Written evidence from the Department for Work and Pensions CLP0033

Background

The Department for Work and Pensions (DWP), alongside HM Revenue and Customs (HMRC) and the Ministry of Defence (MoD), has legislated for and delivered Cost of Living Payments at pace to support millions of families across the UK who are most vulnerable to rises in the cost of living. In 2022/23 this included up to £650 to over 8 million households on eligible means-tested benefits (delivered in two separate payments), £150 to over 6 million individuals on eligible disability benefits and £300 for pensioner households as a top up to Winter Fuel Payments. In 2023/24 they will be delivering up to £900 to over 8 million households on eligible means-tested benefits (delivered in three separate payments) – and again making payments of £150 and £300 to individuals on eligible disability benefits and pensioner households, respectively.

1. To what extent have the cost of living support payments been sufficient at helping eligible households meet the cost of essentials such as food and electricity?

The 2022/23 Cost of Living Payments targeted support to those on the lowest incomes. These payments have been delivered alongside specific support for rising energy costs and the Household Support Fund, which Local Authorities in England use to help households with the cost of essentials. The devolved administrations receive Barnett consequentials for the Household Support Fund to spend at their discretion.

Those in the lowest income deciles received proportionally more support from the total Cost of Living package announced in May 2022.

Published distributional analysis covering this package and the energy support announced in February 2022 [1] showed that this full package of measures was well targeted. Households in England in the bottom 10 percent of the income distribution would receive support worth the equivalent of around seven percent of their net income (£800 in cash terms) in 2022/23 as a result of these measures. Those on average incomes were shown to receive support worth between one and two percent of net income increases (around £500 in cash terms).

At the time of the announcement, the Resolution Foundation[2] stated that the May 2022 support package was “highly progressive” with households in the bottom income quintile seeing an average cash gain of £1,195 and households in the top quintile seeing a cash loss of £456. The IFS said that government support meant on average the poorest households will be “approximately compensated for the rising cost of living this year”.

Research from external organisations such as Bath University[3] and the Trussell Trust[4] has shown that Cost of Living Payments targeted through the benefit system are an efficient and effective means of providing support to those who need it most. Receipt of payments enabled families to clear debt, pay for essentials and meet immediate household needs.

Distributional analysis[5] published at Autumn Statement 2022 showed that government decisions made at this fiscal event, including the 2023/24 Cost of Living Payments, are progressive: low-income households will receive the largest benefit in cash terms and as a percentage of income, and will on average be net beneficiaries from the decisions taken at Autumn Statement.

We will continue to work closely with stakeholders to share research and analysis including of the impact of these payments in supporting households with increased living costs.

DWP has published impact assessments[6] that looks at the characteristics of those receiving the Cost of Living Payments and their geographical location. We are also planning an evaluation of the Cost of Living Payments.

2. What role have the following factors played in access to the cost of living support payments: 

1. Passporting: Not already being in receipt of certain means-tested benefits, despite being eligible, and consequentially being prevented from accessing emergency support;

The DWP encourages anyone who thinks they may be eligible for a qualifying benefit to use a gov.uk benefits calculator to check their entitlement. Since April last year we have been running a nationwide campaign promoting Pension Credit. In December we undertook further communications activity which highlighted that the Pension Credit backdating rules would enable people making a successful claim to Pension Credit by 18 December to qualify for the November 2022 Cost of Living Payment. In March this year we boosted the campaign to promote Pension Credit with extensive television adverts, again highlighting that a successful application will also qualify for up to £900 worth of Cost of Living payments in 2023/24. We have also written to over 11 million pensioners to notify them of the up-rating of their State Pensions, with an accompanying leaflet that includes prominent information promoting Pension Credit, updated with our latest campaign messaging.

The guidance[7] for the Household Support Fund also outlines our expectation that the fund should be used to support households in the most need, particularly those who may not be eligible for other support, such as the Cost of Living Payments.

2. Cliff-edges: Not being in receipt of a certain means-tested benefit, because households failed to meet certain qualifying thresholds.

The means-tested Cost of Living Payments are targeted to those with the greatest need. This cohort is identified as having an entitlement to a payment of eligible means-tested benefits during the qualifying period.

Paying those with financial resources available, which would make them ineligible for means-tested benefits, is not the intention of the Cost of Living Payments, which are aimed at those on the lowest incomes.

Keeping the rules for this policy simple enabled the government to make over 30 million separate payments to support with the cost of living while maintaining core benefit delivery in 2022. This includes the clear rule that you must be entitled to at least 1 pence of a qualifying means-tested benefit with respect to the qualifying period to receive a Cost of Living Payment. 

Alongside the means-tested Cost of Living Payment we are again making payments of £150 and £300 in 2023/24 to individuals on eligible disability benefits and pensioner households, respectively.

3.   Qualifying period anomalies: issues relating to the timing of benefit payments; 

For some households benefit payments will fluctuate, for example due to temporary or permanent increases to pay, which may fall within the qualifying period for a Cost of Living Payment. To reduce the chance of households missing out altogether, we delivered the 2022 Cost of Living Payments for means-tested benefit claimants in two separate payments and will deliver the 2023/24 Cost of Living Payments in three separate payments, each with a different qualifying period.

Whichever eligibility period is chosen, there will always be some households that will not qualify during that period. Unfortunately, we are unable to distinguish between those with temporary increases to income and those with permanent increases to income in each qualifying period.

The Government’s published impact analysis[8], released alongside the Social Security (Additional Payments) Act 2023, shows that 85 percent of those who received no Universal Credit award during the qualifying period for the first 2022 Cost of Living Payment of £326 did so solely due to earnings. Of those with no award due to earnings, most had no Universal Credit award for six assessment periods following the qualifying period solely due to earnings or ended their Universal Credit claim altogether in this time.

4. Receiving a nil reward on a Universal Credit payment, due to reasons such as sanctioning;

Whilst the majority of nil awards for Universal Credit households are due to the amount of household earnings, other reasons that can cause or contribute to a nil award include sanctions and fraud penalties.

Regarding sanctions in particular, people are only sanctioned if they fail, without good reason, to quarter to October 2022 were applied for failing to attend a mandatory appointment at a Jobcentre. Sanctions can often be resolved quickly by claimants getting in touch and attending their next appointment. If someone with a nil award due to a sanction re-engages with us, they may get one of the later Cost of Living Payments. Households with housing and/or child elements of Universal Credit cannot be sanctioned to nil.

Further comments on access to Cost of Living Payments

For those who require additional support to the Cost of Living Payments or who are in need but are not entitled to a Cost of Living Payment, the Government is providing an additional £1 billion of funding, including Barnett impact, to enable the extension of the Household Support Fund in England this financial year.  

This is on top of what we have already provided since October 2021, bringing total funding to £2.5 billion. In England this will be delivered through an extension to the Household Support Fund backed by £842 million, running from 1 April 2023 to 31 March 2024. It will be for the devolved administrations to decide how to allocate their additional Barnett funding.  

3. How has the Department’s ad-hoc payment system and its design and use benefitted or limited the delivery of cost of living support?

The ad hoc payment system was developed during the pandemic to provide one-off support in times of exceptional need. This new system is separate to our normal benefit processing systems, most of which can only be up-rated once a year and cannot issue ad hoc payments. The ad hoc payment system has enabled the Department to provide rapid, additional support to those in receipt of a range of benefits without disrupting the Department’s core business.  

The ad hoc system is a critical component in the end-to-end process for Cost of Living Payments, which utilises our data warehouse to eliminate duplicate payments for DWP and HMRC; issues SMS notifications to inform citizens of payment progress; and links to our accounting and payment systems to ensure an accurate and auditable record of payment recipients is created. In addition to UK-wide Cost of Living Payments, we have also used the system to deliver:

-                      220,000 Covid Heating Payments on behalf of Department for Communities in Northern Ireland in 2021

-                      270,000 Energy Support Payments on behalf of Department for Communities in Northern Ireland in 2022

-                      Christmas Bonus Payments for State Pension and devolved disability benefits administered by the Scottish Government.

4. Are there any examples of international best practice in relation to the delivery of emergency cost of living support that the UK can learn from?

Global high inflation has prompted countries to introduce a range of approaches to deliver cost of living support. The OECD’s paper on income support for working-age individuals and their families[9] provides some detail on these measures. These include a mixture of uprating benefits, temporary benefit increases and one-off payments, subsidies and reduction of tax burdens and considers how well targeted meet the conditions they agreed to. 97.6 percent of sanctions in the support is and how quickly it can be delivered within the context of the countries’ fiscal position. As global cost of living pressures continue and governments’ responses evolve, we will continue to monitor international approaches.

May 2023