Chapter 3		Possible Ways Forward Under Universal Credit

Introduction

1.	Our review of passported benefits has demonstrated their importance within the current system: they provide much-needed and highly-valued support to people living on benefits and low incomes. In the previous chapter we noted a number of messages which need to be considered in thinking about options for the future. One of the most important of these, about which there has been universal accord, is the opportunity afforded by the introduction of UC to greatly simplify the system of passporting.

2.	In this chapter we build on the evidence presented about the current system of passporting to explore a number of potential options for key passported benefits under UC. During our review many respondents offered their own options for the future, and we have considered these carefully in the light of all the evidence available. Developing options has been an iterative process: while we have been conducting our review those responsible for administering and delivering passported benefits have been thinking about the challenges and opportunities presented by welfare reform and beginning to tease out what might be possible for them. An ongoing dialogue with officials across government, the devolved administrations and other providers has enabled us to distil those options which were suggested during the review which we believe could meet the Government’s objectives of welfare reform as well as those integral to the passported benefits themselves.

Ambition and Reality

3.	While the introduction of UC offers a unique opportunity to develop a simpler, more coherent system of additional support that meets the needs of low-income households, it is likely that radical change will take time and that there will need to be a stepped approach to reach the ultimate goal. In the longer term it may be important to rethink the whole notion of passporting under UC and look for more creative ways to ensure that people’s needs are met via a more transparent and more effective social security system.

4.	We have concluded that, at the present time, there is unlikely to be one option which can be applied to all passported benefits under UC and that, in the short term at least, a mixed economy is inevitable. We recognise, as did our respondents, that this raises challenges for the overall simplicity that can be achieved. Nevertheless, as we demonstrate, the current complexity can certainly be reduced and there are clear opportunities to implement a more rational and better-integrated system when UC is introduced.

5.	It seems sensible, therefore, to put forward options that appear to be achievable in the short term, as well as options which could be considered in the future. We note that although UC will be implemented in October 2013, a transition period of four years to 2017 is envisaged before a steady state can been achieved. There is, therefore, a window of opportunity for everyone involved in delivering passported benefits to work towards greater simplification and more radical change, whilst at the same time protecting benefit claimants and honouring the policy objectives which are of wider significance. 

6.	A stepped approach to change rather than a big bang approach may well result in more complexity in the short term than is ultimately desirable in the longer term. It may also allow for more careful consideration of the longer-term options and take advantage of other inevitable developments in technology which will ultimately change the way claimants interact with the welfare system. The aim for UC going forward is that the majority of claimants will interact with DWP online and that the many innovations in online services will enable the IT system to be increasingly responsive to individual circumstances. While we have been keen to ‘think outside the box’ we have been mindful also of the constraints that influence the ability to innovate. Accordingly, we are bound to be realistic in the options we identify here. Nevertheless, we have detected a growing appetite for change and a willingness to consider radically different approaches to passporting within the social security system, particularly if current fiscal constraints are eased in due course. 

7.	Before looking at the various options for passported benefits within our four categories and highlighting their advantages and disadvantages, we discuss the issues that have to be balanced across the whole system.

Reducing Complexity, Making Work Pay and Maintaining Cost-Neutrality

8.	Throughout the review we have regarded it as essential to take account of three factors:
•	reducing complexity
•	making work pay (while maintaining a range of policy objectives) 
•	keeping costs neutral

9.	The majority of respondents identified a tension between these three factors when considering future options and reluctantly accepted that a trade-off would be inevitable unless increased funding were to be made available.

It is extremely difficult to see how this project can meet all of the objectives set out in its terms of reference.

[Kirklees Council, Consultation Response, July 2011]

Cost constraints will lead to either a more complicated and difficult to understand system, or one which is even less generous in order to promote simplicity.

[Scottish Campaign on Welfare Reform, Consultation Response, July 2011]

10.	During the review many people proposed what they regard as the ‘best’ options going forward in order to reduce complexity, manage costs and make work pay, while maintaining the various policy objectives.

Respondents’ View of the ‘Best’ Options Going Forward

1.	Ensure that everyone on UC is eligible to receive all the current passported benefits.
2.	Extend free school meals to all (primary) children and free prescriptions to everyone as in the devolved administrations, irrespective of economic circumstances.

11.	Both these options may be socially desirable: they would certainly ensure that the policy objectives associated with the individual benefits and that of making work pay are met and would greatly help in ensuring simplicity in the benefits system. Extending eligibility, however, has significant cost implications and would not fit within the constraint of ensuring cost-neutrality.

12.	Respondents were realistic in their view that it is unlikely that these preferred options will be acceptable in the current fiscal climate because they would be far too costly to implement. Some people did suggest, however, that because extending entitlement would ensure simplicity, there would be savings associated with reduced administrative costs in different parts of the system, which should be factored in to the decision-making.

The only way to make sure that passported benefits support the UC – rather than undermining it – is to extend entitlement to passported benefits to all UC recipients. Benefit entitlement that does not distinguish between in-work and out-of-work families (which is the heart of the UC system) is the best way to make sure that ‘work pays.’

[Child Poverty Action Group, Consultation Response, July 2011]

If all passported benefits were given in full to all claimants of UC, this could make the system simpler.

[National Association of Welfare Rights Advisers, Consultation Response, July 2011]

One way to ensure that most children in low-income families get the benefits of a hot, healthy meal is to ensure that every child from a household in receipt of UC is entitled to free school meals.

[Child Poverty Action Group, Consultation Response, July 2011]

We recommend ensuring all UC recipients receive free school meals … Extending entitlement in this way will be crucial to ensuring the Government’s intervention to make work pay is met, whilst also ensuring that children in low-income families have access to healthy lunch time meals.

[Joint Response on FSMs: Children’s Food Campaign, The Children’s Society, Citizens Advice, Family Action and Save the Children, Consultation Response, July 2011]

Our preference is that all Universal Credit claimants would be automatically exempt from prescription charges.

[Disability Benefits Consortium, Consultation Response, July 2011]

13.	Concerns were expressed throughout our review that the emphasis on cost-neutrality could lead to the adoption of alternative options which are either less generous than now, in order to satisfy both cost-neutrality and the drive for simplicity, or more complex, because they need to satisfy all three criteria. Respondents stressed that the value of benefits such as school meals, prescriptions and other health items is so significant that if they are not designed effectively under UC, they could easily undermine the drive to reduce complexity in the system and to make work pay, by re-introducing cliff-edges. Moreover, these cliff-edges might not be softened as they are now once Working Tax Credit is removed under UC. When those people currently receiving Working Tax Credit are migrated to UC, many of them will no longer be eligible to receive UC because of the capital limits. This will also remove their entitlement to passported benefits. We have taken such concerns seriously while thinking about the various options that appear to be the most realistic in the immediate future.
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14.	Taking account of the respondents’ ‘best’ options and the concerns expressed about the impact of trade-offs, we noted a number of criteria against which the potential options for passporting might be assessed.

Key Factors to Take Into Account in Developing Options

Evidence from the review suggests that any option proposed should:
•	be aware of the dangers of increasing complexity and diluting a wide range of policy objectives in order to retain cost-neutrality
•	avoid limiting and reducing eligibility in order to retain cost-neutrality – spreading the current resources more thinly or creating losers
•	avoid re-introducing cliff-edges via the introduction of income thresholds
•	take account of the anticipated increase in the numbers of people who will make a claim for UC compared with the numbers currently claiming benefits and tax credits
•	improve the targeting of passported benefits so that they reach all those who need them
•	consider the opportunities to extend eligibility criteria further up the income scale, initially to protect those currently eligible to receive Working Tax Credit
•	keep administrative costs to the minimum
•	make it as easy as possible to identify potential entitlement, demonstrate and verify eligibility, and process applications
•	ensure that Real Time Information does not mean that people move in and out of eligibility for passported benefits, thus creating a revolving door of endless fluctuations in income

Using technology

15.	A number of options, both in the short term and long term, refer to the increased use of technology and the potential benefits of embracing it. In a rapidly advancing technological world, the process of making a claim, assessing eligibility, and benefit delivery are likely to undergo significant change, because of the relative ease of attaching Apps to computers and mobile phones, for example. The Real Time information system being built for the delivery of UC is expected to have the capacity to take advantage of those applications, and on-line benefit claiming will transform the processes involved in the long term.

16.	Technology also has the potential to substantially reduce administration costs, thereby “targeting money where it is needed as opposed to in bureaucracy.” This kind of consideration is critically important to companies offering social tariffs on utility bills who pass on the cost of these tariffs to their other customers. Representatives of WaterUK were particularly keen to stress that support for social tariffs amongst customers is somewhat dependent on the money being spent directly on providing assistance to those needing support rather than on the administration of the tariffs. Streamlining systems to channel money to beneficiaries is an important goal in the commercial sector, just as it is for local authorities and government departments delivering passported benefits. This must also be a key goal in the overall quest for simplicity in the benefits system. We are well aware that not everyone will be able to take advantage of on-line applications and that other more traditional approaches will have to be available, at least in the short term. The DWP is already in consultation with stakeholders and providers in order to find appropriate ways to increase the use of technology in the future, acknowledging that the new system of delivering welfare benefits will need to be operational well into the future.

Defining Eligibility, Ensuring Appropriate and Effective Delivery and Managing Withdrawal

17.	While many of the issues discussed during our review relate to the need to balance complexity with costs and the policy objective of making work pay, other issues relate to the need to pay attention to eligibility criteria, delivery mechanisms and the withdrawal of passported benefits.

Eligibility, Delivery and Withdrawal

Key questions to be addressed include:
1.	Whether to base eligibility on targeting the same people/households as at present, or to support the same number of people/households as now.
2.	Whether to seek more joined-up approaches to eligibility, thereby reducing complexity and increasing transparency and fairness.
3.	Whether to continue with different kinds of benefits – benefits-in-kind, cash benefits, and discounts on fees and social tariffs – or whether to seek greater integration by cashing-up some passported benefits, for example, and including them within UC awards or providing vouchers for specific benefits.
4.	Whether to make work pay by gradually withdrawing passported benefits as income increases via a taper (as in UC), via run-ons, or via other options.

Defining eligibility

18.	Defining eligibility in the future is a key concern for all those responsible for passported benefits. Most respondents to our review see the introduction of UC as an opportunity to review eligibility criteria and increase the take-up of passported benefits. Extending eligibility criteria within the current fiscal climate is problematic, and a number of dilemmas have to be resolved. Perhaps the biggest dilemma for government departments is how to encourage take-up of their passported benefits without increasing the total number of households eligible for the benefit. If only the same people who currently receive the benefits now are targeted, then take-up will not be increased. If targeting the same volume of households is the key objective, then there could be winners and losers under UC – a consequence that might be uncomfortable at the point of transition. We look in more detail at this aspect of passporting under UC in relation to each of the key passported benefits.
Delivering passported benefits – the pros and cons of cashing-up

19.	In terms of delivery mechanisms, review respondents had a good deal to say about the extent to which the existing passported benefits should or could be cashed up within UC, and whether current benefits-in-kind should continue to be in kind. One of the simplest ways forward under UC would be to cash up the passported benefits and add more elements to the UC award in much the same way as childcare costs are being added in to the gross award. We look at this approach in more detail in respect of the key passported benefits when we put forward the various options for them. However, views from our respondents were mixed in respect of the principle of cashing up, many much preferring the offer of dedicated benefits-in-kind and others more open to the notion of cashing-up. The latter acknowledged that cashing-up may be a step too far in the short term but it could be reconsidered for some benefits in future.

20.	Some respondents acknowledged the advantages of cashing-up: it allows the benefit to be withdrawn smoothly and maximises families’ ability to manage their own income. But even if it were possible to translate benefits-in-kind to a cash element, we were alerted to the potential disadvantages of rationing the cash out across the weeks (when in reality school meals are offered for 38 weeks a year and the need for prescription medicine may be irregular but costly when it is needed), and not being able to ensure that the money is used for the purpose for which it is provided. Both these concerns can be addressed, however, and we return to them as we discuss specific options. During the review, we heard about the perceived advantages and disadvantages of cashing up passported benefits.

The Perceived Pros and Cons of Cashing-up Passported Benefits

The advantages:
•	it promotes simplicity
•	it meets the objective of making work pay
•	it enables the benefit to be withdrawn smoothly (via a taper)
•	it enables households to take personal responsibility for budgeting 
•	it allows choice about how to spend the money

The disadvantages:
•	the potential for misuse and not using the money as expected, although ‘labelling’ specific elements means they are more likely to be spent as intended
•	it could be unhelpful if a household payment (under UC) is not paid to the partner with responsibility for particular aspects of the family’s budget (for example, school meals, healthcare)
•	it is difficult to assign a cash value to all passported benefits and to ensure that the amount keeps pace with real prices
•	many passported benefits are needed infrequently, rather than on a regular weekly basis, and may have a high cost at the point of delivery
•	it could undermine the policy objectives of the individual passported benefits 
•	it could allow creditors to regard benefits previously delivered in-kind as income for debt recovery purposes
•	it could mean that passported benefits are included in conditionality rules and/or be included in the benefit cap calculations under UC

21.	The benefit recipients who commented on how passported benefits might be delivered were in broad agreement that benefits-in-kind or vouchers are the best way forward rather than cashing them up, so as to ensure that the benefit is used as intended and not abused. 

22.	While some respondents expressed strong views about the option of cashing up some, if not all, of the passported benefits, others could see the benefit of adding them into UC, but providing vouchers rather than a cash amount. Overall, however, there was little consensus as to whether this would be a better approach. Some consultation respondents mentioned the possible stigma of using vouchers and the danger of losing them, and others acknowledged the ease of claiming and using vouchers. Vouchers are already used effectively in the delivery of Healthy Start, for example, and we were not given any indication that these vouchers are perceived to carry a stigma. 
23.	Another variant for adding some passported benefits into UC that was discussed would involve people making claims (on a monthly basis) for specific benefits such as school meals or prescriptions (in much the same way as childcare costs will need to be recovered via UC). Generally, however, respondents viewed this option as unhelpful. They pointed to the difficulty some low-income families would have simply affording to pay for school meals on a regular basis, or several prescription items at any one time, and keeping detailed records of what they had spent even if they could afford to pay and reclaim the costs later.

24.	Respondents took a different view to paying for travel or car parking and claiming costs back via UC on a monthly basis. For relatively small sums of money this approach to including some elements of passporting within UC and asking claimants to recover them later was regarded as perfectly acceptable. There may be an opportunity for a more joined-up approach in respect of claiming for transport costs, for example, across the various passported benefits, within UC.

Withdrawal – no cliff-edges

25.	There was complete agreement amongst review respondents that passported benefits should not be lost entirely when people enter the workforce. The benefit recipients interviewed also pointed out that low-income workers may still struggle financially and should not lose out on all the benefits of passporting and face a cliff-edge when they move into work. They also expressed a preference for withdrawal via a tapering of passported benefits rather than progressive withdrawal of specific passported benefits at different income levels – sometimes referred to as the waterfall effect, although we have not found this to be a particularly helpful descriptor. Although a phased withdrawal might be easier for the claimant to manage, it is likely to be more administratively complex and run counter to the desire for simplicity in administering UC. The reason given for this preference was that different people have different priorities in respect of passported benefits, depending on their needs and circumstances, and the decision as to how to phase withdrawals via a ‘waterfall’ method would suit some people and not others. Tapering was regarded as both fairer and easier to manage.

26.	Some respondents also referred to the potential problems with tapering passported benefits if they were to be cashed up and added in to the UC award. We return to this issue when we look at the specific benefits. Some raised a specific concern about the possibility of creating a double taper (although this again is solvable) and increasing marginal deduction rates. One solution offered by CPAG is to taper passported benefits only after UC entitlement has expired, although this clearly has cost implications. 

27.	Allowing entitlement to a specific passported benefit to run on for a period after eligibility has ceased can avoid the sudden loss of a passported benefit, and we look at this option in more detail in the context of the various options proposed. Again, respondents to the review regarded run-ons as a helpful way of smoothing cliff-edges and giving people time to adjust to the withdrawal of a specific benefit, such as school meals or prescription charges.

Education-Related Benefits

28.	As we noted in Chapter 2, for parents of school-age children the passported benefit of greatest value, both financially and in terms of children’s wellbeing, is that of school meals, currently delivered as a benefit-in-kind. A number of other passported benefits such as school clothing grants, school milk, transport to and from school and residential school trips may be linked to the receipt of school meals in some areas – hence free school meals act themselves as a passport to other benefits. The Pupil Premium paid to schools is also linked to free school meals. The eligibility for free school meals also acts as an indicator of deprivation. Changing eligibility under UC has far-reaching implications, therefore.

29.	Deciding how to manage free school meals under UC has critical consequences for families, for children’s health and wellbeing, and for the welfare system as a whole. As we have noted earlier in the chapter, many respondents to our review argued for school meals to be provided free to all children whose parents receive UC or, indeed, to all children, especially those of primary school age. We are aware that Ministers in the Coalition Government and, indeed, in the previous Labour Government, have been sympathetic to calls to extend the current eligibility criteria: nevertheless, the Government is unlikely to consider this option as being affordable at present. What then are the possible options under UC?
Cashing-up school meals within UC

30.	From the perspective of making work pay, the Government regards the removal of cliff-edges as an important goal. Perhaps the simplest way of avoiding a cliff-edge in respect to school meals is to cash up school meals and add them as an education/child element within UC. If this approach were taken, then the taper proposed under UC would gradually reduce the amount paid. This rather radical option would change school meals from being a benefit-in-kind and place it as an element within UC that claimants with school-age children could apply for as part of their claim. The value of the school meals could be calculated for each child and the 38 week entitlement averaged across the year. Under this system, school meals could be passported to all households in receipt of UC who wished to take up school meals, but the amount of support provided would be reduced (withdrawn) as part of the UC taper. This approach would also support the ambition that passported benefits should not add to complexity, although there may well be cost implications – particularly if a separate income threshold was not imposed before the end of the UC taper.
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31.	Figure 3.1 illustrates the cashing-up of free school meals under UC with no earnings threshold imposed. The value of school meals is simply added in to the gross award for families with school age children and subject to the taper. This hypothetical example illustrates how this would affect a lone parent with two children. 

32.	The lone parent’s UC and, therefore, the value of the school meals does not start to taper until the parent is earning around £650 per week (in this particular example), as this is the point at which UC would have completely tapered off had the value of school meals not been added to the gross award.
Figure 3.1 Cashing-up of free school meals with no earnings threshold

   Total net income (including   
   Universal Credit)

   Total net income (including Universal  
   Credit plus free school meals)

33.	In theory, school meals could be cashed up under UC fairly easily. Unlike many other passported benefits, they are delivered daily during the school year and their value is fairly predictable. The Real Time IT system could calculate entitlement and pay the element automatically. There would be a number of practical issues to consider, however.

Cashing-Up School Meals – Practical Issues

In order to cash-up school meals a number of issues would need to be resolved:
•	how to reflect local variations in the provision and cost of school meals
•	how to ensure that school meals are taken and that only those actually provided are paid for (a reporting requirement?)
•	how to indicate to parents the level of support being provided for school meals under UC
•	how this would be delivered to meet the requirement that any option for providing free school meals must be designed to be cost-neutral
•	how to maintain the Real Time IT system so that the payment of an education/child element is a true reflection of the cost for school meals

34.	Providing these issues could be resolved, it would then be for parents receiving UC to purchase school meals in the same way as other parents do now. We recognise that this option could have the potential to undermine the policy objectives central to the provision of school meals unless reporting requirements are introduced to ensure that the money is spent as intended. It is important to note that very few review respondents regarded cashing up school meals as a viable or desirable option. 

35.	The overwhelming consensus from our review is that school meals should remain a benefit-in-kind, primarily because they are intended to have a direct impact on children’s educational wellbeing and health, and simply cashing them up would not ensure that children receive a healthy meal every day in term time unless a checking mechanism was established. This in itself could be both complex and costly. 

36.	At the present time, those concerned about the continued importance of school meals do not have the confidence that children in low income families, where the money available is sufficient only to cover basic needs, would automatically benefit if parents are simply given extra money within UC, particularly once this element begins to be tapered away. Some respondents commented that children may go hungry if the school meals element is not spent as intended.

Cash payments will not ensure that children receive the intended benefit. Food is often the first economy when bills have to be paid.

[UNISON, Consultation Response, July 2011]

We are concerned that fewer parents may take up school dinners for their children, leaving a potentially vulnerable group of pupils without a healthy and nutritious lunchtime meal.

[Southampton Primary Headteachers’ Conference, Consultation Response, July 2011]

We would have concerns if cash were provided instead of free school meals as the money could be spent on other needs, and the school could face an increase in the number of parents who fail to pay for school meals.

[Lambeth Council, Consultation Response, July 2011]

37.	Not all respondents to the review were opposed to some kind of cashing-up of school meals within UC providing this does not jeopardise the important educational policy objectives. They commented that: cashing-up would put the responsibility on parents to decide how best to provide for their children’s wellbeing; and a system of making monthly claims would avoid any stigmatisation of children in the way in which receiving school meals as a benefit-in-kind has the potential to stigmatise.

If these people were given cash instead of free school meals, they would have the choice to provide lunch-boxes. They would also have an income that could be used towards food in the holidays and if the child was off school sick.

[Citizens Advice Wales, Consultation Response, July 2011]

[Cash payments] would remove some of the stigma associated with in-kind (but essential) benefits such as free school meals.

[Equality 2025, Consultation Response, July 2011]

Reduced earnings disregard model

38.	At our SSAC Stakeholders Event in November 2011 a reduced earnings disregard model was discussed. This would use a cashed up approach but would help to constrain costs, as parents, other than those on the lowest incomes, would contribute to the cost of school meals. 

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39.	This model would involve a nominal reduced earnings disregard for each school-age child up to a maximum of three children, for households on UC in receipt of the school meals element (Figure 3.2). A cash value equal to the cost of the school meal could be added to the gross UC award, but there would be a reduction in the earnings disregards for UC to make it cost-neutral. The school meal element could be paid either to all families with school-aged children, or parents could choose whether or not to receive support for school meals beyond the earnings disregard. 

40.	Concerns were raised, however, about the potential complexity for families who would need to choose between receiving support for school meals and a higher disregard, and the Government would need to consider the impact of local variation in meal costs, since parents in low-cost areas would pay a greater proportion of the cost than parents in high-cost areas.

Figure 3.2 Reduced earnings disregard model showing nominal reduced earnings disregard for school meals

The disregard is decreased slightly for claimants in receipt of the School Meals element

   Value of UC minus value of school meals for  
   families receiving free school meals

    Value of UC for families not receiving    
    free school meals)

     Value of UC for families    
    receiving free school meals

Using the childcare template within UC

41.	One way to address the potential risk to the policy objective of a simple cashed-up approach as described above, would be to add school meals as an element within UC and enable parents to claim back the money spent on school meals on a monthly basis, using the model developed for the payment of childcare costs as a template. There are clearly some parallels with the childcare element within UC. Under UC, parents will be able to provide information about their childcare provider(s) and report the childcare costs they have paid out during the UC monthly assessment period. The childcare costs reported are linked to the cash paid during the UC assessment period. 

42.	The objectives set by DWP for the childcare element in UC are that it:
•	is widely accessible for all those who need it
•	supports the financial costs for those on lowest earnings
•	incentivises take-up
•	eliminates cliff-edges so that the financial benefit of work is preserved at all levels of earnings
•	ensures transparency of payment

43.	The childcare element allows parents to claim up to 70 per cent of a maximum limit of £760 for one child and £1,300 for two or more children per month for childcare costs incurred. This is then clearly labelled within the UC statement. The full value of the element is maintained until the rest of UC is tapered away, so it is added to the award, remains constant during UC eligibility and would be exempt from sanctions calculations.

44.	Using this model as a template, the policy objectives of providing school meals could be protected since parents would claim for the actual costs incurred every month all the time they are eligible for UC. Some respondents commented that it might incentivise take up and encourage parents to continue to buy school meals for their children, but this would need to take into account the constraint of cost-neutrality. Within this model the Government would need to consider how the detailed requirements of such an approach would work to ensure that the amounts claimed had actually been spent on school meals, and a checking mechanism to avoid fraudulent claims would be necessary within the system. Review respondents suggested that this kind of monthly claiming could be administratively burdensome for parents who would need to keep a detailed account of the meals actually taken. Concerns were also expressed that parents would have to be able to afford an up-front outlay for the meals, which could be a significant sum in large families. Care would need to be taken not to increase administrative burdens on parents which could have an adverse impact on take-up.
 
•	
45.	The Government would also need to consider the optimum approach to the transfer of payments required for this model to work in an effective and streamlined way. For example, parents would either need to have payment in advance for the cost of the school meals, or a real time transfer of funds would need to be made directly into the claimant’s bank account to avoid an up-front outlay for the meal. Direct payments to local authorities could also be considered for those families who have more difficulty managing their finances. Appropriate mechanisms would need to be established to ensure funding was spent on the school meal together with systems for the seamless transfer of funds. Providing these administrative issues could be resolved, this approach could ensure that pupils are given a healthy nutritious meal at school, whilst mitigating against a cliff-edge and supporting the aim of UC to make work pay. 

46.	Cashing-up school meals and looking for innovative approaches to deliver the policy objective other than as a benefit-in-kind will require a good deal of thought and detailed modelling, so we have looked carefully at other options that were put to us as being more achievable in the short term. We turn to these next.

Other Options

47.	Using the childcare element template is but one option for a cashing-up approach to school meals, however. There are a range of delivery methods that could support a cashed-up approach and a number of respondents highlighted these as important options to consider for the future.

Delivery Options for School Meals to Support a Cashing-up Approach

1.	A card payment scheme (rather than a direct cash payment within UC) which carries entitlement and ensures the cash value is used exclusively for purchasing school meals.
2.	Payment from DWP direct to Local Authorities (and schools) rather than via the UC claimant.

48.	A card system is already in use in a number of schools, primarily secondary schools, and is likely to be extended over the next few years. It would incur quite substantial developmental costs but could provide a smart and efficient system. We note that in some schools, payment for school meals is managed via a child’s fingerprint. In future these kinds of creative approaches could be less expensive to develop. The School Food Trust would welcome an expansion of the cashless system, noting that this would have additional benefits such as reducing stigma for children receiving school meals (and for their parents).

Setting an income threshold for eligibility

49.	A relatively simple approach in the short term would be to determine an income threshold within UC below which eligibility for free school meals will be automatic. This could be at a level which is similar to that provided by the current means-tested benefits and tax credits. It is clearly a matter for Ministers to decide where the threshold should be, and we expect that the Department for Education will want to model this approach. In reality, this approach would reflect the current system of assessing eligibility for free school meals. There are a number of advantages and disadvantages associated with this option.

Income Threshold for School Meals

Advantages:
•	simple to communicate
•	easily understood by claimants and advisers
•	cost-neutrality achieved if threshold set to a limit which supports the same number of children as the present system
•	relatively straightforward to deliver via UC and for local authorities and schools to administer as now
•	current Electronic Checking System could be retained (which will be welcomed by local authorities and schools)

Disadvantages:
•	although there may be winners, there may also be losers as a consequence, which the Department for Education would need to consider
•	it could be a potential challenge to making work pay as it retains a cliff-edge when the income threshold is reached, which will not be offset via tax credits as now
•	it impacts on family budgets when it is withdrawn unless other discounts are offered by local authorities and schools

50.	Table 3.1  illustrates the potential impacts of this approach within UC. It shows for any given household the additional earnings needed to compensate for the loss of free school meals under UC. The first column indicates the number of children receiving free school meals; the second column indicates the average value of free school meals per annum; the third column takes account of the 65 per cent UC taper; and the fourth column takes account of the impact of tax and national insurance contributions on top of the taper (76%).
1.	
51.	The table demonstrates that to compensate for the loss of school meals for two children in primary school (value £714.40 pa), gross earnings, taking account of tax and national insurance, would need to rise by £2,976.67. The cliff-edge is substantial, which explains why the option of an income threshold was not regarded by respondents as a popular solution.
Table 3.1 Income replacement requirement when free school meals are withdrawn via a cliff-edge under UC: the rise in annual earnings needed to compensate for losing entitlement 
Total Number of Children	£ Value of free school meals 	£ Gross Earnings (65%)	£ Gross Earnings (76%)	
One	366.70	1,047.71	1,527.92	
Two	733.40	2,095.43	3,055.83	
Three	1,100.10	3,143.14	4,583.75	
	
Primary School Age	
One	357.20	1,020.57	1,488.33	
Two	714.40	2,041.14	2,976.67	
Three	1,071.60	3,061.71	4,465.00	
Four	1,428.80	4,082.29	5,953.33	
	
Secondary School Age	
One	376.20	1,074.86	1,567.50	
Two	752.40	2,149.71	3,135.00	
Three	1,128.60	3,224.57	4,702.50	
Four	1,504.80	4,299.43	6,270.00	

52.	Some consultation responses highlighted the potential challenges of this approach for making work pay and it was generally regarded as unhelpful. This concern would be escalated if other passported benefits were withdrawn at similar income levels. Moreover, if the threshold were applied equally to all households this would create an even bigger cliff edge for families with several children.

53.	Figures 3.3 and 3.4 illustrate the impact if a threshold is imposed at £6,000. Taking a worst case scenario, Figure 3.3 illustrates what could happen to a lone parent household with two children and housing costs when free school meals are withdrawn. Again, taking a worst case scenario, this parent would need to work for around an extra eleven hours per week at the National Minimum Wage to recover the lost eligibility for free school meals. A similar family with no housing costs would have to work only three extra hours to recoup the difference. 

UC aims to ensure that households gain from each extra pound earned. Withdrawing entitlement at a fixed income/threshold would have a disastrous effect on work incentives and family budgets by creating a cliff-edge which could result in families losing money if their income rose beyond this point. Under UC, unlike the current system, there will be no tax credits or equivalent to compensate for the loss of free school meals.

[Joint response on Free School Meals, July 2011]

Figure 3.3 Income threshold for free school meals – lone parent household with two children and housing costs

   Total net income (including  
   Universal Credit plus free school meals)

   Total net income (including  
    Universal Credit)

54.	Figure 3.4 shows the effect on a household comprising a couple with two children and housing costs where one parent is working full-time at the average wage when free school meals are withdrawn at an income threshold of £6,000. This household would need to work for around an extra seven hours per week to recover the loss.

Figure 3.4 Income threshold for free school meals – couple household with two children and housing costs

    Total net income (including  
   Universal Credit plus free school meals)

   Total net income (including  
    Universal Credit)

55.	We have looked again at the two illustrative case studies that we used in Chapter 2 to demonstrate the cliff-edge faced by people when they move into part-time work on the minimum wage and subsequently lose most of their passported benefits under the current system. 

56.	The figures for the passported benefits are based on hypothetical thresholds under UC. For all education benefits we have assumed a threshold for withdrawal at £6,000, and for all other Passported benefits we have assumed a threshold for withdrawal at £16,000. This is therefore simply an illustration and not based on actual UC assumptions. Free school meals calculations are based on the average value of free school meals in 2011/12. The Universal Credit Hypothetical Household Model was designed by DWP to compare the amounts that benefits households can receive under the current benefit system with the amounts they will be able to receive under Universal Credit. The model is based on 2014-15 benefit rates and therefore includes the impact of the Spending Review 2010. Outputs can be based on either 2011 or 2014 prices. Therefore, the benefit rates will never be identical to the actual 2011-12 benefit rates; the outputs merely show 2014-15 benefit rates in 2011 or 2014 prices. This is so that UC can easily be compared to the current benefit system. Under UC, the cliff-edge is lessened, although imposing income thresholds on passported benefits still imposes some cliff-edges.

Miss Smith – illustrative example

Miss Smith is a lone parent with two children aged 11 and 6

Her situation now:
When she is out of work under the current system she receives £304.70 a week from benefits (including Council Tax Benefit), plus passported benefits to the cashed-up value of £42.57 a week, giving her a total income of £347.27. When she takes a part-time job (16 hours a week) at the NMW she brings in £384.60 a week but immediately loses most of her passported benefits. Her gains to work are just £43.06 a week.

Her situation under UC:
Under UC, when she is out of work Miss Smith will receive a UC payment of £291.86 (see Table 3.2) and passported benefits to the cashed up value of £42.57. She will also receive Council Tax Benefit (not included in UC).

When Miss Smith gets a part-time job (16 hours a week) at the NMW her income will be £365.27 (excluding Council Tax Benefit) and she retains all her passported benefits. Her gains to work will be £73.41. 

Table 3.2 Miss Smith’s weekly income on benefits (except Council Tax Benefit) and in part-time work under UC 
Income from work and benefit	Out of work value £ per week	In part-time work value £ per week	
Gross income from work	0.00	97.28	
UC Standard Allowance	67.81	236.28	
Housing element	80.00		
Child element	112.34	31.71	
Child benefit	31.71		
Total	291.86	365.27	
Passported benefits	42.57	42.57	
Total weekly income	334.43	407.84	

57.	Under UC, Miss Smith would have gains to work of £73.41 if she works part-time at the minimum wage. If the school meals are withdrawn at an income threshold of £6,000, Miss Smith will lose her eligibility for these when she increases her work to 19 hours a week at the National Minimum Wage and would need to earn a gross income of £116 a week to recover the loss. If free prescriptions were to be withdrawn at an income threshold of around £16,000 per annum, Miss Smith could work 51 hours a week at the National Minimum Wage before she would lose these as a passported benefit.

Mr and Mrs Jones – illustrative example 

Mr and Mrs Jones have three children aged 11, 5 and 2. 

Their situation now:
When they are both out of work, they receive £405.60 per week (which includes Council Tax Benefit and passported benefits to the cashed-up value of £40.91 per week).

When Mr Jones takes a part-time job at the National Minimum Wage, his weekly income increases to £486.83 per week but he loses most of his passported benefits. As a result his gains to work are £40.32.

Their situation under UC:
With both parents out of work, the Jones family’s weekly income will be £394.43 (excluding Council Tax Benefit) and passported benefits to the cashed-up value of £40.91, giving them a total weekly income of £435.34 (Table 3.3).

When Mr Jones takes a part-time job, working 24 hours a week at the National Minimum Wage, the family’s new weekly income will be £483.68 (excluding Council Tax Benefit). They lose most of their passported benefits to the value of £27.70 a week, retaining eligibility for dental care, eye care, the Warm Home Discount, WaterSure and BT Basic. Their gains to work are £61.55 a week.

Table 3.3 The Jones’ weekly income under UC and in part-time work
Income from work and benefit	Out of work value £ per week	In part-time work value £ per week	
Gross income 	0.00	145.92	
UC Standard Allowance	106.44	293.89	
Housing element	80.00		
Child element	163.68		
Child benefit	44.31	44.31	
Tax and NI	0.00	–0.44	
Total	394.43	483.68	
Passported benefits	40.91	13.21	
Total weekly income	435.34	496.89	

58.	Council Tax Benefit is excluded from all the calculations relating to UC as it is not included in the UC award. While both families might be better off under UC, an income threshold of £6,000 in respect of free school meals does in fact mean that there would be a cliff-edge at 19 hours for someone working at the National Minimum Wage. Given that the objective is to remove cliff-edges, these illustrative examples support the need to think more radically about how free school meals and their associated benefits might be managed under UC.

Ameliorating the potential disadvantages of an income threshold 

59.	What can be done to ameliorate the potential disadvantages? There were a number of proposals put forward during the review.

i)	Earnings Disregard Threshold

60.	Many consultation respondents criticised the income threshold approach because it fails to tailor the approach to household circumstances and the number of school-age children. One suggestion utilises the option of earnings disregards, which can be manipulated to be more or less generous. Such an approach has the advantage of being able to reflect household composition but still retains a substantial cliff-edge at a relatively low income threshold.

61.	There are also some concerns about fairness under an earnings disregard approach, due to the ways in which earnings disregards are calculated between different types of household. Respondents pointed out that neither of the threshold approaches addresses the core problem of making work pay as a result of the removal of all entitlement to free school meals at a particular income point.

ii)	Income Threshold with Run-ons 

62.	One way in which the impact of an income threshold can be smoothed is via a run-on period after the cut-off point has been reached. Eligibility would be extended for a fixed period in order to provide a financial cushion during which families can plan for the loss of the benefit. Moreover, a run-on might help to ameliorate some of the potential impacts of a Real Time IT system if claimants fall in and out of eligibility from month to month.

Pros and Cons of Allowing a Run-on

Pros:
•	avoids an immediate cliff-edge when the income threshold is reached and provides a period of grace to encourage families to continue with school meals
•	allows schools to plan school meal entitlement from term to term and avoid the possibility that children will drop out of school meals during the term
Cons:
•	the cost of providing a run-on within a cost-neutral budget might reduce the level of the income threshold – a trade-off which would need to be carefully examined since it could undermine the policy objective
•	if the income threshold is reached just before the end of the school year, there would need to be flexibility to allow a run-on to the following term, in order to avoid a sudden cliff-edge

63.	We note that some schools and local authorities have attempted to encourage the take-up of school meals by offering flexible meal deals. Some local authorities have offered meals for £1, and/or reductions for siblings or by year group and have recorded a positive impact on take-up. Local authorities could soften the cliff-edge once eligibility for free school meals is lost by offering subsidised meal deals, perhaps at the end of a run-on period.

iii)	Income Thresholds and Stepped Tapering

64.	It has been suggested during the review that concerns about income thresholds could be addressed by tapering the benefit. This approach would be based on a series of thresholds, at different income bands. Instead of all the meals being free, they could be available for part of a week or up to a certain value and parents could choose whether to pay for meals on the other days. 

65.	Figure 3.5 illustrates how a stepped taper might work under UC. The light grey line shows the value of UC and the dark grey line shows the value of UC including school meal entitlement. It illustrates how the school meal entitlement effectively tops up total income under UC which is then withdrawn along a stepped taper.
Figure 3.5 Stepped taper to withdraw free school meals under UC

66.	A number of concerns have been expressed about this option:
•	it is more complex for claimants to understand
•	it would be administratively complex for schools 
•	it does not necessarily meet the policy objectives of ensuring children in low-income families have a healthy meal at lunchtime
•	it creates several mini-cliff-edges
•	it might be difficult to implement with a run-on
•	it might mean that the income thresholds would have to be lower in order to meet the cost-neutral constraint
•	
Claimants might perceive a system of gradual withdrawal as fairer but it might also introduce less clarity, particularly if the system includes both passporting as we know it up to a point, and tapered withdrawal of a cash equivalent from that point onwards.

[Kirklees Council, Consultation response, July 2011]

it would introduce uncertainty into the school meal system and uncertainty for parents about which meals are provided free and to whom
67.	A variant on this approach was proposed during the review, whereby at a specified income threshold an additional credit is paid within UC but the passported benefit is no longer on offer. So, for example, in respect of school meals, at the income threshold the UC payment would rise by an amount for each school-age child (this could also apply to some health benefits, such as prescriptions for adults). It may be complex to administer and complex for claimants to understand how the income is calculated.

The way forward for school meals

68.	We have presented a range of options relating to the provision of school meals that emerged during the review, some delivering school meals as a benefit-in-kind and others as an element within UC. Cost constraints and the desire to protect the policy objectives for education and for welfare benefits will influence the ways in which options are assessed. Moreover, the policy responsibility for school meals rests with the devolved administrations and, in some instances, with local authorities, and this adds a further layer of complexity.

69.	We make no specific recommendations as to which options should be taken forward, but it may be possible in the longer term to consider more radical options that contribute to benefit simplification alongside the protection of all the policy objectives. This is particularly important because school meal entitlement is used to allocate the Pupil Premium as well as providing a passport to school clothing grants, the costs of residential school visits and the costs of travelling to and from school. A potential way forward that would support the policy objectives for school meals, whilst at the same time making work pay, is for parents to make claims for these additional passported benefits via the UC system on a monthly basis, as they will do for recovering childcare costs, although it would need to be delivered in a way that is not administratively burdensome for parents, or for such benefits to be included on a card payment scheme. We suggest that options for these other linked benefits are considered carefully as the various options for school meals are developed and modelled.

70.	It is also necessary to consider the potential impact of using entitlement to free school meals as an indicator of deprivation levels and as a passport to the payment of the Pupil Premium to schools. The tapered approach, for example, would raise a particular challenge for the indicators, as would monthly reporting by parents option if the cost of school meals were to be reclaimed via UC.

Health-Related Benefits

71.	As we have noted earlier in this chapter, there was considerable support during the review for the proposal that prescriptions should be provided free to everyone in receipt of UC or, indeed, for everyone irrespective of their financial means, just as they are currently in Northern Ireland, Scotland and Wales. Since we are aware that the Government do not regard these as realistic options in the current economic climate, we have considered other options that have been proposed. Nevertheless, we suspect that calls for more universal provision in England will continue as UC is introduced.

Cashing-up health benefits within UC

72.	Evidence from our review suggests that it would be difficult to cash up health-related passported benefits within UC. Indeed, it is probably neither feasible nor practical.

Difficulties with Cashing-up Health Benefits within UC

Key variables that need to be considered in decisions about integration of health benefits in a cashed-up system:
•	health costs are unpredictable: they may be sporadic and even if they are regularly incurred, they may vary in both cost and frequency of need 
•	it might be difficult to ensure that costs are adequately supported through a monthly UC payment, as health needs can arise suddenly and require immediate expenditure whereas UC can only be adjusted monthly
•	a cashed-up system could result in shortfalls between the amount of benefit paid and the cost of the item or service needed, particularly if the payment were averaged out across the years, it could also lead an overpayment

73.	Concerns were expressed about how the UC system would cope with someone needing specific treatment if they could not afford to pay for several prescription items, for example, and might need to delay taking much needed medicine. Some people would simply not seek the medical help they need. One option would be to provide health support via claims within UC, payable in arrears but this could present serious barriers for those on low incomes. Evidence presented to us indicates that some people choose not to have prescriptions dispensed because they simply cannot afford to pay for the items. Respondents could not see any advantages of a system which requires retrospective claims to be made for prescription charges, or of cashing them up and paying them as an element in UC.

If people had a small weekly amount of cash to replace e.g. free dental care, they would need to be very disciplined indeed to save that sum towards costs that would only arise once or twice a year. There could well be longer term health problems if this happened.

[Citizens Advice Wales, Consultation Response, July 2011]

The system of support needs to ensure that the person that is ill benefits directly from that support and that any financial support is structured to support access to medicines rather than the income of the household. As the welfare reforms bite, the most vulnerable will face very difficult choices about what to purchase with the money available.

[Kirklees Council, Consultation Response, July 2011]

We would have concerns that the money would be spent on more pressing and short-term needs, and that eye health would be neglected. We fear that this would inevitably lead to an increase in visual impairment.

[College of Optometrists and the Optical Confederation, Consultation Response, July 2011]

There is a significant cost benefit to the NHS of reducing emergency admissions and encouraging people to self-manage their medical conditions. Access to prescriptions free of charge can contribute to this objective and reduce levels of ill health overall among homeless people … The 37% of our clients who misuse drugs and the 34% who misuse alcohol would be particularly at risk if given potentially large amounts of cash intended for health goods and services … Having significant sums of money intended for benefits that support their wellbeing (for example, legal aid or dental treatment) could create a risk, for example, that they might be victims of crime or they might increase their use of substances.

[St Mungo’s, Consultation Response, July 2011]

There would be a temptation for claimants to use such payments to meet other needs which may seem more pressing at the time, especially as disabled people’s general costs of living are higher than for other citizens (e.g. for utility bills to manage home heating costs which can be higher for health reasons), and risk health conditions going untreated or undetected.

[Disability Benefits Consortium Joint Consultation Response, July 2011]

A contribution approach

74.	An alternative approach proposed to cashing-up, but linking health passported benefits to the UC, would be to pay health costs in full to all UC claimants, and those on higher incomes would contribute to health costs through UC. Such an approach essentially prioritises health costs above other needs as it reduces the total amount of UC going into the household. This is similar to the reduced earnings disregard model proposed for free school meals but linked specifically to UC payments rather than to the earnings disregard. The amount of the contribution could be based on income levels and could operate on an opt-out approach. It was suggested to us that this option would be the most responsive to changes in income levels and so keep claimants’ income as stable as possible, but it does involve the benefit being clawed back from the UC payment.

75.	We would suggest that all these options require further thought, and modelling their potential effectiveness and the impacts would be essential. The most likely approaches to be adopted in the short term mirror those we have discussed in respect of school meals, involving an income or earnings disregard threshold, or tapers. Although we refer principally to eligibility for prescriptions (in England only), the discussion is also relevant to the delivery of dental and optical care.

i)	Income Threshold for Health Passported Benefits

76.	If an income threshold approach is taken, then the simplest option is to determine an income threshold for health costs which reflects the ‘hooks’ currently provided by means-tested benefits. We do not suggest any specific income threshold and this is clearly a matter for the Department of Health and the devolved administrations. In order to consider the implications of this approach, solely for illustrative purposes, we have assumed a cut-off at around £16,000 p.a.

77.	Figure 3.6 illustrates the impact in a worst-case scenario of imposing a threshold for free prescriptions at £16,000 for a couple household with two children. In this hypothetical household, one parent is working full-time and the other is working part-time (16 hours), both at the National Minimum Wage. The main UC claimant in this household would need to work for around an additional two hours a week at the National Minimum Wage to recover the loss of free prescriptions (plus tax, national insurance and the UC taper).

Figure 3.6 Income threshold for free prescription costs – couple with two children

   Total net income (including  
   Universal Credit plus free prescriptions)

   Total net income (including  
    Universal Credit)

78.	Many of the pros and cons of taking an income threshold approach for health benefits are similar to those we have discussed in respect of school meals. Within health, however, there is scope to integrate the threshold with the Low Income Scheme that we described in Chapter 2. One submission we received suggested that an adaptation of the Low Income Scheme could provide a cushion for those above the income threshold who do not receive full support with health costs. Three options might be considered here if linking an income threshold to the Low Income Scheme were to be considered.

Linking Prescriptions to the Low Income Scheme – Option 1

1.	Keeping the Low Income Scheme as a separate entity, preferably without requiring UC claimants to make a separate application, ensuring that health benefits are not lost.

The advantages:
•	easily accommodates people who will not qualify for UC 
•	UC claimants will not have to make a separate application for support with their health costs
•	easy to fit within the devolved structure
•	reduces administration in respect of the Low Income Scheme

The disadvantages:
•	continuation of the two systems – associated risks
•	claimants still face having to pay significantly large one-off payments
•	data-sharing could create additional administrative time and costs, and risk delay and error

79.	Under Option 1, the Low Income Scheme would be available (as now) for people with low incomes, but no separate claim would be necessary for people receiving UC. Under Option 2, the Low Income Scheme is partially integrated with the administration of UC, offering a more seamless service for those who use it.

Linking Prescriptions to the Low Income Scheme – Option 2

2.	Partial integration of the Low Income Scheme with UC, whereby the administration of the scheme is managed within the UC system.

The advantages:
•	considerable administrative savings – UC claimants would not have to make a separate application
•	more responsive – via the Real Time IT system
•	less complex
•	easy to fit within the devolved structure

The disadvantages:
•	claimants still face having to pay significantly large one-off payments

Linking Prescriptions to the Low Income Scheme – Option 3

3.	Partial integration of the Low Income Scheme within UC, whereby claimant contributions are recovered by deductions from UC payments as income rises. The UC system would calculate the proportion of the charges that would need to be paid for by the claimant at different income levels. This would be recovered by deducting that amount from their UC payment – spread over a fixed number of months. The amount charged for each month would be dependent on income in that month.

The advantages:
•	responsive to income fluctuations
•	should avoid cliff-edges
•	considerable administrative savings – UC claimants would not have to make a separate application
•	no sudden upfront costs
•	only requires people to pay for what they need

The disadvantages:
•	claimants with fluctuating incomes will not know from the outset when payments will be recovered
•	deductions prioritise health costs over other outgoings – as recovered at source
•	challenge of how to recover payments once a claimant is no longer eligible for UC

80.	We noted in Chapter 2 that a number of respondents had commented that the Low Income Scheme is currently little known about, little understood and little used, so a closer relationship between passported benefits and the Low Income Scheme as under Option 3 would seem to be sensible and would ensure that more households with low incomes can benefit from the scheme, particularly when passporting is lost. It could also soften the cliff-edge when health passported benefits are withdrawn.

ii)	Earnings Disregard Threshold

81.	It would be possible to introduce an earnings disregard threshold instead of an income threshold, with similar pros and cons to an earnings disregard for school meals. Support for health costs (including all health passported benefits) could be provided as in the current system either up to the earnings disregard level or to multiples of the earnings disregard, which would be more generous.

82.	It is likely, however, that this approach would be administratively complex for delivery agents, such as retail pharmacists, opticians and dentists, who would need to verify eligibility, although entitlement could be established via the Real Time IT system and clearly identified on the UC Notification.

iii)	Health Costs Threshold and Run-Ons

83.	As for school meals, any cliff-edge resulting from a threshold approach could be smoothed by the option of a run-on period after eligibility for passported benefits has ceased. Currently, there is a 15 month entitlement period for health-related passported benefits provided via the tax credit certificate – a period designed to fit with the annual accounting system for tax credits. A somewhat shorter period of three to six months, for example, would soften the cliff-edge and enable savings to be made. The pros and cons of this approach were considered in respect of school meals and need to be considered carefully.

84.	We would suggest that if health-related passported benefits and education-related passported benefits are to be taken forward under UC with eligibility defined by income thresholds, it is very important that all the government departments involved work together to avoid implementing a single cliff-edge at which all these benefits are withdrawn. It will be important to ensure that the policy objectives of all the departments are protected and to consider the impact of any trade-offs that would be needed in order to stay within a cost-neutral budget. This point is also relevant to the devolved administrations.

iv)	Stepped Tapering of Health Passported benefits

85.	While it is possible to consider a tapered approach for health benefits, it would be difficult to envisage how this would work satisfactorily in respect of prescription charges. We understand that there may be concerns if people were required to pay part of the prescription charge, as that this could significantly increase complexity for everyone involved, particularly in terms of the administration.

v)	Prescription Pre-Payment Scheme

86.	Prescription Prepayment Certificates (PPCs) in England are available for anyone who is likely to incur substantial prescription costs over a particular period of time. Prepayment certificates which cover all prescription charges for three months or twelve months, at a cost of £29.10 and £104 respectively, may not be well known but they do offer a substantial savings for some patients. They do, of course, require a substantial up-front outlay and anyone purchasing a PPC would need to be certain that it would save them money. Budgeting loans could be made available for people to buy a Prepayment Certificate when they move into work.

87.	It was suggested during the review that under UC, health costs could be passported up to a certain income threshold, beyond which there could be one or more stepped tapers, based on income bands, at which the level of support for dental and optical support could be reduced progressively and prescription charges could be covered by an adaptation or expansion of the PPC scheme. The patient could purchase a certificate, at reduced cost, based on their income band or it could be provided by the NHS, and the costs recovered via the UC system (akin to a Budgeting Loan or Payment On Account system). The thresholds and the extent of the support provided would depend on the funding envelope available. 

88.	We anticipate that a stepped taper approach may not be achievable in the short term, however, as a number of factors need to be considered:
•	delivery of options
•	the impact of the Real Time IT system, with UC claimants potentially moving in and out of eligibility for free and subsidised elements of the scheme
•	potential financial transfers between the DWP and the Department of Health
•	how to ensure claimants understand the system
•	the extent to which this approach meets health policy objectives
•	the potential impact of mini-cliff-edges 
•	the costs associated with this approach
Looking to the future – providing health-related benefits

89.	One possible longer-term solution would be to harness innovative solutions via developing technologies, such as:
•	health cards
•	biometric fingerprinting
•	contactless technologies via mobile phones

90.	These options might offer the potential to integrate the provision of health-related benefits within UC. Eligibility could be established by the UC claim and then delivered via a card or fingerprint. One of the difficulties put to us during the review was the cost of providing the technology in pharmacies, dental clinics and at opticians to download the information. Nevertheless, if these implementation challenges could be overcome in the longer term, there could be considerable merit in considering technologies that could include a range of passported benefits, thus reducing administrative costs and reducing complexity for claimants. The current system makes it very difficult for claimants to be clear about their eligibility to receive health-related passported benefits and for providers to check eligibility. In this regard, the UC Notification is a key document.

However UC is manifested, it is essential those entitled to passported benefits have something simple and user friendly to show interested parties … it would make life easier for patients, contractors (including opticians,  dentists and pharmacies) if the patient could provide appropriate evidence there and then that they are entitled to make an NHS claim. It would save the NHS millions in fraudulent/mistaken claims.

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

As the UC system will hold all the relevant information about a client’s income, it would make sense if the client did not have to make a separate application for support with their health costs.

[Disability Benefits Consortium, Joint Consultation Response, July 2011]

91.	Decisions will need to be taken about which, if any, of the health benefits which are currently passported might be more closely integrated within UC. There are a number of options, however, which have the potential to simplify the current complex system but fall short of integration. Claimants are not always sure about eligibility and delivery agents cannot always verify information. If entitlement to health-related benefits could be calculated within the Real Time IT system, the relevant information could be included either on the UC Notification or some kind of health benefits entitlement card. Because of the current difficulties in demonstrating eligibility, the introduction of UC offers an ideal opportunity to consider far more innovative options.
 
92.	Many people are familiar with using cards, such as store cards, including those which are pre-paid (such as Oyster cards). It would seem opportune to develop the possibilities associated with cards and indeed with mobile telephone and Apps technologies, for use in the benefits system. We are aware that many companies are developing sophisticated approaches which are simple for people to use and enable a range of transactions to be undertaken easily.

93.	While these kinds of innovative options are being explored, evidence from the review suggests that it would be sensible in the short term at least to take the opportunity to review the Low Income Scheme and link it more closely to passported benefits and UC entitlement. It would also be possible to claim for travel costs and other one-off payments for healthcare via UC on a monthly basis. Indeed, a general travel costs recovery section for all passported benefits relating to education, health and access to justice could be included on the UC claim form, enabling people to claim for different benefits in one go and via one claims system.

Healthy Start vouchers and vitamins under UC

94.	The Healthy Start voucher scheme is much simpler and a lower-cost scheme than the health benefits discussed thus far. The financial value is relatively low and the benefit is time limited. Respondents who commented on these vouchers were keen to see the current system continue. The most straightforward approach in the short term is to determine a replacement income or earnings disregard threshold under UC. There are however some concerns about fairness under an earnings disregard scheme, due to the different ways in which earnings disregard are calculated between different types of household. As is the case for all other passported benefits, the threshold will need to be calculated to meet the object of cost-neutrality. This means that any extension of eligibility would result in the budget being spread more thinly. This has implications for the policy objectives.

95.	The cliff-edge associated with Healthy Start vouchers is relatively small, but to take account of this, a small run-on period could be considered, although there are inevitable cost implications of doing this. Cost-neutrality as an objective could result in a reduction in the threshold or reduction in the number of families who qualify for the benefit. This is an outcome which would have little support amongst respondents. Tapering could also be considered as a way of smoothing the cliff-edge but this option is probably impractical and cost-prohibitive. 

96.	While cashing-up the Healthy Start scheme would be perfectly possible within UC because the sums involved are predictable and time limited, many respondents were unhappy about simply providing cash rather than vouchers to purchase healthy food and vitamin supplements.

Our biggest concern is that cash benefits would not be translated into healthy food choices and formula milk for infants.

[NHS Greater Glasgow and Clyde, Consultation Response, July 2011]

Cash payments of passported benefits may pose specific problems for particular groups … To convert Healthy Start Vouchers into cash equivalents would prove a particular risk for people with a mental health problem.

[Disability Benefits Consortium, Consultation Response, July 2011]

97.	It seems probable, therefore, that Healthy Start will continue as a voucher-based benefit for the same groups as now, using a hook within UC to determine entitlement. It is important therefore to note the income replacement needed to compensate for the loss of Healthy Start vouchers when entitlement ceases and vouchers are withdrawn at a fixed income (Table 3.4). It makes the case for some period of run-on or for a tapered approach to withdrawal, but we realise that there would be cost implications, which could only be avoided if entitlement or the value of the vouchers was to be decreased.

Table 3.4 The rise in earnings needed to compensate for the loss of Healthy Start vouchers
Number of Children	£ Value of HSV	£ Gross Earnings (65%)	£ Gross Earnings (76%)	
Pregnancy	93.00	265.71	387.50	
Zero – One Year Old	322.00	920.00	1,341.67	
One – Four Year Old	161.00	460.00	670.83	
Two Children Two – Four Year Old	322.00	920.00	1,341.67	

98.	This table demonstrates the potential cliff-edge in much the same way as that faced when free school meals are withdrawn at a fixed income. 

Access to Justice Benefits

99.	In Chapter 2 we noted that passported benefits relating to access to justice tend to be used infrequently, if at all, by the majority of benefit claimants. Nevertheless, because of the sums of money involved, they are of extreme importance to those people who find themselves with a problem that requires legal intervention, or when a member of the family is sent to prison. 

Legal Aid

100.	A number of our respondents expressed concerns about the current proposals for reforms to the legal aid system in England and Wales, which will restrict the legal assistance available in the future in respect of civil matters. This will include employment issues, although debt and housing matters where someone’s home is a risk will remain eligible for legal aid support. The central concern expressed during our focus groups with CAB advisers was how benefits appeals might be handled in future. 

101.	The Government have indicated that they would expect the current system for accessing legal aid to be modified in some way. At the moment, in England and Wales an applicant for civil legal aid indicates that they are in receipt of a passported benefit and then the Legal Services Commission (LSC) checks this information via a secure mail link to Jobcentre Plus in Glasgow and validates. An application for criminal legal aid is verified by way of an IT interface to the DWP Customer Information System via the courts. 

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102.	The Ministry of Justice are taking statutory powers to amend the data gateway. This will allow civil and criminal legal aid applicants to have their entitlement checked against receipt of current passported benefits and under UC by way of an IT interface with the DWP. If a similar approach were to be used in future then the legal aid eligibility criteria would need to be flagged in some way within the UC database.

103.	In England and Wales there would appear to be two possible options since access to justice benefits do not lend themselves to a system of cashing-up within UC.

Options for Legal Aid

There are two possible options under UC:
1.	Applicants for legal aid indicate that they are in receipt of UC under the appropriate income threshold, and their eligibility for legal aid is checked in much the same way as now via a secure link to the UC information system.
2.	Applications for legal aid are dealt with separately via the LSC and the devolved administrations operating their own means-test and verification process, outwith the UC system.

104.	Irrespective of which option is preferred, there would need to be some consideration given to the potential work disincentives if legal aid is withdrawn in a way that would create a cliff-edge at a low income threshold. The sums involved in legal aid can be considerable. There may also be considerable cost implications for the LSC and the devolved administrations under option 2.

Remission of court fees

105.	Individuals wishing to apply for a fee remission complete a paper application form, submitting details of their financial circumstances. In order to be passported, the applicant produces an evidence letter from DWP which is no more than one month old or from HMRC (in respect of Working Tax Credit) which refers to the current financial year. Approximately 30 per cent of the UK adult population are eligible for full remission of fees via passporting. It would appear that a similar process could be employed under UC providing HMCTS prescribe the eligibility criteria in order to flag this within UC. The Real Time IT system will enable monthly updating of UC entitlement and the Notification can then be downloaded by applicants for submission for remission of court fees. Those UC claimants unable to access the Notification information via a computer will be able to request this for submission to HMCTS.

Options for Remission of Court Fees

There are two obvious options:
1.	The UC Notification which claimants will be able to download and print from the internet could be presented as evidence of eligibility for passporting, providing the relevant flag for an identified income threshold can be shown on it.
2.	HMCTS in England and Wales devises its own means-tests and verification process and administers its own applications for fee remission without recourse to the DWP information – there are obviously cost implications with this option.

Assisted Prison Visits Scheme

106.	The Prison Reform Trust argued in its consultation response that if people visiting prisoners and claiming support via the Assisted Prison Visits Scheme are going to be incentivised to find and maintain work, they must be able to expect that their income will not drop. In the Trust’s view, families should not have to make a choice between accessing a job and visiting a family member in prison. The Trust also hoped that families would not be asked to share sensitive information with different agencies. The cost of administering the scheme is currently borne by the MoJ and a hope was expressed that joint working with the DWP could be improved so that the information can be shared as appropriate and necessary once UC is introduced.

107.	There is no evidence to suggest that support with prison visiting should be cashed-up as such within UC, and reimbursement of costs of visits is expected to continue. However, administering the scheme from a central automated system could reduce administration time and costs, particularly if applications can be made via the internet, email or texting for those who have access to these modes of communication. There would appear to be two possible options for the future.

Options for the Assisted Prison Visits Scheme

There are two options:
1.	Applications for assistance are made as now and the MoJ work with the DWP to ensure that appropriate information is shared relating to recipients of UC, having agreed a flag to denote eligibility. 
2.	The administration of applications is via the online UC system and claims are made on a monthly basis alongside any other claims for reimbursement. This would require financial arrangements to be made between the DWP and MoJ, but would have the advantage that checks as to eligibility could be conducted seamlessly within the UC system. Reimbursement could then be made as part of the UC award in much the same way as childcare costs will be reimbursed.

108.	We understand that the National Offender Management Service (NOMS) is considering options for linking this assistance with UC. Eligibility would be linked to an income threshold or income bands which is shown on the UC Notification. An important issue will be the arrangement for data sharing between the DWP and NOMS. If an income band approach is taken, this would allow this benefit to be tapered in order to avoid a cliff-edge, and it is clearly an option worth modelling.

Utility-Related Benefits

109.	In determining possible options for the future for water, telephone and energy-related benefits we were not in a position to consider the plethora of social tariffs that are or will become available, or consult individually with all the companies providing them. We believe, however, that UC may offer advantages in terms of better co-ordination of these kinds of benefits and enable more effective targeting of low income households across the out-of-work/in-work divide.

110.	We note that responsibility for the administration of passported benefits related to energy and other utilities spans several government departments at the present time (DWP, DECC and DEFRA) and believe that there are opportunities to consider a more co-ordinated approach. With schemes varying across suppliers it is quite likely that a discount scheme being developed by individual water company, for example, may have more in common with schemes operated by one or more energy companies than it does with those of other water companies. A more coordinated approach may also have the advantage of allowing the range of social tariffs to be more closely aligned, thereby saving administrative costs if simple hooks could be identified within UC, without jeopardising the advantages afforded by more local determination based on local circumstances. WaterUK is establishing a group to: explore whether it is possible to agree a set of ‘hooks’ that would allow water companies to administer social tariffs effectively; identify a common menu of benefit eligibility information that could facilitate the design and implementation of social tariffs or other forms of assistance to vulnerable customers; and identify when and how often access to data would be needed by companies.

111.	Because social tariffs aim to support the most needy and the most vulnerable low-income households and because there is not an unlimited purse, UC should provide a welcome opportunity for better targeting.

112.	We have not discussed the option of cashing-up these kinds of benefits and including them in UC payments. None of our respondents proposed this as a viable or desirable option and these benefits are very different to those discussed above because they are funded by the utility companies, through a cross-subsidy from other customers, not out of taxation. Indeed, the view expressed was that these benefits should be treated as a reduction on bills, not as income.  

113.	Providers did, however, talk about the sensitivities associated with ensuring that reductions on tariffs are given to people who can benefit the most. Respondents told us that targeting the households in which people struggle to finance their energy costs is currently challenging, partly because energy prices and household incomes fluctuate. Central Government, therefore, has a role to play in helping suppliers to identify the core group of households and data matching is considered by the providers of social tariffs to be the most efficient and effective mechanism to ensure appropriate targeting and the identification of those who are eligible.

114.	The Fuel Poverty Advisory Group for England suggested that the use of eligibility for Cold Weather Payments could act as a proxy for accessing other types of assistance for those who are deemed to be fuel poor and living in the most vulnerable households. Nevertheless, data matching is a key consideration for the delivery of social tariffs and other schemes administered by a variety of providers who stressed the need for proactive information. Ideally, providers would be able to match their target groups via the data available from UC claimants, and we are aware that DECC and DEFRA are in discussions with DWP about this possibility. Rightly, all departments and the utility providers take data protection issues extremely seriously, and customer consent is an important factor in sharing personal data to enable passporting. It has been suggested to us that some kind of consent to share information for the purposes of passporting could be sought from claimants at the point of their claim for UC. 

Obtaining Consent to Share Claimant Information for Passporting

Obtaining consent from claimants at the point of claim for UC would:
•	enable more effective targeting of other benefits to in-work as well as out-of-work households
•	avoid repeated means-testing
•	reduce heavy administrative costs for providers
•	increase the uptake of social tariffs
•	increase the support for social tariffs given by other customers who subsidise reduced tariffs, because targeting would be better and administration costs lower

115.	Since the utility companies would want to ensure that social tariffs can be valid for one year before eligibility is re-checked, cliff-edges would be avoided at the point people move into work or up the income scale. Setting eligibility for a year substantially reduces administration complexity and costs – making schemes more acceptable to other customers who will need to subsidise them. It also protects customers whose income might fluctuate as a consequence of moving in and out of eligibility, and provides assurance that the support will not suddenly end. 
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116.	The UC Real Time database would render a checking system relatively straightforward in principle, avoiding the need for new claims or a stop-start pattern of eligibility. A universal consent to share information would also help suppliers such as BT, who currently ask customers for consent for BT to contact the DWP to verify an application for the BT Basic tariff. At the present time, the matching process appears to be relatively seamless and BT would want this to be replicated under UC. The introduction of UC could help simplify the process of identifying eligible customers providing that the relevant ‘flags’ as to eligibility within UC are agreed.

Options Going Forward for Utility-Related Benefits

Under UC these benefits are expected to remain as social tariff discounts for low-income and vulnerable customers.

To ensure simplicity within the system, appropriate targeting, maximum uptake and efficient administration, providers will need to:
•	determine eligibility criteria and ensure that these can be flagged for UC claimants
•	agree the core set of information needed to ensure seamless flows from UC on to the various social tariffs
•	agree appropriate mechanisms for matching customers via the UC Real Time information system, taking account of data protection requirements
•	co-ordinate eligibility and understand the implications of local determinations of tariffs
•	agree the duration of awards (which will almost certainly include run-ons to avoid cliff-edges)
•	develop effective operation models that simplify access to social tariffs/discounts

117.	It is clear that the various energy-related passported benefits might be more effectively targeted on the fuel poor rather than on people in a particular income bracket who are also considered vulnerable in other ways. This is because some of those currently eligible for the discounted energy tariffs may live in relatively energy-efficient homes, while others who are not eligible may incur higher energy bills through the lack of energy efficiency in their homes. This does require, however, an agreed definition of fuel poverty and a means of linking this to UC data. It might be possible to develop a household-level fuel poverty measure which does not require a professional surveyor to make an assessment and which would be simple enough to be used by the DWP and other benefits providers. 

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118.	We understand from experts in the field that the best way to achieve this would be to combine low income (via UC data) with a low SAP (Standard Assessment Procedure for Energy Rating of Dwellings). Since 2008, all dwellings rented to new tenants and every house sold require an Energy Performance Certificate (EPC), which is a SAP rating and is relatively easy to obtain online from the Domestic Register. This approach might usefully be explored further within Government. 

The Social Fund

119.	As we noted in Chapter 2, three elements of the Regulated Social Fund are also passported via means-tested benefits and tax credits – with additional rules relating to household circumstances. These are the only passported benefits in the review that are the responsibility of the DWP. Only a small number of respondents commented on these passported benefits, mostly focusing on the need for better targeting of Cold Weather Payments.

120.	We have considered: 
•	how these passported benefits might be delivered under UC
•	whether the DWP is the natural home for these benefits, or whether there might be advantages, including overall simplification of the UC system, to integrating them with other passported benefits and transferring responsibility to other government departments

121.	As with the passported benefits discussed above it is clear that for financial reasons and to ensure more effective targeting, the eligibility criteria for the Social Fund passported benefits are unlikely to be extended to all UC claimants. The potential approaches under UC are similar to the other passported benefits considered in the review. However, because these passported benefits are typically infrequent and for the most part of variable cost, it is unlikely that these would be candidates for cashing-up under UC. For the same reasons, an income threshold is unlikely to cause significant problems for potential work incentives. It will be for the DWP to model the costs of alternative thresholds and to consider how these might interact with the approaches being considered by the other government departments.

122.	While there is no obvious need to transfer responsibility for these passported benefits to other government departments, the Sure Start Maternity Grant and Cold Weather Payments might sit more naturally within the portfolios of the Department of Health and the Department of Energy and Climate Change respectively. For example, the resources transferred from Cold Weather Payments could be used to increase the support provided through the Warm Home Discount scheme. This would reduce complexity and ensure a more joined-up approach to these passported benefits.

There are those who work but are “fuel poor”, the Cold Weather Payment would be better directed to those who actually require it.

[Angela Noble (personal response), July 2011]

The narrow eligibility criteria leave many people on a low income without the support … The targeting for Cold Weather Payments could be reviewed along with the other energy benefits.

[Fuel Poverty Advisory Group, Consultation Response, July 2011]

Summary – Options Going Forward 

123.	Ensuring that passported benefits do not undermine the Government’s overall objectives of welfare reform and the policy objectives of individual passported benefits has been a major consideration in developing options for the future. At the same time, protecting the integrity of the policy objectives of individual passported benefits and enabling them to meet a variety of needs has been equally important. The preferred approaches, of many respondents, such as extending eligibility for some passported benefits to everyone receiving UC or removing passported benefits such as free school meals and prescriptions from the passporting system and rendering them universally available to all, would meet all these policy objectives, including simplification of the benefits system. 

124.	The problem with these options is their relative cost: they would require investment in order to deliver longer-term gains. Making work pay and protecting passported benefits in these ways requires generosity which is inevitably constrained by the current recession and stringent economic climate. Reducing the levels of support provided through existing passported benefits in order to spread the funding pot more thinly, on the other hand, would not be welcomed by anyone who contributed to the SSAC review. It was a commonly-held view that, while this would contain costs it would create dangerous gaps in service provision, and undermine the policy objectives for individual passported benefits. In doing so, it could also potentially undermine work incentives.

125.	We have noted the tensions and constraints imposed by cost-neutrality and are mindful of the submissions made to us that reduced support under UC could result in higher costs to the public purse at a later date. For example, if people on low incomes are obliged to make choices which include ceasing to take prescription medicine because of the high cost, this may lead to increased ill-health – which then reduces the chances of being economically active and increases the chances of needing to access acute medical services. There is evidence that this already happens in respect of those people with mental health problems who do not qualify for health-related passported benefits.

126.	Notwithstanding the current financial constraints, however, the introduction of UC offers a unique opportunity to address some of the complexities and anomalies in the current system and develop a fairer system of support with enhanced take-up. Several respondents argued that the success of any options for change should be judged on their ability to meet genuine need and not just on their ability to simplify the system in a cost-neutral manner. 

127.	We recognise, however, that government departments administering passported benefits are feeling constrained by the need to develop cost-neutral options. This was particularly evident in our conversations with officials from the Department of Health who are also grappling with the huge agenda for change in the NHS within tight budgets. Creative options for health-related passported benefits have been ruled out at the present time, although we suggest that these should be reconsidered as UC is rolled out, with a view to making more radical changes in the longer term. 

128.	Everyone we spoke to also pointed out that the transition to UC would mean that providers of passported benefits would incur additional costs at the point of change: including the costs of new information leaflets, new training materials, information and awareness activities, adaptations to IT systems and increased demand for help and advice. These transitional activities will impact on the funding available for delivering the actual benefits themselves, particularly during the period 2013-2017 when both the legacy and UC systems will be in operation. There was, therefore, a plea to reduce complexity and look for more cost-effective options that offer savings in administration costs. This could be achieved via UC if the database allows for a single claim and assessment process which in turn could reduce the costs associated with error and fraudulent claims. Using the UC system to trigger passported benefits and provide flags/hooks which signal entitlement; to make claims (for a range of transport costs, for example) on-line as part of the monthly update; and to record changes of circumstances could reduce administrative costs, both for claimants and for providers. Data matching and data-sharing are of critical importance and a matter at the top of most providers’ agendas for change and improvement.

129.	It is important from the Government point of view that expenditure on passported benefits is predictable, and that spend can be controlled (via DEL) and offers value for money. There will be no additional money available in the current Spending Review period: therefore, if there is an increase in take-up of any passported benefits administered by government departments, the department concerned will need to fund the additional costs. Transparency and accountability for public funding are key criteria in determining cost-neutral options. 

Short-term options

130.	In this chapter, we have discussed a range of options which appear to be realistic in the short term and indicated where we believe longer-term solutions might lie. Any radical change to the system of passporting will take time, but a stepped approach should enable simplification and better targeting from 2013 onwards. 

131.	There are multiple options on the table in respect of some passported benefits, notably for education-related and health benefits, and a few options to choose from in respect of the access to justice and utilities passported benefits. In many ways, the way forward for these latter two categories is more straightforward, and is centred on a simplification of existing approaches, providing that a sensible solution can be found to ensure data matching, with reduced administrative costs for claimants and providers alike. The delivery options for the other two categories (education and health) will need to be considered alongside the quest for simplicity and cost-neutrality in order to ensure that work incentives and other policy objectives are not undermined. 

132.	In the final chapter we put forward some guiding principles which we believe will provide a framework within which to assess, evaluate and model the various options outlined above.