Work and Pensions Committee
Oral evidence: Benefit provision in the UK, HC 1126
Wednesday 8 March 2023
Ordered by the House of Commons to be published on 8 March 2023.
Members present: Sir Stephen Timms (Chair); Debbie Abrahams; Siobhan Baillie; David Linden; Steve McCabe; Nigel Mills; Selaine Saxby; Sir Desmond Swayne.
Questions 1 - 38
Witnesses
I: Ryan Shorthouse, Founder and Chief Executive, Bright Blue; Robert Joyce, Deputy Director and Head of the Income, Work and Welfare sector, Institute for Fiscal Studies; Iain Porter, Senior Policy Adviser, Joseph Rowntree Foundation; and Peter Kelly, Director, Poverty Alliance (attending virtually).
II: Nicholas Timmins, Senior Fellow, Institute for Government; Professor Ashwin Kumar, Manchester Metropolitan University; and Donald Hirsch, Professor of Social Policy, Loughborough University.
Witnesses: Ryan Shorthouse, Robert Joyce, Iain Porter and Peter Kelly.
Q1 Chair: Welcome to this meeting of the Work and Pensions Select Committee, a scoping meeting for us to listen to some ideas in order that we can design an inquiry on the adequacy of benefits, which we are proposing to undertake over the next few months.
We are delighted to welcome our first panel this morning. Would you each tell us briefly who you are?
Ryan Shorthouse: I am the Director of Bright Blue. We are an independent, centre-right think-tank. We have done a lot of work around welfare reform.
Robert Joyce: I am a Deputy Director at the Institute for Fiscal Studies.
Iain Porter: I am the Senior Policy Adviser at the Joseph Rowntree Foundation, where I lead on our social security policy.
Chair: Joining us virtually is Peter Kelly.
Peter Kelly: I am Director of the Poverty Alliance, which is the anti-poverty network in Scotland.
Q2 Chair: Thank you all for being with us. I will put the first question to you, a fairly broad question. How do each of you think the adequacy of social security benefits should be assessed? Are there some principles that you think should be applied in this area and, if so, what are they? Also, which benefits do you think our inquiry ought to focus on?
Ryan Shorthouse: There are various ways you might assess accessibility both on objective and subjective measures. You might look, for example, at rates of poverty, and there are different ways of measuring poverty relative and absolute. The Social Mobility Commission has a version as well. I suppose the general trend over the past 10 to 15 years has been one of not much change. The level of relative poverty has remained pretty stable. Absolute poverty seems to have fallen a bit on some measures, but JRF has a particular version for destitution and there are also measures such as homelessness, rough sleeping and people going to food banks; that seems to have risen over the past decade. All those measures, I think, could be signs of the welfare system not doing its job.
There are subjective measures as well from both claimants and the wider public. We have recently done a report on public attitudes to the adequacy of the system. What people say, an overwhelming majority of people across all different social groups and political groups—Conservative, Labour and Lib Dem voters—is that the welfare system should be there to ensure that the basic cost of living is met and that the essentials are met. People believe that adequacy is linked to the cost of living and ensuring that people can meet the essentials. That is probably a clear starting point for principles.
What was the second part of your question?
Chair: Whether there are any particular benefits you think we should focus our report on.
Ryan Shorthouse: Our latest report, “Building up”, did focus on the whole of the benefit system at national and local levels for working-age adults. There is obviously a lot of focus, quite rightly, on Universal Credit, but there are a load of localised benefits that you might want to look at as well because they are an important part of the welfare system: Healthy Start vouchers, council tax reductions and funeral expenses payments, all of which are important parts of the welfare system. Our evidence seems to suggest that take-up is pretty patchy across different parts of the country—it is a bit of a postcode lottery because it is a localised system—and that the indicators that we might have around take-up of those different types of benefits are not great. A lot of them, apart from the warm home discount, have seen a reduction in the numbers of people taking them up over the past decade. That might be indicative of people being eligible for that support but not taking it up.
Q3 Chair: You mentioned that there are three measures of poverty. Do you favour one of them?
Ryan Shorthouse: I was very involved with the Social Metrics Commission and think there should be a material indicator of poverty, something that has not been in place for some time as an official Government measure. It was previously, before the coalition Government. Poverty is multifaceted but money, of course, does matter. I think that the 60% of equivalised household income was a good measure, anything below that being a measure of poverty. That is probably internationally seen as the best measure but one of many, I would say.
Robert Joyce: On the principles first, of course, benefits can be seen to perform lots of different functions and one wants various things from them, so I do not expect that it is sensible to try to somehow collapse everything down to a single, simple formula that will not be contested. However, there is a notion of adequacy perhaps taken at its most literal sense of whether people have enough to afford some definition of the essentials, which is clearly an important part, but we also think about lots of other things that may well point to benefits being higher than that level for the most part, such as: is it leaving people with intolerable degrees of risk if they are currently sitting on median earnings but might lose their jobs, and is it fair to those on low wages? Does it give people the right amount of cushion to wait for a good job rather than having to take any job? All those things come into play and, also, how we can limit perverse incentives.
There are at least components of that where you can set out quite a clear framework, or have a go, and I think that is a useful exercise in itself. For example, on the more literalist, minimalist idea of adequacy—do people have enough to afford something like the essentials?—Ryan Shorthouse has already mentioned an exercise that has looked at that, at what the public thinks about what is essential. I am sure Iain Porter will say more about that from JRF’s work.
The thing about something like that is that you are still always going to be able to quibble about any particular definition of “essential”, but having a framework that you can engage with constructively is useful, probably useful for the democratic process. We can argue about it but it is there, it is transparent and it is methodical. Having some element of that laid out by policymakers would be useful because at the moment it is not a stretch to say that we pretty much know that there is no principle behind the rates at which benefits are set. That is a strong statement but it follows pretty much directly from things that have happened. The Government have made major changes to the real levels of benefits by freezing them in nominal terms for several years in advance. That is literally doing something where the outcome is random when you do it because you do not know what inflation will be over the next four years and you do not know what earnings growth will be. Take any variable that you think is relevant for benchmarking benefits, you do not know what it will be in four years, so if you make major changes to the system in that way, the outcome is random. That seems to me to pretty much be directly saying that there is no principle behind what is going on.
I think that having something more tangible to engage with would be a useful step in the right direction, even though I do not think you are going to be able to collapse the entire decision about the optimal level of benefits to a formula, certainly not a formula that everyone is going to agree with.
Briefly on which benefits I think would be worthy of focus, the long-term trend in the UK has been for the working-age group without children to be falling further and further behind everyone else in terms of the basic level of the safety net. JRF’s work, if I recall correctly, suggests that indeed that is a group for whom you are most likely to find that the safety net is below what many people would consider to be at essential level. I think, therefore, that the amount of support we give to that group would be worth looking at. It has not changed in absolute terms for decades, for about half a century or so. Housing would be another area, which I am sure we will come back to, but I would definitely look at that.
This is my final point about which benefits to focus on. I would say in some sense all benefits with respect to uprating policy because, in practical terms, a lot of the issues that I am guessing we are going to be talking about come back to uprating, and uprating is the key thing. You can do whatever you want to do in year 1, but after that everything depends on how you uprate stuff. With respect to why the support for those without children has fallen so far behind, it is basically because we have a price indexation policy and we have stuck exclusively to that for that group for 50 years, with nothing else, and that is why they have fallen further and further behind. With housing, a lot of the issue is to do with uprating or the lack of uprating, so I think uprating in general should be a focus.
Iain Porter: I want to pick up on what Robert Joyce said. There are many different parts to the social security system so you cannot collapse down to one single objective for what every benefit should do. There will be a range of perspectives. Clearly, there are different objectives for the pension system and those for working-age, means-tested safety nets. However, in recent research by JRF, working alongside the Trussell Trust—which we are working very closely with because we have both been very concerned about the basic means-tested safety net that should exist for people when they face setbacks—our latest tracker survey of low-income households, which is a large, representative sample of the population of low-income households, found that 90% of low-income households on Universal Credit are going without essentials such as food, a warm home, the ability to take showers or to afford vital travel. That is a starting point that says that something has gone very wrong with that basic element of the system.
There is a range of objectives. The Government need to set out clearly what they hope to achieve and what the aims of different bits of the benefit system are. From our recent work with the public—we have done a lot of public attitude testing—it is pretty clear to us that the public understands that people cannot always deal with what life might throw at them and that we all face setbacks from time to time: losing a job, having to care for a sick relative and relationship breakdowns, for example. The public strongly finds consensus that when we face hard times like that there should be a system to at a minimum allow you to afford the essentials while you get back on your feet, and it is also clear from our research that that is the case at the moment.
JRF and the Trussell Trust are calling for an “essentials guarantee”. That would be a legal guarantee to ensure that the basic rate of Universal Credit should always at least be enough, at a minimum for people to afford essentials while they recover from setbacks, and that there should also be a guarantee that various quite arbitrary deductions that exist in the system and take away from that basic rate should never pull support below what people need for the essentials.
The basic rate of Universal Credit standard allowance will be £85 a week from April, after this year’s uprating. We have done quite a bit of research looking at what it costs to afford some bare basic essentials—things such as food, utility bills, vital household items and travel—and we have drawn on ONS spending data for low-income households, so actual spending data. We have also done a lot of focus groups with the public because we think it is important to ensure that our social security system is embedded with a sense of clear public support. We found that the minimum required for, for example, a single adult is at least £120 a week. I can go into more detail about the categories of essentials, but that is for a very basic set of essentials with some quite conservative costings around them. You can see, therefore, that there is already a gap of at least £35 a week on the basic standard allowance of Universal Credit between what it will be in April and the minimum needed to afford essentials. That is why we are calling it an essentials guarantee and think that is the priority area that the Committee should look at, that basic adequacy.
Peter Kelly: We are in a better place to understand what adequacy means and how we might measure it than we might have been 15 years ago. A lot of work has been done on minimum income standards and I am sure Donald Hirsch will talk about it later. There has been a history of work on reference budgets that I think should also be drawn on. There are different measures of poverty and we need to include them in our assessment of what adequacy is.
In thinking about the principles around adequacy, we need to go to what the purpose is of our social security system, which I think is something that has never been clearly articulated. It has gone through various changes over the decades in the post-war period, but to my mind it has never been pinned down. Understanding the purpose of our social security is important and we might touch on that later.
In thinking about setting social security benefits, transparency is an important principle and, as other witnesses have said, it is not there now. How the figure for benefit payments we end up with is arrived at is unclear.
Another principle we need to think about is the use of evidence as a principle in itself, that we base the way that we set social security benefits on sound social-scientific evidence. We are in a much better place than we might have been 10, 15 or 20 years ago to be able to do that.
There are principles around involvement, listening to people who have lived experience of using the social security system and understanding what adequacy means from that perspective, as well as drawing on broader data around the public’s understanding of adequacy. Going back to the purpose of our social security system, we need to think about the dignity of beneficiaries when we are setting benefit levels.
Those are some of the principles. In thinking about what benefits the Committee should focus on, it is almost easier to think about what should be excluded and why. In any part of the social security system we need to be thinking about adequacy in how we set any of the levels of entitlement and it is better to be inclusive in the inquiry.
In particular, and reflecting on what others have said about working-age benefits, the levels for beneficiaries without children and for younger people, those under 25, what does adequacy mean there? That is important. The inquiry could also look at particular issues around child maintenance and carer’s allowance. The impact of deductions has already been mentioned and I think that is a critical issue, as is the benefit cap and the impact those measures have on the adequacy of benefits.
As a final point on scope, I think we need to recognise that our social security system has changed with devolution and there is scope for other parts of the UK to be delivering social security benefits and a consideration of what adequacy means in that context would be useful.
Q4 Sir Desmond Swayne: I want to come to Iain Porter on the essential guarantee. I looked at the list of what should be considered and they struck me as very worthy essentials, but the difficulty I have is that when I visit people in straitened circumstances, a disproportionate number of them have a quite different perception of what is essential and that places a disproportionate burden on their expenditure, reducing what is available for what we might think are worthy essentials. That begs the question that if we are going to go down the line of what the basic requirements are and how we guarantee that people get them, should we be including in the scope of this inquiry the means by which we might enforce choices upon them as to what we think they should probably have?
Iain Porter: That is a question about the inherent variability in what people need. Our social security system is complex and that is because people’s lives are complex. People face a range of circumstances and people in different parts of the country and in different circumstances will face different costs. However, we have a national system of entitlement and at the core of that is a core rate of Universal Credit, a core building block, a standard allowance, which at the moment is a single rate for a single adult and another rate for a couple. I think it is unjustified that there are also lower rates for people under 25 because a person under 25 who lives on their own has no lower costs or needs than other single people. Part of what we are saying should be looked at are the rates for young people and we think they should be lifted up the same rate as for the over-25s.
Inherent variability does mean that there will be a range of figures for what people think is needed. In our recent work, we found it was important to engage with the public as well as the Universal Credit claimants we have done focus groups with to find a strong consensus about a minimum line. For example, some final national polling that we did on the levels found that 72% of the public agree with the essentials guarantee policy that we put forward at the levels we said—that £120 a week for a single adult, for example.
Q5 Sir Desmond Swayne: What I am trying to get at is whether within the scope of this inquiry we should be looking at how we ensure that they get those basic minimum guarantees beyond just giving them more money because they might spend it on something else.
Iain Porter: The processes should certainly be within the scope of the inquiry, going back to the points about the objectives that the Government sets and the processes. That is important. We have come to a point in time where benefit levels are essentially arbitrary, as Robert Joyce said quite eloquently. The current levels are simply the cumulative result of 75 years of fairly arbitrary changes in rates, and many years of freezes on rates so they are not even keeping up with inflation. The public was completely baffled and surprised when we told them there was no basis for the rates and that they are not even linked in any way to a minimum level that people should be able to afford. The inquiry should certainly look at processes and we would suggest that there has to be some kind of independent process to anchor and embed in the system how to set the rates.
Chair: You have given us some very interesting answers. We are a bit under the cosh on time now, however, so we need to move things along a bit.
Q6 Selaine Saxby: Apart from the level of benefits, what other issues should we be looking at? For example, should we look at administrative issues such as the five-week wait?
Ryan Shorthouse: Our latest report looked at adequacy, accessibility and fairness and I think they are three key things that you should be exploring.
Just quickly on Desmond Swayne’s point, I think it is worth looking at conditional cash transfers, which have quite a good evidence base in Latin America and in some European countries. Most benefits are fungible—that is, they are direct cash transfers to be spent how you like. Of course, that is probably for the best because people have different needs and are at different stages in their lifecycles, but there are some benefits—some localised benefits such as Healthy Start vouchers and Sure Start maternity grants—that you have to spend on a particular thing. There is some good evidence around conditional cash transfers—for example, school enrolment, where you get a certain benefit if your child attends school, which has led to some positive results for school enrolments—so I would advise the Committee to look at that.
As for issues around accessibility, there are a lot of localised benefits where the take-up does not seem to be as high as it should be. For example, we looked at the Sure Start maternity grant, the warm home discount, the Healthy Start vouchers, council tax reductions and funeral expenses payments, and the general trend, apart from the warm home discount, is for those to have gone down in recent years, so I would also recommend looking at that.
The third thing to look at is fairness. In the work that we did for this report we found quite a divided response when we asked people what was more important, that everybody gets a basic or that people who have contributed more to the system get more out of it. Most people lean towards getting the basics but a good chunk of people believe that fairness is linked to what you have put in, the efforts that you have put in, and that awards should be linked. In this country, we do not have a contributory-based system, which is unlike most European countries, which have two-tier systems where you have a basic and on top of that you have a kind of social insurance model that means that you have contributed in the past and immediately when you come out of work you get more out of the system as a result. I think that is similar to the furlough scheme, although, of course, nobody had contributed before other than through the general tax pot.
I think it is worth looking at something similar to that where both employers and employees pay into a pot, much like you pay into a pot for auto-enrolment pensions but maybe something that could also be accessed for people during the period of their working age if they fall on low income or come out of work. The benefit of that is that the replacement rate in the short term in the UK is very low relative to other countries and that is obviously undesirable from an individual perspective because the income shock is very high. There is growing evidence that it is also bad for the economy because people, broadly, if they know that the replacement rate is low, feel that they need to find a job very quickly. If you have medium or high skills, you may be pushed into a job that is not suitable for your skillset. That is obviously bad for you but it is also bad for the matching of skills to employers. That may be partly why the UK has quite low productivity—because people have not been matched to an employer that matches their skillset. As we know, the UK has very poor productivity relative to other European countries and I would say that the design of the welfare system may be contributing to that.
Robert Joyce: Whenever we or other researchers look for it, we tend to see that living standards are depressed during periods when people are waiting for support. Of course, anecdotally, that is often something that comes up when you hear stories about hardship. Take the wait for assessment for disability benefits. I think the median wait time is five or six months.
My slightly vague sense is that the five-week wait in Universal Credit is a bit less of an issue that comes up now because of the considerable extension of advances and loans, but I don’t know that for sure, and more up-to-date evidence from on the ground would be useful. It has been a very big issue within UC. The fact that childcare elements were paid in arrears is another example of a similar thing. Those issues around waiting for support are quite important.
Sanctions and loan repayments are two other things that I suspect are responsible for quite a high fraction of the real experiences of hardship within the system. There are obviously many choices around how they operate and there are trade-offs there but those choices are going to be relevant, I think.
Ryan Shorthouse mentioned the take-up issue. I agree. You can have an adequate benefit rate but are people getting it at all? That is an area where the Government could be a lot more on the front foot, for example, in assessing what Universal Credit is doing to take-up. It was supposed to be one of the key potential benefits.
We also know from international evidence—not UK evidence but international evidence—that relatively modest interventions on take-up can make quite a big difference to rates of take-up. Doing things such as sending reminder letters and various kinds of almost auto-enrolment type measures can make a big difference. It is an area where you could run trials, I think, at quite low risk. A Government that were serious about increasing the take-up or at least learning more about the effects of measures to try to increase take-up could be doing more and could achieve quite a lot more. I agree that that is an area to look at.
Another thing about whether people are getting support at all relates to asset rules. If you have more than £16,000 in the bank, you don’t get any support and that is an important choice. The thing to say there is that you might still think that is a reasonable threshold but it is another one that is frozen in nominal terms indefinitely. So even if you think it is reasonable now, it presumably at some point will not be reasonable and by default we will reach that point at some point so that is about uprating again.
Iain Porter: Can I pick up on the five-week wait point? I think it is a very important point and definitely should be in the scope of the inquiry, not just as to the headline rates of benefits but the various other bits of the system that effectively reduce the rates so the amounts that people receive in support are often well below the headline rates. Various deductions are a key issue. Almost half of households on Universal Credit face some sort of deduction from their support, the main one being deductions to repay debts to the Government. They can be up to 25% of the standard allowance of Universal Credit, a huge amount.
I mentioned £85 a week from April being the standard allowance, but if you take off 25% you are down to £64 a week, and with almost half of households getting some sort of reduction, that is a huge issue. Any things that cause that debt in the system should be looked at. The five-week wait has been, and still is, one of the causes and 85% of the value of deductions taken from Universal Credit payments relate to central Government debt, so that is greatly within the control of central Government to tackle that. We know that new Universal Credit claimants, about 60% in recent times, have had to take out loans, known as advance payments, in order to get through and survive that period of at least five weeks before the first Universal Credit payment is made. That generates debt in the system. The social security system is thus creating systemic debt and that is not what it should be doing. The result of it is that people face quite large, and often unaffordable, rates of deductions from their headline rates, meaning that the support they do get takes them even lower, below the level needed even to afford the essentials. That is why we are talking about an essentials guarantee that tackles those unaffordable deductions as well as the headline rates.
Selaine Saxby: Coming to Peter Kelly now—and I will come back to the others with a second question—
Chair: We are running quite behind time so let’s leave the further questions.
Selaine Saxby: Peter Kelly, over to you.
Peter Kelly: Very quickly, because I think others have covered the key issues around waiting times and deductions, another issue that perhaps we need to look at is alternative payment arrangements and particularly the use of split payments. That would lead to consideration of broader issues of equality within the way that we administer the social security system and the differential impacts on men and women.
Another issue that is perhaps not quite an administrative one but one that I will mention now is around rurality and regional dimensions. We know that the value of social security benefits is set across the UK as a whole but is experienced very differently in different parts of the country, particularly rural parts. It would be important to consider rurality.
Chair: We are running behind time so if we could have some succinct answers it would help and I would be grateful.
Q7 David Linden: Mr Joyce, I was struck by a comment made by one of your research economists, Tom Wernham, who said that the Scottish Government have used devolved income tax and benefit policy to make the system more progressive. He goes on to say, “These changes imply big increases in income for poorer households with children.” As we embark upon this inquiry, can you elaborate on what you see as some of the benefits of the devolved social security policy?
Robert Joyce: The Scottish Government are making pretty substantial increases. They have just made a distributional choice, which I guess was part of the point of devolution, to channel a lot more money towards low-income families with children in particular. That has a meaningful impact on incomes, as Tom Wernham and other colleagues showed.
They are doing lots of other things as well, which I think could provide good opportunities for learning more widely. I hope that their efforts to try to properly evaluate the impact of some of the changes they are making so we can learn more from them will be helpful. For example, they are doing some things along the lines of take-up initiatives, trying to do things that make the claiming process easier. It would be fantastic if we could all learn from the effects that has so I hope that opportunity is not wasted.
David Linden: Does anybody have anything to add?
Ryan Shorthouse: I am not an expert in the area but I do know, for example, that Universal Credit claimants in Scotland can claim more frequently than the monthly default that is the case for the rest of the UK.
My view, and what we said in our recent report, is that once Universal Credit is rolled out there should be some kind of digital platform for claimants where they can have greater control over the frequency of their payments but also the distribution of their payments, talking to the split payment point. In the legacy system, some tax credits went to the main earner and some went to the main carer, and from a particular point of view of gender equality and supporting female independence with finances, that choice of frequency and distribution would be quite good.
Another benefit of having a digital interface is around accessibility. The take-up of some localised benefits is quite low. I think it would help with take-up if people had a digital interface that signposted them and said, “You are eligible for this localised benefit”.
Iain Porter: To the point about there being principles embedded in the system, the Social Security (Scotland) Act is an example of legislation that does embed clearly some principles that the Government want from the system. For example, there is a duty to promote take-up. Things like that can be learnt from.
Q8 David Linden: Mr Kelly, you probably follow the system in Scotland even more closely. As we embark on this inquiry, is there anything that you think we should be looking at, anything that happens in Scotland or other international comparisons?
Peter Kelly: Colleagues have already made some points that I would have made, particularly around the principles that are embedded in the social security system in Scotland. Thinking about how they are realised in practice is particularly important; for instance, the principle about making a contribution towards reducing poverty is important.
There have been some recent developments around cross-party efforts to develop a minimum income guarantee in Scotland. There is some new evidence from that work in an interim report to be published at the end of March. I think it would be useful for the Committee to consider some of the evidence that is starting to emerge from that process, one that embodies perhaps some of the principles that we would like to see in the way that we develop a social security system.
Those are two key areas: looking at how principles are applied in practice and at the new developments around a minimum income guarantee.
Q9 Nigel Mills: None of you here is exactly a revolutionary; I think what you are all basically saying is that we should examine and maybe tinker with the existing system. None of you is suggesting that we should blow the whole thing up and start again. Is that a fair summary?
Ryan Shorthouse: Yes. I would say that I am more of an evolutionary than a revolutionary, but I think I have said something slightly different, which is that I think the route to a more popular and effective system consists of increased conditionality and increased contributory elements. It is not just about the income guarantee. I will not repeat the details of that, but I think it is slightly different.
On the minimum income guarantee, which I have some sympathies for, I would say that we should look at how the Low Pay Commission sets the rates for the wage floor, the minimum wage, which is a very transparent process. It is evidence led and it is highly respected. It recommends to Parliament and then Parliament accepts whether it takes those wage floors. Something similar could be done for the setting of benefits to ensure that there is a minimum income for different families and the Social Security Advisory Committee could take a beefed-up role of doing that process and then recommending to Parliament what the benefit levels and increases should be. You would have an expert-led, transparent process that mirrors what happened with the Low Pay Commission and the setting of the minimum wage, which has been very successful, has cross-party support and is a very respected process.
Q10 Nigel Mills: I think I probably agree with you. We had a slightly strange uprating debate in February when we were told that the decision would have had to be implemented the previous November to make the computer systems cope, so we cannot change in Parliament what has already been programmed into the computer system because there would be no time to change it before April. That is largely a pointless system, I suppose, so I think what you are advocating is that the Secretary of State’s judgment on uprating should be a transparent and public process of how the proposed numbers have been reached. I think that is roughly what you are advocating.
Ryan Shorthouse: Yes, that is right. To the “Computer says no” point, that is sometimes used as an argument against certain policies but then, for example, during Covid the Government were able to very quickly and successfully implement the £20 uplift, so I am not really sure that that argument about the computer system is consistent.
Nigel Mills: It depends which legacy benefit you are on. Iain Porter wanted to come in.
Iain Porter: Yes, to respond. I am probably not a full-blown revolutionary but I think what we are proposing with the essentials guarantee would be a major new direction. It would embed for the first time a properly protected minimum level of support linked to need, linked to the cost, at least, of essentials and that is something that we have never had in the system. The rates have been set pretty arbitrarily
Looking back to what happened with pensions in the early 2000s, we had the Pension Commission’s Turner report, which found and garnered a new cross-party, cross-societal consensus, an agreement that the pension system had become too complex and too inadequate and far too many pensioners were in poverty. The commission found consensus and set a new path for pensions policy that over 20 years or so has seen all parties build on, re-linking, for example, the adequacy of the basic state pension to earnings as well as broader reforms with private pensions and workplace pensions. I think we need something like that. We need a kind of Turner moment for working-age, means-tested benefits, and I think that is quite revolutionary in a British sense. It would be a big change but there is a big call for it now. I see gathering consensus and I think the public would very much support it.
Q11 Nigel Mills: I have a final question. We heard in Massachusetts last week about a top-up payment that people pay on their benefits that gets them a much more generous level of benefit if they fall out of work for a defined period. Ryan, is that roughly what you were suggesting, that what we learned from the pandemic was that people think, “I can’t live on £100 a week; that won’t even pay my car loan let alone anything else”, so we ought to have a more generous defined period of support for people who fall out of work to let them adapt to their new circumstances? Is that a change that we should look at? I think you have already said yes to that.
Ryan Shorthouse: Yes, very much so and I think the UK is an outlier compared with other European countries in not providing that system. That has an impact both on individuals and on the wider economy as well because of people going into jobs that maybe do not match their skillsets.
Q12 Nigel Mills: Do the rest of the panel think that is a priority, something we ought to look at, or is it a second-order change?
Robert Joyce: I agree that there is a strong case for it and Nick Timmins, who is on the second panel today, has written about some of the possible things that you could do along those lines. It would be worth talking about that perhaps. I think that you could do things there that would change the system quite a bit.
On the revolutionary point, I am not revolutionary. I find it quite hard—having just been through 10 years of upheaval with Universal Credit, upheaval for claimants, bandwidth, the DWP—to get excited about spending the next 20 years trying to turn our welfare system into something that looks like Germany’s or something like that. I am not sure that is particularly helpful. However, yes, I do think you could make our system do things that it does very little of, such as providing some degree of insurance to people on not the lowest levels of earnings but somewhat modest earnings, which would have potentially many wider benefits of the kind that Ryan Shorthouse has been talking about. That is one direction that is worth looking at.
Q13 Steve McCabe: I want to direct my question to Robert Joyce. The benefits and tax credits report that the IFS produced, I think this February, says that the system has become increasingly skewed towards pensioners and families with children. Could you tell me why you think that has happened and what the implications are for young people, working people, and people without children?
Robert Joyce: To be fair, that is the long-run trend. It depends when you start the clock. If you start the clock in 2010, it is a bit different in that families with children have experienced disproportionate cuts over that period. Yes, the long trend is an increasing profiling of support towards pensioners and, within the working-age system, towards those with children.
What has essentially happened in mechanical terms is that we have a long-term default policy of price-indexing everything—that is the baseline—and for those without children, that is all we have done. That is basically what has happened, whereas for those with children it has been mostly episodic. There have been particular periods where we have expanded support for those with children, particularly in the late 1990s and the early 2000s, and that was pretty clearly tied to objectives at the time around child poverty. I think that is quite easy to understand in some sense, the history of how that has happened.
However, it is the baseline of price indexation even over huge periods, which means you end up with, first of all, for those without children, the replacement rates in terms of what the benefit system will replace if you fall out of work being extremely low in an international context—there is no question about that—and well behind those that other families have.
It does raise the question as to whether price indexation indefinitely is a sustainable thing. My personal view is that it probably is not and I think it is interesting that for those families, those without children who just get the basic rates, that is the sort of family that, if you take the JRF work at face value, is most likely to not have enough to cover the essentials, to whatever people view to be essential. I wonder whether if you had run the same exercise back in 1975, asking people what was essential, you might have found they were closer to being covered, even though the real value was the same. This is because we do move on as a society over long periods and I think that does raise questions about price indexation indefinitely.
Chair: Thank you. Siobhan Baillie wants to raise a point.
Q14 Siobhan Baillie: My point is related to Selaine Saxby’s point. I am interested in the “Computer says no” issues in the Universal Credit system already, and we come up against some very daft things. You mentioned the up-front payments with childcare, which are a barrier, and we also have a weird interaction between child maintenance and Universal Credit in terms of collection for paying parents. We will not have time today for this, but if you do have anything already within the wealth of expertise and the reports you have done, lists of things that we should look at, things that are daft in terms of making the system work but also penalising claimants, I would be interested to see them.
Separately, I was thinking about this last night while I was going through our questions. I want to say out loud, and I have said this before in the Committee, that I am surprised how often the welfare system is now coming up on doorsteps and it is coming up quite a bit with employers. The discussion is that it is starting to not work again and it is stopping people getting into work and there are questions about whether work pays. We are not back in 2010 or 2015-type arguments but, very briefly, I would be interested to know whether that is something that is coming across your desks as well and how we could look at it in our inquiry. I am conscious that we have not heard from Peter Kelly for a bit.
Peter Kelly: Your point about the interaction between the social security system and the labour market is a critical issue. At the moment, I am not convinced that the issue is about the entitlements that people have through the social security system that are causing the disruption in the labour market and staff shortages. In our work around the living wage and our engagement with employers about that, they do not tend to talk to us about those problems with recruitment, where social security seems to be a barrier. However, I think generally the issue of the interaction between the labour market and social security is one that we do need to consider, particularly in light of the progress that has been made on taper rates in recent years. That is an important issue that we do not want to lose sight of.
Also, to go back very quickly to a couple of other questions on the revolutionary nature of what is being discussed here, I think even a discussion around adequacy in relation to social security is quite radical. We have not had this for decades, if at all, at least since the 1960s as far as I am aware, so the importance of this inquiry cannot be understated. John Veit-Wilson talked about income adequacy as “the clean water of anti-poverty policy”, and I think it really is. The idea of a guarantee that we, JRF and others have talked about is quite transformative, where people are entitled to a level of support that is guaranteed and cannot be removed. That is a very important consideration in thinking about our social security system.
Siobhan Baillie: Ryan, you have done a lot of work on it. I saw your report on this.
Ryan Shorthouse: On the childcare point, it seems common sense for people to be able to claim support immediately rather than in arrears and there is some evidence that it is preventing women on low incomes from going back into work or progressing in work.
On the point about work incentives, the Government reduced the taper rate in the system to try to improve work incentives, but I would say that the process of seeing a minimum income—if you just asked the Low Pay Commission at the moment about when it is setting the wage floor, it also takes into account job supply. If you raise the wage floor too much that will lead to unemployment, so the commission is very conservative in how it does it. If you had the Social Security Advisory Committee looking at what those minimum income guarantees should be, one part of its remit should be to take into account work incentives when it is doing that and that would be a legitimate thing to do.
Finally, on the contributory stuff that we are talking about and how that interacts with work incentives, there are many ways that you can build contributory elements into the system: the idea of having a voluntary national insurance, which means that if you paid into that you get more out of it, or the auto-enrolment point that I made earlier attached to auto-enrolment for pensions. You can get something if you pay into that and you can access it during periods of no or low pay.
Another idea that we have advocated before and that links to work incentives is a contribution supplement on the standard allowance of Universal Credit. If you have been in the labour market for a long time, every decade or so, or every five years, there should be a supplement to recognise that you have worked for longer and paid more into the system and should get a higher award out of that, which is an incentive in itself.
I would also apply that not just to Universal Credit but to statutory maternity and paternity pay, which at the moment is very low. There is lots of evidence that women return to the labour market much earlier than they would like as a result of relying on statutory maternity pay, which most small businesses do and most people work in small businesses. If you can attach a supplement to people who have worked for longer and they get more through the statutory maternity pay, that also, I think, is good for work incentives.
Robert Joyce: I will try not to duplicate anything, given the time. One thing that I will just quickly mention because it is relevant to incentives and various other things that have come up—and it is also about computers—is that the Government do not know what the welfare system looks like in the sense that council tax support, which was the most-claimed means-tested benefit before it was localised, is now set differently by every local authority and there is no record anywhere of what these schemes look like. I know from talking to civil servants that they do not have anything internally that tells them what these schemes look like. Therefore, any discussion around incentives or trying to set a safety net that is some definition of adequate is pretty much impossible because the Government do not know what the whole of the welfare system they are dealing with looks like. As a point, data that should be there and usable at least within Government but presumably for everyone, that would be a good step in the right direction.
Q15 Siobhan Baillie: Would a centralised system help that? Because if it is signposting, then presumably it will need to have the data and there will be a way of collecting data.
Robert Joyce: Yes. Going back to the original reform, there is an issue about whether localisation should have happened at all and my view on that is that the case for localism for that sort of thing was always pretty weak. I would not have localised it, I would have put it as part of Universal Credit, so ideally we would undo that. However, if we are not going to undo that, let’s at least understand what these systems look like.
Iain Porter: On your first point, I will be happy to send afterwards a list of the daft things that the Committee should look at. One example on child maintenance is that currently there is a priority order of deductions to be taken and child maintenance still sits below the Government recovering their own advance payments, which is ridiculous. That is one example.
On your point about maybe this coming up more on the doorsteps, people worried about an inadequate safety net, I think that is right and it chimes with our very recent public polling, in February, which found that 66% of the public, when we showed them the current rate of basic allowance under Universal Credit, thought it was too low, 67% said they did not think they would be able to afford even the basic essentials if they were on Universal Credit, and 69% supported increasing the rate. We are seeing more and more public awareness. People are becoming more aware of the situation that when people face a setback and have to claim Universal Credit, they cannot even afford basic essentials, so 90% of low-income households on Universal Credit cannot even afford basic essentials. I think the public is becoming more aware of that, seeing increases in the need for food banks. People get that if you face a setback and need to get back into work or try to increase your hours, you will struggle to do that if you are struggling to put food on the table or to afford a bus ticket to go to a job interview or to take on extra shifts. I do agree that this is coming up more and more and that it is seen as an issue by the public.
Q16 Chair: Time, unfortunately, is up but I have one very quick point. Ryan Shorthouse made the interesting point that it may be that the current low level of benefits is damaging the economy because it is forcing people to take unsuitable jobs. Is there some evidence for that or is that a hunch?
Ryan Shorthouse: There is a lot of evidence around something called matching theory, which has quite a lot of evidence behind it, making sure that you have an economy in which people’s skills and what employers are looking for match up, that being ideal, optimal for productivity.
I think the Social Security Advisory Committee also referenced this in a local report. There might be evidence around matching theory and some evidence from the Social Security Advisory Committee; I can send those through if you are interested.
Chair: That would be very helpful. I apologise that we have been a bit more pressed for time than would have been ideal. I think we could have had a much longer discussion with the panel. If further thoughts occur to you afterwards that you would have liked to have told us about, please do email them. We would be very keen to receive them.
Thank you all very much indeed for a very interesting hour. We are very grateful to you.
Witnesses: Nicholas Timmins, Professor Ashwin Kumar and Donald Hirsch.
Q17 Chair: Welcome to our second panel, all of whom are here in the Committee room with us. We are grateful to you for joining us. As I did with the first panel, I will ask each of you very briefly to tell us who you are, starting with Donald Hirsch.
Donald Hirsch: I am a Policy Adviser to the abrdn Financial Fairness Trust.
Professor Kumar: I am a Professor of Social Policy at Manchester Metropolitan University. My research is on income poverty and the labour market.
Nicholas Timmins: I am a Senior Fellow at the Institute for Government, and I have written a history of the welfare state.
Chair: Thank you very much. Our first question is from Desmond Swayne.
Q18 Sir Desmond Swayne: How should the adequacy of benefits be assessed, and what criteria should we look for in this inquiry? What particular benefits should we concentrate on? In any order.
Donald Hirsch: The starting point, which has very much come out of the previous session, is that we do not have a basis and, therefore, that to have a basis would be quite revolutionary. The reasons for thinking about moving in that direction are, first, we have a lot of new evidence now—a lot of good evidence—which we did not have before, and secondly, that evidence is showing that, particularly for working-age households without children, the rates, measuring by any standard, are lower than they have been and many people think, including members of the public, that they are at a worryingly low level.
What tools do we have? There is no one answer to a calculation of how much people should be getting on benefits. There are three different kinds of tools that we can draw on and triangulate to use in different ways, but none completely on their own. First, we have had mention of budget standards. I used to be involved in the minimum income standard, which is a very direct way of saying how much people need, but it does not ask people how much somebody should have on benefit. It is how much people need to participate in society as well as meeting basic essentials, so a decency standard, and it is a lot higher than some of the benefits at present. That can be useful as a reference point in particular in demonstrating how at present the proportion of that need that is provided by the benefit system is very different for different groups. Rather than equivalisation, which is a very arbitrary way in which we talk about the equivalent needs of different groups, it can provide evidence for that. On its own it cannot say what the social security system should provide, because that is not what the members of the public are asked in that research.
The second kind of evidence is evidence of what the consequences are of people living on low incomes, and we have various measures about deprivation defined as not being able to afford necessities. We also have evidence about people going to food banks and so on. If we look at outcomes against income in that sense, that can provide some very good evidence about the levels at which you are creating big problems for people.
A third kind, which incidentally was based on 1930s evidence, the tool that Beveridge used to suggest the National Assistance rates, which was the beginning of all this, is expenditure by people who are on relatively low incomes. That is part of the social guarantee that we have heard about. The difficulty with that is that it can become circular, because people are poor and therefore they spend less, because the benefit system gives them less, and then you therefore use that as your benchmark. Nevertheless, in terms of grounding some of this in reality that can be useful.
All those things can be used to help think about what the basic safety net level should be, which is the way I would look at the standard allowances, Universal Credit and the Pension Credit. You cannot stop there. We have heard that so many people do not end up getting that either because they have deductions or also because of things such as the benefit cap and the two-child limit, which brings in other factors than need. If you were to have a system that said, “This is what the safety net should be”, there is a lot to be done to try to make sure that people are getting that safety net.
In terms of looking at other benefits, the top of my list would be the Local Housing Allowance, where a very large proportion of people in the private rented sector have to either have inadequate housing or, more often, just have a housing allowance that is lower than their rent and, therefore, having to subtract from what they have for other things the amount of rent that they need to make up. Whether there is a better system of doing that would be a very important part of the inquiry.
Other areas would include self-employment, where the minimum earnings that people have to have to get Universal Credit when they are self-employed can leave people in quite a difficult situation. Finally, benefits for under-25s, particularly those who are living independently, people who might have been homeless who are trying to become independent. Why do they need less than other people to live independently? That is something that if you are trying to think about adequacy and whether the present system meets people’s needs would be very important, in my view, to look at.
Q19 Sir Desmond Swayne: Before we move to Ashwin, let me just question you on what you said about full participation in society and that implying a rather higher level of benefits. Do you think we should at least nod in this inquiry in its terms of reference to some acceptance of the Benthamite principle of less eligibility? We do not after all want to encourage people to live on the state.
Donald Hirsch: I did not understand the question. Can you repeat it?
Sir Desmond Swayne: Clearly, if you are providing a level of benefits much higher than the existing level, we do not want to have a situation where it is more comfortable than independent forms of existence.
Donald Hirsch: As long as you have not too high a taper rate then that is not necessarily the case. I understand what you are saying, and I think if we reached that stage, which in the case of a working-age single person living without children would mean tripling the current rates, that would be a very important question to ask, whether you are reducing work incentives.
We are a long way from that and I have not seen any of the minimum income guarantee-type proposals suggesting that we get anywhere close to that. The New Economics Foundation says as a start you could have half of that, which is, in my book, a pretty harsh form of living. It depends on what you are using as your starting point.
Professor Kumar: To recall the time that I worked in the Department for Work and Pensions, it was certainly a received wisdom within the Department among officials that the last thing you wanted to do was to commit to benchmarking benefits against an external standard, because that provides a constraint on Government. It provides a reason for people to criticise you. That is the reality of the political context, that Governments do not like to have that external constraint. However, others have said—and I am not going to go on about it for very long—we have good evidence, as Donald said, about what it would cost to meet basic needs and the extent to which people are not meeting basic needs and where there is a shortfall.
Others have suggested in the previous session the idea of some independent process, maybe even an official publication of the extent to which benefits are meeting those standards and what percentage of those standards are being met, which would introduce a degree of transparency, a rigour and a public conversation about that. In the end, any benefit levels need to have public consent. That is the point about the principles, the idea of a collective conversation. Is it about the absence of essentials or what it costs to provide those essentials? Anchoring it around that is the right thing to do.
On the question of which benefits, the way I would put it is that it is worth thinking about the benefit system in terms of components of the benefit system. Within Universal Credit there is a single person rate and there is a couple rate, and that implies that there is a certain amount for the second adult, or implicitly a certain saving from two people living together. Then there is a child rate. For instance, the child rate is 73% of the single person rate, but that is only the case for the first two children and after that it is 0%. The idea is that you can look at the benefit system, look at the components and ask, “Do each of these components make sense for what they are trying to provide?”
An interesting basis, and I was just doing the exercise as a quick thing on the train to London last night, was looking at the minimum income standard that Donald worked on and asking what the minimum income standard suggested in that public conversation about what needs are, in terms of what proportion of the single person rate a child should get, what proportion of the single rate a second adult should get. You get a very different picture from what the current benefit system provides. I would suggest that you can pick up on specific benefits and specific parts of the benefit system, such as the Local Housing Allowance, but you might want to look at those components.
That is all very well because that is the base level for adults and children, but where does the benefit system fall short of that? It falls short of that in several ways. One is by design, the benefit cap and the two-child limit. If you think you have it right for the adults and children, by design you are saying you are going to be below that with those two rules. Then it falls below that, as Iain Porter and the JRF have talked about quite a lot, about deductions and the fact of loan repayments. The five-week wait effectively creates an ongoing situation that people are paying back that debt and, therefore, getting below that minimum level.
There are other reasons why you fall below that and I think something that has been an absolute disgrace—I would go so far as to say that—is the lack of understanding of take-up of working-age benefits. Essentially, the DWP gave up on producing working-age benefit take-up statistics some four or five years ago. It did so on the basis of the transition from legacy benefits to Universal Credit. Estimating take-up statistics is hard because you have to model entitlement and then you have to compare receipt against that modelled entitlement. It is a complex statistical exercise and to do it well you need to draw upon a mix of survey data and administrative data. That complexity during the transition from legacy benefits to Universal Credit was hard. You do not know if somebody is not taking up the legacy benefit or Universal Credit, but the Government could have, if they had wanted to, put their resources into using that combination of data between surveyed administrative data. They have had the legal permissions in place for several years to be able to do so, but the take-up statistics team in the DWP was two people. It was underrresourced and it was never a priority.
As a result, one of the potential benefits of Universal Credit, the automaticity that might increase take-up, or perhaps the other way round, maybe the harshness of the regime, discouraged people. We simply do not know because we have not had take-up statistics on legacy benefits or, as far as I can see, any plans for take-up statistics on Universal Credit. There is the adequacy levels, there is the components and then there are the reasons why you fall below that, and one of them is inadequate take-up and I think that is the issue.
Q20 Sir Desmond Swayne: You spoke of anchoring it around basics, so can I take you to the conversation that we had with the last group? Should we have within our scope the issue of how we ensure people get what we consider to be those basics when they have taken a different view? That is not necessarily my paternalistic criticism of poor people choosing to spend their money on fags or whatever. The reality is that any one of us who has been in straitened circumstances knows that life must be worth living, and sometimes you will want to hold on to those little luxuries and sacrifice a basic. Should we be considering the means by which we ensure people get the basics, particularly those with children?
Professor Kumar: My view is it is better to give people money. You do not want as a state to be in the business of controlling exactly what people spend, however you design the minimums. I remember when, for instance, school holiday food vouchers were introduced during the pandemic and there was a question of which supermarkets they were available in. People make their own choices about these things and perhaps they do make trade-offs. Perhaps they have a family member who will work with them and they will buy some goods together, and therefore they have just that little bit to spend on one trip to the cinema every now and then. People should be able to make those choices and we should trust them to do so. By and large, I have confidence that most people will make the right choices on that basis, but our responsibility is to make sure that there is at least enough money there to afford the basics.
Nicholas Timmins: I will not go through all the stuff that we have already heard about different ways of working out adequacy. There is no scientific way of doing it so the standard median 60%, you need a material element, you gather all the evidence you can from that, and you make a judgment.
On your most recent point, Sir Desmond, should we tell people what to do, well, by definition when you have reached a benefit level, even if you do it on a material basis it is going to be an average for what we think people need to live on decently. That is going to vary by personal circumstance and household. The idea that the state should go around telling people precisely what they have to spend it on seems deeply unappealing and just does not tie in with human nature and the reality of the situation people will be in.
Q21 Sir Desmond Swayne: I accept that. Should this be within the scope of our inquiry, not whether we rule it out or not?
Nicholas Timmins: My advice would be not but that is entirely up to you.
Donald Hirsch: All the research that I have seen working with members of the public to try to define what necessities are, not for themselves but in general, shows that people have a very good concept of what is adequate. They will make their own choices differently, but that can help to justify a level by saying, “This is what people understand you should be able to do if those are the choices you make” and then let them make their own choices when you give it to them. The evidence shows there is broad acceptance of that, so I agree with Nick, it is not a big part of the evidence to look into.
Q22 Debbie Abrahams: Good morning, everyone. I want to reflect back about how we reached here and look at how social security policy has evolved or not since Beveridge, whether it was more generous or less generous, and what that means. We also need to factor in, for example, the changing labour market and how flexibility in the labour market has demanded that there also be a more flexible social security system.
Thinking about the principles that were set in the Beveridge report, what the purpose of social security should be, what do you think has changed or should change from then?
Nicholas Timmins: It has changed a hell of a lot. Originally, it was meant to be built around a national insurance model, very contributory based. It is now incredibly means-tested. A few quick reasons why that happened are changes in society, so a huge rise in lone parenthood, which by definition is not insurable. There is a considerable rise in the ability to keep people alive who would otherwise have died at birth and, therefore, live with disability, so we recognise the cost of disability. That is not insurable. There came to be a much wider recognition of the need for the disabled to receive various forms of support for living, not insurable. All these tended to lead to either non-contributory benefits or means-tested benefits, but a lot of means-tested benefits. This is incredibly broadbrush, but the Conservative Governments tended to restrict the generosity of contributory benefits, shortening the time they were paid for, making some of them taxable and non-taxable. The Labour Governments tended to want to include people more, so they softened the contributory conditions, and you can see that with the state pension, where you can qualify for it if you are unemployed, if you are caring for children. There are not a lot of conditions. All that weakened the conditional contribution.
Back to your point about the labour market, the impacts of globalisation and technology from the 1980s onwards, which saw a lot of white collar jobs go, a lot of working class jobs either going or exported, the problem of in-work poverty became very clear. Both parties came to accept the need to provide means-tested benefit in work, so it went from the original family income supplement, we had a tiny number of benefits, through more generous Family Credit to the tax credits, and now Universal Credit. There is a lot of in-work means-tested support now. Those, in summary, are the reasons it has become much more means-tested, not very national insurance-based.
The only bit that Beveridge might vaguely recognise is the state pension in its current form, and the very residual bits of the working-age one, which is contributory JSA and contributory ESA. We might get on to that later, but those are two bits that I think it is worth the Committee looking at. Should those remnants be preserved? I would argue yes, for some of the reasons we have heard earlier, but I think it is something the Committee should look at.
Debbie Abrahams: Does anybody want to quickly comment on that?
Donald Hirsch: We tend to do down these changes, but I think we should celebrate the fact that the now Universal Credit system does recognise in-work poverty, does recognise this change of greater instability in the labour market, and that we do have something that is now integrated. We should try to make that work. I know means-testing is often seen as a dirty word, but in that context it is performing a very important role.
Professor Kumar: The one thing I would say about more recent changes in the labour market, to follow on from what Donald has said, is that Universal Credit is designed to have an automatic adjustment as your income fluctuates, but the monthly assessment period creates an exacerbation of the volatility if people have month-to-month variation in income. The principle about wrapping it up in one package so that you do not have to do a new claim, you do not have to report a change of circumstance in a laborious way, which creates a potential for error, is a good one, but the mechanism of it is it is designed around operational simplicity. That does have some consequences in terms of the reality of the experience of claiming, in that if you have a drop in income it is not until the following month that the benefit system comes in. There are questions around how we can make it a kinder means test.
It raises a structural question, which is that it is designed to adjust in a very fine-grade way to variations in your income, whereas the tax credit system with its much more generous thresholds for adjustment of amounts gave people more certainty about what they were going to get from that source. There is a trade-off between the fine-grade adjustment, but you do it in an automatic way and you create the volatility, or perhaps something that is less fine grade but gives people a bit more confidence about what money they are going to get coming in from that source at least. I think there is a trade-off there.
Q23 Debbie Abrahams: Thank you for that. From what you have said I think I am right in saying it had its place in terms of how we kicked off the welfare state and out of work support and so on, but there is nothing we can learn from that.
I will get back to what we are trying to scope out in this session, which is around adequacy. I was struck by the figures around the adequacy of out of work support. In 1946 it was 22% of average income for a single person, 35% of average income for a married person. Today it is 10.5% of average income for under-25s and 13% for over-25s. If I look at what is available in the OECD, again it is 55% for contributory-based support around average incomes. Massive differences. What does that say about where we are now? I know we are harping back and going to the minutiae particularly of Universal Credit and there are lots of reasons why we would not want to change that, but in terms of adequacy and I think Ashwin’s point around the politics of this and whether standards of social security income should be set by politicians, I will put that to one side, whether that is something we should be doing. Do you want to comment on that? Those figures are so stark in the difference that we have seen since 1946.
Donald Hirsch: Obviously, we are on better incomes now and the minimum does not necessarily go up in proportion, but it certainly does go up. I think it is what I said at the beginning, particularly for working-age without children it is at an alarmingly low level.
The other thing we should reflect on is that when you reach 66 if you are on a means-tested safety net benefit your income more than doubles, and so we have these figures and the proportions do look different for different groups. It has definitely gone backwards in terms of what you can guarantee compared to what you would have in work.
Professor Kumar: Rob Joyce talked about the structural trend is essentially we have done price uprating for working-age childless benefits, and if you price uprate over a very long period you increasingly drop further behind the standards of society, hence anchoring it towards some kind of public judgment about what the essentials are seems a better way of doing that. Otherwise structurally you will always have that constant drift down in the single childless levels of benefit, which are the figures that you are quoting.
It is worth separating out the purposes. The contributory benefit system in the Bismarckian systems in continental Europe are about giving a sense of insurance, so that if you suddenly fall out of work there is not a catastrophic drop in income and that provides you with a better, more stable base from which to look for another job and look for one that is suitable and get back into work. That is about protecting people with a drop in income because of a short-term period of unemployment.
There is then a separate question about what the adequacy levels are. I think Ryan Shorthouse said quite eloquently that there is a potential productivity issue, a potential economy issue around what the short-term insurance level is. There is then a second question, which is what should the adequacy level be? What we have been doing is price uprating so we are structurally building in progressively bit by bit, falling further and further behind. It never looks that bad in any one year, but given that we have been doing it for decades, it has produced the figures that you quote.
Q24 Selaine Saxby: Good morning. What other issues in addition to the levels of benefit should we be looking at; for example, admin issues, such as the five-week wait on UC?
Donald Hirsch: I think anything that is going to bring people below a standard level that is set is a good way of framing this. In other words, you just mentioned the deductions, or the wait, which are linked because you often get into debt during that period. Things such as the restriction on self-employed people, things that are going to undermine any basic minimum that you set, is worth considering in scope.
Professor Kumar: I would go back to a point that Rob made, which is about uprating, and add a couple of things to that. There is a question of what the mainstream uprating of benefits is, but there are a number of places in the benefit system where values have been frozen in cash terms for many years, so the level of childcare support and the maximum savings that you can have. Work allowances have been frozen for many years, although there was a one-off jump. We have the conversation about uprating, but then we forget that we are just not uprating at all some of the benefit system and those are then increasingly becoming inadequate. If you look at what childcare costs have risen by over the past 15 years and then look at the level of childcare support, there was a jump from 70% of childcare costs to 85%, but the underlying level of childcare has been frozen.
The other thing I would say about uprating is that we use CPI now. CPI is a macroeconomic measure of inflation so as a result it is trying to capture all expenditure across the population. When the ONS are calculating CPI they are weighting expenditure by the amount that is spent, but what that does is it slightly prioritises those people who spend more when you think about all households. The ONS does produce a CPI that uses democratic weighting, whereby you weight each household equally in the inflation calculation and particularly in recent years that has produced a higher inflation rate.
It is also possible to look at an inflation rate that looks at the baskets of goods that are spent by people on lower incomes, and when you do that you can see that over the last 18 years, since 2005, the inflation rate experienced by people at the bottom of the distribution has been higher than the average inflation rate experienced by everybody.
We have been doing this uprating based on CPI saying that is matching costs, whereas if you used democratic weighting and you focused on the increases in costs for people at the lower part of the income distribution then we should have been uprating by more. Again, in one year that might not make that much difference, although in the last year it has, but over a long period of time that CPI uprating does mean that there is a progressive increase in the inadequacy of benefits.
Nicholas Timmins: I reinforce the point about looking at these other thresholds and allowances that sit around other benefits. I am sure the Committee is well aware of it, and I think the Chair raised it in the February debate, but if you look at the capital limit for UC it is £16,000. If that had been uprated it would now be more than £25,000. The Child Benefit cap was originally set at £50,000 and affected one in eight families. It now affects one in five, and if it had been indexed it would be £64,000. The social care threshold, which I know is directed to the benefit system, has not been lifted since 2010 and it would be £33,000, not £23,250. You can see over time, even with low inflation for most of this period, the system progressively gets meaner and meaner.
These sorts of thresholds need the equivalent of a Rooker-Wise amendment. It is perfectly acceptable for a Government of the day of whatever colour to look at one of these thresholds and say, “It is too high, we want to cut it” but that should be a consciously announced, clear decision that must be rationalised rather than a steady drift of the system always getting meaner and meaner. These bits around the basic uprating are never uprated, or it happens once in a while. If you had a little Rooker-Wise amendment, “You have to uprate them and if you are not going to uprate them tell us why you are not.”
Q25 Siobhan Baillie: Before I come to my question, to Ashwin, taking on board what Nicholas has just said about the figures, a lot of those decisions to be mean would have been made about affordability perhaps for the country and looking at the wider picture of the finances. Was your experience in Government under the Labour Party?
Professor Kumar: I was a civil servant, yes, but under the Labour Party.
Siobhan Baillie: So you were in DWP and you were with Gordon Brown as well. You said in evidence earlier that Governments for political reasons do not want to have an external decision made, but the evidence that we have had from quite a lot of you today, which sounds sensible to my brain and I am still learning about all this, is that we should have an external body looking at the adequacy and setting the figures, and then you could take into account work incentive levels and things like that. Realistically, is any Government ever going to do that? We could get to the figures that Nicholas has said that we then will not be able to afford, and then we will be constantly having to unpick things.
Professor Kumar: It is a reasonable challenge, and perhaps it is something that is more likely that an Opposition will commit to before they come into Government, then implement and maybe regret later. It is not that we have not had examples like that. We have the Low Pay Commission, which externalises that question. We have the Pensions Commission, and the Pensions Commission was an interesting one because when Labour came in, in 1997, it was a political shibboleth that earnings uprating the basic state pension was not something they were going to commit to because that would make them look profligate. In a sense, the social policy consensus that was emerging at that time was that you needed earnings uprating because it was not sensible to have a pension that just continued to wither. In a sense, the Pensions Commission, the Turner Commission, allowed the social policy consensus to come in and help the Government get over their previous political position.
Yes, there is a political challenge, but on the other hand I do not think it is one that has never been overcome. It has been overcome, and pensions is an area where the expenditure is very large, so it is not as if it is impossible to happen. Maybe if you guys are very strong on it then it will happen.
Q26 Siobhan Baillie: What research should we look at in this inquiry? My challenge to you all, if you are relying on your own research, is to say about somebody else’s research as well. What reports would you have us look at?
Donald Hirsch: As I said, there is a wide range of research. The kind that we have not talked a lot about today was the third in the list that I was talking about, which is about deprivation studies, which look at what incomes put you at the highest risk of deprivation. There has been a lot of work that has come out of the University of Bristol, for example, on that, with the Poverty and Social Exclusion Survey. What it does is periodically—and it has not done it a lot recently but there is a lot of good, historic evidence—ask the general public what everybody should be able to afford and then those things that the majority think are essential you then ask people if they are able or unable to afford it or whether they do not want it. That work continues in FRS for children and I think pensioners.
If you look at that evidence and what income is putting you at greatest risk by those criteria, I think that is quite an important, objective piece of evidence about the consequence of low income, not just a theory about how much you should have but what people are experiencing when they do not. That is the main thing I would add to what has been discussed already.
Professor Kumar: Others have said this so I will not speak for very long, but in addition to what Donald has said, which I agree with 100%, the studies that ask people to have a collective conversation about what they think it is essential that people have, and then what do those cost in the shops. The minimum income standard that Donald used to work on at Loughborough University asks a slightly different question to the focus groups in question, but nevertheless there have been some studies that ask what the essentials are, and then you can go and cost those. That provides a relatively rigorous way of relating public views about minimum needs and essentials with costs.
Nicholas Timmins: The Institute for Fiscal Studies has a huge inquiry into inequality, and quite a lot of its work is entirely relevant to the questions that you are asking, as well as all the other things that have been mentioned. You are all MPs. You must hear views of your constituents about how adequate they think the system is. Ask some of them.
Siobhan Baillie: This is what I was trying to get to. I am surprised at how often it comes up on the doorstep. It comes up in terms of people feeling the system is not working properly, is not paying enough, but equally it is possibly paying too much. We are getting back to the situation perhaps historically where people are worried that it does not pay to work anymore, and because there have been one-off grants, especially through Covid, employers are raising that with me as well. They are so desperate for people and they see people on benefits and they say, “Is there an issue with the welfare system?” It is becoming quite topical again, which is why our learned Chair has decided to investigate it, no doubt.
Chair: The Committee as a whole took that decision, rather than me, but thank you.
Q27 David Linden: You may have heard in the previous panel I was asking our witnesses about international comparators and perhaps some of the changes in social security that are happening in the devolved nations. Can each of you offer some thoughts on that? I will start with Mr Hirsch.
Donald Hirsch: The experiment or the introduction of the Scottish Child Payment is very interesting because that is something that is explicitly focused on the current system being perceived as not being enough. It also raises some very important and problematic issues in the way it is presently done in terms of how that is administered in parallel with Universal Credit, because the moment your Universal Credit runs out as a UK benefit you suddenly lose £25 per child, so there is a huge disjunct there. I think there needs to be more. I may be whistling in the wind here, but I think that if there could be more collaboration in terms of what is happening in the devolved nations and the UK by creating a taper at that stage that would be very productive.
The trust that I represent is supporting this idea of this investigation of a minimum income guarantee in Scotland and I think that it is good to listen across those boundaries to the ideas as they are being developed.
Professor Kumar: The fact that the Child Poverty Act sets out targets has given the Scottish Government a significant focus on what they can do to reduce poverty, and that is hugely welcome. I echo Donald’s point that when the Scottish Child Payment came in at £10 per week the cliff edge was less dramatic. We did some modelling that I think was funded by the abrdn Financial Fairness Trust on what it would take in social security payments to meet those child poverty targets, and that would require higher levels of payments, but when you have those higher levels of payments those cliff edge issues then become more pertinent. When you do the modelling, if you had put exactly the same weekly amounts into an increase into the child element of Universal Credit you get broadly the same poverty effects, but you do not get the cliff edges and you do not have very much difference in the fiscal costs. Clearly, there are then governance issues, but that would make the system a bit more coherent as experienced by the claimants.
Q28 David Linden: Would you say one of the problems was the fact that at the moment devolved aspects of social security are reserved; therefore, the Scottish Government can give with one hand and policy from Westminster can take away with the other?
Professor Kumar: It is not quite that. It is more the dovetail between them. Universal Credit is designed with a taper rate, but for understandable administrative simplicity the Scottish Government did not want to create the same infrastructure so they have a rule that if you are on Universal Credit you get it. The problem that creates is a cliff edge that as soon as you are not on Universal Credit you lose it. Ideally, you would want every benefit to have a taper. One way of doing that would have been to put the same money in through the child element of Universal Credit. The Scottish Government could introduce their own taper and means-test infrastructure, but of course that comes with a cost and quite reasonably they might not want to duplicate what is already going on through the Westminster Government.
Nicholas Timmins: I have nothing much to add to that, other than where Scotland does depart one should research what is happening. If somebody is going to do something different it is a valuable chance to learn lessons as to whether it works.
Q29 David Linden: Excellent. May I ask one final supplemental question to you all about the adequacy particularly for disabled people of benefits? I do not think we have perhaps discussed that quite as much. I was at the all-party parliamentary group on disability yesterday and there are particular challenges that are faced with disabled people, so does anyone want to add any thoughts about how we should scope that in our inquiry?
Donald Hirsch: It is a very difficult one. The minimum income standard programme has done some of that and looked at how people with certain disabilities have additional needs and come up with some quite clear answers, which shows, not surprisingly, that in many cases the extra cost benefits do not cover all the extra costs. That could be in scope, but it would be rather ambitious. That is because so many different disabilities have so many different costs and we can only very broadly estimate what those are. The degree of generalisation in some of those estimates is rather large.
If you are going to look at additional costs of disability you must ensure you are adding it to something where you know what the costs of not being disabled are, because that research shows that it is not just about having some equipment. It is needing to do certain things more often, needing to use different forms of transport, needing to buy clothes more often. You must have a baseline before you do that, so it depends on how ambitious you want to be.
David Linden: I always want to be ambitious with the social security system, but that is a separate point. Do the witnesses have anything to add?
Professor Kumar: I have nothing to add. I would have said much of what Donald has said.
Q30 Steve McCabe: A former Permanent Secretary, Sir Kenneth Stowe, once said, “There isn’t a scientific basis” for benefit rates, “there never has been, and no one has ever succeeded in establishing one.” We are on I think now our ninth Secretary of State since this Government came to power. What is your view? Do the Government have a rationale and objectives for setting benefit rates and social security policy?
Donald Hirsch: No.
Professor Kumar: No, they do not.
Nicholas Timmins: There is no scientific basis for setting them.
Professor Kumar: Not at the moment, but nowadays there is much more evidence that we could use.
Q31 Steve McCabe: Would it be possible to come up with a fairly rational measure of adequacy when setting benefit rates?
Donald Hirsch: The key is you could come up with something that had much greater internal consistency than we have now. It would not be perfect. There are still a lot of arbitrary decisions to be made, but if you at least have a basis that creates much more internal consistency, then I think that is a step forward.
Professor Kumar: The way you would start is to articulate the principles, so is it that it is essential that people can afford this set of minimum goods, or whatever the principles are, but once you articulate those principles we do have the evidence that would then enable you to work out what the values are that might follow from that. Some of that evidence is newer. Donald’s minimum income standards start in 2008 and I believe that Permanent Secretary that you mentioned might have predated then. Some of that evidence is newer, but I think we do have evidence now that would enable us to take a more rational basis.
Nicholas Timmins: There is no scientific way of doing it. There is plenty of evidence knocking around and you have heard a lot of it rehearsed today, that would allow you to get to a better judgment of what might look reasonable, and then it will be just a matter of judgment. Different politicians from different parties will judge it slightly differently, probably, but you get to something where it looks reasonable.
Q32 Nigel Mills: Compared to the previous panel you are not exactly revolutionary, but is it fair to say that you think the right approach is to tweak and tinker with the existing fundamentals of the benefit system that we have, rather than try to start from scratch with a completely new system?
Donald Hirsch: Structurally, I agree with what was said in the last panel, which is that after years of revolution—instituted mainly by Iain Duncan Smith—and change, you do not want to have a huge structural change. That is very different from saying you could make the basis for the rates much more transparent and much more equitable. You could do that. It would be revolutionary because it has not been done before, but it would not require the whole system to be turned upside down. Whether you call that tweaks or not, I think giving people a lot more money is more than just a tweak.
Professor Kumar: The creeping reduction in the value from lots of elements being frozen or only uprated in line with prices for decades, yes, you are not tearing up the system to change that. It is simply regulations in the annual statutory instrument that you mentioned that might enable you to change that, and maybe putting in place legislation that required more explicit and transparent discussion of the effects of that would be quite radical in terms of how we have done things in recent decades, but it does not require tearing up the system.
Nicholas Timmins: Do not tear up the system. If you look at the two biggest single changes in recent years, Universal Credit, well, if it had had a less ambitious timetable it might have been achieved more quickly, but it was going to take years and a lot longer than was originally said. If you look at the big change to the state pension from the 2000 Turner Commission it took about 12 years to get all that in place. It could have been done quicker. If you want to tear the whole system up, you will be in trouble for a very long time.
Q33 Nigel Mills: On the transparency of how we do uprating I think there is a general agreement today that some kind of rebasing or some kind of assessment of where the starting point ought to be would be attractive and necessary even. Presumably, your rebasing is just every so often you refresh that analysis. Do you think that should be done every year?
Donald Hirsch: There are different ways of doing this. One thing that it is easy to forget is that if you had talked to a man called Rodney Bickerstaffe in the late 1990s he would have told you rightly that the state pension had been trashed by price uprating over a period when earnings had gone up so much. Gordon Brown first introduced this different rate from supplementary benefit—I think he called it a minimum income guarantee incidentally—and that then developed. There were ad hoc increases and then we had the Turner Commission and eventually earnings separating and then the triple lock. Everybody thinks, “Wow, haven’t pensioners done well?” so there is more than one way of doing it. In that case it was a historic injustice that has been gradually reversed. I would find it very difficult to imagine a huge step change that was evidence-based in the way that we are talking about, but there are ways of setting a goal and going in a different direction.
Q34 Nigel Mills: What I was trying to ask was given where we are now, a more transparent uprating process is going to be a bit meaningless because they can say what inflation is and they can say what they are increasing benefits by, but there will still be no logic behind it.
Donald Hirsch: If you made it earnings related it would be very different, as we have seen in that example of pensions.
Nigel Mills: Rather than having transparency over the calculation, that would be a choice of a different basis, in effect.
Donald Hirsch: The point being that if you have transparency you cannot continue with things that are not logical.
Nigel Mills: We do. You could have transparency that says, “We will increase it by CPI every year” and it is quite transparent.
Donald Hirsch: It is transparent about where that has led you to, if you are transparent about the total inadequacy of working-age benefits without children, if that is your conclusion from transparency that you decide that is something that needs to be changed. It is not transparency itself, but it can set you on a course without necessarily being a big step change in that way.
Nicholas Timmins: It depends a bit on what you define as a revolution. You could argue that the recognition of what was happening as a result of globalisation, which saw the introduction of essentially in the end tax credits—Governments decided rather than giving people benefits solely on condition that they do not work you support them in low-paid work—is quite a revolutionary shift in thinking. You could argue. I would argue.
Q35 Nigel Mills: But no one is asking for something like that now. I suppose the other question we touched on earlier was this idea, and we saw it in America last week, of whether there should be a short-term insurance payment, effectively, for people who suddenly fall out of work. You thought you had £40,000 or £50,000 a year coming in and then you find you are down to £100 a week with no warning, and you cannot adjust your life that quickly, in effect. Is that something that we should be looking at? Would that provide more reassurance for people that this was a safety net rather than whatever we would call it now?
Donald Hirsch: I think the experience of furlough and the new possibility that has opened up makes that attractive to look at. It is on the revolutionary side of the scale because we have never done that in this country.
Professor Kumar: I think Ryan Shorthouse put it quite eloquently that the potential effects on productivity and the potential effects on employment matches is a whole area. Perhaps it is a slightly separate inquiry from adequacy. It is a different question, but nevertheless I think it is certainly something fruitful for the Committee to look at.
Q36 Nigel Mills: Nicholas, I think you would probably say that contributory benefits that just about still cling on originally were probably a bit closer to being a safety net than the levels are now.
Nicholas Timmins: To go to your point, contributory JSA and ESA do not have a higher rate, but the savings rules do not apply, and that is important. UC is a household means test. It is a contributory-based individual benefit, so it does not affect the partner’s earning or the rest of the household. That is one of the reasons why it is worth preserving. You could make an argument that it could be a bit more generous in recognition of the contribution. What I do not think will ever happen is a major rebuild of the contributory system. We are too far down the road.
I would just make the point that while it is absolutely true that our rates are incredibly low by the sorts of countries that we want to compare ourselves with in the OECD—France, Germany, Netherlands—they pay a lot more tax to fund this. If you look at the fundamental reason why tax rates are so much higher in European countries than us, they tend to spend a bit less on defence but they spend more on health and more on what we would call social security. That is why they pay more. When you look at our lower levels, they are low because Governments are not prepared to tax at a level that would support those levels of income.
Professor Kumar: Those are ringfenced taxes, which they call social security.
Donald Hirsch: They do not even regard them as taxes, do they? They regard them as social security contributions and there is a fund that helps with that.
Nicholas Timmins: It is conceptually different. Practically, it is a tax.
David Linden: Very revolutionary.
Nigel Mills: National insurance may once have been this.
Q37 Chair: Thank you very much indeed. I will put a final question to you. Ashwin, you have made the point that if there was a desire to set a benchmark these days we have evidence for what it should be, which we did not have in the past. How has that arisen? Is there a reason why we can establish these things now and we could not in the past, or is it that people have been more interested in the last few years? What is the background to that?
Professor Kumar: Donald was the founder of the minimum income standard, which was one of the first of these efforts. I do not want to steal his fire.
Donald Hirsch: It probably comes to your time in Government. There was a great enthusiasm, or even before that, back in the mid-1990s with work by John Hills and others, which showed how relative poverty had grown but the 60% of median is arbitrary. There has been a desire to get a better understanding of what the consequences are of living on a low income and what benchmarks we should have. I suppose the direct thing of setting budget standards was a very important part of that. I guess it is also that the science of it improved and people then saw its value. There was a long time where people said, “Oh, you cannot really do this” and then it was done. The real living wage is based on the minimum income standard and it is very powerful, because it is the idea that if you go out and do a full-time job you should be able to live at a decent level. It has been interactive, in that the more it gets used the more people see the value of it.
Q38 Chair: You did the minimum income work, then Joseph Rowntree has come up with this essentials thing, which is a more frugal assessment. Is there a philosophical difference there?
Donald Hirsch: Yes. In the report, and Rowntree funds both the work at Loughborough, the minimum income standard and the essentials work they do directly, they say very clearly these are different things. The minimum income standard is something that the members of the public are saying, “This is what people need to have a decent life and to be able to participate fully in society” whereas the essentials thing, which they have only come up with an illustrative version of, is very much about what people think social security should be. The relationship is difficult, and they are doing different things.
One thing that the minimum income standard does not do is to ask people, “Should this be the benefit level?” because it is focusing on need in that broader sense. This new initiative is an attempt to ground it more in what people think an absolutely essential purpose of the social security system should be. If you are going to get a majority agreement on it, it is always going to be quite frugal.
Nicholas Timmins: It will evolve over time. These days you would count a mobile phone as essential if you want to interact with Universal Credit, whereas 15 years ago you would not have thought that a mobile phone was absolutely essential. The world changes. We no longer give pensioners a coal allowance.
Chair: Indeed. Thank you all for a very interesting session. Let me make the point to you that I made to the previous panel. If other thoughts occur to you afterwards that you think we ought to have in mind, please do email them through. We would be very interested to see them. We are grateful to you all. Thank you very much. That concludes our meeting.