly people 85,011 42.30%

Benefits for sick and disabled people Statutory Sick Pay 49 0.02% Not available Incapacity Benefit 4,910 2.44% 1,385,630

Employment and Support Allowance 3,619 1.80% 991,190 Severe Disablement Allowance 878 0.44% 217,030

Disability Living Allowance 12,578 6.26% 3,243,530 Attendance Allowance 5,322 2.65% 1,600,670

Carer’s Allowance 1,728 0.86% 594,860 Independent Living Funds 325p 0.16% 18,387

Motability grants 18q 0.01% c. 600,000 Industrial injuries benefits 853r 0.42% 321,460s

War pensions and AFCS 935d,t 0.47% 162,595Total benefits for sick and disabled people 31,215 15.53%

Benefits for bereaved people Widows’ and bereavement benefits 590 0.29% 65,110u

Industrial Death Benefit 33 0.02% 7,000 Total benefits for bereaved people 623 0.31%

Other benefits Christmas Bonus 155 0.08% 15,545

TOTAL 200,978 100%


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Notes to Table 2.1 a Figures are estimated out-turns, from DWP Benefit Expenditure Tables unless otherwise stated. Out-turns and

percentages may not sum exactly due to rounding. Source: http://research.dwp.gov.uk/asd/asd4/index.php?page=medium_term.

b Details of sources and of the date on which the claimant count for each benefit was taken are given in the relevant part of Section 3 of this survey.

c Source: HMRC 2011–12 Annual Report and Accounts (http://www.hmrc.gov.uk/about/annual-report-accounts-1112.pdf).

d UK figure. e Number of families, covering 13,721,160 children in total as at 31 August 2011. Source: HM Revenue and

Customs, Child Benefit Geographical Statistics: August 2011 (http://www.hmrc.gov.uk/statistics/child-geog-stats/chb-geog-aug11.pdf).

f Note that, unlike the figure for the number of families (see note g), the expenditure figure does not include payments made to out-of-work families receiving the equivalent amounts via benefits from DWP, which is included in spending figures for benefits for unemployed people.

g Number of families, covering 9.27 million children as at 1 April 2012. This figure includes out-of-work families receiving the Child Tax Credit or the equivalent amount via Income Support (see Appendix B). Source: HM Revenue and Customs, Child and Working Tax Credits Statistics, April 2012 (http://www.hmrc.gov.uk/statistics/prov-main-stats/cwtc-apr12.pdf).

h Education Maintenance Allowance was abolished in England at the end of the academic year 2010–11. i Figure is for England only. Source: http://www.parliament.uk/briefing-papers/SN05778. j This is the number of new starts in 2011–12. k The Work Programme replaced New Deal benefits from June 2011. l This is the sum of Housing Benefit and discretionary housing payments (see Sections 3.3.3 and 3.3.5). m This is the sum of net expenditure on individual benefits, as detailed in Appendix C. Source: Annual Report by

the Secretary of State for Work and Pensions on the Social Fund 2011/2012 (http://www.dwp.gov.uk/docs/2012-annual-report-social-fund.pdf).

n This figure includes all claimants of a contributory state pension, both basic and additional. o Sum of expenditure on S2P and Graduated Retirement Benefit. p GB expenditure in Independent Living Fund, Quarterly User Profile Analysis: June 2011 / September 2011 /

December 2011 / March 2012 (http://www.dwp.gov.uk/ilf/publications/corporate-publications/statistics/). q Source: Table 4 of Motability, Annual Report and Accounts 2011/12 (http://www.motability.co.uk/about-

us/annual-reports/). r Includes Industrial Injuries Disablement Benefit, as well as £1 million of other industrial injuries benefits (see

Section 3.5.7 and Appendix B). s Figure is for Industrial Injuries Disablement Benefit and Reduced Earnings Allowance, as of March 2012. The

figure includes 56,730 people who were receiving both IIDB and REA. Source: Department for Work and Pensions, Industrial Injuries Disablement Benefit Quarterly Statistics: March 2012 (http://research.dwp.gov.uk/asd/index.php?page=iidb).

t Most recent data available are for 2010–11 UK expenditure. Includes both War Disablement and War Widow(er)’s Pensions. Does not include AFCS spending. Source: Ministry of Defence, MOD Annual Report and Accounts 2010-11 (http://www.mod.uk/DefenceInternet/AboutDefence/CorporatePublications/AnnualReports/).

u This figure includes claimants of Bereavement Allowance and Widowed Parent’s Allowance; claimants of War Widow(er)’s Pension are included in the war pensions statistics (see note t above).

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3. A description of the current benefit system

We look at the benefit system by dividing it into six major categories of primary recipient: families with children, unemployed people, those on low incomes, elderly people, sick and disabled people, and bereaved people. Each subsection starts with a table that summarises every benefit in terms of whether it is taxable or non-taxable, contributory or non-contributory, and whether or not receipt is means-tested. We also give details of total expenditure and the total number of claimants.

The Christmas Bonus is the only national benefit not included in any of these sections. This is a one-off payment of £10 to the recipients of certain benefits in the week beginning the first Monday of December. Only one bonus can be received per person, although in couples where both partners receive qualifying benefits, two separate payments can be made. If both partners are over the State Pension Age, then both will receive the Christmas Bonus under certain conditions, even if only one receives a qualifying benefit.8 Total expenditure on the Christmas Bonus was estimated to be £155 million in 2011–12, with around 15.5 million claimants.

8 This is the case if the only benefit claimed is Pension Credit, or if the individual in receipt of a qualifying benefit is entitled to an increase in that benefit for their partner.


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3.1. Benefits for families with children

Benefit T C M Claimants, as at

Feb. 2012a Expenditure,

2011–12 (£m)b

3.1.1 Child Benefit 7,884,760c 12,222d 3.1.2 Guardian’s Allowance Not available 2d 3.1.3 Child Tax Credit 5,186,200e 22,036f

3.1.4 Statutory Maternity, Paternity and Adoption Pay

229,000g 2,203g

3.1.5 Maternity Allowance 53,400h 361 T = taxable, C = contributory, M = means-tested

a Unless otherwise specified. b Source: DWP Benefit Expenditure Tables unless otherwise stated

(http://research.dwp.gov.uk/asd/asd4/index.php?page=medium_term).

c Number of families, covering 13,721,160 children in total as at 31 August 2011. Source: HM Revenue and Customs, Child Benefit Geographical Statistics: August 2011 (http://www.hmrc.gov.uk/statistics/child-geog-stats/chb-geog-aug11.pdf). UK figure.

d Source: HMRC 2011–12 Annual Report and Accounts (http://www.hmrc.gov.uk/about/annual-report-accounts-1112.pdf). UK figure.

e Number of families, covering 9.27 million children as at 1 April 2012. This figure includes out-of-work families receiving the Child Tax Credit or the equivalent amount via Income Support (see Appendix B). Source: HM Revenue and Customs, Child and Working Tax Credits Statistics, April 2012 (http://www.hmrc.gov.uk/statistics/prov-main-stats/cwtc-apr12.pdf). UK figure.

f Source: HMRC 2011–12 Annual Report and Accounts (http://www.hmrc.gov.uk/about/annual-report-accounts-1112.pdf). Note that, unlike the figure for the number of families (see note e), the expenditure figure does not include payments made to out-of-work families receiving the equivalent amounts via benefits from DWP. UK figure.

g Figures are for Statutory Maternity Pay only. Claimants in 2011–12; source: table 1c of http://research.dwp.gov.uk/asd/asd4/index.php?page=medium_term.

h As at 30 November 2011. Source: Maternity Allowance Quarterly Statistics: November 2011 (http://statistics.dwp.gov.uk/asd/asd1/ma/index.php?page=ma_quarterly_nov11).

3.1.1. Child Benefit

Non-taxable, Non-contributory, Non-means-tested9

Approximately 7.9 million families received Child Benefit (CB) in August 2011, covering nearly 14 million children. Introduced in April 1977 to replace the Family Allowance and the Child Tax Allowance, CB has remained universal (though will be gradually withdrawn for families with at least one individual earning over £50,000 from January 2013), payable to all families with children regardless of income. It is paid at a higher rate for the eldest or only child, and then at a lower rate for all subsequent children. For the purposes of receiving CB, a ‘child’ is someone under the age of 16, between 16 and 20 and in full-time non-advanced education or training, or 16 or 17 and registered for work, education or training with an approved body. CB 9 Child Benefit will be gradually withdrawn for families with at least one individual earning over £50,000 from January 2013.


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does not count as income for the entitlement calculation of other benefits and tax credits.

Table 3.1.1. Current rates of Child Benefit, £ per week

Eldest or only childa 20.30 Subsequent children (each) 13.40 a Prior to 6 July 1998, an additional payment for the eldest (or only) child was available to lone parents. This

higher rate remains available to claimants who were eligible to receive it prior to the policy change (and who remain so today).

CB rates have conventionally been uprated annually in line with the Retail Prices Index (RPI). However, it was announced in the June Budget that these rates would be frozen for three years from April 2011. This freeze is forecast to save almost £1 billion per year by 2014–15.10 From January 2013, CB will be withdrawn through an income tax charge from families where one parent’s income is above £50,000. Claimants will lose 1% of their CB for every £100 over that level, meaning families with an individual earning £60,000 or more will receive no CB. This is expected to save £1.7 billion each year from 2014–15.11 In 2011–12, Child Benefit is estimated to have cost the exchequer £12.22 billion.

3.1.2. Guardian’s Allowance

Non-taxable, Non-contributory, Non-means-tested

Guardian’s Allowance (GA) is a benefit paid in addition to Child Benefit to families bringing up a child or children whose parents have died. If only one parent has died, GA may still be payable if the whereabouts of the other parent is unknown. The claimant need not be the child’s legal guardian, but the child must be living with the claimant or the claimant must be making contributions for the maintenance of the child of at least £15.55 per week. A step-parent does not count as a parent and so may be entitled to receive GA for raising a stepchild if both natural parents have died. Adoptive parents count as parents, and so cannot receive GA in most cases. The rules concerning who counts as a child are the same as for Child Benefit (see Section 3.1.1).

Expenditure on Guardian’s Allowance amounted to an estimated £2.0 million in 2011–12.

10 Source: Table 2.1 in HM Treasury, Budget 2010, June 2010 (http://www.hm-treasury.gov.uk/d/junebudget_complete.pdf 11 Source: Tables 2.1 and 2.2 in HM Treasury, Budget 2012, March 2012 (http://cdn.hm-treasury.gov.uk/budget2012_complete.pdf).


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Table 3.1.2. Current rate of Guardian’s Allowance, £ per week

All children (each) 15.55

3.1.3. Child Tax Credit

Non-taxable, Non-contributory, Means-tested

The Child Tax Credit (CTC) combines support previously provided by the Children’s Tax Credit, child credits in the Working Families’ Tax Credit,12 child additions to most non-means-tested benefits, and the child elements (i.e. child additions and family premiums) of Income Support and income-based Jobseeker’s Allowance.13 CTC is paid on top of Child Benefit (see Section 3.1.1) and directly to the main carer in the family (as with the childcare element of Working Tax Credit (WTC) – see Section 3.3.2). Since CTC is a tax credit, it is administered by HM Revenue and Customs (HMRC). Under international accounting conventions, tax credits are counted as negative taxation to the extent that they are less than the income tax liability of the family and as government expenditure for payments exceeding the tax liability. For our purposes, however, we count all tax credit expenditure as if it were a cash benefit (and therefore public spending).

CTC is made up of a number of elements: a family element (the basic element), a child element, a disabled child additional element and a severely disabled child element (see Table 3.1.3). The baby element (for families with children under 1) was abolished from April 2011. Entitlement to CTC does not depend on employment status, but does require that the claimant be responsible for at least one child under the age of 16 (or aged 16–19 and in full-time education). As with WTC, certain changes in family circumstances (for example, a single claimant becoming part of a couple, or vice versa) must be reported immediately to HMRC if penalties are to be avoided.

CTC and WTC are subject to a single means test operating at the family level. Families with annual pre-tax income of £6,420 or less (£15,860 for families eligible only for CTC, i.e. not for WTC) are entitled to the maximum CTC and WTC payments appropriate for their circumstances (see Section 3.3.2 for details of WTC). Income from most other benefits (including Child Benefit, Housing Benefit, Disability Living Allowance and Council Tax Benefit) is not included in the CTC–WTC calculation, while entitlement to Income Support, income-based Jobseeker’s Allowance, income- 12 For details of these, see A. Dilnot and J. McCrae, Family Credit and the Working Families’ Tax Credit, IFS Briefing Note 3, 1999 (http://www.ifs.org.uk/bns/bn3.pdf). 13 The non-means-tested ones include the Basic State Pension, Incapacity Benefit, Severe Disability Allowance and Widowed Parent’s Allowance. Some existing claimants still receive child increases rather than CTC; further details can be found in Appendix B.


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related Employment and Support Allowance or Pension Credit acts as an automatic passport to maximum CTC14. From April 2012, claims can only be backdated by one month, compared with a previous maximum of three months; this change is expected to save over £300 million per year.15 In-year increases in income are disregarded for this calculation if they are below £10,000. This income disregard will be reduced to £5,000 from April 2013. From April 2012, in-year falls in income are disregarded if the change is less than £2,500, which is expected to save over £500 million per year.16

Table 3.1.3. Current rates of Child Tax Credit

£ per annum £ per week Family element 545 10.45 Child element (each) 2,690 51.59 Disabled child additional element (each) 2,950 56.58 Severely disabled child element (each) 1,190 22.82 Income below which maximum CTC is payable 6,420 123.12 Income below which maximum payable if not entitled to WTC 15,860 304.16 Withdrawal rate 41% 41% Note: Weekly numbers are calculated based upon there being 365/7 weeks a year.

For those with an annual family pre-tax income above £6,420, CTC and WTC awards are tapered away at a rate of 41%. WTC entitlement apart from the childcare element is withdrawn first, then the childcare element of WTC, then the child and disability elements of CTC, and finally the family element of CTC.

Tax credits have suffered a significant problem of overpayments. One important reason is that entitlement values are not finalised until about 12 months after the tax year in which entitlements are accrued. Tax credits awards are initially assessed and paid on a provisional basis based on circumstances and estimated income reported at the time the claim was made. HMRC then relies on families to report their actual incomes and circumstances by the following July (or, in some cases, January).17 This means a large number of overpayments and underpayments are generated each year due to changes in circumstances between the date of the claim 14 Source: HM Revenue and Customs, A Guide to Child Tax Credit and Working Tax Credit, April 2010 (http://www.hmrc.gov.uk/leaflets/wtc2.pdf). 15 Source: HM Treasury, Budget 2010 Policy Costings, June 2010 (http://www.hm-treasury.gov.uk/d/junebudget_costings.pdf). 16 Source: HM Treasury, Budget 2010 Policy Costings, June 2010 (http://www.hm-treasury.gov.uk/d/junebudget_costings.pdf). 17 Most families have until 31 July following the end of the entitlement year to report their finalised incomes for the year in question. However, families where someone completes an income tax self-assessment return (generally the self-employed) have until 31 January of the following year to do this.


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and the dates awards are paid. While underpayments are often repaid afterwards, overpayments are difficult to recover. The scale of this problem has been reduced since the first two years of operation of CTC and WTC, but HMRC still overpaid between £2.08 billion and £2.46 billion (and underpaid between £0.17 billion and £0.29 billion) in 2010–11.

HMRC estimates that expenditure on the Child and Working Tax Credits were £22.04 billion and £6.89 billion respectively in 2011–12. These figures reflect the initial awards authorised for 2011–12 but do not include any adjustments that take place for under- and over-payments in the finalisation process the following year, since these cannot be reliably estimated. In addition, just under half a billion pounds was paid in equivalent child additions to some pre-2004 claimants of out-of-work benefits (see Appendix B).

As at 1 April 2012, CTC (or the equivalent amount in out-of-work benefits) was received by 5.186 million families, containing 9.27 million children.18 That includes 1.47 million families where no adult works, 1.93 million in-work families who were also receiving WTC and 1.78 million in-work families receiving CTC only.

3.1.4. Statutory Maternity Pay, Statutory Paternity Pay and Statutory Adoption Pay

Non-taxable, Contributory, Non-means-tested

Statutory Maternity Pay (SMP) is a legal minimum amount that employers must pay to their employees during maternity leave, although almost all the cost can be recouped from the government. Many women receive more than the minimum, but this is paid for by employers and not by the government. To claim, the woman must have been in continuous employment with the same employer for at least 26 weeks up to and including the 15th week before the week the baby is due. She must also have earned at least the lower earnings limit for National Insurance contributions (currently £107 per week) on average during the eight weeks up to and including the 15th week before the week in which the baby is due. To claim SMP, the woman need not intend to return to work.

SMP can be paid for up to 39 weeks: the first six weeks’ pay will be at a higher rate, and the remaining 33 at a lower rate (see Table 3.1.4). The period of payment can begin at any time from the 11th week before the baby is due until the day after the birth itself (to coincide with maternity leave). Some special circumstances, such as absence from work, might change the start of the SMP period.19

18 Source: HM Revenue and Customs, Child and Working Tax Credits Statistics, April 2012 (http://www.hmrc.gov.uk/statistics/prov-main-stats/cwtc-apr12.pdf). UK figure. 19 Rules for deciding the SMP period are available at http://www.dwp.gov.uk/publications/specialist-guides/technical-guidance/ni17a-a-guide-to-maternity/statutory-maternity-pay-smp/when-smp-is-paid/.


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Government expenditure on SMP in 2011–12 is estimated to have been approximately £2 billion, with around 229,000 claimants.

Table 3.1.4. Current rates of Statutory Maternity, Paternity and Adoption Pay, per week

Higher rate of SMP 90% of the claimant’s average weekly earnings Lower rate of SMP, SPP, SAP The lesser of £135.45 or 90% of average weekly earnings

Statutory Paternity Pay (SPP) and Statutory Adoption Pay (SAP) were introduced on 6 April 2003. Both are legal minimum amounts that employers must pay to their employees during paternity/adoption leave, and most of the cost can be reclaimed from the government. SPP is usually paid to individuals whose partner has given birth, but can also be paid when a child is adopted. SAP can only be claimed by one parent (the other may be able to claim SPP).

The eligibility requirements for SPP and SAP are very similar to those for SMP, except that they include more stringent employment conditions. For SPP (birth), the claimant must satisfy the 26-week employment rule (see above), and must also be continuously employed by the same employer from the end of the 15th week before the child is due until the child is born. For SPP (adoption) and SAP, the claimant must have been continuously employed for at least 26 weeks ending the week in which notification is received that a child has been matched for adoption. For SPP (adoption) only, employment must then continue with the same employer until the day of the adoption placement.

Both SPP and SAP are payable at the lower SMP rate. Ordinary SPP is available for up to two consecutive weeks between the date of birth or adoption and eight weeks after that date. Additional SPP has been introduced from 6 April 2010, applicable to children due or matched on or after 3 April 2011. It enables eligible fathers to take up to 26 weeks additional paternity leave and get paid the lower rate of SPP if the mother/partner returns to work (the additional SPP leave should be taken between 20 weeks and one year after the child is born or placed for adoption, and the additional SPP is payable during the mother/partner’s SMP period, Maternity Allowance period or SAP period).20 SAP is available for up to 39 weeks, starting no later than when the child arrives and no earlier than two weeks beforehand.

Claimant and expenditure figures for SPP and SAP are not recorded centrally.

20 Source: http://www.dwp.gov.uk/publications/specialist-guides/technical-guidance/ni17a-a-guide-to-maternity.


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3.1.5. Maternity Allowance


Maternity Allowance (MA) may be payable to pregnant women and new mothers who are unable to claim SMP. To be eligible for MA, claimants must satisfy both an employment test and an earnings condition. To satisfy the employment test, the claimant must have been employed or self-employed (not necessarily continuously or for the same employer) for at least 26 of the 66 weeks up to and including the week before the baby is due (known as the employment test period). The earnings condition requires that average weekly earnings in any21 13 of the previous 66 weeks are at least equal to the MA threshold that applies at the start of the employment test period; the MA threshold is currently £30.00 per week.

MA (and SMP) claimants receiving certain means-tested benefits may also be entitled to receive a Sure Start Maternity Grant from the regulated Social Fund (see Section 3.3.6 and Appendix C for further details).

MA is payable for up to 39 weeks. The period in which this can begin is normally the same as for SMP, i.e. from the 11th week before the baby is due until the day after the birth itself. The start date is affected by special circumstances such as claiming Employment and Support Allowance or Severe Disablement Allowance.22

Table 3.1.5. Current rates of Maternity Allowance, per week

Standard rate The lesser of £135.45 or 90% of average weekly earnings

Claimants used to be entitled to an additional payment for a dependent spouse or other dependent adult who cares for at least one of their children, which was only available if the dependant’s earnings were not too high. This extra payment for an adult dependant (£41.35 per week) has been abolished for those beginning to claim MA on or after 6 April 2010. Increases for child dependants have, since 6 April 2003, been replaced by the Child Tax Credit for all new claimants.

As at 30 November 2011, 53,400 women were receiving MA.23 The total expenditure for the year 2011–12 was estimated at around £361 million.

21 The 13 weeks do not have to be in a row, and can be chosen in order to maximise the average weekly earnings. 22 Rules for deciding the MA period are available at http://www.dwp.gov.uk/publications/specialist-guides/technical-guidance/ni17a-a-guide-to-maternity/maternity-allowance-ma/when-ma-is-paid/#mapaid. 23 The most recent figures available, from Maternity Allowance Quarterly Statistics: November 2011, at http://statistics.dwp.gov.uk/asd/asd1/ma/index.php?page=ma_quarterly_nov11.


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3.2. Benefits for unemployed people

Benefit T C M

Claimants, as at Feb. 2012a

Expenditure, 2011–12 (£m)b

3.2.1

Income-based Jobseeker’s Allowance

1,199,000c 4,175

Contribution-based Jobseeker’s Allowance

254,000c 732

3.2.2 Job Grant Not available 54

3.2.3 In Work Credit 58,700d 116

3.2.4 Return to Work Credit Not available 41 T = taxable, C = contributory, M = means-tested a Unless otherwise specified. b Source: DWP, Benefit Expenditure Tables unless otherwise stated

(http://research.dwp.gov.uk/asd/asd4/index.php?page=medium_term).

c Figures for 2011–12. Both numbers include 21,000 people who receive both the income-based JSA and the contribution-based JSA. Source: http://research.dwp.gov.uk/asd/asd4/index.php?page=medium_term.

d This is the number of new starts in 2011–12. Source: DWP, In-Work Credit Statistics, August 2012 (http://statistics.dwp.gov.uk/asd/asd1/in_work_credit/index.php?page=in_work_credit_arc).

3.2.1. Jobseeker’s Allowance

Taxable, either Contributory or Means-tested

Jobseeker’s Allowance (JSA) replaced Unemployment Benefit and Income Support (IS) for unemployed people from 7 October 1996. There are two main types of JSA: contribution-based JSA is paid to individuals who have satisfied the National Insurance contribution (NIC) conditions; income-based JSA is paid to claimants who satisfy a family income-based means test (more details below).24

To qualify for either type, the claimant must be aged 18 or over but below State Pension Age;25 some 16- and 17-year-olds may qualify for JSA in special cases.26 In addition, the claimant must not be working for 16 hours or more per week, and must be capable of starting work immediately and of actively taking more than two ‘steps’ a week to find a job, such as attending interviews, writing applications or seeking job information. They must also have a current ‘jobseeker’s agreement’ with Jobcentre Plus, which includes such information as hours available for work, desired job and any steps that the claimant is willing to take to find work. Claimants must be prepared to take a job that would involve working for at least 40 hours per week and 24 A third type of Jobseeker’s Allowance, joint-claim JSA, is paid to members of joint-claim couples. It is very similar to income-based JSA. Figures for income-based JSA include joint-claim JSA. 25 Those above pension age are entitled to Pension Credit, which is more generous than JSA. Male claimants over the female State Pension Age are entitled to a premium of £71 per week. 26 For details, see section 5, chapter 19 of CPAG 2012/13.


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have a reasonable prospect of securing employment (i.e. they must not place too many restrictions on the type of work they are willing to undertake). If a claimant refuses to take up a job offer without good cause, they may be denied further payments of JSA.

Income Support (IS) and JSA cannot be claimed at the same time. Income-based JSA cannot be claimed at the same time as Pension Credit (PC) or income-related Employment and Support Allowance (ESA). If one member of a couple claims IS, income-related ESA or PC, the other may claim contribution-based JSA but not income-based JSA.

After claiming JSA for a certain length of time, claimants have to take part in the Work Programme. This is the case after 9 months for claimants aged 18–24 and 12 months for those aged 25 and over. As participants in the Work Programme, claimants are assigned to non-governmental providers, who help them into work by providing help with CVs, job applications and more substantial barriers such as drug and alcohol problems. These providers are paid on the basis of their record in moving claimants into sustained employment.

Contribution-based Jobseeker’s Allowance

Contribution-based JSA can be paid for up to 182 days. To claim contribution-based JSA, the individual must have paid sufficient Class 1 National Insurance contributions in the two tax years prior to the beginning of the year in which they sign on and claim benefit.27 The individual must not have earnings above a specific level (see below). If the claimant qualifies, they can receive contribution-based JSA irrespective of savings, capital or partner’s earnings.

If the claimant has any part-time earnings, £5 per week is disregarded (or up to £20 for some occupations). Any earnings over this disregarded amount are deducted from contribution-based JSA entitlements pound for pound. Thus the most someone aged 25 or over could earn per week and still receive contribution-based JSA is £75.99 (assuming that they are not in one of the special occupations). The rate of contribution-based JSA is also reduced by the amount of weekly pension above £50.00 per week. Other types of income do not affect the amount of contribution-based JSA.

The number of individuals claiming contribution-based JSA has remained constant over the last two years at around 250,000. Contribution-based JSA cost the government around £732 million in 2011–12.

27 For details, see section 4, chapter 35 of CPAG 2012/13.


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Table 3.2.1. Current rates of contribution-based Jobseeker’s Allowance, £ per week

Age of claimant: Under 25 56.25 25 or over 71.00

Income-based Jobseeker’s Allowance

Those who do not qualify for contribution-based JSA may be able to receive income-based JSA if they have sufficiently low income. Only one partner in a couple can receive income-based JSA, and the partner of the claimant must not be working for more than 24 hours per week (as described above, both forms of JSA require that the claimant is not working 16 hours or more per week). Couples without children must claim JSA jointly. This means that both usually have to sign on and meet the conditions for benefit.28

Income-based JSA is designed to top up the claimant’s income to a specified level (called the ‘applicable amount’), which is intended to reflect the needs of the claimant’s family. The applicable amount is the sum of personal allowances, premiums and some housing costs (primarily mortgage interest payments29). The amount for each individual is usually identical to that for Income Support (see Table 3.3.1).30 Clearly, to be eligible, the claimant’s income (minus an earnings disregard31) must be less than their applicable amount. The level of JSA payable is just the applicable amount minus the income.

Income-based JSA is only payable if the claimant’s savings and other capital (ignoring their home) do not exceed £16,000. Capital up to £6,000 is ignored (£10,000 for those in care homes). Between these two thresholds, income-based JSA entitlement is reduced by £1 for every £250 of capital exceeding the lower threshold. Income-based JSA is payable for as long as the qualifying conditions are met.

The expenditure on income-based JSA rose from £3.7 billion in 2010–11 to £4.2 billion in 2011–12. There are currently nearly 1.2 million claimants. Receipt of income-based JSA automatically entitles individuals to free school meals, health benefits (including free prescriptions, dental treatment and sight tests), maximum 28 In certain circumstances, a joint-claim couple can qualify for JSA even if one of them does not satisfy all the rules for claiming JSA. For details, see page 396 of CPAG 2012/13. 29 Some housing costs can be met by not only income-based JSA but also Income Support (Section 3.3.1), income-related ESA (Section 3.5.2) and Pension Credit (Section 3.4.3). The weekly amount covered is the home loan – subject to an upper limit and restrictions – multiplied by a centrally set standard rate of interest, currently 3.63%. More details on calculating housing costs can be found in chapter 38 of CPAG 2012/13. 30 There is a 104-week limit on help with certain types of housing costs for JSA claimants if the 13-week waiting period applies. In contrast, those on IS, ESA or PC may get help with housing costs indefinitely. For details, see chapter 38 of CPAG 2012/13. 31 The earnings disregard is £20, £10 or £5 depending on the circumstances of the claimant. For details, see pages 913–14 of CPAG 2012/13.


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Council Tax Benefit, maximum Housing Benefit and certain Social Fund payments (including the Sure Start Maternity Grant and funeral payments; see Appendix C for further details).

Table 3.2.2. Current rates of income-based Jobseeker’s Allowance, £ per week

Personal allowance – single person: Aged 16–24 56.25

Aged 25 or over 71.00 Personal allowance – lone parent: Aged 16–17 56.25 Aged 18 or over 71.00 Personal allowance – couple: One or both aged 16–17 Variesa

Both aged 18 or over 111.45 a If both members of the couple are under 18, there are two rates: £56.25 and £84.95 (payable in special

circumstances). If only one is under 18, there are three rates: £56.25 (if the other is 18–24), £71.00 (if the other is 25 or over) and £111.45 (payable in special circumstances). For details, see pages 817–19 of CPAG 2012/13.

3.2.2. Job Grant


The Job Grant is a one-off, tax-free payment to individuals who move directly from benefit into work of at least 16 hours a week. An individual also qualifies for a Job Grant if their partner starts working at least 24 hours a week and as a result their benefit stops. The payment is £100 in the case of single people and couples without children and £250 for those with children. To be eligible, the job must be expected to last for at least five weeks, and applicants must have been receiving a qualifying benefit such as Jobseeker’s Allowance (Section 3.2.1), Income Support (Section 3.3.1), Employment and Support Allowance (Section 3.5.2), Incapacity Benefit or Severe Disablement Allowance (Appendix B) for the 26 weeks immediately before moving into work. There will be no new Job Grant payments from 1 April 2013.

In 2011–12, approximately £54 million was paid out in Job Grants.

3.2.3 In Work Credit


In Work Credit is a fixed tax-free payment of £40 per week (£60 in London) for lone parents who start work. To qualify, the claimant should be bringing up at least one child under 16 on their own. They also need to end a claim to a qualifying benefit that has lasted for at least 52 weeks. The qualifying benefits are Jobseeker’s Allowance, Income Support, and Employment and Support Allowance (in certain circumstances). In London, the set of qualifying benefits is widened to include all cases of ESA, Incapacity Benefit and Severe Disablement Allowance. The employment being taken up must be for at least 16 hours per week, be expected to


20

last more than five weeks and pay at least the National Minimum Wage. The In Work Credit payment is on top of other benefits and is not taxable, and it is payable for up to 12 months. There will be no new awards of In Work Credit from 1 October 2013.

In 2011–12, In Work Credit cost the government approximately £116 million, with around 60,000 new starts.

3.2.4 Return to Work Credit


The Return to Work Credit is a fixed tax-free payment of £40 per week for those who return to work after illness or despite a disability. The work must be for at least 16 hours a week (including self-employment) and expected to last at least five weeks. The claimant must be paid at least the National Minimum Wage, but not more than £1,250 gross a month (£288.46 a week). They also need to end a claim to a qualifying benefit that has lasted at least 13 weeks. The qualifying benefits are Incapacity Benefit, Employment and Support Allowance, Income Support (on grounds of illness or disability), Severe Disablement Allowance and Statutory Sick Pay. The Return to Work Credit is on top of other benefits and is not taxable, and it is payable for up to 12 months. There will be no new payments of Return to Work Credit from 1 October 2013.

Return to Work Credit cost the government £41 million in 2011–12.


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3.3. Benefits for people on low incomes

Benefit T C M



3.3.1 Income Support 1,509,350c 6,925 3.3.2 Working Tax Credit 2,516,000d 6,889e

3.3.3 Housing Benefit 5,051,120f 22,706 3.3.4 Council Tax Benefit 5,922,130f 4,928 3.3.5 Discretionary housing payments Not available 30 3.3.6 Social Fund payments:

App

endi

x C

Regulated: Sure Start maternity grants 89,000g 45.3

Cold weather payments 5,167,000g 129.2

Funeral payments 38,000g 46.3h

Discretionary: Community care grants 216,000g 139.2

Budgeting loans 1,122,000g –11.1h

Crisis loans 2,071,000g –15.2h

T = taxable, C = contributory, M = means-tested a Unless otherwise specified. b Out-turn figures from DWP Benefit Expenditure Tables unless otherwise stated

(http://research.dwp.gov.uk/asd/asd4/index.php?page=medium_term). Expenditure figures for Social Fund are from the Annual Report by the Secretary of State for Work and Pensions on the Social Fund 2011/2012 (http://www.dwp.gov.uk/docs/2012-annual-report-social-fund.pdf).

c Source: DWP, Income Support tabulation tool, available at http://83.244.183.180/100pc/is/tabtool_is.html. d Number of families (including 581,700 families without children and 1,934,300 families covering 3,456,400

children), as at April 2012. Source: HM Revenue and Customs, Child and Working Tax Credits Statistics, April 2012 (http://www.hmrc.gov.uk/statistics/prov-main-stats/cwtc-apr12.pdf).

e Source: HMRC 2011–12 Annual Report and Accounts (http://www.hmrc.gov.uk/about/annual-report-accounts-1112.pdf). UK figure.

f Source: Department for Work and Pensions, First Release: Housing Benefit & Council Tax Benefit Statistics, November 2012 (http://statistics.dwp.gov.uk/asd/index.php?page=hbctb).These figures refer to claimants in August 2012.

g Number of awards made in 2011–12. Source: Annual Report by the Secretary of State for Work and Pensions on the Social Fund 2011/2012 (http://www.dwp.gov.uk/docs/2012-annual-report-social-fund.pdf).

h Net expenditure in 2011–12. This differs from gross expenditure mainly because loans are recovered. In addition, £0.4 million of funeral payments was recovered from estates and therefore excluded in net expenditure. Source: Annual Report by the Secretary of State for Work and Pensions on the Social Fund 2011/2012 (http://www.dwp.gov.uk/docs/2012-annual-report-social-fund.pdf).

3.3.1. Income Support


Income Support (IS) is a benefit paid to people on low incomes, although it is not available to the unemployed (who may be able to claim Jobseeker’s Allowance) or


22

those in ‘full-time’ paid work32 (who may be able to claim Working Tax Credit). IS is thus mainly payable to lone parents with a child under 5 and carers (although some other individuals are also eligible).33 Claimants should be between 16 and the age they can get Pension Credit. IS cannot be claimed at the same time as JSA or Employment and Support Allowance (ESA). The partner of an IS cannot claim income-based JSA (including joint-claim JSA), income-related ESA or Pension Credit.

The level of IS payable depends on the family’s needs (the ‘applicable amount’) and their income. The applicable amount is the sum of basic personal allowances and premiums (see Table 3.3.1 and Appendix B) and housing costs for owner-occupiers (rent is provided for through Housing Benefit; see Section 3.3.3).34 To be eligible, the claimant’s family income (minus any earnings disregards) must be less than their ‘applicable amount’. The level of IS payable is just the applicable amount minus income.

Some benefits are not counted as income for the purpose of the IS calculation (e.g. Attendance Allowance and Housing Benefit), and recipients of certain benefits may have up to £20 of their income disregarded for the entitlement calculation.35 IS is not payable if the claimant and the claimant’s partner together have more than £16,000 of capital. Capital up to £6,000 is ignored (£10,000 for those in care homes).36 Between these two thresholds, IS entitlement is reduced by £1 for every £250 of capital exceeding the lower threshold.

In the past, IS provided support to a wider group of claimants: disabled people now on the whole claim Employment and Support Allowance (though IS is still available to certain groups such as those in receipt of Statutory Sick Pay (SSP)); the elderly now claim Pension Credit (though in a small number of cases pensioner premiums are still payable under IS, e.g. when a claimant aged under 60 has a partner aged over 60); 32 ‘Full-time paid work’ for the purposes of Income Support normally means at least 16 hours per week for the claimant and at least 24 hours per week for their partner. This definition does not apply to special situations such as being on holiday or sick leave. For details, see page 353 of CPAG 2012/13. 33 To qualify for IS, one needs not only to satisfy the conditions on income, working hours, age, residency etc., but also to fit into one of the groups of people who can claim IS. The groups include sick and disabled people, people with childcare responsibilities and carers, students on training courses, and others. (Details on eligibility are provided in chapter 17 of CPAG 2012/13.) 34 Housing costs are calculated in the same way as for income-based JSA (see Section 3.2.1). Deductions from housing costs are made for non-dependants in the same way as for Housing Benefit (see Section 3.3.3 and Table 3.3.3). 35 For details, see pages 913–14 of CPAG 2012/13. 36 None of these thresholds includes the value of owner-occupied property.


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lone parents whose youngest child is aged 5 and over now claim JSA; and Child Tax Credit has replaced child additions to IS.37

Table 3.3.1. Current rates of Income Support, £ per week

Personal allowance – single person:

Aged 16–24 56.25

Aged 25 or over 71.00 Personal allowance – lone parent: Aged 16–17 56.25 Aged 18 or over 71.00 Personal allowance – couple: One or both aged 16–17 Variesa

Both aged 18 or over 111.45 Single/Couple Premiums : Disability 30.35/43.25 Severe disabilityb 58.20/116.40 Enhanced disabilityc 14.80/21.30 Carerd 32.60/65.20 Pensioner NA/106.45 a If both members of the couple are under 18, there are two rates: £56.25 and £84.95 (payable in special

circumstances). If only one is under 18, there are three rates: £56.25 (if the other is 18–24), £71.00 (if the other is 25 or over) and £111.45 (payable in special circumstances). For details, see pages 817–19 of CPAG 2012/13.

b The severe disability premium is paid to those receiving either of the two highest rates of the care component of Disability Living Allowance (see Section 3.5.3) who have no one living with them to care for them. The couple rate only applies when both partners qualify.

c The enhanced disability premium is payable where the claimant or a family member receives the highest rate of Disability Living Allowance (care component) – see Section 3.5.3 – and is aged 60 or below.

d The higher rate only applies if both members of the couple are eligible for Carer’s Allowance

In February 2012, around 1.5 million people received IS, with total expenditure in 2011–12 estimated at £6.9 billion. Receipt of IS automatically entitles individuals to free school meals, health benefits (including free prescriptions, dental treatment and sight tests), maximum Council Tax Benefit, maximum Housing Benefit and certain Social Fund payments (including the Sure Start Maternity Grant and funeral payments; see Appendix C for further details).

37 Prior to November 2008, most lone parents were eligible for IS. In order to encourage lone parents to work, an upper age limit on the youngest child has been introduced for IS eligibility. Eligibility was initially restricted to lone parents with a child under 12, in October 2009 to those with a child under 10, and in October 2010 to those with a child under 7. As of 21 May 2012, Income Support for lone parents is restricted to those with children under 5. There are transitional arrangements that allow lone parents with older children to continue claiming IS for a certain period of time. For details, see page 352 of CPAG 2012/13. More circumstances are listed in DWP, A Guide to Income Support (http://www.dwp.gov.uk/docs/is-20.pdf).


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3.3.2. Working Tax Credit


Working Tax Credit (WTC) has been available since 6 April 2003 and provides in-work support for low-paid working adults. It replaced the adult and childcare-cost elements of the Working Families’ Tax Credit, Disabled Person’s Tax Credit and the New Deal 50-Plus employment credit, and extended in-work support to cover households without children. Since WTC is a tax credit, it is administered by HM Revenue and Customs. Under international accounting conventions, tax credits are counted as negative taxation to the extent that they are less than the income tax liability of the family and as government expenditure for payments exceeding the tax liability. For our purposes, however, we count all tax credit expenditure as if it were a cash benefit (and therefore public spending).

WTC requires the claimant (or the partner) to be in full-time paid work. Normally, claimants aged 25 or over are only eligible if they work at least 30 hours per week. More lenient rules apply to disabled workers, those over 60, lone parents and couples with children. The first three of these groups are eligible for WTC provided at least one adult in the household works 16 or more hours per week. To be eligible for WTC, couples with children must, in addition to meeting that condition, work for a combined total of at least 24 hours. This additional requirement is waived if the non-working partner is entitled to Carer’s Allowance, incapacitated or in prison.

Table 3.3.2. Current rates of Working Tax Credit

£ per annum £ per week Basic element 1,920 36.82 Couple and lone-parent element 1,950 37.40 30-hour element 790 15.15 Childcare elementa One child 175.00

Two or more children 300.00 Disability element 2,790 53.51 Severe disability element 1,190 22.82 Income below which maximum WTC is payable 6,420 123.12 Withdrawal rate 41% 41% a 70% of eligible childcare payments are payable (up to the maximum shown). Note: Weekly numbers are calculated based upon there being 365/7 weeks per year.

WTC is made up of a number of components (see Table 3.3.2). There is a basic element, with an extra payment for couples and lone parents (i.e. for everyone except childless single people), as well as an additional payment for those working at least 30 hours per week (30 hours in total for couples). WTC also includes supplementary payments for disability and severe disability. Severe disability


25

supplements are payable where the recipient or their partner receives the highest rate of the care component of Disability Living Allowance (see Section 3.5.3) or the higher rate of Attendance Allowance (see Section 3.5.4).

The maximum amount of WTC payable is calculated by adding together all applicable elements. Claimants are automatically entitled to the maximum amount of WTC if they receive Income Support, income-based JSA, income-related ESA or Pension Credit, although it should be noted that there are few situations in which any of those four benefits can be claimed at the same time as WTC (due to the working restrictions). WTC also counts fully as income in calculations for all those four benefits.

WTC that either includes a disability element or is received with Child Tax Credit passports recipients to a number of health benefits, including free prescriptions, dental treatment, and sight tests and glasses. The childcare element of WTC is available to lone parents working 16 hours or more per week and to couples where both partners work for 16 hours or more per week (or if one is incapacitated or in prison and thus unable to care for children and the other works for 16 hours or more per week). This element is payable until the first week in September following the child’s 15th birthday (16th birthday for disabled children), and care must be given by approved providers such as registered childminders, nurseries and after-school clubs. The childcare component provides 70% of eligible childcare expenditure of up to £175 per week for families with one child or £300 for families with two or more children (i.e. up to £122.50 or £210 per week respectively). Unlike the rest of WTC, which is necessarily paid to the individual in full-time work (or to the individual agreed upon by the couple where both are in full-time work), the childcare credit is paid directly to the main carer, as with Child Tax Credit (CTC).

WTC is subject to a joint means test with CTC (see Section 3.1.3). The claimant must be in paid work at the time the claim is made, or expect to start work within 7 days of making the claim. The claim runs from the date it is received by HM Revenue and Customs. A claim for WTC can usually be backdated for up to a month. In some instances, changes to personal circumstances affect WTC entitlement, and HMRC must be notified within one month of the date of change or the date the claimant becomes aware of the change. Examples include a single claimant becoming part of a couple (or vice versa), or where childcare costs are reduced by £10 per week or more for four consecutive weeks. Other changes to circumstances can be disclosed either at the time that they occur or at the end of the tax year, although the latter course may subsequently lead to irrecoverable underpayments because most changes that increase the entitlement can only be backdated for three months. Overpayments as a result of delayed notification will usually be recovered.


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The changes that have been made to both WTC and CTC are discussed in Section 3.1.3. Recent reforms to WTC in particular are:

• freezing the basic and 30-hour elements for three years from 2011–12, saving over £1 billion a year by 2015–16;38

• reducing the percentage of childcare costs payable from 80% to 70% from April 2011, saving around £400 million a year by 2015–16;39

• abolishing the 50-plus return-to-work bonus from April 2012, saving around £35 million a year;40

• introducing the requirement for a combined total of at least 24 hours in work for couples with children from April 2012, saving around £550 million a year.41

In April 2012, approximately 1.9 million families were receiving both WTC and Child Tax Credit (see Section 3.1.3) and 581,700 families were receiving WTC only (as they had no dependent children). For 2011–12, expenditure on WTC is expected to be around £6.9 billion (see Section 3.1.3 for more details on the problem of overpayment).

3.3.3. Housing Benefit


Housing Benefit (HB) is payable to families with low incomes who rent their homes (for families who own their own homes, mortgage interest payments may be met through Income Support, JSA, ESA or Pension Credit).

The level payable depends on the ‘maximum HB’, the ‘applicable amount’, and the claimant’s income and capital. The maximum level of HB is equal to ‘eligible rent’ minus possible deductions made for any non-dependants because they are expected to contribute towards the rent. An amount is deducted for each non-dependant aged at least 18 based on their gross weekly income.42 (Since April 2011, these have 38 Source: HM Treasury, Budget 2011, March 2011 (http://cdn.hm-treasury.gov.uk/2011budget_complete.pdf).

39 Source: HM Treasury, Budget 2011, March 2011 (http://cdn.hm-treasury.gov.uk/2011budget_complete.pdf).

40 Source: HM Treasury, Budget 2012, March 2012 (http://cdn.hm-treasury.gov.uk/budget2012_complete.pdf).

41 Source: HM Treasury, Budget 2012, March 2012 (http://cdn.hm-treasury.gov.uk/budget2012_complete.pdf).

42 No deductions are made for any non-dependant if either the claimant or the claimant’s partner is blind, or receives Attendance Allowance or the care component of Disability Living Allowance. No deductions are made for an individual non-dependant when the non-dependant is a full-time student, or under 25 and on IS or income-based JSA, or in a range of other situations. A single deduction is made for non-dependent couples. For further details, see pages 265–9 of CPAG 2012/13.


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been uprated in line with the Consumer Prices Index (CPI), having previously been frozen at 2002–03 levels.) Eligible rent is the weekly contractual rate of rent less ineligible charges included in the rent (such as certain fuel charges, service charges for washing, cleaning, etc., and water charges), and subject to rent restrictions. Note that these restrictions depend on the tenancy type (see below).

Table 3.3.3. ‘Applicable amounts’ for Housing Benefit, £ per week

Personal allowance – single person: Under 25 56.25a Aged 25 or over 71.00b

Qualifies for PC but under 65 142.70 Aged 65 or over 161.25

Personal allowance – couple: Both aged 16–17 84.95 One or both aged 18 or over 111.45c One or both attained the PC

qualifying age but both under 65 217.90

One or both aged 65+ 241.65

Personal allowance – child: Under 20 64.99

Premiums:

Family-related: Familyd 17.40 Family (lone parent)e 22.20

Single/Couple

Disability-related: Disabled child (each) 56.63 Disability 30.35/43.25

Enhanced disability:f child (each) 22.89 adult 14.80/21.30

Severe disabilityg 58.20/116.40 Carer 32.60/65.20h

ESA components:i Work-related activity 28.15

Support 34.05 a This is also the allowance for lone parents aged under 18. b This is also the allowance for those on main phase ESA (including lone parents) and for lone parents aged 18 or

over. c This is also the allowance for those on main phase ESA. d A family premium is payable if there are any dependent children in the household. e The lone-parent premium, £4.80 on top of the standard family premium, is now available only to existing

claimants, further details of which can be found in Appendix B. f The enhanced disability premium is payable where the claimant or a family member receives the highest rate

of Disability Living Allowance (care component) and is aged 60 or below. g The severe disability premium is paid to those receiving either of the two highest rates of the care component

of Disability Living Allowance who have no one living with them to care for them. The couple rate only applies when both partners qualify.

h The couple rate only applies when both partners qualify. i See Section 3.5.2 for details on eligibility


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People on Income Support, income-based JSA, income-related ESA or the guarantee credit element of Pension Credit are automatically entitled to maximum HB. For other claimants, the amount of HB payable depends upon income relative to the ‘applicable amount’ in much the same way as for IS or income-based JSA. The individual’s applicable amount is calculated as the sum of the relevant personal allowance, premiums and components (set out in Table 3.3.3). If income is less than or equal to the ‘applicable amount’, maximum HB is payable. When income exceeds this level, there is a 65% taper (so HB entitlement is equal to maximum HB minus 65% of the amount by which income exceeds the applicable amount).

Some benefits are not counted as income (e.g. Attendance Allowance, Disability Living Allowance and Guardian’s Allowance), and recipients of certain benefits may have up to £20 of their income disregarded for the HB entitlement calculation. Earnings spent on childcare costs (of up to £175 per week for one child, or £300 for two or more) are also disregarded in the cases of lone parents working 16 hours a week or more and couples who both work 16 hours or more. Since October 2009, Child Benefit has been disregarded in the calculation of income for both Housing Benefit and Council Tax Benefit, but tax credits are counted as income.

If the claimant and their partner together have capital that exceeds the upper limit (£16,000), no HB is normally payable. But for individuals receiving the guarantee credit element of Pension Credit, all capital and income are fully ignored. Capital under the lower limit – £10,000 for those above the female State Pension Age or living in a care home, and £6,000 for others – is ignored. Between the two limits, every £250 is assumed to generate £1 of income for those under pension age, compared with every £500 for those above female State Pension Age.

Rent restrictions apply if the claimant is not a local authority tenant. For most private sector tenants, the eligible rent is the lower of the Local Housing Allowance (LHA) rate applicable to the claimant and the ‘cap rent’. The LHA rate is based on the amount of rent at the 30th percentile in the local rental market for the number of bedrooms to which the claimant is entitled, which is itself determined by household composition.43 As of April 2011, LHA rates have been subject to an absolute cap, ranging from £250 per week for a one-bedroom property to £400 per week for a four-bedroom property. The ‘cap rent’ is the rent that the claimant is liable to pay for his/her home. For tenants renting mobile homes, those whose rent includes board and attendance, and some housing association tenants, eligible rents are 43 From April 2012, single claimants under 35 are only entitled to one-bedroom shared accommodation (previously the age cut-off was 25). Room entitlement more generally depends on the number of adults and the gender and age of any children, and it is currently capped at four bedrooms. For details, see page 309 of CPAG 2012/13.


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restricted according to the local reference rent rules.44 A rent officer determines the claim-related rent (what the landlord could reasonably expect on the open market) and the local reference rent (the mid-point of reasonable market rents in the local area). The claimant’s eligible rent is then the lower of these two determinations. There is transitional protection for those whose claims began before the introduction of new restrictions, i.e. HB is not cut for existing claims.

There are a number of upcoming reforms to Housing Benefit:

• LHA rates will be increased in line with the Consumer Prices Index (CPI) each year from 2013–14, rather than in line with local rents.

• From April 2013, HB for working-age people in social sector housing will be reduced by a fixed percentage of their eligible rent if they are under-occupying their property (living somewhere too large for them). The reduction will be 14% for one extra bedroom and 25% for two or more.

Roughly 5 million people received HB in August 2012, of whom around 65% also received IS, income-based JSA, income-related ESA or the guarantee credit of Pension Credit (and were therefore entitled to maximum HB).45 Expenditure on HB in 2011–12 was £22.7 billion.

3.3.4. Council Tax Benefit


Council Tax Benefit (CTB) is payable to families with low incomes that are liable to pay council tax on a property in which they are resident. Many of the conditions for claiming are the same as those for Housing Benefit (see Section 3.3.3), including those on capital thresholds, income, applicable amounts and premiums (although since nobody under the age of 18 is liable for council tax, nobody under 18 can claim CTB).

There is also an alternative benefit, known as the Second Adult Rebate, which is payable instead of so-called ‘main’ CTB to people who have a low-income adult living with them who is not liable for council tax and who does not pay rent. The amount of the Second Adult Rebate depends on the income of the second adult(s). Claimants eligible both for CTB and for the Second Adult Rebate are paid whichever is of higher 44 Whether a claimant’s eligible rent is subject to restriction to the local reference rent is partially determined by whether their local authority considers their rent to be unreasonably high. For details, see page 319 of CPAG 2012/13. 45 Source: Department for Work and Pensions, First Release: Housing Benefit & Council Tax Benefit Statistics, November 2012 (http://statistics.dwp.gov.uk/asd/index.php?page=hbctb).


30

value. Second Adult Rebate is claimed by far fewer people than main CTB and will be ignored for the remainder of this section.

People on Income Support, income-based JSA, income-related ESA or the guarantee element of the Pension Credit are automatically entitled to maximum CTB. Maximum CTB is the weekly cost of council tax, worked out as the annual bill divided by the number of days in the year and multiplied by seven. If there is more than one person in the house eligible to pay council tax, the maximum benefit is the share of the total bill that each benefit unit is eligible for. So, for example, if there were a married couple and a third person all eligible to pay council tax for a given property, one member of the couple would be entitled to claim up to a two-thirds share of the weekly tax, and the third person could claim a one-third share. As with Housing Benefit, there may be deductions for non-dependants, with the amount of the deduction based on their gross weekly income.46 For people not on Income Support or income-based JSA with an income above their applicable amount, the taper rate is 20% (so CTB entitlement is equal to maximum CTB minus 20% of the amount by which income exceeds the applicable amount).

From April 2013, responsibility for council tax support will be localised; local authorities in England and the Scottish and Welsh Governments will have to design their own schemes to help low-income individuals with council tax. While the default scheme is identical to current CTB, local authorities have been given grants that are worth 10% less than the current centrally administered programme (though they are free to spend more or less than this amount on their schemes).

In August 2012, approximately 5.92 million people received main CTB, of whom around 66% also received IS, income-based JSA, income-related ESA or the guarantee credit of Pension Credit (and were therefore entitled to maximum CTB).47 Expenditure on CTB in 2011–12 was around £5 billion.

3.3.5. Discretionary housing payments


Discretionary housing payments are payable to those entitled to Housing Benefit, Council Tax Benefit or Local Housing Allowance, who require additional financial assistance as perceived by their local authorities. The amount and duration of payments vary. No one has a right to discretionary housing payments, and awards 46 Deductions for non-dependants are made on a similar basis to those outlined for Housing Benefit (see Section 3.3.3), except that all non-dependants on IS or income-based JSA (not just those under 25) are ignored in the calculation of deductions. These are, however, significantly smaller. 47 Source: Department for Work and Pensions, First Release: Housing Benefit & Council Tax Benefit Statistics, November 2012 (http://statistics.dwp.gov.uk/asd/index.php?page=hbctb).


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are made by local authorities out of a cash-limited budget. Government expenditure increased by £11 million to £30 million in 2011–12.

3.3.6. Social Fund payments


The Social Fund was introduced in 1987 to provide money for people in need under a variety of circumstances. Some of the payments from the Social Fund (including cold weather payments, funeral payments and Sure Start maternity grants) constitute a legal entitlement under certain conditions for certain people. Other payments (including community care grants, budgeting loans and crisis loans) are discretionary and budget-limited, and are paid out to people who satisfy the qualifying rules on a case-by-case basis. The various payments from the Social Fund are described in Appendix C. For 2011–12, the total net expenditure on the Social Fund – adding up the six components – was approximately £334 million. As of April 2013, the discretionary Social Fund will be abolished, with budgeting loans and ‘alignment’ crisis loans being replaced by ‘short-term advances’, while community care grants and all other crisis loans will be replaced by local provision.


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3.4. Benefits for elderly people

Benefit T C M



3.4.1 Basic State Pension Part 12,707,640c 58,095d

3.4.2 Earnings-related state pensions:

Graduated Retirement Benefit

10,645,000e 1,930

SERPS and State Second Pension (S2P)

9,535,000e 14,195

3.4.3 Pension Credit 2,615,540f 8,068

3.4.4 Winter Fuel Payments 12,650,000g 2,146 3.4.5 Over-75s TV licences 4,361,000g 578 T = taxable, C = contributory, M = means-tested a Unless otherwise specified. b Out-turn figures from DWP Benefit Expenditure Tables unless otherwise stated

(http://research.dwp.gov.uk/asd/asd4/index.php?page=medium_term). c This figure is for all recipients of the state pension, both basic and additional. Source: DWP, State Pension

tabulation tool, available at http://83.244.183.180/100pc/sp/tabtool_sp.html. d Including £58,033 million contributory BSP and £62 million non-contributory BSP (Category D). e Claimants in 2011–12. Both figures include the many pensioners entitled to both GRB and SERPS/S2P. Source:

State Pension tables in http://research.dwp.gov.uk/asd/asd4/index.php?page=medium_term. f Including about 1 million claimants receiving both savings and guarantee credit, another 1 million receiving the

guarantee credit only and 600,000 receiving the savings credit only. Source: DWP, Pension Credit tabulation tool, available at http://83.244.183.180/100pc/pc/tabtool_pc.html.

g Claimants in 2011–12. Source: Table 1c in http://research.dwp.gov.uk/asd/asd4/index.php?page=medium_term.

3.4.1. Basic State Pension

Taxable, Partly contributory, Non-means-tested

There have been significant changes to the rules on state pensions, with new rules applicable to people who become eligible for state pensions on or after 6 April 2010. That covers all individuals who reach State Pension Age (SPA) after that date, those who reached SPA before that date but have deferred their claims, and the spouses and partners of the former two groups (if the spouses/partners qualify for Category B; see below). This section discusses the new rules. For details of the old rules, see the first edition of this Benefit Survey.48

The Basic State Pension (BSP) was introduced in 1948, following the Beveridge Report, with the aim of providing an income for old-age pensioners based upon their record of National Insurance contributions. Originally, the idea was for the BSP to 48 The first edition, by Carl Emmerson and Andrew Leicester, can be downloaded from http://www.ifs.org.uk/bns/benefitsurvey01.pdf.


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operate on a funded basis, with each generation paying for its own pensions through NICs. This was abandoned immediately on introduction so that the pension could be made payable to the existing generation of pensioners. This left the current ‘pay-as-you-go’ pension system, whereby the NICs from those currently in work fund the pensions paid out to the generation currently in retirement.

The Basic State Pension is payable from the State Pension Age, which from 1948 to March 2010 was 60 for women and 65 for men. From April 2010, the pension age for women has been increasing by one month every two months, reaching 63 in April 2016; it will then increase to 65 at a rate of three months in every four months. From December 2018, there will be a single State Pension Age for both men and women. It will then increase at one month in every two months from 65 until it reaches 66 in October 2020. Current legislation prescribes further increases to 67 between 2034 and 2036 and to 68 between 2044 and 2046, but the 2011 Autumn Statement proposed implementing the increase to 67 between 2026 and 2028.49 The government has also consulted on possible mechanisms for more automatic increases in the State Pension Age in line with longer life expectancy, although no formal policy along these lines has yet been laid out.50 All pensions are paid for life.

There are now three categories of state pension: Category A based on the individual’s own National Insurance contribution record; Category B based on the NIC record of their spouse or civil partner or late spouse or civil partner; and Category D for those over 80 who are not entitled to any state pension. The rates applicable to different types are listed in Table 3.4.1. For example, if only one member of a couple has sufficient NICs (see below), the other spouse or civil partner will be entitled to £64.40.51 (The latter can, of course, claim Category A BSP based on his/her own NICs if that is higher than the lower rate in Category B.) The spouse or partner will inherit the full amount (£107.45 per week) if the contributor has died. The less generous Category D pension is non-contributory, and it applies if this is more than the entitlement based on the individual’s own contribution record.

49 Source: Page 6 of HM Treasury, Autumn Statement 2011, November 2011 (http://cdn.hm-treasury.gov.uk/autumn_statement.pdf). 50 See chapter 4 of DWP, A State Pension for the 21st Century, April 2011 (http://www.dwp.gov.uk/docs/state-pension-21st-century.pdf). 51 Prior to 6 April 2010, it was not possible for married men and female civil partners to claim state pensions based on the contribution records of their wives/partners. Before that date, married women could not claim state pensions based on their husband’s NIC records either, if husbands were deferring their claims. Thus, the new rules extended coverage to include some married individuals and civil partners who reached pension age before 6 April 2010 but were not receiving BSP.


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Table 3.4.1. Current rates of Basic State Pension, £ per week

Category A 107.45 Category B for widow / widower / surviving civil partner 107.45 Category B for spouse / civil partner 64.40 Category D 64.40

A new single contribution condition has been introduced for Category A and B retirement pensions from 6 April 2010.52 In order to qualify for the full BSP, the contributor must have paid sufficient Class 1, 2 or 3 NICs, or received NI credits, for at least 30 years. If the condition is met for at least one year but less than 30 years, proportional reductions of the BSP will be made. Individuals may get NI credits when looking for a job, claiming certain state benefits or caring for someone. Thus, the new rules have made it easier for individuals, especially women with children, to qualify for a full BSP.

Individuals can choose to defer receipt of the BSP in return for a higher rate of pension. From April 2005, the rules became more generous: an individual can defer pension payments for as long as they like, as compared with a maximum of five years before then. If an individual puts off claiming their state pension for at least 12 months, they can choose one of two options when they do finally claim. The first option is to earn extra state pension at 1% for every five weeks they put off claiming. The second option is a one-off taxable lump-sum payment based on the amount of normal weekly state pension they would have received, plus interest added each week and compounded.53 Individuals then also get their state pension when they claim it, paid at the normal rate. Individuals must put off claiming their state pension for at least 12 consecutive months to be able to choose a lump-sum payment. If an individual is claiming a means-tested benefit while deferring their pension, they do not build up any additional entitlement.

Both of these options use any additional state pension (see Section 3.4.2) that the individual is eligible to receive in calculating their higher state pension or lump-sum payment.

Until the early 1970s, the level of the BSP was uprated on an ad-hoc basis, but by more than enough to keep pace with increases in average earnings. It was then formally linked to the faster of growth in prices or growth in earnings and remained 52 The new rule applies to those reaching pension age on or after 6 April 2010. It applies to Category B only for widows, widowers and surviving civil partners, and on the conditions that the contributor had not reached pension age before 6 April 2010 and died after that date. 53 The compounded rate will be 2 percentage points above the Bank of England’s base rate (so as the base rate is currently 0.5%, the annual rate of return is 2.5%). As the Bank of England base rate may change from time to time, the rate of interest used to calculate the lump sum could also change.


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so until 1981, when it was formally linked to price inflation. The value of the BSP relative to earnings has therefore changed considerably over time, from just under 14% when it was first introduced, before getting as high as 20% in the early 1980s. The BSP is now subject to a ‘triple lock’ whereby it is increased every year by the highest of growth in average earnings, CPI inflation or 2.5%.

Costing over £58 billion in 2011–12 and received by about 12.7 million pensioners in February 2012, the BSP is the largest single benefit, constituting approximately 29% of expenditure on all benefits and tax credits. The Christmas Bonus is payable with BSP.

3.4.2. Earnings-Related State Pensions

Taxable, Contributory, Non-means-tested

Graduated Retirement Benefit

The Graduated Retirement Benefit (GRB) scheme operated between April 1961 and April 1975. It involved an earnings-related element to NICs, on top of the then standard flat-rate contribution. This was designed to entitle individuals to an earnings-related element to their state pension. Initially, all individuals had to contribute to the scheme. This requirement changed from 5 October 1966, so that individuals who were members of an occupational pension scheme could contribute at a reduced rate, in return for which they received a reduced rate of GRB. Average payments under this scheme are relatively ungenerous, not least because entitlements were frozen in cash terms between April 1961 and November 1978 during which period prices quadrupled. The largest Graduated Retirement Benefit that beneficiaries can receive is £10.76 a week.54 Once the claimant reaches the age of 80, they are entitled to an additional 25 pence per week. The GRB is payable even if the individual is not in receipt of the Basic State Pension. The Christmas Bonus is payable with GRB.

In 2011–12, expenditure on the GRB was over £1.9 billion, with around 10.6 million pensioners having some entitlement to the GRB.

State Earnings-Related Pension Scheme

The State Earnings-Related Pension Scheme (SERPS) was introduced in 1978 to provide additional retirement income to around half the workforce, whose employers did not provide an occupational pension scheme. Despite being introduced with cross-party support, perhaps its most noticeable feature is how short-lived it was: SERPS was cut dramatically in the Social Security Acts of both 1986 54 Authors’ calculations using http://www.dwp.gov.uk/docs/benefitrates2012.pdf.


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and 1995, before being replaced by the State Second Pension (S2P) from 2002 (see below for more details). As of April 2002, no future SERPS benefits are being accrued. SERPS is payable even if the claimant is not in receipt of the basic pension.

In order to avoid crowding out existing private pension provision, those who were members of a defined benefit (final salary) pension were allowed to ‘opt out’ of SERPS on its introduction in 1978. In return, their employer made lower National Insurance contributions on their behalf and the individual’s contribution rate was also reduced. In addition, from 1988, individuals were allowed to ‘opt out’ of SERPS into a defined contribution (money purchase) pension scheme, in return for which a proportion of their NICs were paid into the individual’s pension fund. This led to rapid growth in personal pensions, particularly among the young, for whom SERPS represented a worse deal.55

The original SERPS formula took individuals’ earnings in each year and uprated them by average earnings growth to the year before the individual reached state retirement age. The lower of this amount and the annualised upper earnings limit (UEL) in the year before retirement was used in the SERPS calculation, with the value of the annualised lower earnings limit (LEL) in the year prior to retirement then deducted from this figure. The SERPS pension that an individual would receive was equal to one-quarter of this amount, averaged over the best 20 years’ earnings of their life. No SERPS was paid on earnings below the LEL, since it was deemed that these were covered by the Basic State Pension. No additional SERPS was paid on earnings above the UEL, since those who were contracted out of SERPS only received a rebate on NICs between the LEL and the UEL. Importantly, while contributions were indexed in line with earnings between the year in which they were made and the year of retirement, once in payment SERPS was indexed to price inflation. In addition, surviving partners could inherit the full amount of their spouse’s entitlement.

The 1986 Social Security Act cut future SERPS expenditure (and hence generosity). Individuals will now receive one-fifth rather than one-quarter of their revalued earnings between the UEL and the LEL. In addition, this will be averaged over their entire lifetime, rather than their best 20 years of earnings. These cuts were phased in between April 1999 and April 2009, although earnings from before April 1988 will continue to accrue at the more generous level. The 1986 Social Security Act also reduced the amount that a surviving partner could inherit, from 100% to 50% of their spouse’s pension. Originally, this was to apply to surviving partners from 6 April 2000, but due to government documentation failing to inform individuals of the change, it was delayed until October 2002, and then phased in gradually until 55 For more details, see R. Disney and E. Whitehouse, The Personal Pensions Stampede, Institute for Fiscal Studies, London, 1992 (http://www.ifs.org.uk/publications/396).


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October 2010. The maximum percentage that one can inherit thus depends on the date when the deceased person reached pension age.56

The 1995 Social Security Act further reduced the generosity of SERPS. This was the result of two changes. The first was the increase in the State Pension Age for women, the timetable for which has been accelerated in more recent legislation. Second, there was a technical change to the SERPS formula. This meant that, instead of subtracting the LEL in the year before retirement, now the actual LEL is deducted from earnings before they are uprated by average earnings growth. This is less generous for those retiring now and for several years to come, since the LEL being deducted now is essentially being uprated in line with earnings to the current year while the LEL that was previously being used was increased only in line with prices.

State Second Pension

From 6 April 2002, SERPS was replaced (for new contributions) by the State Second Pension (S2P), essentially a more generous version of SERPS. The original formula used to calculate the amount of S2P entitlement was much the same as that used for SERPS, except that it deliberately favoured lower earners. It has been simplified for those retiring after April 2010, but is still quite complex as earnings made before and after that date are treated differently.57 For pre-April-2010 earnings, S2P divides earnings into three bands using the lower earnings threshold (LET) and the upper earnings threshold (UET) in addition to the LEL and the UEL. Those with earnings between the LEL and the LET (along with carers and those with home responsibility58) qualified for S2P worth 40% of the difference between LET and LEL, regardless of actual earnings. An individual qualified for an additional 10% of earnings between the LET and the UET, and an additional 20% of earnings between the UET and the annualised UEL; all thresholds were uprated annually.59 This structure was at least as generous as the previous SERPS structure and meant lower earners accrued higher entitlements. In April 2009, the UEL was replaced for the purposes of S2P by an upper accrual point (UAP) fixed at the UEL for 2008–09 (£770 per week). A further simplification in April 2010 eliminated the UET, leaving only two earnings bands. While rules regarding earnings between the LEL (£107 per week in 2012–13) and LET remained the same, individuals earning above the LET (£146 per week in 2012–13) now simply qualify for 10% of the amount of actual earnings (up to the UAP) minus LET. April 2012 saw the introduction of two changes. First, it is no 56 A table of the maximum percentages can be found on page 539 of CPAG 2012/13. 57 Additionally, earnings of those retiring before April 2009 accrued different entitlements from those of people retiring after that date. Further details can be found in A. Bozio, R. Crawford and G. Tetlow, The History of State Pensions in the UK: 1948 to 2010, IFS Briefing Note 105, 2010 (http://www.ifs.org.uk/bns/bn105.pdf). 58 See the briefing note in the preceding footnote for further details. 59 See previous surveys for the threshold levels before 2009–10.


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longer possible to contract out of S2P to a defined contribution pension scheme. Second, earnings in the lower band are now treated as producing a flat-rate amount (currently £88.40 each year). As the LET rises with earnings towards the fixed UAP, S2P will increasingly resemble a flat-rate top-up to the state pension, becoming just that when the two thresholds converge in around 2030.

A widow, widower or surviving civil partner can only inherit a maximum of 50% of their spouse/partner’s State Second Pension. There is a cap (£161.94 per week for 2012–13) on the amount of additional pension (both SERPS and S2P) an individual can receive. This cap applies to the sum of their own additional pension and any additional pension inherited.

In 2011–12, combined expenditure on SERPS and S2P was over £14 billion, with over 9.5 million pensioners having some entitlement.

3.4.3. Pension Credit


Pension Credit (PC) was introduced in place of Income Support for the pensioner population (also known as the Minimum Income Guarantee, MIG) on 6 October 2003 in an attempt to improve the incentives to save for retirement. Before PC, pensioners with income in excess of the Basic State Pension but less than the MIG faced a 100% marginal withdrawal rate (£1 of support lost for every additional £1 of their own income). Pension Credit reduces this disincentive to save, by introducing a savings credit with a marginal withdrawal rate of 40%.

Table 3.4.2. Current rates of Pension Credit guarantee credit, £ per week

Standard amount: Single person 142.70 Couple 217.90 Each additional spouse in a

polygamous marriage75.20

Additional amounts: Severe disability 58.20a

Carer 32.60a

Housing costs Variesb

Transitional Variesc

a Double this amount is payable if both partners qualify. b Housing cost payments are very similar to those for income-based JSA (see Section 3.2.1). Detailed rules on the

calculation of housing costs are discussed in chapter 38 of CPAG 2012/13. c A transitional element is paid to those previously on Income Support, income-based Jobseeker’s Allowance or

income-related ESA who would be made worse off by moving onto PC. The transitional payment covers the difference between the applicable amount of the previous benefit and the PC appropriate minimum guarantee (aside from a few adjustments).


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There are two elements to the PC: guarantee credit and savings credit. Claimants may be entitled to one or both elements. Guarantee credit works much like the MIG, topping up income to a specified minimum level (called the ‘appropriate minimum guarantee’). The appropriate minimum guarantee is the sum of a standard amount and additional amounts for special needs or housing costs (see Table 3.4.2). To receive guarantee credit, claimants must have reached the minimum (women’s) qualifying age for the Basic State Pension (this will increase to 65 between 2010 and 2018 – see Section 3.4.1) and have family income below the appropriate minimum guarantee. The sum payable is the difference between family income and the appropriate amount. As with other means-tested benefits, capital is assumed to yield a flow of income, but the PC rules are more generous: capital below £10,000 is disregarded, and above this level every £500 of capital is assumed to provide £1 of income. There is no upper limit on the amount of capital that can be held, and usual owner-occupied housing is excluded from the calculation.

Recipients of guarantee credit are automatically entitled to maximum Housing Benefit (see Section 3.3.3), maximum Council Tax Benefit (see Section 3.3.4), health benefits (including free prescriptions, dental treatment and sight tests) and certain Social Fund payments (see Appendix C). Recipients of the savings credit may also be entitled to some Social Fund payments. The Christmas Bonus is payable with the guarantee credit.

Savings credit rewards people aged 65 or over who have saved for retirement. Only those with ‘qualifying income’ (excluding guarantee credit) that exceeds the appropriate savings credit threshold (see Table 3.4.3) are eligible.60 Whereas below the threshold an individual faces a 100% withdrawal rate as private income increases, the withdrawal rate is only 40% above that threshold. This withdrawal rate implies the maximum amounts given in Table 3.4.3.

Table 3.4.3. Current rates of Pension Credit savings credit, £ per week

Savings credit thresholds: Single person 111.80 Couple 178.35

Maximum savings credit: Single person 18.54 Couple 23.73

Withdrawal rate 40%

60 The ‘qualifying income’ for calculating entitlements to savings credit is all income that counts for guarantee credit (total income) except a few non-qualifying benefits, such as contributory ESA, Incapacity Benefit and Working Tax Credit. The ‘total income’ is any income that counts for PC purposes and includes those non-qualifying benefits for savings credit. See page 513 of CPAG 2012/13.


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Spending on the Pension Credit was £8 billion in 2011–12, and it was claimed by around 2.6 million people as of February 2012.

In both April 2011 and April 2012, the standard guarantee credit in Pension Credit was increased by the cash rise in a full Basic State Pension (which was increased in line with the Retail Prices Index in both those years); it is usually uprated in line with earnings. The maximum savings credit award has been frozen in cash terms from April 2011 until April 2014.

3.4.4. Winter Fuel Payment


Lump-sum Winter Fuel Payments (WFPs) were introduced in 1997 and are available to GB residents over the qualifying age for Pension Credit on the third Monday of September.

The payment for 2012–13 will be between £100 and £300, depending on personal circumstances.61 The regular payment is £200 for those below 80 and £300 for those aged 80 or over. When more than one person in a household qualifies, each payment is halved. But if one claimant receives Pension Credit, income-related ESA or income-based JSA, then this claimant (with his/her partner) will be entitled to the regular amount regardless of whether anyone else in the household qualifies.

Those in residential care homes and not receiving Pension Credit, income-based JSA or income-related ESA are entitled to half the regular payment (£100 if aged 60–79; £150 if aged 80 or over). Those in residential care and receiving one of these benefits will not qualify for WFP.

In 2011–12, approximately 12.7 million WFPs were made, at an estimated cost of £2.1 billion.

3.4.5. Concessionary Television Licences


Since September 2000, households including an individual aged 75 or over have not had to pay for a television licence. There are also reduced fees for residents of care homes and for people who are registered blind. As of October 2012, the cost of a colour television licence is £145.50. In 2011–12, over 4 million households benefited from a free TV licence, at a cost of around £578 million.

61 Rules on the amount payable are listed at https://www.gov.uk/winter-fuel-payment/what-youll-get.


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3.5. Benefits for sick and disabled people62

Benefit T C M



3.5.1 Statutory Sick Pay Not available 49 3.5.2 Employment and Support

Allowance Part Part Part 991,190c 3,619

3.5.3 Disability Living Allowance 3,243,530d 12,578 3.5.4 Attendance Allowance 1,600,670e 5,322 3.5.5 Carer’s Allowance 594,860f 1,728 3.5.6 War pensions and AFCS 135,330g n/ah 3.5.7 Industrial injuries benefits 321,460i 853j 3.5.8 Motability: Specialised

Vehicle Fund c. 600,000k 18k

T = taxable, C = contributory, M = means-tested a Unless otherwise specified. Source: DWP tabulation tool http://83.244.183.180/100pc/tabtool.html unless

otherwise specified. b Out-turn figures from DWP Benefit Expenditure Tables unless otherwise stated

(http://research.dwp.gov.uk/asd/asd4/index.php?page=medium_term). c Including those receiving National Insurance credits rather than monetary payments. d This is the number of cases in payment, while the number of all DLA entitlements is 3,272,350. e This is the number of cases in payment as of August 2011 (more recent data are not available). The number of

all AA entitlements in August 2011 was 1,763,710. f This is the number of cases in payment, while the number of all CA entitlements is 1,038,800. g As at 31 March 2012. Includes those claiming War Disablement Pensions, those receiving an Allowance for

Lowered Standard of Occupation (ALSO) and those receiving a Guaranteed Income Payment under the Armed Forces Compensation Scheme (AFCS), but excludes war widow(er)s. UK figure. Sources: War Pensions Quarterly Statistics, 31 March 2012, June 2012 (http://www.dasa.mod.uk/applications/newWeb/www/index.php?page=48&thiscontent=500&pubType=1&date=2012-06-07&PublishTime=09:30:00); Armed Forces Compensation Scheme Statistics, 31 March 2012, June 2012 (http://www.dasa.mod.uk/applications/newWeb/www/index.php?page=67&pubType=0&thiscontent=1330&date=2010-09-09).

h Total expenditure on war pensions (including War Disablement and War Widow(er)’s Pensions) for 2010–11 (the latest data available) was £935.066 million in the UK.

i Figure is for Industrial Injuries Disablement Benefit and Reduced Earnings Allowance, as of March 2012. It includes 56,730 people who were receiving both IIDB and REA. Source: DWP, Industrial Injuries Disablement Benefit Quarterly Statistics: March 2012 (http://research.dwp.gov.uk/asd/index.php?page=iidb).

j Includes Industrial Injuries Disablement Benefit, as well as £1 million of other industrial injuries benefits (see Section 3.5.7 and Appendix B).

k Source: Motability Annual Report and Accounts 2011/12 (http://www.motability.co.uk/about-us/annual-reports/). More precise figures on beneficiaries are not available.

62 Details of Severe Disablement Allowance, which was abolished for new claimants in April 2001, are given in Appendix B.


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3.5.1. Statutory Sick Pay


Statutory Sick Pay (SSP) is a benefit paid by employers for a maximum of 28 weeks to employees who are incapable of work. It is a legal minimum, and many employers will pay more than this amount. As with Statutory Maternity, Paternity and Adoption Pay (see Section 3.1.4), much of the cost of SSP is reclaimed from the government.

To be incapable of work, an employee must be unable to do work that they could reasonably have been expected to do under the terms of their employment contract. Even if the employee is not actually incapable of work, SSP may still be payable under some circumstances (for example, if a doctor has stated that the employee should not work in order to rest or convalesce after a period of illness). SSP is only payable if there is a period of incapacity for work of at least four days. SSP is then payable from the fourth day of incapacity (the first three days are treated as ‘qualifying days’).

There is now no age limit for entitlements to SSP.63 SSP cannot be claimed if weekly earnings are less than the lower earnings limit, currently £107 per week. SSP is treated like any other earnings, so tax and National Insurance contributions are paid as usual. If an individual was recently entitled to Employment and Support Allowance (ESA) or Incapacity Benefit (IB) or is currently claiming either of those benefits, they cannot also claim SSP. However, if they are still too sick to work after the SSP ends, they might be able to claim ESA or IB.

SSP is currently payable at a weekly rate of £85.85. The total cost of SSP in 2011–12 was around £49 million.

3.5.2. Employment and Support Allowance

Partially taxable, Partially contributory, Partially means-tested

Employment and Support Allowance (ESA) replaced Incapacity Benefit and Income Support on grounds of disability for new claimants in October 2008. Like Jobseeker’s Allowance, there are two forms of ESA: a contributory form and an income-related form. Contributory ESA is only paid to claimants who meet the appropriate National Insurance conditions. Until May 2012, young people were able to claim ‘ESA in youth’ – a form of contributory ESA – without meeting the contribution criteria, but this is no longer available. Income-related ESA is paid to claimants who have not satisfied the contribution criteria but have passed a means test. An increase for partners is included in income-related ESA but not in contributory ESA (see rates in Table 3.5.1). Claimants must be aged 16 or over but under Basic State Pension age.

63 Before 1 October 2006, SSP was only payable to employees between 16 and 65.


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Table 3.5.1. Current rates of Employment and Support Allowance, £ per week

Assessment phase Main phase Single person

Under 25 56.25 71.00 25 or over 71.00 71.00

Lone parent (income-related ESA only)

Under 18 56.25 71.00 18 or over

71.00 71.00

Couple (income-related ESA only)

One or both under 18Both 18 or over

Variesa 111.45

Variesb 111.45

a If both members are under 18, the claimant receives £56.25 per week during the assessment phase or £84.95 if they are responsible for a child (or fulfil certain other conditions). If one is under 18 and the other is over 18, there are two rates – £56.25 (if the older of the two is aged 18–24) and £71.00 (if the older member is 25 or over); under certain conditions, the rate may be £111.45.

b If both members are under 18, there is a standard rate of £71.00 and a rate for those who are responsible for a child of £111.45. If only one is under 18, the rate is £71.00; under certain conditions, the rate may be £111.45.

Note: For further details, see pages 818–19 of CPAG 2012/13.

When claimants first apply for ESA, they must go through an ‘assessment phase’, which usually lasts for 13 weeks after the claim is made. During the assessment phase for contributory ESA, the claimant is entitled to a basic allowance: £56.25 if under 25 and £71 if 25 or over. Entitlements to income-related ESA are calculated in the same way as for Income Support (see Section 3.3.1), topping up income to a specified level (called the ‘applicable amount’), which is intended to reflect the needs of the claimant’s family. The applicable amount is the sum of personal allowances (which depend on age), premiums (as in Table 3.5.2) and some housing costs (primarily mortgage interest payments). It is possible to receive contributory ESA topped up with income-related ESA in the event that the entitlement for income-related ESA is higher than that for contributory ESA.

The process of medical assessment is called the ‘work capability assessment’. Its first component is the ‘limited capability for work test’, which determines whether the individual can be awarded ESA or should apply for Jobseeker’s Allowance instead. The second component of the work capability assessment tests whether the individual has ‘limited capability for work-related activity’. This divides claimants into two groups: the work-related activity group and the support group.

Claimants who have been placed in one of these two groups receive ‘main phase’ ESA. This includes either the ‘work-related component’, which is conditional on attending work-focused interviews, or the ‘support component’, for those deemed unable to work. Some claimants also receive a higher basic allowance on moving to the main phase (see Table 3.5.1). There is a one-year limit on contributory ESA for


44

those in the work-related activity group, which includes the 13-week assessment phase, as of April 2012.

The government plans to assess all existing claimants of Incapacity Benefit, Severe Disablement Allowance (see Appendix B) and Income Support on the grounds of disability, and transfer them onto ESA if the work capability assessment is passed.

Table 3.5.2. Current premiums for Employment and Support Allowance, £ per week

Components of ESA: Work-related activity component 28.15 Support component 34.05

Premiums (income-related ESA): Pensioner:single

Variesa

couple Variesb

Enhanced disability:single

14.80

couple 21.30

Severe disability: 58.20c

Carer: 32.60c

a In the assessment phase, this is £71.70 per week. In the main phase, it is £43.55 if the claimant is entitled to the work-related activity component of ESA and £37.65 if they are entitled to the support component.

b In the assessment phase, this is £106.45 per week. In the main phase, it is £78.30 if the claimant is entitled to the work-related activity component of ESA and £72.40 if they are entitled to the support component.

c If both partners qualify, the premium is doubled.

Contributory ESA is taxable whereas income-related ESA is not. The Christmas Bonus is payable with ‘main phase’ contributory ESA. ESA cannot be claimed at the same time as Income Support, JSA or Pension Credit.

Receipt of income-related ESA automatically entitles individuals to free school meals, health benefits (including free prescriptions, dental treatment and sight tests), maximum Council Tax Benefit, maximum Housing Benefit and certain Social Fund payments (including the Sure Start Maternity Grant and funeral payments; see Appendix C for further details).

In 2011–12, the total expenditure on ESA was estimated at around £3.6 billion, a sharp rise from £1.3 billion in 2009–10. As at the end of February 2012, ESA had around 991,190 claimants and 921,250 beneficiaries.64

64 Beneficiaries are claimants who are receiving money. Claimants include those beneficiaries plus those receiving National Insurance credits and no monetary payment.


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3.5.3. Disability Living Allowance


Disability Living Allowance (DLA) has two components, a care component and a mobility component.65 Each element is available at different weekly rates depending upon the severity of the claimant’s disability.

Disability Living Allowance care component

There are three rates of DLA (care).

For the lowest rate of DLA (care), the claimant must be 16 or over and so disabled that they cannot prepare a cooked main meal for themselves if given the ingredients. Alternatively, they must be so disabled that they require attention from another person for a significant part of each day in connection with bodily functions.

For the middle rate of DLA (care), the claimant must require frequent attention from another person throughout the day or night in connection with bodily functions, or continual daily or prolonged nightly supervision to avoid substantial danger to themselves or others.

For the highest rate of DLA (care), the claimant must be so severely disabled that they require constant supervision or attention throughout the day and night with respect to bodily functions, or to prevent danger to themselves or others.

For each rate, the individual must have satisfied the conditions throughout the three months prior to claiming, and they must be likely to continue to satisfy these conditions for at least six months after the claim has been made. Children under the age of 16 must satisfy an additional disability test in order for DLA (care) to be awarded (unless they are terminally ill – see below).

Once DLA (care) has been awarded, there is no upper age limit on continued payment; however, no new claims can be made after the age of 65, except where the individual is already in receipt of DLA (mobility) and their condition worsens sufficiently to be eligible for the middle or higher rate of DLA (care).

Table 3.5.3. Current rates of Disability Living Allowance (care), £ per week

Highest rate 77.45 Middle rate 51.85 Lowest rate 20.55

65 The individual only has to make one claim in order to be considered for both components of DLA.


46

Terminally ill claimants with a life expectancy of six months or less are automatically entitled to the highest rate of DLA (care) and do not have to satisfy the qualifying period.

Disability Living Allowance mobility component

To qualify for DLA (mobility), claimants must be aged between 5 and 65 (3 and 65 for the higher rate) when making the claim, and must show that they would benefit from taking outdoor journeys. Further, they must satisfy the relevant disability conditions (outlined below). Children under the age of 16 applying for lower-rate DLA (mobility) must also satisfy an additional disability test. There are two rates of DLA (mobility).

To claim lower-rate DLA (mobility), the claimant must show that they cannot walk outside without substantial supervision or guidance.

To claim higher-rate DLA (mobility), the claimant must be (virtually) unable to walk because of their disability, or be deaf and blind, or be severely mentally impaired with severe behavioural problems and qualify for the highest rate of DLA (care).

For both rates of DLA (mobility), the claimant must have satisfied the same three-month qualifying condition and the forward test as for DLA (care). Terminally ill claimants with a life expectancy of six months or less are not guaranteed to receive DLA (mobility), but if they are entitled to it, they do not have to satisfy any qualifying period.

Table 3.5.4. Current rates of Disability Living Allowance (mobility), £ per week

Higher rate 54.05 Lower rate 20.55

Both components of DLA are not payable to people in hospital. The care component is not payable once the claimant has been a resident in a care home for 28 days. DLA is not counted as income when calculating entitlements to means-tested benefits such as IS, income-based JSA, income-related ESA, HB, CTB and PC. The Christmas Bonus is payable with DLA.

In February 2012, over 3.2 million people were receiving DLA. Of these, 418,940 people received only the care component, 464,520 received only the mobility component and 2,360,070 people received both components. Table 3.5.5 shows the combinations of care and mobility components received by DLA claimants. DLA payments are estimated to have cost the exchequer approximately £12.6 billion in 2011–12.


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Table 3.5.5. Cases in payment of Disability Living Allowance, as at February 2012

Mobility rate None Higher Lower Total

Care

rat

e

None - 361,220 103,300 464,520

Highest 45,650 526,720 198,240 770,610 Middle 115,580 475,620 506,120 1,097,310 Lowest 257,720 427,480 225,890 911,090

Total 418,940 1,791,040 1,033,550 3,243,530

Source: DWP, Disability Living Allowance tabulation tool, available at http://83.244.183.180/100pc/dla/tabtool_dla.html.

3.5.4. Attendance Allowance


Attendance Allowance (AA) is a benefit paid to individuals over the age of 65 with care or supervision needs. To qualify for AA, the claimant must satisfy the relevant disability conditions for a period of six months before the award.

AA is paid at two rates: the lower rate is paid if the disability conditions for the middle rate of DLA (care) are met (i.e. the claimant has day or night needs) and the higher rate is paid if the conditions for the highest rate of DLA (care) are met (i.e. the claimant has day and night needs). There is no mobility component to AA. AA is not counted as income when calculating entitlements to means-tested benefits such as IS, income-based JSA, income-related ESA, HB, CTB and PC.

People with a terminal illness and/or those with a life expectancy of less than six months are automatically eligible for the higher rate of AA and do not have to satisfy the six-month qualifying period.

In February 2012, approximately 1.7 million people were entitled to AA at an estimated cost of just over £5.3 billion in 2011–12. The Christmas Bonus is payable with AA.

Table 3.5.6. Current rates of Attendance Allowance, £ per week

Higher rate 77.45 Lower rate 51.85

3.5.5. Carer’s Allowance

Taxable, Non-contributory, Means-tested

Carer’s Allowance (CA), previously known as Invalid Care Allowance, is payable to people aged 16 or over who are giving substantial and regular care (usually defined


48

as at least 35 hours per week) to a person receiving the highest or middle rate of DLA (care), or AA, or Constant Attendance Allowance under the war pensions or industrial injuries scheme (see Sections 3.5.6 and 3.5.7 and Appendix D). The claimant must not earn more than £100 per week or be in full-time education.

For new claimants after April 2010, there is only the basic payment. The additional allowance for adult dependants is payable if the individual was receiving the increase before 6 April 2010. Child dependant payments were incorporated into the Child Tax Credit on 6 April 2003 and are only available to existing (and continuous) claimants (see Appendix B). Individuals caring for more than one disabled person cannot claim additional awards of CA.

In February 2012, CA was claimed by 594,860 people, with expenditure in 2011–12 coming to around £1.7 billion. The Christmas Bonus is payable with CA.

Table 3.5.7. Current rates of Carer’s Allowance, £ per week

Basic benefit 58.45 Adult dependantsa 34.40 Child dependant, first childa 8.10 Child dependant, each subsequent childa 11.35 a These additions are payable to existing claimants only; see Appendix B.

3.5.6. War pensions and AFCS


Individuals who have suffered injury or disability as a result of service in the Armed Forces before 6 April 2005 are entitled to war pensions, consisting of a number of allowances and supplements (see Appendix D for a detailed breakdown of the various benefits available). Pensions are also available to widows, widowers and dependants of those killed in service (see Section 3.6.5 and Appendix D). As of 31 March 2012, there were almost 135,000 claimants of the War Disablement Pension in the UK.

From 6 April 2005, the War Pensions Scheme has been replaced by the Armed Forces Compensation Scheme for injuries and death suffered after that date. Illness and injuries are graded into 15 tariff levels, depending on how severe the conditions are. A lump sum of at least £1,200 and up to £570,000 is paid according to the tariff level. For those who have lost earnings capacity and already been awarded the lump sum in tariff levels 1 to 11 (the more severe cases), a Guaranteed Income Payment (GIP) is payable for life. The amount of GIP depends on the tariff level and is uprated annually in line with the Retail Prices Index (RPI). As at 31 March 2012, 530 Guaranteed Income Payments were in payment.


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Survivors’ GIPs are paid to surviving partners and children in cases of death caused by the service. See Sections 3.6.4 and 3.6.5 and Appendix D for more details on AFCS and war pensions.

3.5.7. Industrial Injuries Benefits


Industrial injuries benefits are payable to individuals who have suffered injury in an industrial accident, or who have contracted an industrial disease while at work, and, as a result, experience loss of faculty and are consequently considered to be at least partially disabled. The main benefit is Industrial Injuries Disablement Benefit (IIDB). A number of benefits might be paid as increases to IIDB, with the most important being Constant Attendance Allowance (CAA) and Exceptionally Severe Disablement Allowance (ESDA); see below.

In the case of injury, benefit is payable only for an industrial ‘accident’, such that an injury that accumulates over a number of years, through, for example, heavy manual labour, will not normally attract benefit. To receive payment in the case of disease, the claimant must prove that the disease was caused by the occupation itself. In practice, however, onset of disease within a month of last working in the prescribed occupation is normally regarded as sufficient evidence. In addition, a period of 90 days must have elapsed after the onset of the disease, or the time of the accident, before IIDB can be claimed.

The maximum rates of IIDB are shown in Table 3.5.8. The benefit actually paid depends upon the extent of disablement (assessed on a percentage basis). To qualify for IIDB, disablement usually has to be at least 14%. Above this level, benefit is paid at the appropriate fraction of the maximum rate, except that disablement of between 14% and 20% counts as 20%, and all assessments above 20% are rounded to the nearest 10% (multiples of 5% are rounded upwards). Thus a person who is 63% disabled would receive 60% of the appropriate maximum rate, while 78% disability attracts 80% of the maximum, and so on. Increases for dependants are only available if the claimant is also receiving Unemployability Supplement (US), a benefit which was abolished for new claimants of IIDB in April 1987; US can still be claimed by some war pensioners (see Appendix D).

Table 3.5.8. Current maximum rate of Industrial Injuries Disablement Benefit, £ per week

Claimant aged under 18, no dependants

All other claimants

100% disablement 96.90 158.10


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To be eligible for Constant Attendance Allowance (CAA), the claimant must be entitled to the maximum level of IIDB and must also require constant attendance as a result of their disablement. To receive the higher rate of CAA, the claimant must be entirely (or almost entirely) dependent on such attendance and must be likely to remain so for a prolonged period. For the lower rate, constant attendance must be required to a ‘substantial extent’ over a prolonged period. Exceptionally Severe Disablement Allowance (ESDA) is payable if the individual is in receipt of the higher rate of CAA and is likely to remain so on a permanent basis. The weekly amount paid is £63.30.

In addition, Reduced Earnings Allowance (REA) is payable if the individual had an accident or disease before 1 October 1990 and as a result has been earning less. Retirement Allowance (RA) is available for pensioners. For more details on these elements, see Appendix B.

In March 2012, there were 321,460 claimants of Industrial Injuries Disablement Benefit and Reduced Earnings Allowance.66 Over £850 million was spent on industrial injuries benefits (including REA) in 2011–12.

Table 3.5.9. Current rates of Constant Attendance Allowance, £ per week

Higher rate 126.60 Intermediate rate 63.30

Payable if disablement is exceptionally severe (but not enough for the higher rate)

94.95

If attendance is part-time 31.65

3.5.8. Motability


Motability is an independent charity set up as a partnership between the government, charities and the private sector. It oversees the Motability Scheme, which enables disabled people to use their higher-rate DLA (mobility) allowances or war pensioners’ Mobility Supplement to hire or hire-purchase facilities on cars, electric wheelchairs and electric scooters. Extra money is available to help finance the adaptation of vehicles to suit particular types of disabilities through the Specialised Vehicle Fund, administered by the charity.

66 This figure includes 56,730 people who were receiving both IIDB and REA, 211,100 receiving IIDB only and 53,660 receiving REA only. Source: Department for Work and Pensions, Industrial Injuries Disablement Benefit Quarterly Statistics: March 2012 (http://research.dwp.gov.uk/asd/index.php?page=iidb).


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The Motability Scheme has over 600,000 beneficiaries. The Department for Work and Pensions gave £16.28 million to Motability to fund grants to disabled people, primarily through the Specialised Vehicle Fund. In addition, DWP paid £1.82 million to Motability to help cover its administrative and support costs.67

67 Source: Motability Annual Report and Accounts 2011/12 (http://www.motability.co.uk/about-us/annual-reports/).


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3.6. Benefits for bereaved people68

Benefit T C M


Expenditure, 2011–12 (£m)

3.6.1 Bereavement Payment Not available

590c 3.6.2 Bereavement Allowanceb 20,290 3.6.3 Widowed Parent’s

Allowanced 44,810

3.6.4 Armed Forces Compensation Scheme

535e Not available

3.6.5 War Widow(er)’s Pension 26,730f n/ag T = taxable, C = contributory, M = means-tested a Unless otherwise specified. Source: DWP tabulation tool http://83.244.183.180/100pc/tabtool.html unless

otherwise specified. b Bereavement Allowance replaced the Widow’s Pension for new claimants from 9 April 2001. However, there

were still over 34,800 claimants of the Widow’s Pension in February 2012. See Appendix B for more on Widow’s Pension. Source: Widow’s Allowance tabulation tool, available at http://83.244.183.180/100pc/wb/tabtool_wb.html.

c Expenditure on both widow(er)s’ and bereavement benefits (not counting War Widow(er)’s Pension). d Widowed Parent’s Allowance replaced the Widowed Mother’s Allowance from 9 April 2001 (see Appendix B).

However, there were still almost 5,000 claimants of the Widowed Mother’s Allowance in February 2012. Source: Widow’s Allowance tabulation tool, available at http://83.244.183.180/100pc/wb/tabtool_wb.html.

e Source: Armed Forces Compensation Scheme Statistics, 31 March 2012 (http://www.dasa.mod.uk/applications/newWeb/www/index.php?page=67&pubType=0&thiscontent=1330&date=2010-09-09). UK figure.

f Figure for March 2012, including war orphans, war parents and those only receiving child allowances. Source: War Pensions Quarterly Statistics (http://www.dasa.mod.uk/applications/newWeb/www/index.php?page=48&thiscontent=500&pubType=1&date=2012-06-07&PublishTime=09:30:00).

g Total expenditure on war pensions (including War Disablement and War Widow(er)’s Pensions) for 2010–11 (the latest data available) was £935.066 million in the UK.

3.6.1. Bereavement Payment


Bereavement Payment is a one-off, lump-sum payment of £2,000 available to widows and widowers (including surviving civil partners) who claim within 12 months of their spouse’s death. Claimants must be under pensionable age when their spouse/partner died, unless the latter was not entitled to Category A state pension (see Section 3.4.1). Furthermore, the late spouse/partner must have actually paid (rather than been credited with) National Insurance contributions (NICs) in the tax year before their death producing an earnings factor of at least 25 times the lower earnings limit.69 If they died as the result of an industrial illness or accident, this NIC 68 Details of Industrial Death Benefit are given in Appendix C. 69 For Class 2 and 3 NICs, this condition is met if 25 contributions are made in the year. For Class 1 NICs, total earnings in the year (excluding those over the upper earnings limit) must be at least 25 times the lower earnings limit.


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condition is automatically regarded as being satisfied. Bereavement Payment can be paid in addition to Widowed Parent’s Allowance or Bereavement Allowance (see Sections 3.6.3 and 3.6.2).

3.6.2. Bereavement Allowance


Bereavement Allowance (BA) replaced the Widow’s Pension from 9 April 2001 and is payable to men and women widowed on or after this date. Different rules apply to men and women widowed before that date, as described in Appendix B. From 5 December 2005, surviving civil partners are treated the same as widows for the purposes of the payment of bereavement benefits.

Claimants must be under pensionable age, but aged at least 45 when their spouse died. The late spouse or partner must either have satisfied the NIC conditions or have died as a result of an industrial injury or disease. BA is payable for up to 52 weeks after the date of death, unless the claimant remarries in that time (in which case, entitlement ceases).

BA cannot be claimed at the same time as Widowed Parent’s Allowance (WPA), although recipients of WPA may become entitled to BA once they are no longer eligible to receive WPA.

The basic rate of BA is £105.95 per week for claimants aged 55 or over and where the NIC conditions are satisfied in full. For every year under that age, the claimant receives 7% less, i.e. 93% of the basic rate at age 54 (£98.53 per week), down to 30% of the basic rate at age 45 (£31.79 per week). If the spouse has made insufficient NICs, then the amount of BA payable is reduced proportionally.

In February 2012, approximately 20,290 people were claiming BA.

3.6.3. Widowed Parent’s Allowance


Widowed Parent’s Allowance (WPA) replaced Widowed Mother’s Allowance from 9 April 2001 and is a weekly benefit payable to men and women who were widowed on or after this date.70 Claimants must be pregnant or have qualifying children (under the same definition as for Child Benefit – see Section 3.1.1). The late partner must either have satisfied the NIC conditions (see Section 3.6.1) or have died as a 70 A male widower whose partner died before 9 April 2001 can still receive WPA if he satisfies the conditions on children, age and National Insurance contributions. Women widowed before that date can, however, continue to receive the more generous Widowed Mother’s Allowance; see Appendix B for a detailed description.


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result of an industrial injury or illness. Claimants must be under Basic State Pension age.

The basic rate of WPA is £105.95 per week. There is also an additional earnings-related payment if the late partner’s NIC record qualifies. Payment can continue until the claimant no longer receives Child Benefit. Details of increases for child dependants (now available only to existing claimants) can be found in Appendix B. A lower basic rate of WPA may be payable if the late spouse’s NIC record is insufficient. WPA acts as a passport to the Christmas Bonus.

In February 2012, 44,810 people claimed WPA.

Expenditure on widows’ and bereavement benefits in 2011–12 amounted to approximately £590 million.

3.6.4. Survivors’ Guaranteed Income Payment in AFCS

Taxable, Non-contributory, Non-means-tested

This is a component of the Armed Forces Compensation Scheme (AFCS; see Appendix D) payable to surviving dependants of individuals who died as a result of service in the Armed Forces on or after 6 April 2005. Those entitled to war pensions for injuries or death suffered prior to that date continue to receive war pensions, as described in Section 3.6.5 and Appendix D.

‘Surviving dependants’ include spouses, civil partners, children, and unmarried partners if a substantial relationship can be demonstrated. Unlike the Guaranteed Income Payment paid to former members of the Armed Forces, Survivors’ Guaranteed Income Payment (SGIP) is taxable. The amount of SGIP payable depends on the age when the serviceman or servicewoman died and their salary. The formula can be found in the Armed Forces and Reserve Forces (Compensation Scheme) Order 2005.71 As at 31 March 2012, 535 Survivors’ Guaranteed Income Payments were in payment.

3.6.5. War Widow(er)’s Pension


The War Widow(er)’s Pension (WWP) is payable to widow(er)s of those who have died as a result of service in the Armed Forces before 6 April 2005. Widow(er)s of war pensioners can also claim if their spouse received Constant Attendance Allowance (see Appendix D) at the time of their death, or was assessed as at least 80% disabled and in receipt of the Unemployability Supplement of the War 71 Available at http://www.legislation.gov.uk/uksi/2005/439/made.


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Disablement Pension (see Appendix D) upon death. Payment is normally for life unless the widow or widower remarries.

The basic WWP is payable at two rates. The higher rate is paid if the claimant is aged 40 or over, or is aged under 40 but has children or is unable to support themselves financially. It is also automatically payable to all claimants whose spouses were ranked above Major (or equivalent). Childless claimants under the age of 40 receive the lower rate (until they reach 40, whereupon they graduate to the higher rate). WWP rates vary according to the rank of the late spouse. Full details of rates payable can be found in Appendix D.

Additional payments are made for dependent children and for recipients reaching the ages of 65, 70 and 80. WWP is not payable in addition to a contributory Widow’s Pension or Bereavement Allowance (see Section 3.6.2), but it can be paid with a basic retirement pension (see Section 3.4.1) earned by the widow(er)’s own contributions. The Christmas Bonus is payable with WWP.

A number of other groups are also entitled to a war pension. These include unmarried dependants who lived as a spouse with the deceased, child orphans and infirm adult orphans.

In March 2012, 26,375 widow(er)s were claiming WWP, with 40 claimants of War Orphan’s or War Parent’s Pension and 315 claimants only receiving the child allowance. Total UK expenditure on all war pensions in 2010–11 stood at £953.1 million.


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4. Trends in social security spending

In this section, we look at how spending on benefits has changed over time, both in terms of how total expenditure has changed and in terms of how the targeting of the spending has altered with respect to the recipient groups defined in Section 3. We then go on to discuss intended reforms of the UK benefit system.

4.1. Social security spending, 1948–49 to 2011–12

Social security spending increased almost continuously as a share of national income from 1948 to the early 1980s. As shown in Figure 4.1, social security spending was just over 4% of GDP in 1948–49, but had reached over 11.5% of GDP by 1983–84. This was due to an increase in the generosity of many state benefits, as well as an increase in the numbers eligible to claim them. Perhaps the best example of this is the Basic State Pension, which increased in generosity from around 14% of average male earnings in 1948–49 to nearly 20% in the early 1980s. At the same time, the number of people over Basic State Pension age increased from 6.8 million in 1951 to 10 million in 1981.72

Figure 4.1. Social security expenditure as a percentage of GDP, 1948–49 to 2011–12

Note: Includes Working Tax Credit and Child Tax Credit, where appropriate.

Sources: Department for Work and Pensions; authors’ calculations; GDP from http://www.hm-treasury.gov.uk/data_gdp_fig.htm.

72 Source: Government Statistical Service, Annual Abstract of Statistics, 2000 edition.

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Figure 4.2. Average annual real increases in social security spending over five-year periods, 1957–58 to 2011–12

Sources: Department for Work and Pensions; authors’ calculations; GDP deflators from HM Treasury website, http://www.hm-treasury.gov.uk/data_gdp_fig.htm.

The late 1980s saw the first substantial fall in social security spending as a share of GDP since 1948–49. This was the result of rapid economic growth and the associated fall in claimant unemployment, combined with the fact that many benefits, the most notable of which was the Basic State Pension, were only increased in line with inflation. The economic downturn in the early 1990s, however, saw the economy contract and unemployment rise to 2.9 million. This led to another dramatic rise in the share of national income spent on social security, which reached an historic high of almost 13 per cent in 1993–94. After that, social security spending fell as a share of GDP, as the economy grew and the unemployment count dropped. The proportion of GDP allocated to social security expenditure gradually increased following the turn of the millennium, despite continued economic growth. This was mainly due to the increasing generosity of benefits targeted at pensioners (e.g. the Pension Credit) and families with children (e.g. the Child Tax Credit). Largely as a result of the recent recession, expenditure as a proportion of GDP rose substantially from 11.37% in 2007–08 to 13.77% in 2009–10 (due to both an increase in benefit payments to the newly unemployed and the lower level of GDP). As of 2011–12, the cuts to the welfare budget being implemented by the coalition government have arrested the rise in the proportion of GDP spent on welfare (at a time of flat or falling GDP), but are yet to result in a substantial decrease in that figure.

As with the share of GDP, real expenditure on benefits has risen almost continuously since the 1940s. Figure 4.2 shows the average annual real increases in social security spending seen over each five-year period since 1956–57. Over this period, social

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security spending has grown (on average) in real terms by around 4.5% per year; however, there have been large fluctuations in the pattern of this growth, particularly over the last 25 years.

4.2. Changes in the composition of social security spending

Not only have there been substantial increases in social security spending since 1948–49; there have also been large changes in the composition of that spending, as shown in Figure 4.3. Retirement and bereavement benefits have been easily the largest components of benefit spending since 1948–49. They made up 40% of social security spending at the beginning of the period, then rose to nearly 60% by the mid-1970s, as the population aged and there were real increases in the generosity of the Basic State Pension, before falling to 35% by 1995–96. The recent rise to almost 42.6% by 2011–12 largely reflects the repackaging of Income Support for the elderly (which we classify as support for those on low incomes) as Pension Credit (which we allocate to the elderly).

Figure 4.3. Share of total expenditure by benefit type, 1948–49 to 2011–12

Sources: 1948–2001: Department of Social Security, The Changing Welfare State: Social Security Spending, 2000.

2001–2012: As for Table 2.1, including notes.

It is worth emphasising at this point that such issues of classification mean that these breakdowns must be treated with caution. Another example is the introduction of Child Tax Credit (CTC) in 2003–04 which, like the introduction of Pension Credit, involved a repackaging of part of Income Support (amongst other things; see Appendix B) as well as an increase in generosity. The gradual transfer of existing

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claims to CTC in the past few years helps explain the recent increase in the share of benefits expenditure spent on tax credits, shown in Figure 4.3.

A clearer change in the allocation of spending is the large increase in the share of benefits to relieve housing costs and local taxes. This increase is largely due to the dramatic increase in Housing Benefit expenditure, which is itself the result of both rapid increases in private rents and the declining social housing stock (for which rents are usually lower).

Figure 4.4a. Composition of benefit spending on non-pensioners, 1978–79 to 2011–12

Figure 4.4b. Composition of benefit spending on pensioners, 1978–79 to 2011–12

Source: DWP, Benefit Expenditure Tables (http://research.dwp.gov.uk/asd/asd4/index.php?page=medium_term) for DWP-administered benefits; same as Table 2.1 (including notes) for HMRC benefits and tax credits.

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An important distinction between different types of benefits is the extent to which they are non-contributory rather than contingent on having made National Insurance contributions.73 Less than half of benefit expenditure (42.1%) currently goes on contributory benefits, compared with over 65% in 1978–79. In fact, these figures overestimate expenditure on benefits for which contributions have been made, since individuals can be credited with NICs without having actually paid them. This can occur for several reasons: for example, periods spent in full-time education or as registered unemployed are credited with contributions having been made. Also, since April 2000, individuals earning between the lower earnings limit and the earnings threshold do not have to pay any NICs, but are credited as if a contribution has been made.

The declining relative importance of contributory benefits has largely been the result of the growth of means-tested benefits since the late 1970s. In real terms (2011–12 prices), expenditure on income-related benefits has increased from £10.96 billion in 1978–79 to £79.02 billion in 2011–12, an increase of just over 620%. Expenditure on non-contributory non-income-related benefits has, over the same period, grown by around 230%. In contrast, real expenditure on contributory benefits increased from £42.26 billion in 1978–79 to £84.53 billion in 2011–12, an increase of almost exactly 100%. Figures 4.4a and 4.4b illustrate that the growth in real expenditure on contributory benefits is entirely due to the state pension, with the rapid growth in means-tested benefits primarily benefiting those of working age.

4.3. Major reforms since 1948

There have been substantial changes to the benefit system since 1948. Box 4.1 summarises those that are already in place. Changes that are yet to take effect or are still under review will be discussed in Section 4.4.

Since 2010, there have been no changes to individual benefits of a similar significance to those documented in Box 4.1. However, from 2011–12, almost all benefits, tax credits and public service pensions have been indexed to the Consumer Prices Index (CPI). The CPI tends to increase more slowly than both the Retail Prices Index (RPI) – which previously uprated universal benefits – and the Rossi Index (RPI without housing costs), which uprated means-tested benefits. This change to indexation rules is expected to save over £5.8 billion in 2014–15.74 The government 73 For details of the current system of NICs, see J. Browne and B. Roantree, A Survey of the UK Tax System, IFS Briefing Note 9, 2012 (http://www.ifs.org.uk/bns/bn09.pdf). A Social Security Select Committee report also looked at the contributory principle: Fifth Report, 2000, available at http://www.publications.parliament.uk/pa/cm199900/cmselect/cmsocsec/56/5602.htm. 74 Table 2.1 of HM Treasury, Budget 2010, June 2010 (http://cdn.hm-treasury.gov.uk/junebudget_complete.pdf).


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has claimed that the CPI better reflects the inflation experience of benefit recipients.75

Box 4.1. Major changes to the UK benefit system since 1948

Families with children

Child Benefit replaced Family Allowance and the Child Tax Allowance from April 1977. While Child Benefit is currently payable to all qualifying children, Family Allowance was payable only to the second and subsequent children.

Child Tax Credit replaced Children’s Tax Credit (and the additional child elements of a number of other benefits, including those in Working Families’ Tax Credit) from April 2003. Children’s Tax Credit was originally introduced in April 2001.

Unemployed people

Jobseeker’s Allowance replaced Unemployment Benefit and Income Support for the unemployed from October 1996.

People on low incomes

Income Support replaced Supplementary Benefit from April 1988. Supplementary Benefit replaced National Assistance from November 1966.

Working Tax Credit replaced Working Families’ Tax Credit and Disabled Person’s Tax Credit in April 2003. Working Families’ Tax Credit replaced Family Credit in October 1999, and Family Credit replaced Family Income Supplement in April 1988. Family Income Supplement was introduced in 1971. Disabled Person’s Tax Credit replaced the Disability Working Allowance in October 1999.

Between 1948 and 1966, many local authorities provided recipients of means-tested benefits with additional help for rent and local taxes. In 1966, a national rebate scheme was introduced. This was reformed many times prior to 1990. Since then, help with rents has been delivered through Housing Benefit, while rebates for local taxes were available from 1990 through Community Charge Benefit and, since 1993, through Council Tax Benefit.

Elderly people

Pension Credit replaced Income Support for people aged 60 or over from October 2003.

Although the Basic State Pension has been in place since 1948, the system of retirement pensions as a whole has been subject to some major changes. Between April 1961 and April 1975, the Graduated Retirement Benefit was running to provide an earnings-related element on top of the basic pension rate. In 1978, the State Earnings-Related Pension Scheme (SERPS) was introduced for people who were not members of an occupational pension scheme. SERPS was replaced by the State Second Pension (S2P) in 2002.

Sick and disabled people

Incapacity Benefit replaced Invalidity Benefit and Sickness Benefit from April 1995.

Disability Living Allowance replaced Mobility Allowance and Attendance Allowance for those aged under 65 from April 1992.

Employment and Support Allowance replaced Incapacity Benefit and Income Support on grounds of disability for new claimants in October 2008.

Bereaved people

Bereavement benefits replaced widows’ benefits in April 2001. Prior to this, the one-off Widow’s Payment replaced Widow’s Allowance and Industrial Death Benefit for cases where the husband died on or after 11 April 1988.

75 For discussion of this claim, see T. F. Crossley, A. Leicester and P. Levell, ‘A tale of 3 indices: further thoughts on benefit indexation’, IFS Observation, October 2010 (http://www.ifs.org.uk/publications/5301).


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4.4 Future benefit reforms

The reforms implemented or announced since the coalition government came into office will cut an estimated £18 billion from the welfare budget by the end of the current parliament.76 The majority of the existing changes have taken the form of freezes or reductions in payments or tighter restrictions on eligibility, such as the numerous changes that have been made to tax credits. However, the second half of the parliament will see much more sweeping reforms, designed to fundamentally reshape the welfare system as well as reduce costs. This section will discuss four major reforms in turn, before listing all other announced changes to the uprating and eligibility conditions of benefits.

4.4.1. Universal Credit77

The government plans that Universal Credit will replace six of the seven main means-tested welfare benefits and in-work tax credits designed for working-age adults: income-based Jobseeker’s Allowance, income-related Employment and Support Allowance, Income Support, Housing Benefit, Working Tax Credit and Child Tax Credit. Means-tested support for adults aged over the State Pension Age is not directly affected by the reform.78

Universal Credit will be administered by the Department for Work and Pensions (DWP), in contrast to the current system where HM Revenue and Customs (HMRC) manages tax credits and DWP administrates most means-tested benefits. Having a single body in charge of a single benefit should make reporting easier and simpler for households (saving them time, and possibly reducing error and increasing take-up) and make benefit claims easier to check (reducing error and fraud).

The structure of Universal Credit will resemble a negative income tax administered at the family level. Each family will receive a personal amount with additional amounts for children and those with disabilities, and those in rented accommodation will receive an additional amount for housing costs. The personal amount will be higher for couples than for single people (though not twice as high) and lower for some young people, as is currently the case in IS, income-based JSA and income- 76 This is the sum of reductions in welfare spending in the 2010 June Budget and the 2010 Spending Review. Sources: http://cdn.hm-treasury.gov.uk/junebudget_complete.pdf and http://cdn.hm-treasury.gov.uk/sr2010_completereport.pdf.

77 This section draws heavily on M. Brewer, J. Browne and W. Jin, ‘Universal Credit: a preliminary analysis of its impact on incomes and work incentives’, Fiscal Studies, 33, 39–71, March 2012. 78 The government plans to combine Housing Benefit for those over the State Pension Age with Pension Credit (the main means-tested benefit for those over the State Pension Age) and to abolish Housing Benefit entirely when Universal Credit is fully phased in. The government has also said that families will be able to claim Pension Credit rather than Universal Credit only if all adults are aged over the female pension age, rather than the current requirement that only one adult need be over the pension age. This means that couples where one person is aged over the female State Pension Age and the other is aged under it will lose out from the reform.


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related ESA. The housing component will be similar to Housing Benefit (see Section 3.3.3), and child additions will be based on Child Tax Credit rates (see Section 3.1.3). This means that most out-of-work welfare claimants with no other sources of income or savings will see their entitlements to benefits unaffected by the move to Universal Credit. Disability premiums will be simplified when Universal Credit is introduced, in a way that will be revenue neutral overall but that will create winners and losers among those with disabilities.79

Under Universal Credit, earned income will be subject to a taper rate of 65%, but applied to earned income having deducted income tax and National Insurance (social security) contributions (NICs). An individual earning less than the income tax threshold who earns an additional pound will lose 65p of Universal Credit. An individual liable for National Insurance and paying income tax at the main rate (of 20%) who earns an additional pound will have to pay an additional 20p in income tax and 12p in NICs and will then lose 65% of the 68p of additional net earnings (or 44.2p) in Universal Credit, meaning that they would lose a total of 76.2p of each additional pound earned. Under the present system, such a person would lose between 73p and 96p of each additional pound earned, depending on whether they were entitled to Housing Benefit and Council Tax Benefit on top of tax credits.

Some earnings will be disregarded before the taper applies, with the size of the disregard depending on personal circumstances, as set out in Table 4.1. The maximum disregards will apply to those who do not claim for rental costs, with the minimum disregards applying to those who do. This feature helps prevent Universal Credit from extending far up the earnings distribution for those entitled to a large housing element. In the current system, the same is achieved by having those entitled to Housing Benefit facing a higher total withdrawal rate than those who are not, but with the same earnings thresholds.

The earnings disregards are very important parameters in Universal Credit. Since the government has said it will set the basic entitlement to Universal Credit at levels that match entitlement to the current set of out-of-work benefits, and that there will be only one withdrawal rate for earnings in Universal Credit (65%) across all family types and all ranges of earnings, it follows that the only way in which the government can vary Universal Credit entitlements across different family types for a given level of earnings is through the earnings disregards.

79 Currently, ‘enhanced’ and ‘severe’ disability premiums exist in most means-tested benefits. The enhanced disability premium is paid to those with the highest needs for care (those claiming the highest rate of the care component of Disability Living Allowance) and the severe disability premium is paid to those receiving either of the two highest rates of the care component of Disability Living Allowance who have no one living with them to care for them (most recipients are single). When Universal Credit is introduced, these additional premiums will be abolished and the support group premium in Employment and Support Allowance will be substantially increased.


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Table 4.1. Maximum and minimum earnings disregards for Universal Credit (per year)

Claimant type Maximum disregard

Minimum disregard

Single adult 0 0 Couple without children £3,000 £520 Couple with at least one child £5,700 £1,040 + £260 for each of the

second and subsequent children Lone parent £7,700 £2,080 + £260 for each of the

second and subsequent children Disabled person (if a claimant or either partner in a couple is disabled)

£7,000 £2,080

Unearned income (mainly income from pensions and maintenance payments from divorcees’ former partners, but not interest income, which has a special treatment – see below) will not be subject to a disregard at all, and will reduce entitlement to Universal Credit pound for pound. In most cases, this is identical to its current treatment under the means-tested welfare benefits, but it represents a stricter means test than the current treatment under tax credits, where unearned income is subject to, at most, a 41% taper.80 The treatment of capital is also identical to the way that means-tested benefits (IS, income-based JSA, income-related ESA, HB and CTB) currently operate. But it is different from the current treatment of such income in tax credits, where investment income below £300 per year is ignored altogether, and investment income above £300 per year, as well as all other unearned income, is subject to, at most, a 41% taper. The most extreme difference between this and the Universal Credit treatment of investment income and capital is for a family with savings in excess of £16,000: such families will never be entitled to any Universal Credit, but currently could be entitled to tax credits; indeed, with an interest rate of 3%, savings of £16,000 would reduce tax credit entitlement by £1.42 a week,81 but the same level of savings would mean that a family will lose all entitlement to Universal Credit. Having capital limits in Universal Credit limits the payment of Universal Credit to those who have both a low income and low levels of savings. But the mechanism will give some families an extremely strong incentive to lower their financial capital to £16,000 or below, and will give others an extremely strong incentive not to accumulate more than this amount.

80 Some income, such as divorcees’ maintenance payments from former partners (which are particularly important for lone parents), currently does not count as income for the purpose of tax credits but will be counted as unearned income under the Universal Credit system. Other types of income, such as widow(er)s’ pensions and private pensions, do count as unearned income for both tax credits and Universal Credit, but will be tapered at 100% under Universal Credit compared with at most 41% under tax credits currently. 81 {(0.03 × 16,000) – 300} × 0.41 = £73.80/year or £1.42/week.


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New claimants will start to receive Universal Credit from October 2013, with all

existing recipients moved across over the subsequent four years. Households will be

protected from cash losses at the point of transition as long as their circumstances

do not change. The short-run cost to government, including that of providing

transitional protection, will depend on how quickly the government transfers

existing recipients of benefits and tax credits over to Universal Credit and on the

precise details of the scheme. In the long run, the government has estimated that

expenditure on benefits will increase by £2 billion a year. Expenditure is expected to

rise by £4 billion a year as a result of higher entitlements and take-up but fall by

£2 billion a year as a result of reduced fraud, error and overpayments.82 An example

of the kind of saving the government is hoping to make is given in the 2010 Spending

Review, where it is estimated that £300 million will be saved in 2014–15 by the

migration of a quarter of tax credit claimants to real-time PAYE as part of the

introduction of Universal Credit.83

4.4.2. Personal Independence Payment84

From April 2013, Personal Independence Payment (PIP) will replace Disability Living Allowance (DLA) for new working-age claimants. Attendance Allowance will continue for those over 65 or the State Pension Age (whichever is higher), and the government has committed to a separate consultation before any move to extend the PIP to include those children currently entitled to DLA.

PIP will be similar in structure to DLA, comprising a daily living component and a mobility component, just as DLA has both a mobility and a care component. However, both components will only be available at two rates, standard and enhanced, dependent on the assessed level of disability. This is in contrast to the three levels of DLA (care) currently available. The government has said that the disability test for PIP will involve an assessment of the ability of an individual to participate fully in society rather than of the severity of impairment. This means that, unlike in DLA, there will be no medical conditions that will lead to an automatic entitlement to PIP. Second, the mobility component will be allocated on the basis of a claimant’s ability to plan or follow a journey, rather than a simple assessment of their ability to walk unaided.

82 See the Universal Credit Impact Assessment (http://www.dwp.gov.uk/docs/universal-credit-wr2011-ia.pdf). 83 See the policy costings for the 2010 Spending Review (http://www.hm-treasury.gov.uk/spend_sr2010_policycostings.htm). 84 Further information on the PIP is available at http://www.dwp.gov.uk/policy/disability/personal-independence-payment/.


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The PIP will also involve objective and continuing assessment of claimants’ needs. In order to make a claim, an individual is required to submit a form detailing the effect their disability has on their day-to-day life, along with documentation and/or references from medical professionals and carers. It is expected that, in most cases, a face-to-face consultation with an independent assessor will also be required. The assumption is that the PIP will be awarded for a fixed term, of between a year and 10 years, rather than being awarded for life. Claimants will automatically be reassessed at the end of their term, as well as during that term if circumstances change.

The PIP will also act as a passport to disability premiums in a number of means-tested benefits, corresponding to the current role of DLA (see Table 3.3.1). All claimants of the PIP will be entitled to the disability premium, those claiming the daily living component will be entitled to the severe disability premium, and those claiming the enhanced daily living component will be entitled to the enhanced disability premium. However, there will be no such premiums in Universal Credit. Instead, entitlement to additional support for adults will be accessed through the work capability assessment (currently used for ESA claimants); the government plans to increase the supplement paid to those in the support group to £7785 (from its current level of £34.05) to compensate for the abolition of the other premiums. Receipt of the mobility component at the enhanced rate will act as a gateway to the Motability Scheme.

The transition to the PIP is scheduled to take place over the four years from 2013 to 2016. New claimants will be assessed for entitlement to the PIP from March 2013, while the reassessment of existing DLA claimants will begin in October 2013 and is expected to be completed by the end of 2016. It is not envisaged that all claimants of DLA will be entitled to PIP – indeed, the 2010 June Budget assumes that 20% of DLA claimants will not be eligible for PIP, saving the exchequer £360 million in 2013–14 and £1,075 million in 2014–15.86

4.4.3. The single-tier pension

The government’s plans to reform the state pension will become much clearer after the publication of a White Paper detailing the reforms, scheduled for publication in mid-December 2012. The following is based on the 2011 Green Paper, A State Pension for the 21st Century,87 and should therefore be treated as preliminary.

85 Source: http://www.dwp.gov.uk/docs/ucpbn-1-additions.pdf.

86 See HM Treasury, Budget 2010 Policy Costings, June 2010 (http://www.hm-treasury.gov.uk/junebudget_costings.htm).

87 See http://www.dwp.gov.uk/docs/state-pension-21st-century.pdf


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The core proposal is to replace the current two-tier pension (the Basic State Pension and the State Second Pension) with a single flat-rate pension set at a level above the Pension Credit minimum guarantee (currently £142.70 per week for a single person). This amount would be uprated according to the ‘triple lock’ currently in place for the Basic State Pension (see Section 3.4.1). To qualify for the full amount, people would have to build up 30 years of National Insurance contributions or credits, including those accrued through self-employment. The large range of creditable activities, such as being in receipt of Child Benefit for a child under 12, being a registered carer or being entitled to a range of income- and disability-related benefits, ensures that the vast majority of people would qualify for the full amount. Additional provision for married, divorced and bereaved individuals would be abolished, with everyone’s entitlement based on their own contribution record. For those who made partial contributions, the single-tier pension would be reduced pro rata, although those with less than 7 years of contributions would not receive anything. There would be no increase in entitlement for those who contributed for more than the required 30 years.

The introduction of a single-tier pension would entail the abolition of ‘contracting out’. Currently, employees and employers can pay lower National Insurance contributions if they decide to accrue pension entitlement in an employer-provided defined benefit scheme, rather than in the State Second Pension (S2P). The government suggests that those who have ‘contracted out’ of the S2P will not be entitled to the full amount of the single-tier pension, but will instead be expected to top up their state pension using the private pension wealth they accrued while contracted out. In contrast, those whose existing S2P entitlements mean that their total pension entitlement under the current system exceeds the single-tier pension will still receive the entitlements they had already accrued in retirement.

The proposals also include the abolition of the savings credit component of Pension Credit. The rationale is that, since the government estimates that under the scheme 90% of people would retire with an income greater than the Pension Credit minimum guarantee, the role of savings credit in encouraging private saving would no longer be required.

The government estimates that the move to a single-tier pension set at the level of the Pension Credit minimum income guarantee would be cost neutral. No timetable has yet been set for the implementation of this reform.


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4.4.4. Localising support for council tax88

The government is proposing to localise support for council tax from 2013–14, abolishing Council Tax Benefit (CTB) across Britain and giving local authorities in England and the Scottish and Welsh governments grants to create their own systems for rebating council tax to low-income families. However, entitlements for pensioners in England will still be set nationally and maintained at their existing level.

Each local authority in England, and the Scottish and Welsh governments, will be given a grant based on 90% of what would have been spent on CTB in that area. There is no obligation for them to spend exactly the amount of this new grant on council tax support: they may, for example, choose to maintain support at its existing level for non-pensioners as well as pensioners and find the necessary savings elsewhere, or even to cut entitlements by more and use the surplus for other purposes.

4.4.5. Other announced reforms

• From April 2013, some working-age households will be subject to a household-level cap on the total amount of benefits they can receive. The cap is set at around the net median earnings for working households, with the initial levels being £500 per week for couples and lone parents and £350 per week for singles. Households in receipt of Disability Living Allowance or Constant Attendance Allowance or that contain an individual in the support group for Employment and Support Allowance will be exempt from the cap, as will war widows. There will be a ‘grace period’ of nine months before they are subject to the cap for those who were in employment for at least 12 months before they began claiming benefits. The cap is expected to save between £200 million and £300 million each year.89

• From April 2013, entitlement to Housing Benefit will be restricted for working-age claimants living in the social rented sector whose accommodation is considered larger than their household requires. A claimant’s eligible rent will be reduced by 14% if the accommodation is under-occupied by one bedroom, and by 25% if it is under-occupied by two

88 For a comprehensive discussion of the reforms, see S. Adam and J. Browne, Reforming Council Tax Benefit, IFS Commentary 123, May 2012 (http://www.ifs.org.uk/comms/comm123.pdf). 89 See HM Treasury, Budget 2010 Policy Costings, June 2010 (http://www.hm-treasury.gov.uk/junebudget_costings.htm).


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or more. This is expected to save the exchequer £30 million in 2013–14 and £60 million in 2014–15.90

• Partly in the light of the two changes above, the government is to increase the annual budget for discretionary housing payments by £40 million in 2013–14.91

• From January 2013, some Child Benefit will be withdrawn from all households where someone has an income over £50,000, and those where someone earns over £60,000 will lose all their Child Benefit. This will save the government around £1.7 billion in 2014–15.92 Rates of Child Benefit will remain frozen until 2014–15.

• The discretionary Social Fund will be abolished in April 2013. Budgeting loans and some crisis loans will be replaced by ‘short-term advances’, while community care grants and other crisis loans will be provided in the form of locally administered assistance from the local authority.

• Increases in income of up to £10,000 within a tax year are currently ignored in the calculation of tax credits. From April 2013, this will be reduced to £5,000.

• From April 2013, Local Housing Allowance (LHA) rates will be uprated in line with CPI inflation each year rather than in line with local rents.

• The Job Grant will be abolished in April 2013.

• The maximum savings credit payable in Pension Credit is being frozen from April 2011 to April 2014, saving £330 million by 2014–15.93

• The basic and 30-hour elements in Working Tax Credit are frozen for three years from 2011–12, saving £820 million each year from 2014–15.94

90 Source: HM Treasury, Budget 2012 Policy Costings, March 2012 (http://cdn.hm-treasury.gov.uk/budget2012_policy_costings.pdf).

91 Source: HM Treasury, Budget 2010 Policy Costings, June 2010 (http://www.hm-treasury.gov.uk/d/junebudget_costings.pdf).

92 Source: Tables 2.1 and 2.2 in HM Treasury, Budget 2012, March 2012 (http://cdn.hm-treasury.gov.uk/budget2012_complete.pdf).

93 Source: HM Treasury, Spending Review Policy Costings, October 2010 (http://www.hm-treasury.gov.uk/spend_sr2010_policycostings.htm).

94 Source: HM Treasury, Spending Review Policy Costings, October 2010 (http://www.hm-treasury.gov.uk/spend_sr2010_policycostings.htm).


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• The female State Pension Age is increasing from 60 to 65 over the period from 2010 to 2018. Further increases up to 68 in the State Pension Age for both sexes have been legislated for. See Section 3.4.1 for details of the timing and speed of these increases.


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5. Conclusions

The next decade is likely to see the most comprehensive reform of the social security system since the Second World War. The replacement of six of the seven main means-tested benefits for those of working age with the single Universal Credit should simplify the benefits system and rationalise work incentives. Currently, means-tested benefits and tax credits are administered by three different government departments. There are three separate income-replacement benefits for those out of work and separate benefits for those working more or less than 16 hours per week. This is complicated and burdensome for claimants, who have to submit the same information multiple times, and creates uncertainty about how much better off they will be from moving into work. Having overlapping benefits (where families receive more than one means-tested benefit at the same time) adds to the confusion for claimants, and can lead to situations where claimants benefit very little from increasing their earnings. A single integrated benefit should be simpler for claimants, reduce administrative costs and, by replacing a jumble of overlapping means tests with a single one, ensure that overall effective tax rates cannot rise too high, thus eliminating the very highest rates that can exist under the current system. However, this simplification will be undermined by the decision to retain support for council tax outside Universal Credit. The introduction of a single-tier pension also represents a simplification of the benefits system and will give people greater certainty about what they can expect from the state in retirement, providing greater clarity for private savings decisions.

Concurrently to these major structural reforms, the social security system will also see the largest real reductions in expenditure in its history. The welfare budget is being cut by £18 billion during the current spending review period, and the Chancellor and the Secretary of State for Work and Pensions wish to make £10 billion of further savings by 2016–17. This will involve a trade-off between reducing support for those with the lowest incomes and weakening work incentives by reducing support for those in work. These decisions, as much as larger structural reforms, will shape the benefit system in the years to come.


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Appendix A. Benefit expenditure from 1948–49 to 2011–12

Table A.1. Spending on benefits in cash terms and real terms (2011–12 prices), real increases and spending as a share of GDP

Cash terms (£m)

Real terms (£m)

Real rise (%)

% of GDPa

Cash terms (£m)

Real terms (£m)

Real rise (%)

% of GDPa

1948–49 471 11,428 4.00 1980–81 22,658 66,826 2.03 9.711949–50 598 14,190 24.16 4.80 1981–82 27,698 74,558 11.57 10.791950–51 611 14,169 -0.14 4.62 1982–83 31,628 79,722 6.93 11.271951–52 642 14,462 2.07 4.39 1983–84 35,332 85,302 7.00 11.561952–53 775 16,136 11.57 4.91 1984–85 38,251 87,938 3.09 11.631953–54 817 15,946 -1.18 4.85 1985–86 41,768 91,169 3.67 11.561954–55 839 15,960 0.09 4.69 1986–87 44,918 95,276 4.50 11.611955–56 942 17,557 10.01 4.86 1987–88 46,701 94,028 -1.31 10.841956–57 981 17,323 -1.34 4.73 1988–89 47,318 89,442 -4.88 9.881957–58 1,051 17,824 2.90 4.79 1989–90 50,314 89,101 -0.38 9.591958–59 1,287 21,308 19.54 5.68 1990–91 56,479 93,353 4.77 10.021959–60 1,350 22,229 4.32 5.57 1991–92 66,303 102,894 10.22 11.171960–61 1,390 22,500 1.22 5.41 1992–93 75,257 114,305 11.09 12.281961–62 1,553 24,520 8.98 5.76 1993–94 82,438 122,566 7.23 12.691962–63 1,646 25,246 2.96 5.81 1994–95 84,859 124,370 1.47 12.351963–64 1,891 28,632 13.41 6.21 1995–96 88,707 126,539 1.74 12.201964–65 1,962 28,473 -0.56 5.90 1996–97 92,212 127,628 0.86 11.911965–66 2,322 32,233 13.20 6.52 1997–98 93,342 126,647 -0.77 11.331966–67 2,457 32,810 1.79 6.50 1998–99 95,557 127,022 0.30 10.991967–68 2,790 36,351 10.79 6.97 1999–00 100,283 130,963 3.10 10.871968–69 3,172 39,578 8.88 7.30 2000–01 106,016 137,703 5.15 10.971969–70 3,392 40,262 1.73 7.27 2001–02 114,424 145,843 5.91 11.351970–71 3,637 39,970 -0.73 7.01 2002–03 120,229 149,503 2.51 11.271971–72 4,230 42,790 7.05 7.30 2003–04 129,998 158,162 5.79 11.501972–73 4,898 45,752 6.92 7.43 2004–05 135,484 160,108 1.23 11.421973–74 5,505 48,083 5.10 7.48 2005–06 142,032 164,094 2.49 11.411974–75 6,902 50,473 4.97 7.85 2006–07 148,987 167,627 2.15 11.311975–76 9,338 54,450 7.88 8.53 2007–08 158,141 173,600 3.56 11.371976–77 11,114 57,008 4.70 8.69 2008–09 172,286 184,103 6.05 12.321977–78 13,367 60,335 5.84 8.98 2009–10 188,728 198,684 7.92 13.771978–79 15,873 64,595 7.06 9.32 2010–11 196,932 201,537 1.44 13.621979–80 18,777 65,496 1.39 9.17 2011–12 200,978 200,978 -0.28 13.46

a The ‘% of GDP’ figures slightly overestimate the true figures since we divide our measure of benefit expenditure (which includes expenditure on tax credits in Northern Ireland) by GB GDP. (Figures on expenditure on tax credits in GB are not available.)

Note: Figures should be interpreted with care since many changes have occurred to the ways in which government support for individuals is delivered. For more details, see Appendix C of Department of Social Security, The Changing Welfare State: Social Security Spending, London, 2000, available by emailing a request to [email protected].

Sources: Department for Work and Pensions for benefit expenditure figures, available at http://research.dwp.gov.uk/asd/asd4/medium_term.asp; HMRC for tax credit and recent Child Benefit figures, available at http://www.hmrc.gov.uk/statistics/benefits-credits.htm; HM Treasury for GDP figures, available at http://www.hm-treasury.gov.uk/data_gdp_fig.htm.


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Appendix B. Benefits available only to existing claimants

Incapacity Benefit

Partly taxable, Contributory, Partly means-tested

Incapacity Benefit (IB) is payable to individuals who cannot work due to sickness or disability. It was replaced by Employment and Support Allowance (ESA; see Section 3.5.2) for all new claimants from 27 October 2008.95 The transfer of existing claimants onto ESA began in October 2010, and will be complete by April 2014. It is also possible to claim for IB if you are already claiming Income Support on the grounds of disability.

To qualify, claimants must be incapable of work. Capability for work is determined by the ‘own occupation test’ for the first 28 weeks of incapacity, which determines whether or not the claimant is capable of returning to the type of job that they were doing before they became incapacitated. After 28 weeks, the claimant must satisfy the ‘personal capability assessment’, which tests ability to perform a range of activities. Claimants of IB are usually exempt from the personal capability assessment if they are in receipt of another benefit related to some severe condition, such as the highest rate of the care component of Disability Living Allowance (DLA; see Section 3.5.3).

Entitlement to IB requires that the claimant has paid or been credited with enough National Insurance contributions (NICs), with exceptions applicable to some widows and widowers and those who became incapable of work in youth.96 IB claimants must be at least 16 years old; for the short-term rates, they cannot be more than five years above State Pension Age; for the long-term rate, they cannot be above State Pension Age.

Rates of IB are given in Table B.1. The lower short-term rate – the only rate of IB that is tax-free – is payable for the first 28 weeks of sickness if the claimant is not entitled to Statutory Sick Pay (SSP), and the higher (taxable) short-term rate is payable from weeks 29 to 52. After a year of entitlement, the (taxable) long-term rate becomes payable. Recipients of the long-term rate may be entitled to an age-related addition to their benefit, depending on their age when entitlement to IB or SSP began. People who are terminally ill or who are entitled to the highest rate of the care element of DLA (see Section 3.5.3) can receive an amount equal to the long-term rate of IB after 95 The Welfare Reform Act 2007 (http://www.opsi.gov.uk/Acts/acts2007/pdf/ukpga_20070005_en.pdf). 96 Individuals under the age of 20 (25 with a spell in full-time education), who may not be able to fulfil the NIC requirements for IB eligibility, may still be entitled to claim.


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28 weeks of eligibility instead of one year. Since 6 April 2001, there has been a 50% withdrawal rate of IB for certain pension income above £85 a week.97

In 2011–12, total expenditure on IB was around £4.9 billion, with 1.39 million people claiming the benefit in February 2012. Of these, 1,620 were on the lower short-term rate, 1,780 were on the higher short-term rate and 802,480 were on the long-term rate (with the remaining 579,740 claiming ‘Incapacity Benefit credits’).98 Recipients of long-term IB are entitled to the Christmas Bonus.

Table B.1. Current rates of Incapacity Benefit, £ per week

Claimant under

pensionable age Claimant over

pensionable age Short-term IB (lower rate) Standard 74.80 95.15 Increase for dependants: Adulta 44.85 55.45 Short-term IB (higher rate) Standard 88.55 99.15 Increase for dependants: Adulta 44.85 55.45 Long-term IB Standard 99.15 – Increase for dependants: Adulta 57.60 – Age-related addition: Under 35 11.70 n/a

Under 45 5.90 n/a a Increases for child dependants have, since 6 April 2003, been replaced by Child Tax Credit (CTC) for all new

claimants; however, existing claimants may still be entitled to claim these additions via IB rather than CTC (see below).

Child-related benefit increases

Child Tax Credit (Section 3.1.3) replaced increases for child dependants from 6 April 2003 (for a range of benefits) or from 6 April 2004 (for IS and JSA).

The first wave of benefits includes the Basic State Pension (excluding Category D; see Section 3.4.1), Incapacity Benefit (see above), Carer’s Allowance (Section 3.5.5), Severe Disablement Allowance (see below) and Widowed Parent’s Allowance (Section 3.6.3). The rate of increase is £8.10 for the eldest child and £11.35 for each of the subsequent children. Existing claimants might still be entitled to the increases if the eligibility conditions for the benefit increase in question have been met continuously since the date of the policy change.

97 Details on the reduction of IB for pension payments can be found on page 343 of CPAG 2012/13. 98 Those 579,740 claimants receive National Insurance credits but not monetary payments. Source: Department for Work and Pensions, Incapacity Benefit tabulation tool (http://83.244.183.180/100pc/ib/tabtool_ib.html).


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Child additions to Income Support (IS) and income-based JSA are still payable to claimants who had been claiming for IS or income-based JSA continuously since 6 April 2004, on the condition that the previous claims included amounts for dependent children. These can include a child personal allowance of £64.99, as well as the premiums above. Their claims cease to include the child dependency increases once they claim and are awarded CTC, and they may be automatically transferred to CTC by the government. As of late 2010, the transfer process for JSA claims has been completed.99 The rates of increases vary depending on family circumstances, such as whether the child is disabled (see Table 3.1.3). But for any claimant, the amount of payment under IS child additions is equivalent to that under CTC. Expenditure on the child-related premiums in IS in 2011–12 was around £458 million. The number of families receiving child additions to IS is not available, but is included in the CTC claimant figure in our Table 2.1.100

Adult dependency increases

Increases for adult dependants in Carer’s Allowance (Section 3.5.5) and Category A state pension (Section 3.4.1) have been abolished for new claimants since 6 April 2010. Entitlements to the increases before that date will continue until the qualifying conditions are no longer satisfied or 5 April 2020, whichever is first.

Widow’s Pension & Widowed Mother’s Allowance


Widow’s Pension and Widowed Mother’s Allowance (WMA) were replaced in April 2001 by Bereavement Allowance (BA; Section 3.6.2) and Widowed Parent’s Allowance (WPA; Section 3.6.3). However, women whose husbands died before 9 April 2001 can continue to claim the old benefits, which are more generous. Just as BA and WPA are not payable at the same time, neither are Widow’s Pension and WMA.

Widow’s Pension is payable at the same rate as BA (men cannot claim Widow’s Pension), and widows can receive this pension until they reach the age of 65, whereas BA is payable for only one year. The Christmas Bonus is also payable with the Widow’s Pension, but not with BA.

Women receiving WMA before 9 April 2001 (men were not eligible) can continue to do so as long as they have an eligible child. Unlike WPA, WMA does not have an 99 Information courtesy of the Department for Work and Pensions. 100 Because the amount via IS or JSA is equivalent to CTC. Source: HM Revenue and Customs, Child and Working Tax Credits Statistics, April 2012 (http://www.hmrc.gov.uk/statistics/prov-main-stats/cwtc-apr12.pdf).


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upper age limit. WMA is payable at the same rate as WPA per week, and attracts the Christmas Bonus.

As of February 2012, approximately 34,800 women were claiming Widow’s Pension and 5,000 were receiving WMA.101

Lone-parent increase in the family premium (HB and CTB)


A lone-parent premium (currently £4.80) has been payable only to existing claimants of Housing Benefit and Council Tax Benefit since 6 April 1998. To qualify for this increase, the claimant must remain continuously entitled to HB/CTB as a lone parent, and does not become entitled to a disability premium or pensioner premium. Since 6 April 1998, new lone-parent Housing Benefit claimants have been entitled to the standard family premium alone (currently £17.40). See Section 3.3.3 for details of the main benefit.

Severe Disablement Allowance


Severe Disablement Allowance (SDA) is payable to individuals who are incapable of work but were unable to claim Incapacity Benefit because they failed to satisfy the National Insurance contribution conditions. It has been abolished for new claimants since 6 April 2001. However, people who were entitled to SDA before that date may continue to claim it. From 31 January 2011, a claimant cannot requalify for SDA after a break in their entitlement, since all new claims for SDA are treated as claims for Employment and Support Allowance (ESA). Recipients of SDA are entitled to the Christmas Bonus.

The capability tests to determine eligibility for SDA are the same as those for Incapacity Benefit (see above), with people claiming SDA prior to 12 April 1995 exempt from the personal capability assessment. Three groups of people can qualify for SDA (the qualifying conditions must have been met prior to 6 April 2001):

• those who are incapable of work for a consecutive 28-week period that began on or before the claimant’s 20th birthday;

• those who have been incapable of work for a consecutive 28-week period and are at least 80% disabled (including registered blind people);

101 Source: DWP tabulation tool http://83.244.183.180/100pc/tabtool.html.


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• those who were entitled to claim non-contributory invalidity pension before November 1984.

Claimants must be aged between 16 and 65, although there is no upper limit on the age at which entitlement can continue once an award has been made. Claimants under the age of 20 on 6 April 2001 were transferred to long-term Incapacity Benefit by 6 April 2002, with no requirement to have satisfied the requisite NIC conditions (see above).

Table B.2. Current rates of Severe Disablement Allowance, £ per week

Basic benefit Increases for child dependants:

Eldest or only childSubsequent children (each)

69.00

8.10 11.35

Increase for adult dependanta 34.60 Age-related addition: Under 40 11.70

40–59 inclusive 5.90 a The adult dependant increase is not paid if, in the previous week, the dependant’s earnings were sufficiently

high.

SDA comprises two elements: a basic allowance and an age-related addition dependent upon the age at which the incapacity for work began. Increases for dependent children were abolished on 6 April 2003; however, those who were entitled to these prior to this date can still claim them.

In the future, the government intends to reassess those claiming SDA with a pension date before 6 April 2014, moving those who qualify onto Employment and Support Allowance (see Section 3.5.2 and Sections 4.4.1 and 4.4.2 on policy changes for disabled people).

In February 2012, an estimated 217,030 people received SDA, and expenditure was estimated to be around £878 million in 2011–12.102

Independent Living Fund

The Independent Living Fund (1993) is a government-financed trust to help severely disabled people live at home rather than move into residential care. From December 2010, the ILF has been permanently closed to new applications. The conditions for continued payments to existing claimants are that they must be entitled to the highest rate of DLA (care), and living independently rather than in residential care. As long as the claimant is receiving at least £340 worth of services each week from social services, they are eligible to receive up to an extra £475 or £815 per week 102 Source: Beneficiary number from IB/SDA combined information in DWP tabulation tool http://83.244.183.180/100pc/tabtool.html.


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from the Fund to help pay for care assistance, depending on when they applied.103 Payments are discretionary and depend on weekly care requirements and available income (excluding earnings from work). Claimants with savings or capital greater than £23,250 are not eligible for assistance from the Fund. Expenditure on the Independent Living Fund for 2011–12 was around £325 million, with 18,387 beneficiaries on 30 September 2012.104

Industrial injuries benefits (elements of)


The Reduced Earnings Allowance (REA) is a supplement payable only to those assessed as 1% or more disabled as a result of an industrial injury or disease that can be proved to have happened before 1 October 1990. The payment is made to compensate people for loss of earnings since they are unlikely to be able to return to their regular occupation or to employment of an equivalent standard. The amount of REA payable is the difference between the wage earned in their previous regular employment and the wage in a job they are likely to be able to do, given their disability, up to a maximum of £63.24 a week. The total received from REA and Industrial Injuries Disablement Benefit (IIDB; Section 3.5.7) cannot exceed 140% of the maximum IIDB award.

Retirement Allowance (RA) is effectively a reduced form of REA for individuals over pension age (for whom REA is not payable). Recipients of REA of at least £2 per week who reach pensionable age and give up regular employment are entitled to RA. The amount payable is the lower of 25% of the REA that was being paid or £15.81 per week.

In March 2012, there were 53,660 claimants of REA alone and 56,730 claimants receiving it in addition to IIDB.105

Industrial Death Benefit

Taxable, Non-contributory, Non-means-tested

Industrial Death Benefit (IDB) is payable to widows of men who died as a result of an industrial accident or disease before 11 April 1988. After this date, other bereavement benefits (mainly Bereavement Payment and Widowed Parent’s 103 https://www.gov.uk/independent-livingfund/what-youll-get.

104 GB figures from Independent Living Fund, Quarterly User Profile Analysis (http://www.dwp.gov.uk/ilf/publications/corporate-publications/statistics/).

105 Source: DWP, Industrial Injuries Disablement Benefit Quarterly Statistics: March 2012 (http://research.dwp.gov.uk/asd/index.php?page=iidb).


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Allowance) are payable instead. Recipients of IDB are entitled to the Christmas Bonus.

IDB is payable to existing recipients at one of two rates, depending upon the age at which they were widowed. Allowances are also payable for dependent children. An age addition of 25 pence per week is payable at age 80, as long as this addition is not being received with any other social security benefit.

In 2011–12, approximately 7,000 people received IDB,106 at a total cost to the exchequer of approximately £33 million.

Table B.3. Current rates of Industrial Death Benefit, £ per week

Basic rates: Higher rate 107.45 Lower rate 32.24

Children’s allowances: Eldest or only child 8.10 Subsequent children (each) 11.35

106 Source: http://research.dwp.gov.uk/asd/asd4/medium_term.asp (under industrial injuries benefits).


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Appendix C. The Social Fund

Below is a detailed breakdown of all Social Fund payments for 2011–12 (see Section 3.3.6). Figures for awards and expenditures are taken from the Annual Report by the Secretary of State for Work and Pensions on the Social Fund 2011/2012.107

Discretionary Regulated Repayablea Budgeting loans Cold weather payments Community care grants Crisis loans Funeral paymentsb Sure Start maternity grants a All repayable loans are interest-free. b Funeral payments are recoverable from any money from the deceased person’s estate.

Budgeting loans

Budgeting loans are interest-free loans available to people on Income Support, income-based JSA, income-related ESA or Pension Credit to help them cover specific intermittent expenses that may be difficult to budget for. Loans are made from a limited budget. To be eligible, claimants must have been claiming one of the above benefits throughout the previous 26 weeks (short breaks are ignored). Loans vary between £100 and £1,500 depending on the applicant’s circumstances. If the applicant has capital over £1,000 (or £2,000 if the claimant or their partner is aged 60 or more), the maximum available loan is reduced by the amount of the excess capital. The loan must be repaid, and, indeed, likelihood to repay is one of the criteria on which allocation of available funds is determined. Normally, an individual’s total debt to the Social Fund (including both budgeting loans and crisis loans) should be repaid with 104 weeks.

In 2011–12, 1.58 million people applied for a budgeting loan. Of these applications, 1.12 million (70.9% of initial decisions) resulted in a loan being awarded, the average size of which was £394.108 Gross expenditure was £447.5 million, and £458.7 million was recovered from previous loans; therefore net expenditure on budgeting loans in 2011–12 was –£11.1 million.

107 http://www.dwp.gov.uk/docs/2012-annual-report-social-fund.pdf. 108 For the regulated Social Fund, the method of calculating average awards is to divide gross expenditure by the number of awards (including those made after reconsideration or appeal). For the discretionary Social Fund, the method of calculating average awards is to divide initial gross expenditure (excluding the value of review awards) by the number of initial awards.


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Cold weather payments

Cold weather payments are available to all those who receive Pension Credit and certain subgroups of those receiving income-related ESA, income-based JSA or Income Support, chiefly those with children who are disabled or under 5.109

The system links all eligible individuals to one of 92 national weather centres. If the daily mean temperature (the average of the maximum and minimum temperatures recorded) at the relevant station is, or is forecast to be, 0°C or below for seven consecutive days, the cold weather payment of £25 (for each seven-day period between 1 November and 31 March) is automatically payable.

Clearly, the total cost of this payment is greatly influenced by factors outside the control of the government. For the winter of 2011–12, only around 5.2 million payments were made at a cost of £129 million, compared with 17.2 million payments at a cost of £431 million in 2010–11.110

Community care grants

Community care grants (CCGs) are payable to people in a wide range of special circumstances who need community care. CCGs are designed to help people live independently in the community, i.e. to prevent residential care from becoming necessary, or to ease transition back into the community following a residential-care placement. Grants can also be paid to help with the care of prisoners on temporary release, to help with travel expenses, to help people set up home as part of a planned resettlement programme, or to help ease pressure on individuals and their families when community care is involved. To be eligible, the claimants must be in receipt of Income Support, income-related ESA, income-based JSA or Pension Credit, or be likely to start getting one of the above benefits within the next six weeks.

The minimum award is £30, unless it is for living or travel expenses. There is no legal maximum. Claimants with capital over £500 (£1,000 for those aged 60 or above) may have their entitlement reduced pound for pound. In 2011–12, 588,000 applications were received and 216,000 awards made (36.9% of initial decisions). The average award was £509, with total expenditure on CCGs of around £139 million.

Crisis loans

Crisis loans are interest-free and are available to people who have suffered an emergency or disaster and as a result need help to meet immediate short-term need. Applicants should show that they have no other means of preventing serious 109 For further details, see page 582 of CPAG 2012/13. 110 Annual Report by the Secretary of State for Work and Pensions on the Social Fund 2011/2012 (http://www.dwp.gov.uk/docs/2011-annual-report-social-fund.pdf).


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damage and risk to the well-being of themselves or their family. It is not necessary for the applicant to be in receipt of any other benefits to qualify for a crisis loan. There is no minimum payment, and the maximum amount depends on what the applicant can afford to repay. There is an overall limit of £1,500 less any outstanding Social Fund loan (such as a budgeting loan) to the applicant or their partner.

In 2011–12, there were 2.586 million applications and 2.571 million initial decisions regarding crisis loans, with 2.071 million awards being made (80.6% of initial decisions). The average award was £64, with total expenditure of £133.3 million. Given recoveries of £148.4 million, there was net expenditure of –£15.2 million on crisis loans in 2011–12.

Funeral payments

Funeral payments can be awarded to claimants who are (for good reason) responsible for organising a funeral, but who are unable to meet such a large expense. Claimants (or their partners) must be in receipt of Income Support, income-related ESA, income-based JSA, Housing Benefit, Council Tax Benefit, Child Tax Credit (at a rate exceeding the family element), Working Tax Credit (including a disability element) or Pension Credit. The amount payable covers the costs of burial or cremation, documentation necessary for the release of the deceased’s assets, some travel expenses and up to £700 for other costs (e.g. flowers or funeral director’s fees).

In 2011–12, there were 69,000 applications, with 38,000 awards (54.5% of applications). The average award was £1,241 and gross expenditure was £46.7 million, with £0.4 million being recovered (funeral payments can be recovered from the deceased person’s estate), giving net expenditure of £46.3 million.

Sure Start maternity grants

Individuals are eligible for a Sure Start maternity grant if they (or a member of their family) are pregnant, or have given birth in the last three months; or if the claimant (or their partner) has adopted a child who is less than 12 months old, or received a parental order enabling them to have a child by a surrogate mother. The grant is only available if there are no other children (under 16) in the family, but a grant can be awarded for each child of a multiple birth. Claimants (or their partner) must also be in receipt of Income Support, income-related ESA, income-based JSA, Child Tax Credit (at a rate exceeding the family element), Working Tax Credit (including a disability payment) or Pension Credit, and must prove that they have received health and welfare advice from a health professional. The amount payable is £500 per child. There are no capital limits.


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In 2011–12, there were 198,000 applications for the Sure Start maternity grant, of which 89,000 (44.9% of initial decisions) resulted in an award. Total expenditure was £45.3 million at an average of £507 per award (the additional £7 is due to multiple births).


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Appendix D. War pensions and AFCS

War pensions are replaced by the Armed Forces Compensation Scheme (AFCS) as a complete package of financial compensation for injuries and death that occurred on or after 6 April 2005 and are attributable to service in the Armed Forces. Both schemes provide long-term payments to disabled former servicemen/women as well as surviving spouses/partners.

AFCS is simpler than war pensions. AFCS consists of a lump sum and a Guaranteed Income Payment (GIP) for the injured/disabled (Section 3.5.6); and a Survivors’ Guaranteed Income Payment (SGIP; Section 3.6.4) for surviving dependants when death results from service. The actual amounts are calculated by formulas, which can be found in the Armed Forces and Reserve Forces (Compensation Scheme) Order 2005.111

Because recipients of war pensions as a result of injuries and death prior to 6 April 2005 are not affected by the policy change, a much larger number of people are currently entitled to war pensions than to AFCS. As at 31 March 2012, there were only 1,060 recipients of GIP and SGIP.

The following is a brief description of the various pensions and allowances available to war pensioners. Figures for recipients of each payment are taken from the Defence Analytical Services Agency’s War Pensions – Quarterly Statistics.112 Rates information comes from the Service Personnel and Veterans Agency publication, Leaflet-9,113 and is applicable from April 2012. Unfortunately, no figures for expenditure on each allowance are available.

War Disablement Pension

War Disablement Pension (WDP) is payable to individuals who have become at least 20% disabled (as assessed by Department for Work and Pensions doctors) while serving in HM Forces. It is payable at varying rates according to the degree of disablement (to the nearest 10%), with a one-off gratuity (lump-sum payment) available to those who are less than 20% disabled. The current maximum rate of WDP is £8,756 per annum for officers and £167.80 per week for other ranks, payable 111 Available at http://www.legislation.gov.uk/uksi/2005/439/made. 112 Edition 31 March 2012, released 7 June 2012 (http://www.dasa.mod.uk/applications/newWeb/www/index.php?page=48&thiscontent=500&pubType=1&date=2012-06-07&PublishTime=09:30:00). 113 Service Personnel and Veterans Agency, Rates of War Pensions and Allowances, 2012-2013, April 2012 (http://www.veterans-uk.info/pdfs/publications/va_leaflets/valeaflet9.pdf).


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to those assessed as 100% disabled.114 As at 31 March 2012, 134,430 people were receiving WDP, of whom 53% were aged 70 or over. Approximately five out of six (86%) disablement pensioners were assessed as 50% disabled or less, and only around 3% (4,115) were assessed as 100% disabled. The Christmas Bonus is payable with WDP if the recipient is aged 65 or over.

Unemployability Supplement

Unemployability Supplement (US) is payable to war pensioners who are (virtually) unemployable as a result of their disability. New claimants must be under the age of 65, with disability assessed to be at least 60%. The current rate of US is £5,408 per annum for officers and £103.65 per week for other ranks, with increases available for both adult and child dependants.115 As at 31 March 2012, 6,910 people were receiving US. The Christmas Bonus is payable with US.

Recipients of US may also be entitled to receive Invalidity Allowance, at a rate that depends upon the age at which unemployability began. There are three rates for Invalidity Allowance: the highest rate (if aged under 40) is £20.55 per week, the middle rate (if aged between 40 and 49) is £13.30 per week and the lowest rate (if aged between 50 and 59) is £6.65 per week – £1072, £694 and £347 per annum respectively. Invalidity Allowance was received by 6,035 people as at 31 March 2012.

Constant Attendance Allowance / Exceptionally Severe Disablement Allowance

Constant Attendance Allowance (CAA) is payable to war pensioners who need daily care and attention, and whose War Disablement Pension is payable at the 80% rate or above. CAA is payable at four rates: the part-time (half-day) rate of £31.65 per week for other ranks (£1,651 per annum for officers) if attendance is required for half a day or less; the normal maximum rate of £63.30 per week for other ranks (£3,303 per annum for officers) if attendance is needed for more than half a day; the intermediate rate of £94.95 per week for other ranks (£4,954 per annum for officers) for those who are severely disabled and require extra attendance; and the exceptional rate of £126.60 per week for other ranks (£6,606 per annum for officers) for very severely disabled people who are entirely dependent upon full-time attendance for their everyday needs. The Christmas Bonus is payable with CAA.

Claimants of either the intermediate or the exceptional rate of CAA whose need for constant attendance is likely to be permanent may also qualify for the Exceptional 114 For those assessed as 20% disabled (the minimum level for receipt of WDP), the rates are £1,751 per annum for officers and £33.56 per week for all other ranks. 115 A rate of £57.60 per week is payable for an adult dependant of a non-officer (£3,006 per annum for the dependant of an officer); £13.40 per week is payable for the oldest (and £15.75 for each subsequent) child of a non-officer (£699 and £822 per annum respectively for the children of officers).


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Severe Disablement Allowance (ESDA) of £63.30 per week for other ranks (£3,303 per annum for officers). In March 2012, 2,480 people received CAA; of these, 550 also received ESDA. Recipients of either of the highest two rates of CAA who are still in gainful employment may also be entitled to the Severe Disablement occupational Allowance of £31.65 per week for other ranks (£1,651 per annum for officers), although there have been no claims for this since September 2011.

Allowance for Lowered Standard of Occupation

An Allowance for Lowered Standard of Occupation is payable to war pensioners with reduced earnings capacity if their disablement prevents them from pursuing their regular occupation. Claimants must be under 65 and must have a disablement of at least 40% (but less than 100%). The maximum allowance payable to other ranks is £63.24 per week (£3,300 per annum for officers), and 11,150 people received this allowance in March 2012.

Age Allowance

Age Allowance is payable to war pensioners aged 65 or over whose disablement is assessed to be 40% or more. The amount varies according to the degree of disability, with the maximum rate (for 100% disability) currently standing at £34.50 per week for other ranks (£1,800 per annum for officers). In March 2012, 30,935 people claimed Age Allowance.116

Clothing Allowance

An annual Clothing Allowance (currently £216) may be payable to war pensioners if they are an amputee or if their disability causes exceptional wear and tear on clothing. In March 2012, there were 3,115 awards of Clothing Allowance in payment.

Comforts Allowance

Comforts Allowance may be payable to a severely disabled war pensioner receiving CAA or US, to help with the extra expenses associated with severe disablement. It is payable at a higher rate of £27.20 or a lower rate of £13.60 per week for other ranks (£1,419 and £710 per annum for officers). Comforts Allowance was paid to 7,645 people in March 2012.

116 Including 1,000 disablement pensioners and widow(er)s receiving an addition at age 80 in Northern Ireland.


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Mobility Supplement

The Mobility Supplement is payable to war pensioners who are at least 40% disabled and have severe difficulty walking. In March 2012, 13,350 people received the Mobility Supplement. The current rate is £60.40 per week for other ranks (£3,152 per annum for officers). The Christmas Bonus is payable with Mobility Supplement.

War Widow(er)’s Pension

There were 26,375 War Widow(er)’s Pensions in payment as at 31 March 2012.

Table D.1. Current maximum rates of War Widow(er)’s Pension

Lower ratea Standard rateb Rank of late husband/ wife

Private, Corporal, Sergeant, Staff Sergeant, Warrant Officer Class I and II

£30.48 p.w. £127.25 p.w.

First or Second Lieutenant £1,843 p.a. £6,713 p.a. Captain £2,096 p.a. £6,741 p.a.

Major £2,350 p.a. £6,766 p.a. Lieutenant-Colonel - £6,817 p.a.c

Colonel - £6,853 p.a.c Brigadier - £6,955 p.a.c

Major-General - £7,060 p.a.c Supplementary pension:d Officers £4,441.56 p.a.

Other ranks £85.12 p.w.

Age allowances: Officers: Aged 65–69 £757 p.a.

Aged 70–79 £1,456 p.a. Aged 80+ £2,158 p.a.

Other ranks: Aged 65–69 £14.50 p.w. Aged 70–79 £27.90 p.w. Aged 80+ £41.35 p.w.

Increases for children: Officers: Eldest or only child £1,041 p.a.

Subsequent children (each) £1,166 p.a.

Other ranks: Eldest or only child £19.95 p.w. Subsequent children (each) £22.35 p.w.

Maximum rent allowance: Officers £2,502 p.a. Other ranks £47.95 p.w. a For those under 40 with no children. b For those over 40 and for those under 40 with children. c The rates are slightly higher for widows of those who served in the 1914 War. d Payable to widow(er)s of Forces personnel whose service ended before 31 March 1973.

Source: Service Personnel and Veterans Agency, Rates of War Pensions and Allowances, 2012-2013, April 2012 (http://www.veterans-uk.info/pdfs/publications/va_leaflets/valeaflet9.pdf).

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