I remind Members that questions should be limited to matters within the scope of the Bill and that we must stick strictly to the timings in the programme motion. Time is limited, so I encourage you to be brief when you ask questions. I remind witnesses that not all of you have to answer every question if one of you can answer for the rest and if that is what you want.
The Bill does not tell us anything as yet about how the Government propose to support the cost of child care in the future. What would you like to see in the regulations when they are introduced in terms of what proportion of costs will be covered and what the arrangements should be?
Alison Garnham: What we are keen to see is something that closely replicates what happens now with tax credits. The original thinking in the Department for Work and Pensions was about perhaps introducing a disregard. The disadvantage of that would be that those on the lowest incomes would not get any help at all, so it is very important that a payment is introduced that closely resembles what happens with tax credits.
Many of us have been arguing for some time that the payment should cover 100% of child care costs. That is because, at the moment, it is assumed that parents can make a contribution to the tune of 20%. From April, it will be 30% because the percentage of child care costs covered will be reduced in tax credits. We would like the percentage to be at least 80% and 90% for families with disabled children. One of the reasons why that is important is that the amount that parents have to contribute assumes that there is a shopping incentive. It assumes that there is some advantage to be had in looking around for cheaper child care, but of course, early childhood education and care are very important, and they should be of high quality and benefit the child, so there is no advantage to be gained from reducing the amount of support that families have.
One of the most important things about child care costs is that, at the moment, if you look at the universal credit calculations and if you include child care costs at about 70%, where it is now, the marginal deduction rates—the amount that you lose per pound of extra earnings—would rise to about 94% if you have one child, or 98% if you have two children. It is very important that we have a higher proportion of contribution than the 70% currently in the tax credit system.
Fiona Weir: I welcome the fact that we have heard some noises that child care costs may be extended to parents who are on shorter-hours working—under 16 hours a week. That would be very welcome to a lot of single parents who are quite keen for their first job to be a mini-job, so we are very positive about that, but not if it comes from the same size of pot, therefore reducing child care costs for other parents. Child care is absolutely crucial to making work pay for so many, so we think it is absolutely essential, if we are going to make work pay, that more money is put behind delivering the scale of investment that is needed.
On the measures that have been put in place already, we estimate that, for a single parent with two children who works full time, the drop from 80% to 70% could cost up to £1,600 a year, which is a really powerful step in the wrong direction for the purpose of the Bill. Our message is that there has to be money behind child care costs if we are to make a reality of making work pay.
Alison Garnham: One of the problems at the moment with the work that the Department is doing is that the size of the funding envelope that is available is affecting the level of support that people will be able to get. If the ceilings remain as they are now, it would suggest that the taper rate would fall as low as 60%, and, as Fiona said, the incentive to work would be very low at that level. This is an opportunity to make sure that there are very good work incentives. If instead you had a higher taper rate at about 80%, it would probably lower the maximum rates that were available from the fixed pot of money. That is a real concern. In fact, what needs to happen is for that pot of money to be expanded; otherwise, there would be a real danger that it would damage parents’ work incentives.
Alison Garnham: It is very important that there is some provision, for two reasons. There are certain types of payment that you would want to go to the main carer; for example, we would like the amounts included in universal credit for children and for child care to go to the main carer. There are other elements such as housing costs, where there might be a case for their being made across to the person who has the liability to pay the rent. It is useful to have that provision.
The most crucial point is that, at present, under tax credits, the main carer receives all the payment. If the same thing does not happen with universal credit, it will amount to a serious redistribution of income away from main carers, most commonly to fathers. That does not reflect the kind of day-to-day budgeting that actually happens in low- income households. It is really important, including for the stability of the relationship, that the payments go to the main carer, who in many cases is the person responsible for managing family bills and so on.
May I ask about the implications of the move to bring lone parents whose children have reached age five into the system, building on what we know has been a gradual reduction in the child’s age at which lone parents are expected to go to work? First, what do you think the impact has been of the reduction so far, staged and proceeding? On the success rates of lone parent employment, what has been the mix been between conditionality and incentive? Finally, what are the child care implications of those changes?
Fiona Weir: Specifically around children aged five rather than the wider questions, I think there is a particular issue around the 5% whose child aged five has not yet started school. Some protection needs to be put in place so that they are not required to work during those early, sensitive weeks. We have some specific concerns around the fact that for a lot of single parents, it is when their child goes to school that they start thinking about education, skilling up and their long-term career direction, and we are very concerned that a particular group may have those opportunities closed off to them if they are not fully protected.
In terms of the broader experience to date, we have a lot of concerns about the inflexibility of the system to deal with parents’ need to be there, and to be responsible for their children. There is not flexibility in the system at the moment to deal with a child with health, behavioural or other problems. A long series of flexibilities have previously been agreed for particular circumstances which make it easier for parents to combine job-seeking requirements with their parental responsibilities. As yet, they have not been clearly laid out again in regulations, and it is not clear how many of them will be protected and taken forward. If you run through the list, from limiting working hours to school hours, limiting hours to 16 a week, what happens when there is an exclusion or parenting order, through to the domestic violence exemptions, there is a whole series of specific flexibilities for particular circumstances that need to be in the regulations that, as yet, have not been laid in connection with the Bill. They need to be protected.
Thirdly, I think we would say that sanctions are largely a red herring. We are seriously worried that were a sanction to be imposed on a family with a child, the potential consequences of doing without benefits for such a long period, even with some access to hardship funds, would be extremely worrying. We think that they are a red herring because most of the evidence base shows that we are not particularly effective at getting people into work. Most people who provide regular employability training, like us, understand that you get people into work through affordability and availability of child care, jobs being available, particularly jobs with flexible hours, and high-quality training and support to build confidence and skills. We are particularly worried about the level of investment going in at the moment for lone parent adviser training, which all the evidence shows is crucial to the quality of support that single parents will get. We are increasingly hearing noises that that provision will be decided at district level, which again causes concern about the extent to which the support systems are really there.
We think that the Bill hugely swings the balance too much in the direction of sticks, although there is very little evidence base that they actually work, and not nearly enough in the direction of support and making the right kind of jobs available, which we know works.
That is very helpful. Can I just ask one quick question—I do not know who is best placed to answer it. Given the Bill’s incentive to enter work—there is a more powerful incentive to start work than to increase your hours—and the recognition of the role of mini-jobs in that context, is there any issue about the provision of child care, in particular the capacity of child care to provide cover for mini-jobs, and payment for mini-job cover, given that most child care providers will insist on sessional or full-day care?
Alison Garnham: That is a big problem with the child care industry in general. Generally, you do not buy hours of child care—you buy a session. So you buy 9.30 to 12.30, or 1.30 to 4 o’clock. It is very difficult to buy the number of hours that you need. Also, age five is a particularly difficult point for parents. Most people find that pre-school child care is much more flexible than the child care that is available once your children start school. Day one at school, you suddenly discover that the school closes down at 3 o’clock, you have to sort out the child minder picking children up, and after-school clubs. The reality is that the extended schools provision that was promised did not really materialise to the extent that everyone anticipated it would, so you also face the fact that there is a dearth of child care for school-age children. Just when you hit the crisis point in child care for age five—and at the same time hoping that your child settles down at school—you are asked to think about paid work and finding child care in order to work. I would argue that five is quite a problematic age.
Sarah Jackson: If I may add a point, not just about lone parents but parents generally, if you are working atypical hours—if you are not working 9 to 5, or if you work shifts—it can be very hard to find child care that fits. We frequently come across examples of parents who are asked by their employers to work odd shifts or extra hours at short notice. People are often threatened with losing their job if they cannot find child care to enable them to do that work. We really have to think about the interplay between child care provision and working patterns, and the availability of short, family-shaped jobs.
I will ask some questions about the social fund, which the Government are proposing to abolish and pass to local authorities. I would like your views on how the existing system has been functioning, and how well you think the Government’s proposals will serve to replace it. Perhaps Alison or Fiona might want to concentrate on that question.
Alison Garnham: I am very worried about the proposals connected to the social fund. I never thought that I would be in a position of defending it, because it has always been seen as quite a problematic feature of the social security system: it operates on cash limits, and it is discretionary. There is a bit of a lottery around the country as to whether you get help, so there is already an issue about whether the decisions are fair. However, there is an inspectorate that checks that decisions are broadly being made in the same way.
The changes will mean that elements of budgeting loans will transfer to universal credit, and the advance payments that form part of crisis loans will also be part of an advance payments scheme in universal credit, but the remainder will go to local authorities. We have heard that the money will be sent directly to local authorities but will not be ring-fenced, and that there will be no regulations or guidance governing who gets the payments, and no independent scrutiny of how decisions are made. That is a real matter of concern, because it means that all around the country there will be different schemes, and we do not know what those schemes will be or whether it will be possible to evaluate them, because they will be so varied. We have no idea what the families that we deal with, who have problems such as their cooker breaking down, meaning that they need to go to Jobcentre Plus to see whether they can get help with feeding their children, will meet in their local area. Will it be a scheme to help with financial inclusion? Will it be a second-hand furniture organisation that is being subsidised by the local authority? It is worrying, because families need consistency and need to know where they can get the help that they need.
Alison Garnham: Potentially. The money can be spent in any way the local authority likes. It could be spent developing schemes on financial awareness, not necessarily on giving people money. There have been various schemes, right the way back to the supplementary benefit days, which acknowledged that when you live on levels of income that are below the poverty line, it is very difficult to save up for one-off items. There has always been a scheme to help people pay for things that they need a lump sum for. It is understood that people cannot possibly save for those one-off items. If the new scheme means that there will not be any such facility, that presents a major problem for low-income families.
I am fascinated by the points that you are making in relation to the local authority situation, because the implication is that you have no trust in local authorities. Secondly, you made a point about there being no ring-fencing. Being a Welsh MP, I am aware of big complaints from local authorities in Wales that the Welsh Assembly insists on ring-fencing. As a result there is no real local variation that responds to local needs. Surely the potential for a response that is appropriate to local needs is very strong in a situation where local authorities are allowed to pursue their own policies.
Alison Garnham: But there are a number of questions in relation to that. Will the local authority be aware of all the people on benefit, or universal credit, who will be in need of these items? They are people that the local authority is not currently in contact with. They are not people who have anything to do with local social workers, for example. It would be difficult for a local authority to work out what kind of scheme it needs to put together. With local variation, however, there will be different schemes in every area. That may mean that you get nothing in one area, where the authority has decided one thing, and something else in another. That is out of kilter with how we expect decisions on social security matters to be made.
To build on that, there are clearly variations in the social fund and its impact. If awareness is low and applications and access to finance are patchy, surely going down to the grass roots and involving councils—I hear what you say about them not knowing about all the groups out there, but they will, of course, be working with the voluntary and third sectors in their community—will mean money is more targeted than is the case currently.
Alison Garnham: There will be examples of good practice, but we also have the history, which is that in the past local authorities ran schemes such as section 30 payments under the Children Act. Long ago, when I used to work in citizens advice bureaux, you used to suggest that people went and applied for that money. In one council money would be available, but in the neighbouring council there would be nothing, because it had been spent on something else. That is the difficulty. When you have families that all have the issue of running out of money from time to time and have emergencies, there may be, in some areas, nowhere to go. One of the things that we know about current social fund applications is that the most common claims are from families with children. It will have the biggest impact on families with children.
Alison Garnham: We would like to retain some system of grants and loans, as we have currently, with a system of guidance and regulation that would allow people to know whether they were entitled to make a request for a payment. It would be difficult in other circumstances to know whether it was worth asking anyone for help. Transparency and fairness are important.
One of the eye-catching aspects of the Bill has been the benefits cap—an overall benefits cap for both single claimants and couples. What are your reflections on the principle that benefit levels should not exceed what is available or affordable for working households?
Alison Garnham: This proposal mirrors law that existed in this country in the 1970s but was abolished. At the time, it was dubbed the wage stop, and the CPAG wrote pamphlets about it in 1970 and 1971. The problem with it then and the problem with it now is the level of people’s low wages. We know that two thirds of children live in families where the parents work, so the level of wages for many families is very low and does not lift them above the poverty line. By saying that you want to limit other families’ benefits to the level of wages that other people can achieve in the labour market, you create a very difficult situation, and you are actually saying that you want to suppress benefit levels below the level of their entitlement. The problem that was created in the past, and which would be created in the future, is that you would have a new group of people who for some reason were not entitled to the level that the law says you are entitled to be sustained at, because wages are so low in the economy.
What you are saying would be entirely understandable if the level had been set at something lower than the average, but what is proposed is that the cap be set at the average household income in the United Kingdom. How does that hold down people from getting the benefits that they should require? Would you agree that the biggest flexing figure in there is almost certain to be housing costs?
Alison Garnham: Exactly, and the difficulty is that benefits such as universal credit are constructed in such a way as to respond to need. They come up with assessments about what someone needs to live on. Some people’s needs are greater than others because, for example, they have a large family, or children with disabilities so their child care costs are higher, or they are reconstituted families—two separated families coming together with large needs. Those are the kinds of families that would indiscriminately be selected out to have their level of benefit reduced.
Two families live next to each other in identical houses, both with the same housing need, in a slightly more expensive part of town, and the rent, to the same landlord, suddenly goes up. One family is in private employment and the other is on benefits. The family in private employment has to move because they can no longer afford the rent. Should the family on benefits be allowed to stay there, whatever?
I see a situation in which someone on the average household income has to move, when they are working, and someone is protected because they are on benefits, and does not have to move. I am just trying to tease out what you mean by need.
Alison Garnham: The difficulty is that the person with the high housing cost does not gain. The implication is that somehow they are benefiting from having this extra money but they are not; it is being handed to the landlord. By all means look at ways of addressing high housing costs—no one would be against that—but it is not the family concerned that benefits. It will, however, be the family concerned that suffers the disadvantage if they are made to move.
Fiona Weir: The main thing that we would want to say is that there has to be a slightly better way of dealing with the very clearly perceived unfairness of the extreme cases that we regularly see in the popular press. This feels like a very crude and artificial way of dealing with that. Although we entirely understand why people get upset by some of the articles that appear, they are a small number of cases, and this does not feel like the most appropriate way of dealing with something that people understandably do not feel is fair.
Sarah Jackson: From a working families perspective, please bear in mind the complexity of what keeps a family together. It’s very easy to say that a family should just move, but you have to think about the child care, where it is, how people get there, the school, the person’s job. I think, like Fiona, that we must be careful not to be drawn into the popular press examples.
Fiona Weir: Two key Government aims are dependent on people not having to move house a lot. Single parents are highly dependent a lot of the time on their mum to provide child care, so the moment you start upsetting those informal relations you have a real problem if you are trying to get single parents into work. Also, a lot of what the DWP is doing is trying to strengthen family relationships. If you’re trying to get the other parent engaged in that child’s life, the last thing you want is to end up with the single parent moving away from the other parent, because it gets much harder to get some co-operative, shared parenting arrangement going between them.
There are huge consequences for other parts of Government policy if you take decisions that have those unintended consequences. That is our biggest concern. We are seeing too many unintended consequences coming out of details in the Bill that have not been well thought through.
I have a very quick question. To give a hypothetical example, would it not be more economic for a couple with, say, four children to split into two households and make two separate claims, which could end up costing the public purse more?
Alison Garnham: We would be very concerned about that. There is existing case law dealing with fraudulent misrepresentation, and the current rules are that if you misrepresent or fail to disclose a material fact, that has implications for whether any overpayment that arises can be recovered. We think those rules are pretty satisfactory, and it would make sense to carry them forward into the new scheme.
I notice you said in a previous answer that you used to be involved with citizens advice bureaux. I wondered what your thoughts are on the impact of less funding going to advice agencies, and whether that in itself could increase the number of people who make mistakes on forms and fail to disclose information because they do not get that advice.
Alison Garnham: Absolutely. We are facing a perfect storm in the advice world at the moment. At one and the same time, we are seeing the abolition of legal aid, which at the moment contributes about one third of the funding of many citizens advice bureaux, because they have legal aid franchising contracts. Another one third of their funding is made up of funding from local authorities, and we understand from Citizens Advice that if the cuts in local authorities are passed on to citizens advice bureaux, that could reduce by as much as a half the service that they currently provide.
At the very time when we have rising unemployment, massive changes to the benefits system, and many reasons why people need to seek help post-recession, there will be fewer and fewer places where people can go for advice, including local authority welfare rights advice services, many of which have already been closed down. We regularly hear from people who are about to be made redundant. Services such as Derbyshire welfare rights, Kent welfare rights, Warwickshire welfare rights, which are all centres of excellence on advice on social security, are disappearing. That is a real concern.
You said there is a risk of losing up to half the advice that you currently supply. Can you quantify that in terms of the number of families that that could affect?
To go back to the concept of civil penalties and people providing the wrong information, there are naturally concerns among members of the public that at the end of the day taxpayers’ money is involved. Do you feel that such penalties could bring some integrity to the system, and restore public confidence so that they know that money is being targeted at people who desperately need it?
Alison Garnham: The Department for Work and Pensions is probably downplaying the success it has had. It has actually done rather well in driving down the level of fraud in the system. Levels of fraud are very low. It is much lower: down to about £1 billion and much of that is error. Compare that with the situation in the tax system, where the level of avoidance and abuse is much higher: the lowest estimate is about £40 billion. In terms of the security and integrity of the system, the DWP has been doing quite a good job.
Could this go further to enhance it? At the end of the day, the public read a lot of stories in the press, and this is about ensuring that in these days when there is not enough taxpayers’ money to go around money goes to the right people.
Alison Garnham: For the reason I gave, I think that the rules about misrepresentation and failure to disclose currently operate rather well. The case law is very well understood. The rules provide a right of appeal for claimants to ensure that whether they must repay the money is established in a tribunal. The introduction of civil penalties, which would possibly weigh in even without that process taking place, is very worrying. There is an issue about due process.
Sarah Jackson: Could I add a point on this? Parents are already terribly worried about the possibility of making an incorrect claim, because child care costs fluctuate. They can fluctuate wildly from week to week and month to month, so it is very difficult. Parents are very worried about over-claiming and about doing something incorrect. They will phone our helpline, and it can take an adviser more than 40 minutes to work through with the parent what their balance of work and child care should be and might be and how a claim for tax credits should be presented. There is already a real disincentive to parents built into the system. They want to get it right, and I do not think we need to make anything harsher for them.
To pick up where Yvonne left off, the majority of errors are by the DWP rather than by claimants. Would you support a proposal along the lines of an early-warning system giving claimants an opportunity to reverse the mistake and reclaim something rather than have a straight-off penalty? Have you had any representations with the DWP on that?
Alison Garnham: Yes. One thing that people are concerned about is that, increasingly, Jobcentre Plus administration has moved to remote call centres, largely for reasons of cost. One difficulty with that is that people no longer have the face-to-face opportunity to talk through their claim locally. It is very important that, first, we have local advice services, and there is a problem with that at the moment and there will be in future. Secondly, we need to have the facility for people to discuss their case with the person dealing with it, which is difficult when they are at a call centre and you do not know with whom you are speaking. The Department will need to address that problem with universal credit, because, particularly with a new system, it is inevitable that people will not know basic things about how to complete their form, what they are supposed to be telling you and what their advice notice means. It is important that basic work is done on how people will receive advice on those things.
Sorry, Alison, we all seem to be picking on you. To pick up on one specific point, you mentioned that you saw a situation in which it is much more a case of official error rather than individual claimant fraud. Is that based on anecdotal evidence from your experience or is there hard evidence for that?
Alison Garnham: They carry out surveys. What do you mean? Do you mean how the Department would find out who is making mistakes? They tend to look at samples of cases to see what is happening on a case and find out the reason for the mistake. That kind of exercise is useful, and other than that it is about advice and support to the claimant.
For the sake of clarity for the whole panel and so there is no ambiguity on this, in terms of the benefit cap, is the general feeling that it should always be demand led in terms of individual claimants, rather than there being a limit on benefit claim?
Alison Garnham: Yes, absolutely. The whole purpose of devising a system like universal credit is that you develop an amount that is supposed to represent the minimum needed for somebody to live on. That is what the modelling of universal credit has been trying to indicate—just how well will this produce a system that can support people?
One of the difficulties is that when it was originally devised the Centre for Social Justice wanted a taper rate of about 55%, which would have been a much more generous system than the one we are looking at, which has a taper rate of 65%. So there is an issue about how much money is going into this. That will have a knock-on effect in that it affects the amount of help people will receive for child care costs, and as I have just said, that is crucial to determining whether people will be better off in work.
It is also affecting things such as whether it is worth a second earner in a couple taking a job. We know that the marginal deduction rates for second earners will be particularly poor, which is very worrying for a number of reasons, partly because of women’s independent income—because of who needs to spend the money on the children, but also because families change. For example, when someone becomes a lone parent, if they have never worked, it is much harder at that point to try to get into a job. You are asking the DWP to make a big effort to get those people into work, when in fact if they had already been working, they would have been in a position to support their family better when they became a lone parent. So the issue of a second earner is another question that must be taken into account, and probably could be addressed by something like an additional disregard.
These matters reflect the fact that the overall funding of universal credit is not quite generous enough to show the improved gains from work that it wants to offer. We can appreciate that that is clearly the intention, but it needs more money to be able to do that more effectively. At the moment, when you do the calculations there are a lot of people who still have very high marginal deduction rates, even under the new model, so we would argue that the funding envelope needs to be looked at again.
I have two questions on the child maintenance part of the Bill. First, part 6 introduces procedural hurdles to assessing the statutory child maintenance system, with a view to encouraging more voluntary child maintenance arrangements. Do you welcome the new emphasis on voluntary arrangements and mediation?
Fiona Weir: We are generally very supportive of a lot of what the Department is trying to do in encouraging greater collaboration between separating parents, and we hope to work with them constructively as part of this consultation process to see what that additional support might look like.
The problem is that people who reach voluntary arrangements tend to have particular characteristics. They tend to be better off and to have quite amicable relations. They are more likely to be in work and the father is more likely to be engaged. There is a considerable number of single parents out there who are just not able to make private arrangements, for whatever reason. In about 30% of cases they just do not know where the other person is—they cannot trace what is usually him. They often have poor or difficult relations with that partner, and sometimes that partner is refusing to pay, or has said that he will not. In some cases they simply give up because it is too difficult, or because they have prioritised the contact arrangements as the more important issue to settle. In many cases, they need the statutory service to be there.
A series of procedural barriers is being introduced. First, initially, you have to go through a gateway and demonstrate that you have considered and thought through private arrangements. We are not exactly sure what that looks like, and at what point you have demonstrated it. You then have to go through the additional burden of the charging regime, which is a huge problem, and we know from a number of surveys that it will put single parents off. It does not sound like a lot of money to many people—£100, or £50 if you are on benefits—but if you are a single parent in a poorer household you spend about £43 a week on food and about £48 a week on rent. Those are really significant costs and they are big psychological barriers to people, especially people who have had pretty poor service from the Child Support Agency for a number of years. So, erecting yet another big barrier at exactly the point when we are about to launch a new commission, when a massive amount of public money has been invested in a new system that ought to be much better and ought to be lower cost, and when you want to get it working effectively and re-establish that reputation with the parents it is there to serve is the last thing you want to do to its usage.
While we would like to support a lot more collaboration, we think that the Government are being naively optimistic about how many separated parents really can overcome the genuine difficulties between them and manage to establish private arrangements. The upshot of all those barriers could be that fewer people use the statutory service that they need, and that means less money going to children.
The maintenance payments make a big difference if you are on benefits. If you are on a low income, even a fiver a week makes a difference to whether your kid can be in the football team or go swimming, and £20 a week makes a very significant to what your children can and cannot do. I think there is a huge inability to grasp how much tangible difference quite small sums of money can make to the lives of people who are on very low incomes. That has led, to some extent, to a devaluing of the importance of those small sums of money, not to mention the key fact that this is also about parental responsibility.
The Bill is riven with the language of responsibility. The whole welfare to work debate is very much around that, yet when it comes to parental responsibility for payment, we risk undermining what has been a significant effort to try and improve the system that starts getting all fathers paying. At the moment, after the years we have put into this, the levels of child maintenance payment remain shockingly low.
Alison Garnham: What is at risk here is that, by deterring lone parents from using the state scheme, it is missing the point that there is a public interest in children being properly supported by both their parents. We know that even small amounts of money can make a big difference to whether families are lifted out of poverty. We also know that having regular child maintenance—the regularity of payment is key, not necessarily the amount—is strongly implicated in whether a single parent is likely to be in paid work or not.
Those things act together to make a very important public interest for a properly funded state child maintenance scheme. In the countries where they do that best, they understand that there is an investment needed. In places such as the Nordic countries, which everyone always refers to, they have guaranteed maintenance systems where they pay child maintenance up front to single parents, and then they recover it from the non-resident parent. We are putting it all back to the individual parent and saying, “You chase it. You go in for an informal agreement”. Of course we want informal agreements to work. In the past, when people were forced to use the CSA, that was wrong and was not successful, so it is good that that has been retreated from. Nevertheless, there needs to be a strong and properly funded state system.
Adrienne Burgess: From the Fatherhood Institute point of view, it is incredibly important that men pay child support. We have been very disappointed to see that the joint birth registration has been scrapped, because that is the point at which you start to identify the men and help them see themselves as fathers. That is very important, particularly among these groups of fathers.
What we are very interested to see in the statistics, now that we have statistics, is that even among teenage mothers 78% joint register the birth with the father. Of their birth partners—almost all teenager mothers have birth partners, of course—90% are the father of the child. So these guys are around there right from the beginning. Whether it is enforcement, or however it is or whatever it has to be, I understand the desire to help people make their own arrangements. I understand the fact that you want to make the bar higher so that those who can go for agreed arrangements do so, and it is very important to me that the enforcement of child support is really strong. So, putting too many barriers in the way may have an unintended consequence. However, one way to look at that would be to do what one has to do and then monitor and evaluate it, so that we see what is really happening rather than being scared about it.
I would like to make a comment, and then ask a question of all members of the panel. One of the saddest aspects of the casework and constituency work of most Members of Parliament is when broken families come to you in need of support and state help.
On the point about seeking voluntary agreements, it is quite obvious that there are many system breakdowns somewhere out there—families split up and access to payments is highly problematic in many cases. I would welcome views from all panel members about practical steps to encourage parting couples to come together in a grown-up, adult way to find the right kind of voluntary agreement, as that will be in the interests of their child.
Alison Garnham: You might need to go a step earlier—to what happens when people are together. One of the issues about child maintenance is that, if there has not been much transferring of money from one partner to the other within the relationship, it will not happen outside the relationship either. You are trying to deal with something that may be a problem from the previous relationship as well.
Obviously, there is more that can be done on relationship support and advice to people about how to come to amicable arrangements. As Fiona said, we know that there was always a group of people who reached amicable arrangements, which were working really well and people wanted to leave them as they were. The problem was always the ones who did not and could not reach an agreement. Again, the legal aid situation kicks in—legal aid for family issues is to be abolished, so there will be even less help available for those families in reaching agreements, particularly when one partner is reluctant.
On that point, is this all about after the event, or is it educational awareness much earlier on—not just when relationships are being formed at school and so on, but financial responsibility and personal responsibility?
Sarah Jackson: I would say this is a very interesting example of where the world of work, the world of welfare and the world of family well-being all overlap. It is a very good example of how important it is to make sure, right from the start, that fathers have rights to paternity leave and to parental leave, because we know that the more engaged fathers can be in the first year of life, the longer living the relationship is likely to be. Although this is outside the scope of the Bill, it is very important to look at what we are going to do to support fathers with independent rights to ensure that they can be fully engaged in family life.
Adrienne Burgess: I would add something that brings us back to the Welfare Reform Bill—this old-fashioned thinking about divided gender roles. We talk about “the main carer” and the “other” person. We have individual taxation, and people can live together and be individually taxed, but we have this split—as soon as it is about benefits, we talk about “a carer”, as though the other one does nothing.
What tends to happen—this is central with separation and divorce—is that when the man goes for jobseeker’s allowance, whether he is living with the woman or not, or living secretly with her or not, he is seen as a single, childless man and not as a father at all. That means that there is no way that we can work with his fatherhood in the jobcentre. We know from lots of good practice that if you work on men’s fatherhood at the same time as you work on their job-readiness, and help them to build relationships with their children and see themselves as valuable, it has positive spin-offs in their getting and staying in employment. It is not separate, yet the whole thing treats it as if it is.
Going back to the fact that the Welfare Reform Bill discourages the second earner from earning, that is terrible because it again sets up the idea of divided roles, as if her earnings do not matter. We know that where both partners work, relationships are more stable. Where there is a more gender-equal operation of earning and caring, relationships are more stable.
It is easy to paint a picture that parents, especially fathers, do not want to take responsibility, but we know that more than half the people using the current statutory system would like to make their own financial arrangements, but do not think they can at the moment. Will panel members give us one example of how we might improve the current system so that those people who would like to stay outside the statutory system can do so?
Fiona Weir: As part of the family justice review, there has been a lot of reviewing of some of the interventions that can be very helpful when parents separate. One thing that is clear is that, if you can catch them early enough, some of the parenting information programmes that are out there at the moment can make an enormous difference, because the parents are often not thinking things through properly from the children’s point of view. When they understand the impact they are having on the children, it can help them to work much harder at containing the acrimony. Making much more of that kind of support available is important.
We will have to draw things to a close as we have run slightly over time. Thank you very much for your evidence.
I would like to ask about provision for support for child care costs. We do not yet know how the Government propose child care costs will be supported in future. What do you think the arrangements should be? Should there be support for people who work less than 16 hours a week, as well as those who work more than that? How should child care payments be made and to whom? What proportion of costs should be covered?
Sam Royston: I normally start answers to this question by setting out what the system is at the moment, because it is so poorly understood. At the moment, households can in some cases receive up to 97% of their child care costs through the benefit and tax credits system. That is through a combination of the child care element of working tax credit and disregards from housing benefit and council tax benefit. It will not be possible to replicate that system within the universal credit because of the way in which different benefits are being brought together into one package.
From what we understand, proposals for dealing with child care costs are either to introduce it as a disregard, which I understand the Secretary of State has now moved away from, or to introduce a child care element similar to the child care element of working tax credit. If a similar amount of money was put into the system as there is at present, it would seem very unlikely that it would be able to cover 97% of child care costs for an element of that sort, because of how the money would be distributed across a wider set of households.
As a result, from what we have heard, the Government are looking at substantially reducing what some households—particularly the lowest-income households, who are in receipt of housing benefit and council tax benefit—could receive in terms of help with child care costs. We have heard 70%, or even 60%, suggested. If a child care element of 70% was introduced, that would leave some households paying 10 times more towards child care costs from their own pocket. From some of the calculations that we have done, that would leave households that could otherwise be better off under the universal credit being substantially worse off. That is a huge worry in terms of promoting work incentives, particularly for lone parents.
In terms of who it should be paid to, we certainly agree that one of the big benefits of the universal credit is incentives to work less than 16 hours. We would certainly support extensions to household working under the hours threshold. We also think that there should be some additional recognition of the additional costs of child care for disabled children. As for how it should be paid, we agree with what the Government now seem to be considering, which is an additional child care element, but we think it needs to be substantially in excess of 70%.
Nick Woodall: It is fair to say that this is not an area in which the Centre for Separated Families has any great expertise, except to say that when families separate, there can be quite a disruption to the organisation of the family. Certainly for people who may not have been in the labour market to get back into work, or for people who may need to change their working patterns, child care costs can be extremely important. We urge the Committee to think about the potential for child care costs to reflect the responsibilities that each parent has after family separation, and the potential for supporting both parents in their child care obligations.
On the same point about child care, the proposal is to reduce still further the age at which lone parents will be required to go into work, so their oldest child is five. What are your views on the effectiveness, advantages and disadvantages of the way in which conditionality has been introduced to date? What do you think about the balance between sanctions and incentives and its effectiveness? What might be the characteristics of parents of five-year-olds who might require particular treatment?
Sam Royston: One thing closely related to child care issues is that if, as appears to be the case, help with child care costs is to be reduced, we need to be extremely careful about bringing in additional conditionality, and extremely careful that parents are not put in a position where they either have to lose money by moving into work or face sanctions.
It should always be the case that people are left with one option or another. That is one of the concerns about the introduction of a cap on benefit receipts. Some parents—particularly parents with large numbers of children who require high levels of child care costs, potentially above any cap on child care costs—will potentially be left in a situation where, out of work, their support is limited to £500, which could be very punitive. Alternatively, they might have to move into work and could in some cases be no better off because they would be paying extremely high child care costs, perhaps £500. They would be paying very high proportions of that from their pockets.
On conditionality and the way that support is offered, nobody should be put in a position where they could be worse off by moving into work. They should not be stuck between a rock and a hard place. That is my fundamental concern.
What do we know about the characteristics of the group of parents who might be losing the child care support that they would have been getting before the proposed reductions?
Do we know anything about their characteristics? Do we know that they are larger families? Do we know that they are geographically concentrated in particular areas? I am asking about the people who at the moment might be getting, for example, 97% of support because of disregards.
Sam Royston: One of the things that I said was that the households with the highest proportion of child care costs will typically be the households that are least well off. Housing benefit and council tax benefit tend to be withdrawn at a high rate, so once you are in excess of a low to moderate income you are unlikely, except in areas of very high housing costs or if you have a very large family, to be receiving help with housing benefit and council tax benefit. Yes, changes in child care costs would be particularly focused, it seems, on those households, because they are the ones receiving the most at the moment.
Lastly, this is a question that I asked CPAG. Do we think that the issue of encouraging people into mini-jobs might raise questions about child care support, in particular because child care tends to be paid for on a sessional or daily basis? Child care providers will perhaps require a top-up that might not be covered within the provisions of child care support.
Sam Royston: That is an interesting point. One of the things that we have discussed with the DWP is the potential to try in some way to encourage child care providers to move towards hourly-based provision. It is not just with mini-jobs. At the moment, if you are encouraged—in some cases, it can be quite firm encouragement—to take on an extra shift, the session of child care that you have to pay for to get that might not line up at all and could lead to your being substantially worse off, even under the current system but perhaps particularly under universal credit. The person in question might have, essentially, to pay for excess child care. That system would be much better, in my view, if you could move more towards an hourly-based system, so that child care providers were much more flexible about how parents took up child care.
Can I just expand a little into a slightly different category? It is about your point, Sam, about the calculation of being better off. Do you have any insight to share with us on people’s calculations about free school meals, and on the current proposals about that and how they would impact on families?
Sam Royston: Free school meals is a very interesting one. We have been working with a number of groups that have concerns about how free school meals could be introduced under the universal credit. At the moment, free school meals will typically be withdrawn at the point at which a parent moves into full-time work, which for benefit purposes is typically 16 hours. Happily, or to an extent happily, that coincides with the payment of additional working tax credit, so although they lose free school meals they gain working tax credit, which means that the benefits of moving into work are reduced but they still would not typically be worse off by moving into work at that level.
Under the universal credit, because of the proposals, which we very much welcome, to introduce a smooth transition into work during which there is no massive increase in income—you get an gradual increase—withdrawal of free school meals at any one income point would create a substantial cliff edge, as it is known in the benefits world. It is called a cliff edge because that is what it looks like on a graph. As your earnings go up your income gently goes up, and then it shoots down because of the notional cost of the school meals—you have to pay for school meals after that point.
We are very concerned that an income threshold could be introduced into the benefit system, over which you would no longer be entitled to help with school meals. Calculations that we have done suggest that if you introduce that, supposing that free school meals for a three-child family are worth about £1,000 a year—that seems a fairly accurate estimate—it could lead to a gap of about £4,500, and people would be worse off having that income than if they had a lower income. If you earn £9,999 and at £10,000 you would lose the help with school meals costs, if you have three children in school you will be worse off until you reach about £14,500. That is very odd.
We have talked about the need to introduce some kind of smooth withdrawal on free school meals. We think that one possible way of doing that is this. A lot of schools already use cashless systems for payment of help with school meals costs. We wonder whether, instead of providing the full help with school meals, you could provide a tapered amount paid into the account that the children could then use in their school to help with the cost of their school meals. The parents could top up the additional help they need.
On the specific point about free school meals, we are aware that there is a potential for a cliff edge, but all that you have said is conjecture at this point in time, because there is nothing in the Bill that illustrates any of the points that you are making.
Sam Royston: That is why I was saying that I think that there are mechanisms by which you could have a smooth withdrawal of help with free school meals. Potentially, you could add the school meals on to a card, which a lot of children in school already have, and the amount of help with school meals on that card would reflect household income. As your household income increased, the amount on the card would be reduced, and the parent would top up that amount so that they could pay for the school meals.
I am asking questions about the social fund, which the Welfare Reform Bill proposes to abolish and replace with a system of local authority support. Can I ask for your comments on how the current system has been functioning and your views of what the Government propose to replace it?
Sam Royston: I think that the system until now has not been without problems. In particular, we actually quite welcome the movement towards payments on account to replace crisis loans as alignment payments and interim benefit payments. We know that some families can be bounced between one and the other and never be quite sure what they are meant to be getting, although we are not quite certain that now is the right time to make that move, because of potential problems with the IT system for universal credit, which is as yet untested. It would be moving that final safety net into universal credit.
As for the other parts that are essentially being moved to local authorities, a certain amount of unring-fenced funding will be given to local authorities to distribute using powers they already have, as we understand it. We are concerned that at a time when local authority cuts are being made, money could just be used to fill gaps in expenditure that local authorities have already made.
I was saying to someone the other day that if I were the chief executive of a local authority, I would be very tempted to use unring-fenced funding to prop up services that I knew were being cut. I would not want to make anyone redundant and produce a new service to replace it. I am very concerned that it could essentially mean that there is no social fund or equivalent provision available following the localisation proposed. The current system is imperfect, but at least there is a system. I am very concerned about that.
On that last point, what about the counter-balancing effect of local democratic capability? It might not be universally the same, but it delivers the principle that elected people are accountable for the allocation of those funds. If they see circumstances in which the fund is not being allocated properly, surely there is local democratic accountability to suit local needs.
Sam Royston: That is a really good point. Were it ensured that the money was spent for the current purposes of the social fund within a local community, I could be with you. Transferring the money to local authorities to provide those crucial services, those crucial grants and loans that families need in emergencies, would give them that flexibility. It would mean that they could spot a gap in provision in a certain area and respond to it locally. That is not necessarily the problem. The problem is that at a time when local authority funding is being substantially cut, asking, saying or advising the authority to produce a new service is unlikely to produce that new service.
Do not worry. The first question about universal credit will be of particular interest to you, so I will ask Mr Timms if he would like to pursue that.
I want to ask about clause 97. It amends the Social Security Administration Act 1992 to give the Secretary of State the power to decide which partner should receive a payment—or any part of that payment—in cases where benefit is awarded to a couple jointly. Are you confident that that provision addresses the concerns raised by you and a number of others about purse-to-wallet redistribution of income?
Fran Bennett: I am afraid I do not yet know what that clause would mean in practice. As I understand it, it deals particularly with cases in which one partner either refuses to maintain the other and any children, or is incapable of doing so, such as in cases of addiction. I understood that the power to direct payment was in part to deal with that issue. There could also be cases where a sanction is applied to one person. In cases of joint claims for jobseeker’s allowance, as I understand it the claim can then be paid to the other person. I am not party to the mind of the Secretary of State, so I am not quite sure what the clause is intended to cover.
The particular issues that have concerned people are the money for children and child care costs, which is currently paid to the main carer, and the money for housing costs, which is currently paid to the tenant under housing benefit. Mortgage costs are currently paid to the lender, but might in future be part of universal credit. Those issues have been of particular concern. The major issue is the fact that universal credit subsumes so many other payments. If that is all paid to one person, it becomes a much more significant decision than it would be under current circumstances where different benefits are possibly paid to different people. That is the major issue.
Nick Woodall: We have concerns when we look at things such as child tax credit that can currently only be paid into one household, because that does not always reflect the levels of caring. We are talking about the parent who has the greatest responsibility for caring for the child—the main carer.
In some circumstances, parents choose to work together equitably for the care of their children, but the financial aspects of that are not reflected in the way the system works. Parents can go to court and get a joint residence order. They can work on a 50:50 basis, but come out of court and find that all the tax relief and benefits are paid to one parent to the exclusion of the other. That can upset what would otherwise be equitable and workable collaborative parenting arrangements.
The benefit cap is probably one of the most reported aspects of the proposed legislation. The Bill introduces an overall benefit cap for single claimants and couples. Could I ask for your comments on the principle of introducing such a cap? If you have any concerns, could you explain what they are?
Sam Royston: In terms of the underlying principle, the benefit cap is something that I think should work, but it should work at the moment. People should not be worse off in work than they are out of work. It should always be the case that you promote work incentives, and that when people move into work, they are better off. We would totally support that principle.
Unfortunately, that is not what the benefit cap does. As proposed, it bases the amount that you can get out of work on average earnings across the country for any household size, but we know that different household sizes in different areas of the country have differing levels of need and therefore get different amounts of income, both in and out of work. Fundamentally, it should be the case that within any region, within any local area—say a broad rental market area—for an equivalent household size, a household should not be better off out of work than in work, but that is what the current system does.
We do not think that there has been nearly enough emphasis on the fact that households in work can get benefits. If you get benefits, it can top up your money so that it means that in work you can get as much as the equivalent household out of work would get. The key concern is that different household sizes in different areas of the country require different levels of income, but the benefit cap does not appreciate that.
Our core concern is that the benefit cap introduces a couple penalty into the system—a substantial couple penalty on a level that has not previously been seen in the benefits system. Say you have two lone parent households that are both out of work with three children each, and each is entitled to £400 of benefit income. Out of work separately, they would not be affected by the benefit cap. If they moved in together and, as a result, found a cheaper property, they might be entitled to, for instance, £700 of benefit. As a couple with six children who moved in together, they would lose £200 a week, whereas, living separately, they would lose none of their benefit income.
In addition, by living together, they are likely to save the Treasury money because running two separate households is likely to cost more than running one together—that is why I said £700 rather than £800. It seems odd to introduce a couple penalty of that size into the benefits system, which is what the benefit cap seems to achieve.
I believe that about 2 million couples described as “couples living apart” are currently on benefits in this country. I understand that universal credit will consider the whole family unit and create better incentives for those 2 million couples currently living apart to live together. In the light of what you were just saying, can you give us an idea of the number of couples that you think would fall into the category of having six children?
Sam Royston: No, that is obviously a very theoretical question. I do not know which couples are currently living apart. I suppose that it might be possible to do the quantitative analysis to show how many couples were formed from two lone parent households on that basis—so how many couples would be better off if they separated—but I do not have the data.
Currently, 2 million couples are estimated to be living apart, so I wonder about the number of couples that you were describing as being affected by the benefit cap. Do you think that it would be higher or lower than 2 million?
Fran Bennett: One of the issues about the payment of universal credit to one person in the couple is a similar concern and may be an underlying reason for those couples living apart, because if they are means-tested when they come together, their assets and resources are joined together and tested in that way. Once universal credit is brought in, if the payment is all made to one person in the couple, the decision to move in with someone is an even bigger one—it ups the game—because your partner may get all the means-tested income in the household paid to them. That means losing your economic independence, by moving in with a partner. So it appears to us that there may be a disincentive to doing that.
Sam Royston: May I make a brief additional point that refers back to a point that I made earlier about parents who may be stuck either facing the benefit cap or exceedingly high child care costs? I just do not know what a parent who would face either £500 of child care costs or having their benefits, which might be £700, limited to £500 would do. I have no idea what they are meant to do. They cannot escape the benefit cap. It just does not make sense to work in those circumstances, because there are caps on the amount of help with child care cost that you can get. So they are really going to be caught between a rock and hard place.
I think that we are all very mindful that the household circumstances of lone parents and separated families change frequently—far too frequently than they might like. I would therefore welcome the panel’s views on the whole concept of financial penalties for incorrect payments and failures to disclose information about changing circumstances.
Sam Royston: I basically agree with Fran. I think that there is far too much emphasis, unfortunately, on what the claimant needs to do, rather than on what the Department for Work and Pensions and Her Majesty’s Revenue and Customs need to do, certainly at the moment. There is so much error in the system at the moment that far more emphasis is needed on what DWP and HMRC do to make things right when things go wrong and a bit less on what claimants need to do. Claimants need to be mindful of their responsibilities. They need to make sure that, to the best of their ability—remember that, in many cases, you are dealing with very vulnerable people—they give the right information and keep it up to date. But the Government and the DWP and HMRC need to take a bit more responsibility, too, because there are such high levels of error at the moment and so many problems and so many people faced with really serious problems with their benefit payments as a result.
Fran Bennett: Particularly when people are getting together and living together in a new relationship, it is quite difficult to know certainly when they become what would be considered to be a couple and make a joint claim for universal credit instead of another claim. It is particularly difficult for people when they are establishing a new relationship.
Obviously, the universal credit seeks to simplify the system in a significant way. Do you think that will go some way to reduce errors? Therefore, it will not feel as pressured as you suggest for individuals.
It goes without saying that we all appreciate the difficult situation people often find when their circumstances change, they are under stress and all that. Allowing for all of those caveats, I am sure you would accept there are some people who perhaps are not making the best efforts to disclose the right information. It is fair to assume there must be some element of that. You both just said that you do not think there should be a financial penalty. Turning that statement around would be to say that there should be no financial penalty for telling an untruth.
Sam Royston: We have a large number of families who know well indeed what it means to be faced with an error in their tax credit payment, in their benefit payment. That means paying back a very large amount of money in some circumstances, and sometimes due to no mistake on their part at all. Over the past seven years, a lot more people in the general wider public have a lot more sympathy towards people who are faced with problems in the benefit system. I hope that those experiences will show. I expect they are coming into your constituency surgeries, and will give a sense of the importance of ensuring that those errors do not happen, and that the benefit system treats people with the sympathy and respect that they need.
One of the provisions of the Bill is to introduce new arrangements, or new hurdles, for getting statutory child maintenance. One is about putting in an extra stage of trying to get people to go through mediation. There is also the question of financial hurdles if introducing charges for the applicant parent—the parent with care—as well as perhaps the other parent. It has been suggested that charges should be added to the collection process. What are your feelings about that? I appreciate that some of it is still out to consultation.
Nick Woodall: While the proposed changes to child maintenance that require primary legislation are contained with the Welfare Reform Bill, it is important that we recognise that child maintenance is not a benefit. Child maintenance is not, as it is often popularised, a poverty issue either. Child maintenance is essentially a parenting issue. It is about how both parents are going to continue to discharge their responsibility to their children after they separate. We certainly welcome the idea that this is cross-departmental, that the Government are beginning to see child maintenance in its wider context.
Parents themselves are best placed to make their own arrangements for their family. They can reflect in any maintenance arrangements the nuances and complexities in their family system. We believe that the state’s role is to encourage and empower parents to be able to make their own private arrangements. The state should get involved only where parents cannot or will not make such arrangements.
In his 2006 report, Sir David Henshaw recognised that arrangements that parents made for themselves lasted longer, and there was greater compliance and flexibility further down the line. His overall vision for the changes to child maintenance was about encouraging people to move away from using the statutory system, which was inflexible and caused greater division between parents, and encouraging them to make their own arrangements.
Henshaw saw that you needed to change the environment that caused the statutory system to be seen as the default option for parents. When parents were separated and there were high levels of distress and anxiety, they often initially looked around for what they could turn to. The child maintenance system, the statutory system—the Child Support Agency—was seen as that default option, and in many ways, it still is. He argued that something should put the brakes on parents, so that they reviewed the situation and were given the support, encouragement and information they needed to be able to make their own arrangements.
We think that the measure is a step further from what the previous Government did under the 2008 Act. It asks, “How do we do this? What can we put in place that will support parents around the wider issues?” The issues that prevent successful child maintenance arrangements are not always related to child maintenance; they are related much more to emotional problems, to housing and to a range of other factors. What can we do to support parents? We believe that the proposals will begin to help.
The charging is a bit of a red herring. In the figures that show the people who are affected, 16% of those who are using the statutory system would pay no more than £35 a week, 40% would pay no more than £70 a week—that is at the lower end of the Government’s proposals. We need to look at the measure in its widest context.
From my experience as a family lawyer, in the vast majority of cases people made their own arrangements. I do not recognise the scenario that you are painting. Parents made such arrangements with assistance through a legal agreement, which would be binding. Certainly, in Scotland, such an agreement would be equally as enforceable as a court order, which you could no longer get. Clearly, however, in some situations there is a power imbalance or there has been a difficult relationship. Is that not very difficult for people?
Nick Woodall: I absolutely agree. The section 6 repeal was a huge step forward, because it stopped forcing those people who were capable of making their own private arrangements into the statutory system. But yes, absolutely, some relationships make it extremely difficult —or impossible—for parents to make private arrangements. But they are the minority.
I guess we would say that it is about time that we stopped making legislation based on minority experiences and looked at the wider cohort of separated families. What is going on out there in the world? We find that the majority of parents want to do the best things for their children and they want to make private arrangements for them, but they struggle to know how to do so. The proposal is that there will be a gateway that puts the brakes on people using the statutory system, but something will come underneath that to say, “Here’s a range of services, some information and some things that will help you make those private arrangements.” When we look at what is out there already, there are some very good things, but our concern is that there are also some things that are not so good. We need to be careful that we do not signpost people—
I am afraid that we have run out of time for this session. I am sorry to cut you off mid-sentence, but we must move on. Thank you for giving evidence to the Committee this afternoon.
I have two questions on the Government’s proposals on universal credit. First, we do not yet know how housing costs will be assessed under universal credit. How, in your view, should they be dealt with in a centralised system but still reflect the different rent levels across the country? Secondly, on council tax benefit, the Government have decided to go the opposite way, with the devolved scheme design and payment to local councils. Do local councils welcome this instance of localism? How would councils respond if some constraints were placed on how they would be able design their council tax benefit schemes to prevent undermining the work-incentive gains of universal credit?
Councillor Re e d: The key point is that the current proposals do not take account of the different levels of cost that people experience in different areas. There needs to be some element of area cost adjustment. I will give you some examples from London. The cost of child care is 40% more expensive in London and the south-east of England than it is in the rest of the country. Public transport costs are £10 a week more in London than elsewhere. The cost of moving into work from unemployment is £150 a month more than for the rest of the country, and accommodation costs are 51% higher.
If there is no area cost adjustment element in the proposals, the effect of the benefit caps, particularly on housing, will be that people who are in low-paid work, or who are unemployed but seeking to move into work, will be forced to move out of areas where there are social networks that help to support them and, perhaps more importantly, where there are more job opportunities. People will be pushed into areas where they are less likely to get work. That could have the unintended consequences of increasing the cost to local authorities of homelessness and keeping people who could have moved into work out of work. It is very important that area cost adjustments are included in the Bill if it is going to have the effect that we all want to see, which is ensuring that anyone is always better off in work than on benefits. I think there is a perverse and unintended disincentive in the proposal. Sorry, what is your other question?
It was on council tax benefit. Do local authorities welcome the fact that the Government are devolving the design and payment of council tax benefit to separate local authorities? How would councils feel if some constraints were imposed—for example, on taper rates—in order not to undermine the work-incentive benefits that universal credit is intended to provide?
Councillor Re e d: We are quite keen that council tax benefit should not be included as part of the universal credit, because it would make it more difficult for councils to collect at a time when collection rates have been going up for the past few years. That would be made more difficult if the system were made part of the universal credit.
We think that there is a role for local authorities to play in making the whole system work, and that by localising collection for the whole system, you can take advantage of the greater proximity that local authorities have to people who are on benefits, and our ability to understand the multiple and complex issues that particular families may be facing as they try to move back into work—things such as alcohol or substance misuse, and chaotic families. Local authorities already have a lot of insight into that, so we would like to see the system designed in a way that takes account of our ability to build on the kind of expertise that we already have. That fits in with the Government’s localism agenda, as well.
At the moment, size criteria for housing applies to housing benefit recipients in the private rental sector, and the Bill makes provision to apply the same criteria to the social housing sector. We are interested to hear your views on the proposal in general, and also what your feeling is for the likely impact of that on mobility within the social housing sector.
Councillor Re e d: If you mean mobility between larger and smaller properties, I think that incentives of that kind make perfect sense. The problem we have at the moment is that there is a limited amount of social housing at a time when there is growing demand for it, and the reduction in the capital funding that we receive to build additional social housing will make that tighter. The fact that the housing market is still not moving means that we are getting more demands from people for accommodation in private rented and social housing, so we would welcome ideas and proposals that would encourage people to move from properties that are larger than they need to properties that better meet their family’s needs, so that families who are in cramped and overcrowded conditions could move into better-sized properties.
May I follow up on that? Do you have any sense in your authority, for example, or other London authorities that you are aware of, of how much of the housing needs list might be met if under-occupation were addressed? I have some sense about that for my local authority. I wondered whether you had looked at it in your authority or other authorities.
Councillor Re e d: I do not have any figures here, but I am sure that we could send you some. I know that in London alone the housing waiting list is some 500,000, and I imagine that even what you are talking about would deal with only the margins of a problem on that scale.
The waiting list is probably somewhat smaller than that, because some people will be on the list for different reasons or may have found alternative accommodation, but we know that it is extremely large. It is disproportionate compared with the amount of housing that is available, and it is growing because of pressures in the economy that mean that people are unable to buy their own property. We know that there is pressure for more affordable housing because rents in the private rented sector have been going up because of the impact of demand and supply, and because of the freeze in the housing market. That is a huge issue that we need to tackle. This proposal would deal with it only at the margins. The real solution is to find more ways to make affordable housing available and get people off the waiting list.
I welcome your support for this measure. Do you have any ideas about whether disabled people who may have had adaptations made to their houses are a significant issue that we need to cope with in terms of their ability to move from property to property? Can you give us any feelings that you might have on that?
Councillor Re e d: I am not aware of that being a particularly huge issue. On disability, we are worried that, as part of the reforms to disability living allowance and the replacement of that with the personal independence payment, there is a proposal to cut the total budget by some 20%. We are worried that that could create a significant impact on our social care budgets in local authorities.
The proposal in the Bill about under-occupation in the social rented sector is to reduce the amount of benefit paid to people, regardless of whether they have moved or whether there is somewhere for them to move to. Do you think that that is a good way of trying to reshuffle the pack? As a councillor, my experience was that people often wanted to move, but the smaller house was not where they wanted to live or it was a high-rise flat that they did not want to move to. This is a specific proposal to reduce benefits.
Councillor Re e d: If I am absolutely honest, it would depend on the circumstances of the individual. If you have an older person, who is living in a property near to their family and near to their social networks and those networks are providing a great deal of support, I do not think that it makes much sense to move that person to a place where they have less of that kind of support and, therefore, their demands on public services may increase. You would make that individual’s life more difficult, and you could increase the cost to the public purse at the same time, so you are achieving neither of the outcomes that you would want to achieve.
In circumstances where it is relatively easy to move a family or tenants from a larger property to a smaller one in the same area and of the same quality, and they are willing to go, then there would be absolutely no reason not to do that. You would have to take the individual circumstances into account before doing that, because you do not want to end up with a situation that costs more and creates more problems.
On that same point, the reduction in housing benefit will, according to the Government’s impact assessment, impact on 670,000 households in two years’ time. Will local authorities have the capacity to downsize 750,000 households into appropriately sized accommodation in their localities by then?
Clause 68 amends section 130A of the Social Security Contributions and Benefits Act 1992, and gives the Secretary of State the power to set LHAs at his or her discretion. It has been estimated that, by 2013-14, that would be done in line with the consumer prices index. Do you have any thoughts on that?
Councillor Re e d: That does not allow us to adapt the way that the model will suit local circumstances. If you have an area where there is more work available—and in such areas the cost of renting property tends to be higher—the effect of capping the benefit that you are going to give people, so that they can no longer live in the areas where jobs are available, is likely to mean that they are less likely to get into work. They will be forced to move to areas further away from the work, and the additional transport costs—particularly if you move to outer London from inner London, or to outside London from inside London—would become a disincentive for those individuals to take work, even though the housing costs would be lower. There needs to be local flexibility in those levels to reflect the actual costs experienced in that area.
Councillor Reed : There is not much evidence. From some work that London Councils did, there is not much evidence that there is any downward pressure on rents from doing that. The pressure that you will get is from private landlords withdrawing from accepting tenants who are on housing benefits, because they cannot meet the market rent by doing it that way. High rents in that part of the market are not caused by the level of LHA that is being paid: it is caused by the housing market freezing up because of the recession, which has caused more demand for rented property than there is available, which has caused the rents to go up. The only thing you will achieve by pursuing that will be to push people who are looking for work away from areas where work is available.
Councillor Reed : London Councils conducted some research, which we could send to you. It surveyed landlords to see how many of them would lower their rents if that was done. The majority of them would not lower rents; they would simply stop taking tenants on housing benefit. We could send you that information.
Councillor Reed : Yes. I am sorry that I cannot give you the figure on LHA, but I have some stats here. Research by London Councils quoted in Parliament on 13 October found that 60% of landlords renting to tenants in receipt of housing benefits would not be prepared to reduce their rent if the tenant could no longer afford to pay the existing rate because of the reduction in LHA. More than 90% of landlords said that they would try to evict a tenant or refuse to renew the contract if the tenant fell into arrears.
Indeed I might have said exactly the same thing when I was a private landlord, but I would have wanted to look at the market conditions. If you have any data on that, I would be very glad to receive it.
I am going to change the question I was going to ask you, Councillor Reed. I worked in the property business for about 20 years and I have a great deal of experience of private landlords. Sitting across a desk from landlords—just as you are sitting in front of me now—I have witnessed conversations between tenants and landlords that went along the lines of, “Well, what sort of rent are you looking for? What can we do in terms of what the local housing allowance is?” That conversation was relayed to me more than once. The vast majority of managing agents that I came across would say that it was common practice. In view of the 60% figure you have just quoted, it would be very interesting to hear your views on that.
Councillor Reed : Anecdotal evidence such as that is interesting, although it does not necessarily reflect the full picture. The dynamic here is simply the laws of supply and demand. At the moment, because of the freeze in the housing sales market, an awful lot more people are renting, particularly in areas with high employment. It is the fact that there is an oversupply of demand combined with a limited supply of properties that is pushing up the rents. Any rational landlord is going to go where they can get the best rental income. If LHA means that rental income from housing benefit claimants is capped, but rental income from alternative potential tenants is not and there is sufficient demand from such tenants, the rational landlord is going to take the higher rent. That squeezes housing benefit claimants out of the system and therefore out of areas where there is greater access to employment, thus pushing more cost onto the public purse than you might save by implementing the cap.
I have a quick follow up to that. It is essentially anecdotal, but it was almost an open secret. It happened across the country, too—I know you have spoken about localities. If it was a perfect market and it followed that, I would completely buy into what you are saying, but I am incredibly dubious about it.
Councillor Reed : Laws of supply and demand seem fairly well established as a means of creating market rents in a particular area. It is your judgment whether you think that that anecdote gives you the full story, or if it is the evidence that we have collected by talking to landlords, as well as the evidence you can see in areas where there is high demand and limited supply of who is moving into those properties, and what would happen if landlords were being asked to take lower rents. Any rational individual owning a property will not take someone who can only pay a percentage of the market rate, when it is easy for them to get the market rate.
I have a couple of questions about the benefit cap, which has had quite a lot of publicity. What do you think or what evidence have you seen about the impact of the overall benefit cap on housing benefit?
Yes, because all benefits will be included within the cap, including housing benefit, so there is a question about the amount that will be available for tenants.
Councillor Reed : Okay. There are a number of impacts that could be had by capping benefits in the way that the Bill proposes. One is that we are worried that it will increase homelessness, as families are no longer able to be housed in the areas where they currently live, and there is a statutory requirement on local authorities to rehouse homeless families. To make a saving in one area, you could simply be creating a greater cost in another, in an area where the local authority has no discretion whatsoever. That does not seem to make enormous sense to me.
Councillor Reed : Using the March 2011 rent service data, families with two children who are looking for property in the private sector with two bedrooms in central London and inner London will have to significantly supplement their rent support from the basic amounts that they are currently entitled to for personal support by up to £38 a week. The point is that the proposed total benefit caps do not take into account the higher accommodation costs in London. Beyond the cost on homelessness, if people who need work are being pushed away from areas where work is available, they are being kept on benefits rather than being allowed to use the established route out of poverty, which is to get themselves back into work again, so you are achieving the opposite of what the Bill sets out to do.
It is also perhaps worth reflecting that at the same time as they are making these changes, the Government are reducing the amount of investment in new social housing, so there is growing demand but shrinking supply. One effect of that is increasing ghettoisation in the social housing that we have got, where people who are poor in income terms are locked into communities that are harder to get out of, which generates a range of social problems. It does not make any sense to push unemployed people away from areas where there are greater opportunities to get back into work and away from the social networks that support them. I know that a number of local authorities in outer London are very concerned, for example, about their difficulties in planning pupil place numbers if large numbers of families are displaced from inner London boroughs to outer London boroughs, where the funding is not available for those pupil places.
As you are aware, the Bill proposes to abolish the social fund, with some elements being devolved to local authorities. I have been quite surprised by the evidence that we received this morning and this afternoon and the lack of confidence shown by many in the ability of local government to deliver aspects of the social fund. Do you share that lack of confidence, or are you of the view that local authorities could play a part in delivering those services?
Councillor Reed : I will read you what elements I have in my brief, if that is helpful.
The Government have said that the localisation of the social fund would be fully funded. The localisation needs to cover all the costs, including administration cost of £19 million for community care grants alone in 2008-09. The Government have also said that local government can provide assistance flexibly according to local need. That flexibility would be welcome, but the localisation passes on a significant financial risk on case load at a time of turbulence and reform in the benefits system and a trend of rising demand. We would be looking for decisions to be based on customer experience and where people would naturally go for help. We think that there is a role for local authorities, because of our greater interaction with families and individuals in providing face-to-face support, to be able to take on aspects of this work that we think would make it more effective.
To press you specifically on that issue, a comment was made about a postcode lottery being part of this, but I would argue that the point you have just made about the ability to respond to local needs is a strong point in terms of what the Bill is proposing.
Councillor Reed : The Bill seems to envisage that people will primarily access that kind of support via the internet or by telephone, but we think that up to a third of people will want to access it face to face and there is not sufficient provision for that. Since local authorities already have systems in place to deal with people face to face and are already aware of a number of the other problems that those families may be presenting with, we are better placed to deal with it than alternative models might be. That would then allow us to provide the greater local flexibility that you are talking about.
Also on the social fund, what if local authority decisions are challenged by individuals? How confident are you that you have robust and transparent decision-making processes to decide who gets a crisis loan for a cooker and who does not?
Councillor Reed : The system is quite confusing at the moment, because part of the role is carried out by local authorities and part of it by the DWP. It would be simplified if it was all carried out by local authorities. For that to happen, we need access to more of the DWP data so that we can see its data on which customers are receiving or and which are not. That would make the decisions we are taking more robust, but would also allow us to map trends to ensure that appropriate levels of support were available where they were needed.
Councillor Reed : We are in conversation with the DWP about all of this; we do not have resolution at the moment, but that would obviously be part of that as well. I think the point is to simplify the system. It makes sense for local authorities, which have access to more of the other data about those individuals and the problems they may be presenting with, to carry out that role rather than the DWP, but that would involve a different relationship with Jobcentre Plus in the locality, or even local authorities taking on some of that function.
May I just clarify that you are referring to England specifically, and you do not have any responsibility for Scotland, Wales or Northern Ireland? There are huge implications for local government in those countries and I think that that needs to be brought to the attention of the Committee.
Councillor Reed : We are at a point where the whole system is facing reform; we are looking at the whole model, how it works and how it can work more effectively to get better value out of what is spent, to ensure that the resources are targeted most on those who need the support. The purpose of the review is to achieve exactly that, yes.
Order. I am afraid that is the end of our time for this session. Thank you very much, Councillor Reed, for your evidence to the Committee this afternoon.
Clause 11 of the Bill provides for an amount to be included in the universal credit in relation to housing costs. Those costs may take the form of rent payments, mortgage costs or other housing-related costs. What are your recommendations for how housing benefit can best be integrated into the universal credit to ensure that it reflects housing costs in the private and the social rented sector?
Roger Harding: First, I should like to make a point about clause 11 that we are universally concerned about, which is that it is quite a blank piece of paper in terms of what it will stipulate for that housing element of the Bill. In effect, it removes the 1992 pieces of legislation that set down what housing benefit is and certain principles that should underlie it. That is quite concerning because, in effect, it gives the Secretary of State quite a lot of power to reform housing benefit in the future.
Roger Harding: Sure. The first one is, simply, that those principles are relaid in the Bill, so that for future changes we have to come back to a Committee such as this, rather than it just go through secondary legislation.
The primary provision I would like to see in there is a link between the payments made for housing and local housing costs, especially for the private rented sector but also for the social sector. Currently in the social sector, it covers the amount of rent owed on a social property; we think that should be maintained. In the private sector, there should be a link to the local market for private rents, which will be removed by the link to CPI, which is quite worrying in terms of the number of areas that will become unaffordable in the future due to that change.
Duncan Shrubsole: To add to that, there has long been accepted, from Beveridge onwards, that in the benefits systems on the housing side we needed a housing payment that was related to the cost of housing, not just nationally but in different localities. We are concerned that any move away from linking to rent in a locality, such as we currently have through the broad rental market areas and the rent officer determinations, would lead to a divergence that very quickly would mean that there were areas of the country that you would not be able to rent in; and in other areas a gradual divergence between the housing costs payment for universal credit and the rental areas. It has taken us a long time to get the link back between pensions and buying power. We would have a long-term divergence between housing benefit and housing costs at our peril.
David Orr: May I say something specifically about social housing? The point about social housing is that it exists because of market failure. It does not exist as a market. One thing that we have discussed, and probably will discuss further, is the extent to which, because of the undersupply, we need to think creatively about how we use social housing effectively. As a response to market failure, Government invest in the provision of social housing and in consequence they set the rent. It seems to us that it makes sense to say that if Government have already set the rent, the system by which people are supported to pay that rent should cover that rent. It should not be a housing cost, it should be, “If you’re in a social home and the rent is X, the housing support is X.”
Does anyone else want to come in on that one? Is your recommendation on how housing costs should be calculated under universal credit that we should not make any changes at all to how housing costs are calculated?
Roger Harding: Indeed. That would be Shelter’s position, particularly in relation to the private rented sector, where calculations are based on local rents at the moment, and I think that that should continue. Any welfare safety net should enable you to live, roughly speaking, in the area you currently live, such that you can get back on your feet, maintain your children in school and maintain family and support links, and, therefore, increase your chances of getting back into work, because you are aware of the employment situation in your area.
We were pursuing a similar line with our previous witness. I am very interested in private sector rentals and would be much more comfortable with what you are saying if we were presented with empirical evidence—negative evidence—that Government subsidy has no effect on the private rental market. I want to be absolutely certain that we can demonstrate that what Government pay in LHA does not influence the march forward in private rental rates.
Roger Harding: May I add to that? The DWP conducted a two-year review of LHA that conclusively said that that link was not happening and LHA was not driving up rents. Further evidence to that is that about 50% of claimants make up the shortfall between what they get in benefit and what they have to pay out. I would almost spin the question around and say that I would like to see evidence and proof from the Government that LHA rates are driving up rents, because we have not seen evidence to that effect.
It might be the case in some market areas that if you reduce the LHA rate, you will see some downward pressure on rents, but that would tend to be in areas where there is already a very high proportion of claimants. In some areas, such as Blackpool, 80% of private tenants are claimants, so if 80% of claimants had their benefits reduced, you would expect downward pressure. In areas such as London, where claimants typically make up around 20% of tenants and there is a lot of competing demand from students, young professionals, migrants and others, you would expect a reduction to have a very minimal effect on rents and would expect them to rise as they have been rising for the past 20 years or more.
David Orr: I agree with the proposition that the responsibility to demonstrate the need for change belongs with those who are proposing the change. It is difficult to prove the negative and it is also extremely difficult to prove that LHA has had that impact on rents.
If I may, I want to return briefly to Harriett Baldwin’s question about clause 11. We have suggested an amendment to it, which provides some details of the precise change that we would like to see. Specifically, in relation to rents chargeable in respect of properties let by local authorities and by private registered providers of social housing, the appropriate amount should be 100% of the rent and eligible service charge. We have other proposals. Our key issue with clause 11 is that it is far too widely draw at the moment. There are no reference points in it other than that this will be determined by regulation. We think that that does not give enough opportunity for scrutiny, either now or in future.
Duncan Shrubsole: I have two points to add to that. One is that, as Roger said, a large number of tenants already face a shortfall between the benefit they receive and their housing costs. We need to understand that the Bill has arisen largely because of market conditions, rather than because of the LHA itself. We are already seeing one level of LHA cuts going through, which is the move from the 50th to the 30th percentile. In a way, that gives you an opportunity to test the Government’s hypothesis, or an alternative hypothesis. The point is that the Bill does not give an ongoing framework through which you would be able to review the level at which benefits are set or to tie them to housing costs. This is one shot at trying to remove the current framework, without any assurances on what an alternative framework would be or, over the long term, how there will be a relationship between the housing costs that people face, as a reflection of the housing market, and what they will receive in benefit.
Roger Harding: From us, specifically on that, we would ideally like to see the Government paying the benefit rate at the interest rate that people are paying. At the moment, the Government have said that they do not have the computer systems to process that. If the universal credit will move to a more real-time processing and data collection system, I see no reason why we cannot move to a system whereby people, who get into mortgage difficulties and are able to claim, have their interest payments covered in full, rather than the current situation where a standard rate is set, which, for some, is more than their interest rate and which, for many, is less than their interest rate. I welcome the move in yesterday’s Budget that extended the increased capital limit for support for mortgage interest payments and the reduced waiting time. I would like to see that continue and put in the Bill.
Does anyone else have a different view? My final question is on the arrangements for housing benefit to be paid. Do you want to express a view on the ongoing debate on whether it is better to pay it to the tenant or to the landlord, or to have some formal arrangement on when that may need to change?
Duncan Shrubsole: We have always been clear that the best thing is to empower the tenant by giving them choice over how that benefit is paid. Under the old system, a proportion of tenants had it paid to them, and they then paid it to the landlord. Efforts could have been made to greater encourage that. There were big issues around bank accounts and people having the right mechanisms, but by switching it so that everything was paid to the tenant, it ended up giving everyone a bad name when individuals got into difficulty. Those who could manage their money now face difficulties, and those who were clear that it would be better if it was paid directly to the landlord now face difficulties.
We currently have two things going on: one is the eight-week rule, which means that if you get into arrears, they can be paid to your landlord. We think that that should be looked at. Secondly, a measure was introduced whereby some payments could be made direct to the landlord if they looked at their rental level. That was introduced just before Christmas. We think that that should be continued and extended. The benefit, particularly for vulnerable people, is that their housing costs are the largest element of their budget. If they take the view that, to be able to stay in their accommodation, just like you or I might have direct debits, payment would go directly to the private landlord so that he continued to let to them, that is surely something that we should facilitate. The current vulnerability test has improved, but it is still inconsistent in how it is applied across councils to allow that to happen.
David Salusbury: If I may go on from that, it is definitely something that our members continually raise as an issue for them. Of course, we were disappointed when the right for the tenant to opt for the direct payment of rent to the landlord was withdrawn. We are disappointed that the incoming Administration have not honoured their undertaking to restore that right to the tenant. We welcome the announcement that, in certain circumstances, the rent will be paid direct to the landlord, which Duncan has just mentioned.
This is not simply a matter of sectional interest on the part of the landlord. The landlord would prefer that to be the case, but there are two other issues that I would invite the Committee to consider in that context: one is the vulnerability of the tenant. Many of those in receipt of benefits are, by definition, vulnerable. Many of them have difficulty in managing their finances. The knowledge that the rent will be paid and that they are secure with a roof over their heads is of considerable importance to some, if not many.
The other aspect is that as the demand for affordable accommodation in the private rented sector increases—the signs are that it will increase, and it has increased markedly in recent years—private landlords need to expand their portfolios, particularly the reputable ones who deal with rented accommodation as their main activity in life. Of course, not all the 1.2 million people in the country who could be described as landlords fall into that category, although several hundred thousand do. When they consider expanding their portfolio, they put together a business plan and go to a lender. To be able to say, “Of course, the rent is now being paid direct to me” where the tenant agrees—it is the tenant’s decision—could, we think, be helpful in persuading a lender to help a landlord expand their portfolio. We think that it would also ease the absorption of these changes that are about to hit the sector.
David Salusbury: We are closer to being able to provide empirical evidence on that than on your previous question, because it is linked with the question of rent arrears. An increasing number of members tell us that they are experiencing arrears. In all instances where public money is involved in those arrears, it is, of course, a taxpayer issue, because the landlord not receiving the rent, to meet costs, can find themselves in the difficult situation of having to do something about it in the form of applying to the courts for possession. That is a cost that falls to the landlord, but there is a taxpayer funding dimension as well.