Title: Universal Credit the impact on passported benefits
Author: DWP
Last saved by: 57555710

The SSAC review: passporting to the future

Chapter 4	Passported benefits and Welfare Reform – Guiding Principles

Introduction

1.	In the last chapter we laid out a number of options for streamlining the arrangements for and delivery of passported benefits when Universal Credit is introduced in 2013. Although the SSAC agreed with the Minister for Welfare Reform that it would not make specific recommendations about which, if any, of the options should be taken forward, we have highlighted a number of perceived advantages and disadvantages in respect of their impact on the Government’s key objectives for welfare reform: to simplify the current complex system of welfare benefits and tax credits and to make work pay. 

2.	One of the major concerns raised by many of those who responded to our review relates to the constraint imposed by the Government’s objective that options for the future should not involve a net increase in expenditure. Approaches that would fully deliver the desire for greater simplicity in the benefits system and ensure that the various policy objectives can be achieved whilst ensuring that work pays, almost certainly require some level of additional expenditure.

3.	We noted in Chapter 3 that many respondents were keen to see eligibility for free school meals and prescriptions (in England), for example, extended to everyone receiving UC. While this would undoubtedly aid simplicity, our assumption is that the Government would regard this as unrealistic in the current fiscal climate. Review respondents recognise that this was likely to be the position. 

4.	More realistically, review respondents highlighted the importance of grasping the current opportunity to simplify a very complex system of passporting within the cost constraints imposed. Looking for ways of replicating the current system is hardly helpful in this regard, so the challenge is to find ways of simplifying the current plethora of passported benefits while, at the same time, ensuring that the policy objectives they have been designed to meet are protected and do not undermine the overall rationale for introducing a single integrated working-age benefit. There are challenges and tensions to be addressed in deciding which options might realistically be taken forward. 

5.	We have suggested that options which require some fundamental rethinking of passported benefits may not be achievable by 2013. The UC transition period nevertheless provides a window of opportunity to consider options which will provide robust and sustainable approaches for the longer term. In the short term, however, we believe that changes can be made to start the process of reducing complexity, save administrative costs and render passporting more effective and efficient. It might also be a useful first step if careful consideration could be given as to whether all the benefits that are currently passported should continue to be passported when UC is introduced. 
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6.	During the review it became increasingly clear that whichever options are considered, both in the short and longer terms, there is broad agreement about a range of principles which should guide deliberations and provide a framework within which these approaches can be assessed and evaluated. In this final chapter we:
•	consider some of the findings from the recent NAO report on means-tested benefits which have resonance for passporting

National Audit Office (2011) Means Testing, TSO.

•	distil a number of high-level principles which flow from the SSAC review
•	suggest some practical principles which could render the delivery of passported benefits less complex
•	summarise the decisions to be taken
•	offer some concluding comments

Means Testing

7.	Unless certain benefits are universally available – as prescriptions are, for example, in the devolved administrations – then some form of means testing is inevitable. In the current system, providers of passported benefits have relied on a variety of means-tested welfare benefits and tax credits to signal eligibility, thus avoiding the need for separate assessments. The NAO set out to identify the risks to value for money that arise from the design of means tests: risks that are clearly pertinent to the approaches that may be taken to passporting under UC. The NAO interpreted means-tested benefits broadly to include cash, services and benefits-in-kind.

The NAO Report – Relevant Findings for the Future of Passported Benefits

The NAO report noted that:
•	while means testing can be an effective way to target spending, there are unavoidable consequences for the costs and effectiveness of benefit programmes
•	means testing implies trade-offs, particularly between preserving incentives to work and save, targeting benefit payments and managing the costs of delivering benefits
•	effective implementation and design can address many of the adverse consequences of means testing 
•	government departments do not systematically consider or measure all of the impacts of means testing, particularly the burden on claimants, and there is no overall accountability for interacting across programmes administered by different departments 

8.	If we look at these findings in the context of considering options for passported benefits under UC there would appear to be merit in:
•	finding ways which streamline the design and delivery of these benefits
•	considering how best to provide greater coordination of the various benefits and passporting arrangements
•	promoting greater clarity, fairness, simplicity and transparency across the range of passported benefits

9.	We consider these suggestions as we draw out some guiding principles for options going forward. 

10.	One of the overarching themes in the Government’s desire to make work pay is the ambition to eliminate potential work disincentives. We have noted that there is no robust evidence to indicate that passported benefits per se act as a work disincentive. When people make decisions about employment, a range of factors influence their behaviour and the choices they make are not necessarily economically rational. Nevertheless, passported benefits are highly valued and can make a substantial difference to people’s health and well-being. 

11.	In the current system, moving into work frequently signals the withdrawal of many of the passported benefits. Although this may not prevent people from taking a job, the loss of passported benefits might undermine the objective of ensuring that work is always seen to pay, particularly if this loss creates an apparent cliff-edge.

12.	The NAO report suggests that “the combination of means tests can create much stronger disincentives to work, save or form households.” So while the influence that passported benefits themselves have on the chances of claimants moving into work or increasing their hours is uncertain, there is general agreement that the sheer number of passported benefits and the current complex eligibility criteria do nothing to promote simplicity, transparency or certainty in the benefits system as a whole. 

ibid, p. 32.

13.	The research evidence is much stronger in respect of the negative impact of uncertainty: fear of the unknown and of a less certain income can be an important factor when people have to move off benefits in order to take a job.

Guiding Principles

14.	In order to address some of the issues raised by the NAO review and to situate the options for passporting under UC within the context of cost neutrality we have distilled a number of guiding principles. 

15.	Throughout the review we have been mindful of the varying arrangements relating to passported benefits across the devolved administrations and have noted some similarities and differences in earlier chapters. We believe that the guiding principles for the reform of passported benefits under UC are relevant across the UK, however, and, in this final chapter we draw no distinctions between the administrations. 

16.	We have focused our discussion of the guiding principles within the context of Government’s the key objectives of welfare reform – simplification and making work pay. We nevertheless refer to other factors which underpin these objectives and which should be considered carefully.

Simplification

17.	One of the fundamental and welcome objectives of welfare reform is to render the benefits system far less complex than it is currently. There are a number of ways to achieve this goal and the introduction of a single Universal Credit is a major step forward. Simply attempting to transfer and move passported benefits in their current form on to this new structure would immediately reintroduce complexities. Maintaining the status quo is not an option, therefore. 

18.	The acceptance of a number of broad principles could assist in reducing the existing complexity and, at the same time, reduce administrative costs for delivery agents and for benefit recipients, and promote increased take-up of passported benefits by those who are eligible.

Under UC we should aim to simplify qualification and reduce administrative costs. This could offset the increase in the cost of passported benefits provision against the reduction in cost of the administration of passported benefits.

[Leeds Council, Consultation Response, July 2011]

Simplification – high-level principles

19.	We suggest that there are a number of high-level principles which can promote simplification:
a)	providers of passported benefits should ensure that they work closely together to improve coordination and increase understanding of the impact of the design of passported benefits on the wider system of benefits and vice versa. As a minimum this calls for greater sharing of data and information about claimants, subject to appropriate data protection safeguards;
b)	policymakers should give careful consideration to joining-up and integrating passported benefits: for example, combining benefits that have similar objectives, such as ensuring people have warm homes;
c)	providers of passported benefits should consider and question the best way to deliver passported benefits: whether those currently delivered as benefits-in-kind might be brought into the UC calculation in due course, for example;
d)	consideration should be given to ways of ensuring greater oversight and coordination of passported benefits, so as to increase the potential for simplifying their delivery in the longer term.

20.	The over-arching message in these high-level principles is the need for greater coordination of passported benefits so as to reduce complexity and to avoid a situation in which further benefits are simply added to the already long list of those passported. The need for greater coordination was stressed by the NAO and echoed by many people in the review.

Departments could work together to ensure that existing policy simulation analysis is available across government and reflected in policy design … Departments could increase assessment of wider impacts when developing policy reforms, clearly identify the risks of interactions that might undermine policy objectives and adjust for these risks in options appraisal.

NAO Report, ibid, p. 9.

It might be preferable in terms of a holistic view of passported benefits to set up a centralised passported benefits unit within DWP (or the Social Security Agency in Northern Ireland)……. Obviously this would require a cross-departmental approach.

[Advice Northern Ireland, Consultation Response, July 2011]

21.	The NAO report suggests that either the DWP or HM Treasury could take on the role of promoting and supporting greater co-ordination, information sharing and increased accountability. This is a matter for Ministers, but if this proposal is taken forward, part of the brief should be to ensure that the policy objectives underpinning various passported benefits are protected and can complement the objectives of simplification and making work pay.

Simplification – practical steps

22.	In addition to the high-level principles which could promote simplification overall, a number of more practical steps could be taken to simplify the delivery of passported benefits:
a)	aligning means-tests across passported benefits and promoting consistency across government departments and local authorities;
b)	reducing complexity and variation within passporting rules so that they are easily understood by claimants, decision-makers and advice agencies;
c)	making it simple and straightforward to establish and verify eligibility, and make a claim;
d)	reducing the number of separate claims that claimants have to make (for example, for free school meals, discounts on bills/social tariffs) and promoting a system of auto-entitlement and auto-enrolment;
e)	improving awareness, information and understanding of passported benefits to increase take-up and ensure better targeting.

23.	Many review respondents made suggestions as to how to increase public understanding of the support available. Simplifying eligibility and the mechanisms for claiming passported benefits featured strongly in responses to our review. Leeds City Council, for example, has shown that a single claim and assessment process covering all education passported benefits is simpler and less expensive to administer. 

Automatic entitlement would decrease the complexity of applications and simplify administration for claimants.

[CPAG, Consultation Response, July 2011]

The key issues that need to be considered are a simple system for eligibility that makes it easy for the customer to check entitlement … include automatic eligibility rather than customers having to make a claim.

[East Riding of Yorkshire, Consultation Response, July 2011]

Automatic entitlement to passported benefits such as free school meals without the need to register and supply supporting evidence would simplify [the system] at no extra cost.

[LGG Social Security Advisers Group, Consultation Response, July 2011]

A simple system, preferably verified by way of an automatically issued certificate, would be better understood by claimants and more easily verified to reduce the potential for fraud, abuse and official error.

[Disability Alliance, Consultation Response, July 2011]

Clear and accessible communication to claimants is the best way of achieving simplification at no extra cost. Children’s Centres could provide an excellent avenue for communicating changes.

[Knowsley Council, Consultation Response, July 2011]

Auto entitlement 

24.	Auto-entitlement, whereby eligibility for passported benefits is identified automatically by the UC IT system, has the benefit that it avoids the need for separate means tests, reduces administration costs and reduces compliance costs for claimants. The Child Poverty Action Group suggested that automatic entitlement decreases the complexities associated with applying for benefits and significantly simplifies the system for claimants.

25.	Universal Credit provides an unparalleled opportunity to improve the understanding and take-up of passported benefits and to reduce the number of separate claims procedures. Many respondents also referred to the importance of user-friendly systems that reduce the potential for claimants to make mistakes. The Institute of Fiscal Studies has already called for better understanding of the burden on claimants in proving entitlement.

Bennett, F., Brewer, M. and Shaw, J. (2009) Understanding the Compliance Costs of Benefits and Tax Credits, Institute of Fiscal Studies.

26.	There are a number of ways in which demonstrating entitlement can be simplified. For example, some kind of card could be issued (a health card was proposed by some respondents), but the most obvious mechanism in the short term, referred to by most people during the review, is the UC Notification.

UC Award Notification

27.	Providers of passported benefits have underscored the importance of there being a comprehensive UC award notice which can determine entitlement to passported benefits. The UC Real Time IT system will enable claimants to print out an updated UC Notification every month, and requests to include statements on the Notification about what the claimant is entitled to receive are under consideration in the DWP. 

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28.	Nevertheless, the simpler the eligibility rules are the easier it will be to promote clarity and develop easy to understand messages. If each passported benefit were to have its own distinct eligibility rules, this would only replicate current complexities, and make the Notification confusing for both claimants and delivery agents.

Information transfer

29.	Many delivery agents, particularly those offering social tariffs, have pointed to the importance of information transfer. A persistent theme throughout the review has been the need for key relevant information to be shared across government departments and others responsible for delivering passported benefits. The NAO report makes a strong statement in this regard:

“To use means-testing effectively, departments and agencies need reliable and timely information about claimants’ practical means.”

NAO, op. cit., p. 26.

30.	The Warm Home Discount provides an example of the successful use of data matching, in which the Government is using powers from the Pensions Act 2008 to identify to energy suppliers the poorest customers who should receive the Core Group rebate: over 650,000 pensioners will receive a discount this winter as a result.

Auto-enrolment

31.	The provision of and access to Real Time information in respect of UC could ease the administrative burden in respect of claims for passported benefits and make auto-enrolment much easier to manage. Entitlement would be calculated automatically within the UC IT system and information about eligible claimants would be shared with delivery agents. Taking due account of data protection requirements and the fundamental necessity to protect sensitive individual-level data, it is considered vitally important to find ways of obtaining consent for relevant information by those administering passported benefits to be appropriately shared. The delivery system for passported benefits could undoubtedly be greatly simplified if a system could be put in place to allow claimants to consent to a level of data sharing with appropriate bodies and under appropriate safeguards.

32.	Information sharing would not only simplify auto-entitlement but also promote greater use of auto-enrolment where delivery agents are automatically notified of people who would be eligible for their benefits. For example, at present parents have to make a claim for free school meals and this claim is then checked against information held by the DWP and HMRC. Several review respondents argued that take-up of free school meals might well increase if pupils were automatically enrolled.

Considering widening the use of automatic passporting through UC has the potential to reduce the admin costs of delivery agents which would allow extra funds to be diverted to broadening eligibility.

[SCoWR, Consultation Response, July 2011]

The technology behind the UC should make ‘automating’ entitlement easier. This will assist in maximising family incomes.

[CPAG, Consultation Response, July 2011]

The introduction of UC should be taken as an opportunity to increase the uptake of vital benefits, and ensure all those who are eligible receive passported benefits. Therefore, any new system should incorporate as much ‘auto enrolment’ for benefits as possible with families not having to fill out additional forms to receive the support they need.

[4 Children, Consultation Response, July 2011]

33.	The most important message here is the opportunity to join up information and simplify the current rather ad hoc procedures for claiming passported benefits.

Simplification – Joined-up Information

A more coordinated framework for the design and delivery of passported benefits will rely on: 
•	information sharing/data transfer to reduce the need for multiple applications and promote more effective targeting
•	an agreed definition of income and agreement about the evidence required to validate claims
•	carefully crafted, clear and unambiguous statements on the UC Notification 
•	keeping eligibility rules simple in order to keep the UC Notification simple to understand
•	making efforts to avoid any stigma associated with accessing passported benefits, so as to ensure take-up by those who are eligible and improve targeting

34.	We would also suggest that welfare reform provides an opportunity for all government departments, local authorities and others to agree and use a common definition of income and ensure that the evidence required to verify that income should be the same across government.

Making Work Pay

35.	Simplification of the benefits system is an important step to achieving the Government’s second key goal of welfare reform: making work pay. However passported benefits are dealt with under UC, they should not undermine the overarching principle that people should be better off in work than they are on benefits. ‘In deciding between design options, departments face a series of trade-offs. The central trade-off is between tighter targeting of benefits (often linked to greater design complexity) and other impacts such as take-up levels, administration costs and incentives to work’.

NAO Report, 2011, p. 24.

Making work pay – high-level principles 

36.	The evidence from our review suggests that there are a number of high-level principles and some practical steps that can be taken into account when considering approaches to passporting that support the goal of making work pay:
a)	designing passported benefits to ensure effective integration of the broader policy objectives relating to education, health, energy and social tariffs, and access to justice, with the policy objectives of welfare reform in general, and UC in particular;
b)	making decisions about whether and how to withdraw passported benefits as income rises which take into account the potential for work disincentives or financial cliff-edges and the relative benefit of keeping withdrawals simple and smooth. Faster withdrawal can reduce public spending but can also create perceived disincentives to work and have an adverse effect on family budgets; 
c)	being aware that UC is designed to be a household benefit, and that household assessment can mean that one partner’s incentive to work is heavily dependent on whether the other partner is in work. This factor should be considered in the design and implementation of passported benefits. UC claimants will need to understand how changes in employment impact on eligibility for passported benefits at the household level;
d)	ensuring that new options for passported benefits should close current loopholes in eligibility which exclude some people on relatively low incomes from the support passported benefits can provide, and aim for greater fairness and predictability;
e)	monitoring the system of passporting when UC is introduced to assess the impacts on targeting and take up, on in-work incomes and on the employment behaviour of claimants.

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37.	Evidence from our review indicates that there is no inherent incompatibility between the policy objectives of individual passported benefits and the overall policy objectives of welfare reform. But they are potentially in conflict if changes need to be made in the context of cost neutrality. There are dangers that passported benefits might undermine the ambition to make work pay if the constraints of cost-neutrality limit the possibility of avoiding cliff-edges when the benefit is withdrawn. On the other hand, distributing the same sum of money across a larger number of recipients to enhance the financial gains from work could well mean that the original policy intent of individual passported benefits is undermined. This is the kind of tension that a co-ordination arrangements should monitor.

38.	During the review there has been a good deal of discussion about cliff-edges and a number of options attempt to address this issue. So, for example, consideration has been given to tapering the withdrawal of passported benefits (as could happen if they were cashed up and included in UC) or introducing run-ons when eligibility to the benefit has ceased. This can avoid households being yo-yoed in and out of entitlement when UC entitlement fluctuates but may introduce some complexity.

As a general principle the government needs to ensure that passported benefits are reduced or lost on a sliding scale rather than having the claimant’s income dropping off a cliff-edge. 

[LGG Social Security Advisers Group, Consultation Response, July 2011]

39.	In this regard it is important to consider the impact of UC being calculated and delivered as a household benefit. While household assessments can assist in targeting support on families in which everyone is poor, they can also add to complexity when calculations have to be made about withdrawal of passported benefits and the potential impact on work incentives. The definition of means in a household can be complex when households have variable financial means including earned income, savings and housing assets. An individual’s incentive to work might depend on whether their partner is employed.

NAO report, op. cit.; Institute for Fiscal Studies (2010) Tax by Design, IFS.

40.	There are certain groups of people whose particular needs and circumstances should also be taken into account in the design of passported benefits under UC: the growing number of people who are self-employed is one of those groups. Under UC the White Paper suggest that once a business has become ‘established’, a floor of assumed income equal to the National Minimum Wage for the reported hours will be introduced for those who are self-employed. This could have important implications for access to passported benefits for self-employed people, particularly the measurement of self-employed income on a monthly basis and the impact on eligibility for passported benefits.

Making work pay – practical steps

41.	The implicit message in many responses is that people need to see for themselves that work pays rather than relying on a mantra. Under the current system the value of passported benefits is recognised but not consistently accounted for in better-off calculations. Information about how passported benefits impact on the perceived financial benefits from being in work is not always available or rendered transparent. There are some practical principles that could address these apparent anomalies:

a)	reconsidering how passported benefits are explained, the language used and the messages given will be essential to the integration of passported benefits under UC. Within this context it might be helpful to avoid references to ‘free’ school meals and ‘free’ prescriptions;
b)	making the value of passported benefits transparent and clear to recipients could assist their understanding of the benefits system overall and of how UC calculations and payments are made;
c)	ensuring that all better-off in work calculations always include the putative value of passported benefits and give information about how they will be withdrawn. This would increase claimants’ ability to weigh up the potential and actual benefits of being in work or increasing their hours of employment;
d)	providing information about passported benefits in a joined-up coherent manner rather than as individual benefits with little connection to each other, including information about other options which can ease the loss of passported benefits at certain income thresholds.

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Any reform of the system must be as transparent as possible for the claimant, be included in the calculation of marginal deduction rates, and ensure that the delivery of passported benefits is non-stigmatising.

[Low Incomes Tax Reform Group, Consultation Response, July 2011]

It is important for people to know that their passported benefits had been (or would be) removed entirely … it would also be important that this was constantly reiterated … people’s behaviour will only change if they understand how the system works, what they might lose and what they might gain. UC expects that people will make informed choices and they will need to information in order to do that.

[Kirklees Council, Consultation Response, July 2011]

Many of these practical steps could make it easier for claimants, decision makers and advisers to understand how the benefits system will impact on them both in and out of work and the ways in which passported benefits might impact on their in-work incomes.

Key Decisions

43.	We have identified a number of key decisions that will need to be taken in respect of the options for passporting under UC:
a)	whether to retain all the existing passported benefits as passported benefits;
b)	which, if any, passported benefits to integrate within UC;
c)	how to target each benefit for maximum effectiveness with respect to its policy objectives and how to determine eligibility;
d)	how to deliver each benefit: as a benefit-in-kind, as a cash benefit, via a claims process (within or outside UC);
e)	the best way to withdraw passported benefits to avoid cliff-edges and any potential work disincentives and, at the same time, preserve their policy intent;
f)	the extent to which UC information can and should be shared to enable auto-entitlement and auto-enrolment.

Concluding Comments

44.	The SSAC review of passported benefits has exposed the complexity of the current system and the lack of coordination of the myriad passported benefits. Opportunities to rethink passporting are considerable, but no one who contributed to the review underestimated the challenges involved in promoting greater simplicity within the current financial envelope. It may be that the Government’s programme for welfare reform will provide the stimulus to rethink just how many benefits should be passported and consider just what could be achieved within UC itself.

45.	This review of passported benefits has enabled the SSAC to contribute to the thinking about an important element within the benefits system at an early stage. We have assembled a wealth of information about the complexities of the current approach and potential ways forward for the future. The committee has not formed a ‘SSAC view’ about the best way forward but we would wish to draw attention to a number of key messages from the review. 

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46.	The key messages are:

•	the wider policy objectives of each of the benefits that are currently passported have the potential to bolster the key objectives of welfare reform in general and of UC in particular
•	there is an urgent need to simplify the current system of passporting so as to reduce administration costs and ensure that passported benefits reach their intended target audiences
•	the timescale for implementing UC is ambitious, and discussions about the best way to manage passported benefits will almost certainly evolve during the transition period. However, given the complexity and range of passported benefits described in this report, it is clear that a substantial programme of work will be required just to ensure arrangements are in place for the initial implementation of UC in 2013 and urgent action is needed to progress this activity
•	the tensions created by the constraints of cost-neutrality will have an impact on what can be achieved in the short term, but should not stifle more creative thinking about longer-term approaches
•	very little is known about the extent to which passported benefits influence decisions about work; but these benefits are highly valued, can make an important contribution to people’s household income, and play an important role in promoting better health and well-being

47.	Since we began this review in May 2011 we have witnessed an increasing appreciation in all levels of government, local authorities and amongst the providers of social tariffs of the challenges and opportunities for rethinking passported benefits afforded by the shift to UC. In many ways, the SSAC review of passported benefits marks the start of a journey: it does not provide definitive answers but it does point to a range of options and some key guiding principles to stimulate future debate. The introduction of Universal Credit and reforms in the welfare system more generally will change the benefit landscape, and determining the best ways forward for passported benefits will be critical in achieving the key objectives.

March 2012