A Survey of the UK Benefit System

A Survey of the UK Benefit System IFS Briefing Note BN13 James Browne Andrew Hood

A Survey of the UK Benefit System Updated by James Browne and Andrew Hood November 2012 Institute for Fiscal Studies Acknowledgements This briefing note is a revision of earlier versions by Claire Crawford, Carl Emmerson, Michelle Jin, Greg Kaplan, Andrew Leicester, Peter Levell, Richard May, Cormac O Dea, David Phillips, Jonathan Shaw, Luke Sibieta and Alexei Vink. A version by the original authors, Carl Emmerson and Andrew Leicester, can be downloaded from http://www.ifs.org.uk/bns/benefitsurvey01.pdf. The paper was funded by the ESRC Centre for the Microeconomic Analysis of Public Policy at IFS (grant ES/H021221/1). The authors would like to thank Stuart Adam, Rowena Crawford and Robert Joyce for their help and advice during revision of this briefing note. The paper has been copy-edited by Judith Payne. All remaining errors are the responsibility of the authors. *Addresses for correspondence: andrew_h@ifs.org.uk, james_browne@ifs.org.uk Institute for Fiscal Studies, 2012 ISBN: 978-1-903274-99-6

Contents 1. Introduction... 3 2. Government spending on social security benefits... 4 3. A description of the current benefit system... 8 3.1. Benefits for families with children... 9 3.2. Benefits for unemployed people... 16 3.3. Benefits for people on low incomes... 21 3.4. Benefits for elderly people... 32 3.5. Benefits for sick and disabled people... 41 3.6. Benefits for bereaved people... 52 4. Trends in social security spending... 56 4.1. Social security spending, 1948 49 to 2011 12... 56 4.2. Changes in the composition of social security spending... 58 4.3. Major reforms since 1948... 60 4.4 Future benefit reforms... 62 5. Conclusions... 71 Appendix A. Benefit expenditure from 1948 49 to 2011 12... 72 Appendix B. Benefits available only to existing claimants... 73 Appendix C. The Social Fund... 80 Appendix D. War pensions and AFCS... 84 Institute for Fiscal Studies, 2012 2

1. Introduction This briefing note provides a survey of the benefit system in Great Britain. 1 We begin in Section 2 with an overview of the current system, giving total expenditure on social security and the cost of individual benefits. In Section 3, we look closely at the present system, examining each benefit in turn. Benefits are arranged into six broad categories based on the primary recipients: families with children, unemployed people, those on low incomes, elderly people, sick and disabled people, and bereaved people. Current benefit rates are for the financial year 2012 13, expenditure figures are out-turns (where possible) or estimates for the financial year 2011 12, and claimant data are for February 2012 unless otherwise noted. Whenever possible, expenditure and claimant figures relate to Great Britain. In Section 4, we look at how the system has evolved to its present state and assess how the patterns of expenditure on social security have changed over the past 50 or 60 years. We also present a brief discussion of upcoming reforms to the social security system, in particular the introduction of Universal Credit. Section 5 concludes. Further details on benefit eligibility and information about relevant legal issues can be found in the Child Poverty Action Group s Welfare Benefits and Tax Credits Handbook 2012/2013. 2 Current benefit rates, numbers of claimants and expenditure figures are given in the Department for Work and Pensions (DWP) s Annual Reports, Benefit Expenditure Tables and annual press release detailing new benefit rates. 3 In addition, much of the information contained herein can be found on the DWP website, http://www.dwp.gov.uk. 1 Note that the benefit system in Northern Ireland is extremely similar but is managed by the Department for Social Development of Northern Ireland (DSDNI), which does not provide comparable indices of claimants and expenditure. 2 Hereafter referred to as CPAG 2012/13. 3 Department for Work and Pensions, Benefit Expenditure Tables, http://research.dwp.gov.uk/asd/asd4/index.php?page=medium_term. Department for Work and Pensions, Benefit Rates, http://www.dwp.gov.uk/docs/benefitrates2012.pdf. Institute for Fiscal Studies, 2012 3

2. Government spending on social security benefits In 2011 12, over 200 billion was spent on social security benefits in Great Britain (henceforth GB). 4 This amounts to approximately 3,324 for every man, woman and child in the country, or 13.5% of GDP. At 29%, expenditure on social security represents by far the largest single function of government spending. 5 Approximately 30 million people in the UK approximately half the total population receive income from at least one social security benefit. For means-tested benefits such as Income Support, receipt of the benefit usually depends on the claimant s family income, together with their family circumstances and personal characteristics. For contributory benefits such as state pensions, eligibility usually depends on the claimant having paid sufficient National Insurance contributions (NICs) during their lifetime. NICs are made by employees whose earnings are above a threshold ( 146 per week in 2012 13), although the government usually treats those earning between the lower earnings limit (LEL, 107 in 2012 13) and 146 per week as though they were making contributions. 6 Some benefits, such as Disability Living Allowance, are neither contributory nor means-tested and are universally available to all people who meet some qualification criteria. All benefits require some residence conditions to be met (usually that the person be present and resident in the UK), although different degrees of residence are required for different benefits. By and large, people subject to immigration control (i.e. people who require leave to enter or to remain in the UK but who do not have it) are unable to claim benefits. As the UK was a signatory to the 1951 UN Convention on the Status of Refugees, refugees in the UK have the right to claim certain benefits, such as Income Support. However, the Asylum and Immigration Act 1999 removed asylum seekers from mainstream benefit payments, and they now have payments administered by the National Asylum Support Service. 4 Some spending data are on a UK basis because those for GB are not available, as explained in the notes below Table 2.1. Appendix A provides details of government spending on social security from 1948 49 to 2011 12. 5 Sources: Great Britain population estimate from http://www.ons.gov.uk/ons/publications/allreleases.html?definition=tcm:77-22371; GDP from http://www.hm-treasury.gov.uk/data_gdp_fig.htm; government expenditure from http://www.hm-treasury.gov.uk/pespub_natstats_july2012.htm. The quoted 13.5% is calculated based on an estimate of GB GDP, whilst some tax credit figures included here are for the UK; it is therefore a slight overestimate. Unfortunately, tax credit expenditure for Great Britain only is not readily available. 6 For more about the National Insurance system, see J. Browne and B. Roantree, A Survey of the UK Tax System, IFS Briefing Note 9, 2012 (http://www.ifs.org.uk/bns/bn09.pdf). Entitlement conditions for contributory benefits are complex see chapter 35 of CPAG 2012/13. Institute for Fiscal Studies, 2012 4

Table 2.1. GB expenditure and claimant figures for all benefits and tax credits, 2011 12 Expenditure ( m) a % of total expenditure Claimants b Benefits for families with children Child Benefit (including former One Parent Benefit) 12,222 c,d 6.08% 7,884,760 d,e Child Tax Credit 22,036 c,d,f 10.96% 5,186,200 d,g Statutory Maternity Pay 2,203 1.10% 229,000 Maternity Allowance 361 0.18% 53,400 Guardian s Allowance 2 c,d 0.00% Not available Education Maintenance Allowance (no longer available) h 174 i 0.09% Not applicable Total benefits for families with children 36,998 18.41% Benefits for unemployed people Income-based Jobseeker s Allowance 4,175 2.08% 1,199,000 Contribution-based Jobseeker s Allowance 732 0.36% 254,000 Job Grant 54 0.03% Not available In Work Credit 116 0.06% 58,700 j Return to Work Credit 41 0.02% Not available New Deal (no longer available) k 47 0.02% Not applicable Total benefits for unemployed people 5,164 2.57% Benefits for people on low incomes Income Support 6,925 3.45% 1,509,350 Working Tax Credit 6,889 c,d 3.43% 2,516,000 Housing Benefit 22,736 l 11.31% 5,051,120 Council Tax Benefit 4,928 2.45% 5,922,130 Social Fund payments 334 m 0.17% 8,703,000 awards Total benefits for people on low incomes 41,811 20.80% Benefits for elderly people Basic State Pension (contributory) 58,033 28.88% 12,672,860 n Basic State Pension (non-contributory) 62 0.03% 34,780 Additional state pension 16,124 o 8.02% Not available Pension Credit 8,068 4.01% 2,615,540 Winter Fuel Payments 2,146 1.07% 12,650,000 Over-75s television licences 578 0.29% 4,361,000 Total benefits for elderly people 85,011 42.30% Benefits for sick and disabled people Statutory Sick Pay 49 0.02% Not available Incapacity Benefit 4,910 2.44% 1,385,630 Employment and Support Allowance 3,619 1.80% 991,190 Severe Disablement Allowance 878 0.44% 217,030 Disability Living Allowance 12,578 6.26% 3,243,530 Attendance Allowance 5,322 2.65% 1,600,670 Carer s Allowance 1,728 0.86% 594,860 Independent Living Funds 325 p 0.16% 18,387 Motability grants 18 q 0.01% c. 600,000 Industrial injuries benefits 853 r 0.42% 321,460 s War pensions and AFCS 935 d,t 0.47% 162,595 Total benefits for sick and disabled people 31,215 15.53% Benefits for bereaved people Widows and bereavement benefits 590 0.29% 65,110 u Industrial Death Benefit 33 0.02% 7,000 Total benefits for bereaved people 623 0.31% Other benefits Christmas Bonus 155 0.08% 15,545 TOTAL 200,978 100% Institute for Fiscal Studies, 2012 5

Notes to Table 2.1 a Figures are estimated out-turns, from DWP Benefit Expenditure Tables unless otherwise stated. Out-turns and percentages may not sum exactly due to rounding. Source: http://research.dwp.gov.uk/asd/asd4/index.php?page=medium_term. b Details of sources and of the date on which the claimant count for each benefit was taken are given in the relevant part of Section 3 of this survey. c Source: HMRC 2011 12 Annual Report and Accounts (http://www.hmrc.gov.uk/about/annual-report-accounts- 1112.pdf). d UK figure. e Number of families, covering 13,721,160 children in total as at 31 August 2011. Source: HM Revenue and Customs, Child Benefit Geographical Statistics: August 2011 (http://www.hmrc.gov.uk/statistics/child-geogstats/chb-geog-aug11.pdf). f Note that, unlike the figure for the number of families (see note g), the expenditure figure does not include payments made to out-of-work families receiving the equivalent amounts via benefits from DWP, which is included in spending figures for benefits for unemployed people. g Number of families, covering 9.27 million children as at 1 April 2012. This figure includes out-of-work families receiving the Child Tax Credit or the equivalent amount via Income Support (see Appendix B). Source: HM Revenue and Customs, Child and Working Tax Credits Statistics, April 2012 (http://www.hmrc.gov.uk/statistics/prov-main-stats/cwtc-apr12.pdf). h Education Maintenance Allowance was abolished in England at the end of the academic year 2010 11. i Figure is for England only. Source: http://www.parliament.uk/briefing-papers/sn05778. j This is the number of new starts in 2011 12. k The Work Programme replaced New Deal benefits from June 2011. l This is the sum of Housing Benefit and discretionary housing payments (see Sections 3.3.3 and 3.3.5). m This is the sum of net expenditure on individual benefits, as detailed in Appendix C. Source: Annual Report by the Secretary of State for Work and Pensions on the Social Fund 2011/2012 (http://www.dwp.gov.uk/docs/2012-annual-report-social-fund.pdf). n This figure includes all claimants of a contributory state pension, both basic and additional. o Sum of expenditure on S2P and Graduated Retirement Benefit. p GB expenditure in Independent Living Fund, Quarterly User Profile Analysis: June 2011 / September 2011 / December 2011 / March 2012 (http://www.dwp.gov.uk/ilf/publications/corporate-publications/statistics/). q Source: Table 4 of Motability, Annual Report and Accounts 2011/12 (http://www.motability.co.uk/aboutus/annual-reports/). r Includes Industrial Injuries Disablement Benefit, as well as 1 million of other industrial injuries benefits (see Section 3.5.7 and Appendix B). s Figure is for Industrial Injuries Disablement Benefit and Reduced Earnings Allowance, as of March 2012. The figure includes 56,730 people who were receiving both IIDB and REA. Source: Department for Work and Pensions, Industrial Injuries Disablement Benefit Quarterly Statistics: March 2012 (http://research.dwp.gov.uk/asd/index.php?page=iidb). t Most recent data available are for 2010 11 UK expenditure. Includes both War Disablement and War Widow(er) s Pensions. Does not include AFCS spending. Source: Ministry of Defence, MOD Annual Report and Accounts 2010-11 (http://www.mod.uk/defenceinternet/aboutdefence/corporatepublications/annualreports/). u This figure includes claimants of Bereavement Allowance and Widowed Parent s Allowance; claimants of War Widow(er) s Pension are included in the war pensions statistics (see note t above). Institute for Fiscal Studies, 2012 6

Figure 2.1. Expenditure by recipient as a percentage of total, 2011 12 Sick and disabled 15..5% Widows 0.3% Others 0.1% Families 18.4% Unemployed 2.6% Elderly 42.3% Low income 20.8% Families Unemployed Low Income Elderly Sick and Disabled Widows Others Sources: As for Table 2.1, including notes. Table 2.1 presents a breakdown of estimated expenditure for each benefit for 2011 12 and a claimant count for February 2012, 7 organised by primary recipient. The categories are: families with children, unemployed people, those on low incomes, elderly people, sick and disabled people, bereaved people, and others. Figure 2.1 also provides a breakdown for these groups. Retirement pensionss are the most expensive benefit, accounting for just under 37% of total expenditure. The top five benefits retirement pensions, Housing Benefit, Child Tax Credit, Disability Living Allowance and Child Benefit together make up over 70% of total expenditure. Note that although most of the figures in Table 2.1 relate to Great Britain, figures for some benefits were only available on a UK basis, e.g. Child Benefit and tax credits. However, since total Northern Ireland benefit expenditure e is only around 4 billion, figures for Great Britain would not be significantly different for these benefits. 7 February 2012 is the date on which the claimant count was taken in most cases. See Section 3 for details of exceptions. Institute for Fiscal Studies, 2012 7

3. A description of the current benefit system We look at the benefit system by dividing it into six major categories of primary recipient: families with children, unemployed people, those on low incomes, elderly people, sick and disabled people, and bereaved people. Each subsection starts with a table that summarises every benefit in terms of whether it is taxable or non-taxable, contributory or non-contributory, and whether or not receipt is means-tested. We also give details of total expenditure and the total number of claimants. The Christmas Bonus is the only national benefit not included in any of these sections. This is a one-off payment of 10 to the recipients of certain benefits in the week beginning the first Monday of December. Only one bonus can be received per person, although in couples where both partners receive qualifying benefits, two separate payments can be made. If both partners are over the State Pension Age, then both will receive the Christmas Bonus under certain conditions, even if only one receives a qualifying benefit. 8 Total expenditure on the Christmas Bonus was estimated to be 155 million in 2011 12, with around 15.5 million claimants. 8 This is the case if the only benefit claimed is Pension Credit, or if the individual in receipt of a qualifying benefit is entitled to an increase in that benefit for their partner. Institute for Fiscal Studies, 2012 8

3.1. Benefits for families with children Claimants, as at Expenditure, Benefit T C M Feb. 2012 a 2011 12 ( m) b 3.1.1 Child Benefit 7,884,760 c 12,222 d 3.1.2 Guardian s Allowance Not available 2 d 3.1.3 Child Tax Credit 5,186,200 e 22,036 f 3.1.4 Statutory Maternity, 229,000 g 2,203 g Paternity and Adoption Pay 3.1.5 Maternity Allowance 53,400 h 361 T = taxable, C = contributory, M = means-tested a Unless otherwise specified. b Source: DWP Benefit Expenditure Tables unless otherwise stated (http://research.dwp.gov.uk/asd/asd4/index.php?page=medium_term). c Number of families, covering 13,721,160 children in total as at 31 August 2011. Source: HM Revenue and Customs, Child Benefit Geographical Statistics: August 2011 (http://www.hmrc.gov.uk/statistics/child-geogstats/chb-geog-aug11.pdf). UK figure. d Source: HMRC 2011 12 Annual Report and Accounts (http://www.hmrc.gov.uk/about/annual-report-accounts- 1112.pdf). UK figure. e Number of families, covering 9.27 million children as at 1 April 2012. This figure includes out-of-work families receiving the Child Tax Credit or the equivalent amount via Income Support (see Appendix B). Source: HM Revenue and Customs, Child and Working Tax Credits Statistics, April 2012 (http://www.hmrc.gov.uk/statistics/prov-main-stats/cwtc-apr12.pdf). UK figure. f Source: HMRC 2011 12 Annual Report and Accounts (http://www.hmrc.gov.uk/about/annual-report-accounts- 1112.pdf). Note that, unlike the figure for the number of families (see note e), the expenditure figure does not include payments made to out-of-work families receiving the equivalent amounts via benefits from DWP. UK figure. g Figures are for Statutory Maternity Pay only. Claimants in 2011 12; source: table 1c of http://research.dwp.gov.uk/asd/asd4/index.php?page=medium_term. h As at 30 November 2011. Source: Maternity Allowance Quarterly Statistics: November 2011 (http://statistics.dwp.gov.uk/asd/asd1/ma/index.php?page=ma_quarterly_nov11). 3.1.1. Child Benefit Non-taxable, Non-contributory, Non-means-tested 9 Approximately 7.9 million families received Child Benefit (CB) in August 2011, covering nearly 14 million children. Introduced in April 1977 to replace the Family Allowance and the Child Tax Allowance, CB has remained universal (though will be gradually withdrawn for families with at least one individual earning over 50,000 from January 2013), payable to all families with children regardless of income. It is paid at a higher rate for the eldest or only child, and then at a lower rate for all subsequent children. For the purposes of receiving CB, a child is someone under the age of 16, between 16 and 20 and in full-time non-advanced education or training, or 16 or 17 and registered for work, education or training with an approved body. CB 9 Child Benefit will be gradually withdrawn for families with at least one individual earning over 50,000 from January 2013. Institute for Fiscal Studies, 2012 9

does not count as income for the entitlement calculation of other benefits and tax credits. Table 3.1.1. Current rates of Child Benefit, per week Eldest or only child a 20.30 Subsequent children (each) 13.40 a Prior to 6 July 1998, an additional payment for the eldest (or only) child was available to lone parents. This higher rate remains available to claimants who were eligible to receive it prior to the policy change (and who remain so today). CB rates have conventionally been uprated annually in line with the Retail Prices Index (RPI). However, it was announced in the June Budget that these rates would be frozen for three years from April 2011. This freeze is forecast to save almost 1 billion per year by 2014 15. 10 From January 2013, CB will be withdrawn through an income tax charge from families where one parent s income is above 50,000. Claimants will lose 1% of their CB for every 100 over that level, meaning families with an individual earning 60,000 or more will receive no CB. This is expected to save 1.7 billion each year from 2014 15. 11 In 2011 12, Child Benefit is estimated to have cost the exchequer 12.22 billion. 3.1.2. Guardian s Allowance Non-taxable, Non-contributory, Non-means-tested Guardian s Allowance (GA) is a benefit paid in addition to Child Benefit to families bringing up a child or children whose parents have died. If only one parent has died, GA may still be payable if the whereabouts of the other parent is unknown. The claimant need not be the child s legal guardian, but the child must be living with the claimant or the claimant must be making contributions for the maintenance of the child of at least 15.55 per week. A step-parent does not count as a parent and so may be entitled to receive GA for raising a stepchild if both natural parents have died. Adoptive parents count as parents, and so cannot receive GA in most cases. The rules concerning who counts as a child are the same as for Child Benefit (see Section 3.1.1). Expenditure on Guardian s Allowance amounted to an estimated 2.0 million in 2011 12. 10 Source: Table 2.1 in HM Treasury, Budget 2010, June 2010 (http://www.hmtreasury.gov.uk/d/junebudget_complete.pdf 11 Source: Tables 2.1 and 2.2 in HM Treasury, Budget 2012, March 2012 (http://cdn.hmtreasury.gov.uk/budget2012_complete.pdf). Institute for Fiscal Studies, 2012 10

Table 3.1.2. Current rate of Guardian s Allowance, per week All children (each) 15.55 3.1.3. Child Tax Credit Non-taxable, Non-contributory, Means-tested The Child Tax Credit (CTC) combines support previously provided by the Children s Tax Credit, child credits in the Working Families Tax Credit, 12 child additions to most non-means-tested benefits, and the child elements (i.e. child additions and family premiums) of Income Support and income-based Jobseeker s Allowance. 13 CTC is paid on top of Child Benefit (see Section 3.1.1) and directly to the main carer in the family (as with the childcare element of Working Tax Credit (WTC) see Section 3.3.2). Since CTC is a tax credit, it is administered by HM Revenue and Customs (HMRC). Under international accounting conventions, tax credits are counted as negative taxation to the extent that they are less than the income tax liability of the family and as government expenditure for payments exceeding the tax liability. For our purposes, however, we count all tax credit expenditure as if it were a cash benefit (and therefore public spending). CTC is made up of a number of elements: a family element (the basic element), a child element, a disabled child additional element and a severely disabled child element (see Table 3.1.3). The baby element (for families with children under 1) was abolished from April 2011. Entitlement to CTC does not depend on employment status, but does require that the claimant be responsible for at least one child under the age of 16 (or aged 16 19 and in full-time education). As with WTC, certain changes in family circumstances (for example, a single claimant becoming part of a couple, or vice versa) must be reported immediately to HMRC if penalties are to be avoided. CTC and WTC are subject to a single means test operating at the family level. Families with annual pre-tax income of 6,420 or less ( 15,860 for families eligible only for CTC, i.e. not for WTC) are entitled to the maximum CTC and WTC payments appropriate for their circumstances (see Section 3.3.2 for details of WTC). Income from most other benefits (including Child Benefit, Housing Benefit, Disability Living Allowance and Council Tax Benefit) is not included in the CTC WTC calculation, while entitlement to Income Support, income-based Jobseeker s Allowance, income- 12 For details of these, see A. Dilnot and J. McCrae, Family Credit and the Working Families Tax Credit, IFS Briefing Note 3, 1999 (http://www.ifs.org.uk/bns/bn3.pdf). 13 The non-means-tested ones include the Basic State Pension, Incapacity Benefit, Severe Disability Allowance and Widowed Parent s Allowance. Some existing claimants still receive child increases rather than CTC; further details can be found in Appendix B. Institute for Fiscal Studies, 2012 11

related Employment and Support Allowance or Pension Credit acts as an automatic passport to maximum CTC 14. From April 2012, claims can only be backdated by one month, compared with a previous maximum of three months; this change is expected to save over 300 million per year. 15 In-year increases in income are disregarded for this calculation if they are below 10,000. This income disregard will be reduced to 5,000 from April 2013. From April 2012, in-year falls in income are disregarded if the change is less than 2,500, which is expected to save over 500 million per year. 16 Table 3.1.3. Current rates of Child Tax Credit per annum per week Family element 545 10.45 Child element (each) 2,690 51.59 Disabled child additional element (each) 2,950 56.58 Severely disabled child element (each) 1,190 22.82 Income below which maximum CTC is payable 6,420 123.12 Income below which maximum payable if not entitled to WTC 15,860 304.16 Withdrawal rate 41% 41% Note: Weekly numbers are calculated based upon there being 365/7 weeks a year. For those with an annual family pre-tax income above 6,420, CTC and WTC awards are tapered away at a rate of 41%. WTC entitlement apart from the childcare element is withdrawn first, then the childcare element of WTC, then the child and disability elements of CTC, and finally the family element of CTC. Tax credits have suffered a significant problem of overpayments. One important reason is that entitlement values are not finalised until about 12 months after the tax year in which entitlements are accrued. Tax credits awards are initially assessed and paid on a provisional basis based on circumstances and estimated income reported at the time the claim was made. HMRC then relies on families to report their actual incomes and circumstances by the following July (or, in some cases, January). 17 This means a large number of overpayments and underpayments are generated each year due to changes in circumstances between the date of the claim 14 Source: HM Revenue and Customs, A Guide to Child Tax Credit and Working Tax Credit, April 2010 (http://www.hmrc.gov.uk/leaflets/wtc2.pdf). 15 Source: HM Treasury, Budget 2010 Policy Costings, June 2010 (http://www.hmtreasury.gov.uk/d/junebudget_costings.pdf). 16 Source: HM Treasury, Budget 2010 Policy Costings, June 2010 (http://www.hmtreasury.gov.uk/d/junebudget_costings.pdf). 17 Most families have until 31 July following the end of the entitlement year to report their finalised incomes for the year in question. However, families where someone completes an income tax self-assessment return (generally the self-employed) have until 31 January of the following year to do this. Institute for Fiscal Studies, 2012 12

and the dates awards are paid. While underpayments are often repaid afterwards, overpayments are difficult to recover. The scale of this problem has been reduced since the first two years of operation of CTC and WTC, but HMRC still overpaid between 2.08 billion and 2.46 billion (and underpaid between 0.17 billion and 0.29 billion) in 2010 11. HMRC estimates that expenditure on the Child and Working Tax Credits were 22.04 billion and 6.89 billion respectively in 2011 12. These figures reflect the initial awards authorised for 2011 12 but do not include any adjustments that take place for under- and over-payments in the finalisation process the following year, since these cannot be reliably estimated. In addition, just under half a billion pounds was paid in equivalent child additions to some pre-2004 claimants of out-of-work benefits (see Appendix B). As at 1 April 2012, CTC (or the equivalent amount in out-of-work benefits) was received by 5.186 million families, containing 9.27 million children. 18 That includes 1.47 million families where no adult works, 1.93 million in-work families who were also receiving WTC and 1.78 million in-work families receiving CTC only. 3.1.4. Statutory Maternity Pay, Statutory Paternity Pay and Statutory Adoption Pay Non-taxable, Contributory, Non-means-tested Statutory Maternity Pay (SMP) is a legal minimum amount that employers must pay to their employees during maternity leave, although almost all the cost can be recouped from the government. Many women receive more than the minimum, but this is paid for by employers and not by the government. To claim, the woman must have been in continuous employment with the same employer for at least 26 weeks up to and including the 15 th week before the week the baby is due. She must also have earned at least the lower earnings limit for National Insurance contributions (currently 107 per week) on average during the eight weeks up to and including the 15 th week before the week in which the baby is due. To claim SMP, the woman need not intend to return to work. SMP can be paid for up to 39 weeks: the first six weeks pay will be at a higher rate, and the remaining 33 at a lower rate (see Table 3.1.4). The period of payment can begin at any time from the 11 th week before the baby is due until the day after the birth itself (to coincide with maternity leave). Some special circumstances, such as absence from work, might change the start of the SMP period. 19 18 Source: HM Revenue and Customs, Child and Working Tax Credits Statistics, April 2012 (http://www.hmrc.gov.uk/statistics/prov-main-stats/cwtc-apr12.pdf). UK figure. 19 Rules for deciding the SMP period are available at http://www.dwp.gov.uk/publications/specialistguides/technical-guidance/ni17a-a-guide-to-maternity/statutory-maternity-pay-smp/when-smp-is-paid/. Institute for Fiscal Studies, 2012 13

Government expenditure on SMP in 2011 12 is estimated to have been approximately 2 billion, with around 229,000 claimants. Table 3.1.4. Current rates of Statutory Maternity, Paternity and Adoption Pay, per week Higher rate of SMP Lower rate of SMP, SPP, SAP 90% of the claimant s average weekly earnings The lesser of 135.45 or 90% of average weekly earnings Statutory Paternity Pay (SPP) and Statutory Adoption Pay (SAP) were introduced on 6 April 2003. Both are legal minimum amounts that employers must pay to their employees during paternity/adoption leave, and most of the cost can be reclaimed from the government. SPP is usually paid to individuals whose partner has given birth, but can also be paid when a child is adopted. SAP can only be claimed by one parent (the other may be able to claim SPP). The eligibility requirements for SPP and SAP are very similar to those for SMP, except that they include more stringent employment conditions. For SPP (birth), the claimant must satisfy the 26-week employment rule (see above), and must also be continuously employed by the same employer from the end of the 15 th week before the child is due until the child is born. For SPP (adoption) and SAP, the claimant must have been continuously employed for at least 26 weeks ending the week in which notification is received that a child has been matched for adoption. For SPP (adoption) only, employment must then continue with the same employer until the day of the adoption placement. Both SPP and SAP are payable at the lower SMP rate. Ordinary SPP is available for up to two consecutive weeks between the date of birth or adoption and eight weeks after that date. Additional SPP has been introduced from 6 April 2010, applicable to children due or matched on or after 3 April 2011. It enables eligible fathers to take up to 26 weeks additional paternity leave and get paid the lower rate of SPP if the mother/partner returns to work (the additional SPP leave should be taken between 20 weeks and one year after the child is born or placed for adoption, and the additional SPP is payable during the mother/partner s SMP period, Maternity Allowance period or SAP period). 20 SAP is available for up to 39 weeks, starting no later than when the child arrives and no earlier than two weeks beforehand. Claimant and expenditure figures for SPP and SAP are not recorded centrally. 20 Source: http://www.dwp.gov.uk/publications/specialist-guides/technical-guidance/ni17a-a-guide-to-maternity. Institute for Fiscal Studies, 2012 14

3.1.5. Maternity Allowance Non-taxable, Contributory, Non-means-tested Maternity Allowance (MA) may be payable to pregnant women and new mothers who are unable to claim SMP. To be eligible for MA, claimants must satisfy both an employment test and an earnings condition. To satisfy the employment test, the claimant must have been employed or self-employed (not necessarily continuously or for the same employer) for at least 26 of the 66 weeks up to and including the week before the baby is due (known as the employment test period). The earnings condition requires that average weekly earnings in any 21 13 of the previous 66 weeks are at least equal to the MA threshold that applies at the start of the employment test period; the MA threshold is currently 30.00 per week. MA (and SMP) claimants receiving certain means-tested benefits may also be entitled to receive a Sure Start Maternity Grant from the regulated Social Fund (see Section 3.3.6 and Appendix C for further details). MA is payable for up to 39 weeks. The period in which this can begin is normally the same as for SMP, i.e. from the 11 th week before the baby is due until the day after the birth itself. The start date is affected by special circumstances such as claiming Employment and Support Allowance or Severe Disablement Allowance. 22 Table 3.1.5. Current rates of Maternity Allowance, per week Standard rate The lesser of 135.45 or 90% of average weekly earnings Claimants used to be entitled to an additional payment for a dependent spouse or other dependent adult who cares for at least one of their children, which was only available if the dependant s earnings were not too high. This extra payment for an adult dependant ( 41.35 per week) has been abolished for those beginning to claim MA on or after 6 April 2010. Increases for child dependants have, since 6 April 2003, been replaced by the Child Tax Credit for all new claimants. As at 30 November 2011, 53,400 women were receiving MA. 23 The total expenditure for the year 2011 12 was estimated at around 361 million. 21 The 13 weeks do not have to be in a row, and can be chosen in order to maximise the average weekly earnings. 22 Rules for deciding the MA period are available at http://www.dwp.gov.uk/publications/specialistguides/technical-guidance/ni17a-a-guide-to-maternity/maternity-allowance-ma/when-ma-is-paid/#mapaid. 23 The most recent figures available, from Maternity Allowance Quarterly Statistics: November 2011, at http://statistics.dwp.gov.uk/asd/asd1/ma/index.php?page=ma_quarterly_nov11. Institute for Fiscal Studies, 2012 15

3.2. Benefits for unemployed people Benefit T C M Claimants, as at Feb. 2012 a Expenditure, 2011 12 ( m) b 3.2.1 Income-based Jobseeker s Allowance 1,199,000 c 4,175 Contribution-based Jobseeker s Allowance 254,000 c 732 3.2.2 Job Grant Not available 54 3.2.3 In Work Credit 58,700 d 116 3.2.4 Return to Work Credit Not available 41 T = taxable, C = contributory, M = means-tested a Unless otherwise specified. b Source: DWP, Benefit Expenditure Tables unless otherwise stated (http://research.dwp.gov.uk/asd/asd4/index.php?page=medium_term). c Figures for 2011 12. Both numbers include 21,000 people who receive both the income-based JSA and the contribution-based JSA. Source: http://research.dwp.gov.uk/asd/asd4/index.php?page=medium_term. d This is the number of new starts in 2011 12. Source: DWP, In-Work Credit Statistics, August 2012 (http://statistics.dwp.gov.uk/asd/asd1/in_work_credit/index.php?page=in_work_credit_arc). 3.2.1. Jobseeker s Allowance Taxable, either Contributory or Means-tested Jobseeker s Allowance (JSA) replaced Unemployment Benefit and Income Support (IS) for unemployed people from 7 October 1996. There are two main types of JSA: contribution-based JSA is paid to individuals who have satisfied the National Insurance contribution (NIC) conditions; income-based JSA is paid to claimants who satisfy a family income-based means test (more details below). 24 To qualify for either type, the claimant must be aged 18 or over but below State Pension Age; 25 some 16- and 17-year-olds may qualify for JSA in special cases. 26 In addition, the claimant must not be working for 16 hours or more per week, and must be capable of starting work immediately and of actively taking more than two steps a week to find a job, such as attending interviews, writing applications or seeking job information. They must also have a current jobseeker s agreement with Jobcentre Plus, which includes such information as hours available for work, desired job and any steps that the claimant is willing to take to find work. Claimants must be prepared to take a job that would involve working for at least 40 hours per week and 24 A third type of Jobseeker s Allowance, joint-claim JSA, is paid to members of joint-claim couples. It is very similar to income-based JSA. Figures for income-based JSA include joint-claim JSA. 25 Those above pension age are entitled to Pension Credit, which is more generous than JSA. Male claimants over the female State Pension Age are entitled to a premium of 71 per week. 26 For details, see section 5, chapter 19 of CPAG 2012/13. Institute for Fiscal Studies, 2012 16

have a reasonable prospect of securing employment (i.e. they must not place too many restrictions on the type of work they are willing to undertake). If a claimant refuses to take up a job offer without good cause, they may be denied further payments of JSA. Income Support (IS) and JSA cannot be claimed at the same time. Income-based JSA cannot be claimed at the same time as Pension Credit (PC) or income-related Employment and Support Allowance (ESA). If one member of a couple claims IS, income-related ESA or PC, the other may claim contribution-based JSA but not income-based JSA. After claiming JSA for a certain length of time, claimants have to take part in the Work Programme. This is the case after 9 months for claimants aged 18 24 and 12 months for those aged 25 and over. As participants in the Work Programme, claimants are assigned to non-governmental providers, who help them into work by providing help with CVs, job applications and more substantial barriers such as drug and alcohol problems. These providers are paid on the basis of their record in moving claimants into sustained employment. Contribution-based Jobseeker s Allowance Contribution-based JSA can be paid for up to 182 days. To claim contribution-based JSA, the individual must have paid sufficient Class 1 National Insurance contributions in the two tax years prior to the beginning of the year in which they sign on and claim benefit. 27 The individual must not have earnings above a specific level (see below). If the claimant qualifies, they can receive contribution-based JSA irrespective of savings, capital or partner s earnings. If the claimant has any part-time earnings, 5 per week is disregarded (or up to 20 for some occupations). Any earnings over this disregarded amount are deducted from contribution-based JSA entitlements pound for pound. Thus the most someone aged 25 or over could earn per week and still receive contribution-based JSA is 75.99 (assuming that they are not in one of the special occupations). The rate of contribution-based JSA is also reduced by the amount of weekly pension above 50.00 per week. Other types of income do not affect the amount of contributionbased JSA. The number of individuals claiming contribution-based JSA has remained constant over the last two years at around 250,000. Contribution-based JSA cost the government around 732 million in 2011 12. 27 For details, see section 4, chapter 35 of CPAG 2012/13. Institute for Fiscal Studies, 2012 17

Table 3.2.1. Current rates of contribution-based Jobseeker s Allowance, per week Age of claimant: Under 25 56.25 25 or over 71.00 Income-based Jobseeker s Allowance Those who do not qualify for contribution-based JSA may be able to receive incomebased JSA if they have sufficiently low income. Only one partner in a couple can receive income-based JSA, and the partner of the claimant must not be working for more than 24 hours per week (as described above, both forms of JSA require that the claimant is not working 16 hours or more per week). Couples without children must claim JSA jointly. This means that both usually have to sign on and meet the conditions for benefit. 28 Income-based JSA is designed to top up the claimant s income to a specified level (called the applicable amount ), which is intended to reflect the needs of the claimant s family. The applicable amount is the sum of personal allowances, premiums and some housing costs (primarily mortgage interest payments 29 ). The amount for each individual is usually identical to that for Income Support (see Table 3.3.1). 30 Clearly, to be eligible, the claimant s income (minus an earnings disregard 31 ) must be less than their applicable amount. The level of JSA payable is just the applicable amount minus the income. Income-based JSA is only payable if the claimant s savings and other capital (ignoring their home) do not exceed 16,000. Capital up to 6,000 is ignored ( 10,000 for those in care homes). Between these two thresholds, income-based JSA entitlement is reduced by 1 for every 250 of capital exceeding the lower threshold. Incomebased JSA is payable for as long as the qualifying conditions are met. The expenditure on income-based JSA rose from 3.7 billion in 2010 11 to 4.2 billion in 2011 12. There are currently nearly 1.2 million claimants. Receipt of income-based JSA automatically entitles individuals to free school meals, health benefits (including free prescriptions, dental treatment and sight tests), maximum 28 In certain circumstances, a joint-claim couple can qualify for JSA even if one of them does not satisfy all the rules for claiming JSA. For details, see page 396 of CPAG 2012/13. 29 Some housing costs can be met by not only income-based JSA but also Income Support (Section 3.3.1), incomerelated ESA (Section 3.5.2) and Pension Credit (Section 3.4.3). The weekly amount covered is the home loan subject to an upper limit and restrictions multiplied by a centrally set standard rate of interest, currently 3.63%. More details on calculating housing costs can be found in chapter 38 of CPAG 2012/13. 30 There is a 104-week limit on help with certain types of housing costs for JSA claimants if the 13-week waiting period applies. In contrast, those on IS, ESA or PC may get help with housing costs indefinitely. For details, see chapter 38 of CPAG 2012/13. 31 The earnings disregard is 20, 10 or 5 depending on the circumstances of the claimant. For details, see pages 913 14 of CPAG 2012/13. Institute for Fiscal Studies, 2012 18

Council Tax Benefit, maximum Housing Benefit and certain Social Fund payments (including the Sure Start Maternity Grant and funeral payments; see Appendix C for further details). Table 3.2.2. Current rates of income-based Jobseeker s Allowance, per week Personal allowance single person: Aged 16 24 56.25 Aged 25 or over 71.00 Personal allowance lone parent: Aged 16 17 56.25 Aged 18 or over 71.00 Personal allowance couple: One or both aged 16 17 Varies a Both aged 18 or over 111.45 a If both members of the couple are under 18, there are two rates: 56.25 and 84.95 (payable in special circumstances). If only one is under 18, there are three rates: 56.25 (if the other is 18 24), 71.00 (if the other is 25 or over) and 111.45 (payable in special circumstances). For details, see pages 817 19 of CPAG 2012/13. 3.2.2. Job Grant Non-taxable, Non-contributory, Means-tested The Job Grant is a one-off, tax-free payment to individuals who move directly from benefit into work of at least 16 hours a week. An individual also qualifies for a Job Grant if their partner starts working at least 24 hours a week and as a result their benefit stops. The payment is 100 in the case of single people and couples without children and 250 for those with children. To be eligible, the job must be expected to last for at least five weeks, and applicants must have been receiving a qualifying benefit such as Jobseeker s Allowance (Section 3.2.1), Income Support (Section 3.3.1), Employment and Support Allowance (Section 3.5.2), Incapacity Benefit or Severe Disablement Allowance (Appendix B) for the 26 weeks immediately before moving into work. There will be no new Job Grant payments from 1 April 2013. In 2011 12, approximately 54 million was paid out in Job Grants. 3.2.3 In Work Credit Non-taxable, Non-contributory, Means-tested In Work Credit is a fixed tax-free payment of 40 per week ( 60 in London) for lone parents who start work. To qualify, the claimant should be bringing up at least one child under 16 on their own. They also need to end a claim to a qualifying benefit that has lasted for at least 52 weeks. The qualifying benefits are Jobseeker s Allowance, Income Support, and Employment and Support Allowance (in certain circumstances). In London, the set of qualifying benefits is widened to include all cases of ESA, Incapacity Benefit and Severe Disablement Allowance. The employment being taken up must be for at least 16 hours per week, be expected to Institute for Fiscal Studies, 2012 19

last more than five weeks and pay at least the National Minimum Wage. The In Work Credit payment is on top of other benefits and is not taxable, and it is payable for up to 12 months. There will be no new awards of In Work Credit from 1 October 2013. In 2011 12, In Work Credit cost the government approximately 116 million, with around 60,000 new starts. 3.2.4 Return to Work Credit Non-taxable, Non-contributory, Means-tested The Return to Work Credit is a fixed tax-free payment of 40 per week for those who return to work after illness or despite a disability. The work must be for at least 16 hours a week (including self-employment) and expected to last at least five weeks. The claimant must be paid at least the National Minimum Wage, but not more than 1,250 gross a month ( 288.46 a week). They also need to end a claim to a qualifying benefit that has lasted at least 13 weeks. The qualifying benefits are Incapacity Benefit, Employment and Support Allowance, Income Support (on grounds of illness or disability), Severe Disablement Allowance and Statutory Sick Pay. The Return to Work Credit is on top of other benefits and is not taxable, and it is payable for up to 12 months. There will be no new payments of Return to Work Credit from 1 October 2013. Return to Work Credit cost the government 41 million in 2011 12. Institute for Fiscal Studies, 2012 20

3.3. Benefits for people on low incomes Benefit T C M Claimants, as Expenditure, at Feb. 2012 a 2011 12 ( m) b 3.3.1 Income Support 1,509,350 c 6,925 3.3.2 Working Tax Credit 2,516,000 d 6,889 e 3.3.3 Housing Benefit 5,051,120 f 22,706 3.3.4 Council Tax Benefit 5,922,130 f 4,928 3.3.5 Discretionary housing payments Not available 30 3.3.6 Social Fund payments: Regulated: Sure Start maternity grants 89,000 g 45.3 Cold weather payments 5,167,000 g 129.2 Funeral payments 38,000 g 46.3 h Discretionary: Community care grants 216,000 g 139.2 Budgeting loans 1,122,000 g 11.1 h Crisis loans 2,071,000 g 15.2 h T = taxable, C = contributory, M = means-tested a Unless otherwise specified. b Out-turn figures from DWP Benefit Expenditure Tables unless otherwise stated (http://research.dwp.gov.uk/asd/asd4/index.php?page=medium_term). Expenditure figures for Social Fund are from the Annual Report by the Secretary of State for Work and Pensions on the Social Fund 2011/2012 (http://www.dwp.gov.uk/docs/2012-annual-report-social-fund.pdf). c Source: DWP, Income Support tabulation tool, available at http://83.244.183.180/100pc/is/tabtool_is.html. d Number of families (including 581,700 families without children and 1,934,300 families covering 3,456,400 children), as at April 2012. Source: HM Revenue and Customs, Child and Working Tax Credits Statistics, April 2012 (http://www.hmrc.gov.uk/statistics/prov-main-stats/cwtc-apr12.pdf). e Source: HMRC 2011 12 Annual Report and Accounts (http://www.hmrc.gov.uk/about/annual-report-accounts- 1112.pdf). UK figure. f Source: Department for Work and Pensions, First Release: Housing Benefit & Council Tax Benefit Statistics, November 2012 (http://statistics.dwp.gov.uk/asd/index.php?page=hbctb).these figures refer to claimants in August 2012. g Number of awards made in 2011 12. Source: Annual Report by the Secretary of State for Work and Pensions on the Social Fund 2011/2012 (http://www.dwp.gov.uk/docs/2012-annual-report-social-fund.pdf). h Net expenditure in 2011 12. This differs from gross expenditure mainly because loans are recovered. In addition, 0.4 million of funeral payments was recovered from estates and therefore excluded in net expenditure. Source: Annual Report by the Secretary of State for Work and Pensions on the Social Fund 2011/2012 (http://www.dwp.gov.uk/docs/2012-annual-report-social-fund.pdf). Appendix C 3.3.1. Income Support Non-taxable, Non-contributory, Means-tested Income Support (IS) is a benefit paid to people on low incomes, although it is not available to the unemployed (who may be able to claim Jobseeker s Allowance) or Institute for Fiscal Studies, 2012 21

those in full-time paid work 32 (who may be able to claim Working Tax Credit). IS is thus mainly payable to lone parents with a child under 5 and carers (although some other individuals are also eligible). 33 Claimants should be between 16 and the age they can get Pension Credit. IS cannot be claimed at the same time as JSA or Employment and Support Allowance (ESA). The partner of an IS cannot claim income-based JSA (including joint-claim JSA), income-related ESA or Pension Credit. The level of IS payable depends on the family s needs (the applicable amount ) and their income. The applicable amount is the sum of basic personal allowances and premiums (see Table 3.3.1 and Appendix B) and housing costs for owner-occupiers (rent is provided for through Housing Benefit; see Section 3.3.3). 34 To be eligible, the claimant s family income (minus any earnings disregards) must be less than their applicable amount. The level of IS payable is just the applicable amount minus income. Some benefits are not counted as income for the purpose of the IS calculation (e.g. Attendance Allowance and Housing Benefit), and recipients of certain benefits may have up to 20 of their income disregarded for the entitlement calculation. 35 IS is not payable if the claimant and the claimant s partner together have more than 16,000 of capital. Capital up to 6,000 is ignored ( 10,000 for those in care homes). 36 Between these two thresholds, IS entitlement is reduced by 1 for every 250 of capital exceeding the lower threshold. In the past, IS provided support to a wider group of claimants: disabled people now on the whole claim Employment and Support Allowance (though IS is still available to certain groups such as those in receipt of Statutory Sick Pay (SSP)); the elderly now claim Pension Credit (though in a small number of cases pensioner premiums are still payable under IS, e.g. when a claimant aged under 60 has a partner aged over 60); 32 Full-time paid work for the purposes of Income Support normally means at least 16 hours per week for the claimant and at least 24 hours per week for their partner. This definition does not apply to special situations such as being on holiday or sick leave. For details, see page 353 of CPAG 2012/13. 33 To qualify for IS, one needs not only to satisfy the conditions on income, working hours, age, residency etc., but also to fit into one of the groups of people who can claim IS. The groups include sick and disabled people, people with childcare responsibilities and carers, students on training courses, and others. (Details on eligibility are provided in chapter 17 of CPAG 2012/13.) 34 Housing costs are calculated in the same way as for income-based JSA (see Section 3.2.1). Deductions from housing costs are made for non-dependants in the same way as for Housing Benefit (see Section 3.3.3 and Table 3.3.3). 35 For details, see pages 913 14 of CPAG 2012/13. 36 None of these thresholds includes the value of owner-occupied property. Institute for Fiscal Studies, 2012 22