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A SURVEY OF THE UK BENEFIT SYSTEM

Peter Levell
Richard May
Cormac O'Dea
David Phillips

THE INSTITUTE FOR FISCAL STUDIES


Briefing Note No. 13

A Survey of the UK Benefit System

UpdatedbyPeterLevell,RichardMay,CormacODeaandDavidPhillips
December2009

InstituteforFiscalStudies

Acknowledgements
ThisBriefingNoteisarevisionofearlierversionsbyClaireCrawford,CarlEmmerson,Greg
Kaplan, Andrew Leicester, Cormac ODea, Jonathan Shaw, Luke Sibieta, David Phillips and
AlexeiVink.Aversionbytheoriginalauthors,CarlEmmersonandAndrewLeicester,canbe
downloadedfromhttp://www.ifs.org.uk/bns/benefitsurvey01.pdf.Thepaperwasfundedby
the ESRC Centre for the Microeconomic Analysis of Public Policy at the Institute for Fiscal
Studies. The authors would like to thank Stuart Adam, Mike Brewer, Claire Crawford,
LorraineDearden,CarlEmmersonandMatthewWakefieldfortheirhelpandadviceduring
revisionofthisBriefingNote,andJudithPayneforcopyediting.Allremainingerrorsarethe
responsibilityoftheauthors.

*Addressesforcorrespondence:cormac_o@ifs.org.uk,david_p@ifs.org.uk

Institute for Fiscal Studies, 2009


Contents
1.

Introduction .................................................................................................. 3

2.

Government Spending on Social Security Benefits .................................. 4

3.

ADescriptionoftheCurrentBenefitSystem,200809 ................................... 8
3.1.BenefitsforFamilieswithChildren...............................................................................9
3.2.BenefitsforUnemployedPeople ................................................................................18
3.3.BenefitsforPeopleonLowIncomes ..........................................................................23
3.4.BenefitsforElderlyPeople ...........................................................................................33
3.5.BenefitsforSickandDisabledPeople ........................................................................41
3.6.BenefitsforBereavedPeople ......................................................................................53
TrendsinSocialSecuritySpending ................................................................. 56

4.

4.1.SocialSecuritySpending,194849to200708 .......................................................56
4.2.ChangesintheCompositionofSocialSecuritySpending ......................................58
4.3.MajorReformssince1948,andtheLikelyDirectionofFutureReforms ...........61
5.

Conclusions .................................................................................................. 70

AppendixA.BenefitExpenditurefrom194849to200708................................... 71
AppendixB.BenefitsAvailableOnlytoExistingClaimants ..................................... 72
AppendixC.TheSocialFund .................................................................................... 78
AppendixD.WarPensions ...................................................................................... 81

Institute for Fiscal Studies, 2009

1. Introduction
ThisBriefingNoteprovidesasurveyofthebenefitsysteminGreatBritain.1Webegin
in Section 2 with an overview of the current system, giving total expenditure on
socialsecurityandthecostofindividualbenefits.InSection3,welookcloselyatthe
presentsystem,examiningeachbenefitinturn.Benefitsarearrangedintosixbroad
categories based on the primary recipients: families with children, unemployed
people, those on low incomes, elderly people, sick and disabled people, and
bereaved people. Current benefit rates are for the financial year 200910,
expenditurefiguresareestimatesforthefinancialyear200708andclaimantdata
areforFebruary2009unlessotherwisenoted.Wheneverpossible,expenditureand
claimantfiguresrelatetoGreatBritain.
InSection4,welookathowthesystemhasevolvedtoitspresentstateandassess
howthepatternsofexpenditureonsocialsecurityhavechangedoverthepasthalf
century.Wealsopresentabrieflookaheadtohowthesystemmaychangeinthe
nearfuture,giventhecurrentsetofgovernmentproposals.
Furtherdetailsonbenefiteligibilityandinformationaboutrelevantlegalissuescan
be found in the Child Poverty Action Groups Welfare Benefits and Tax Credits
Handbook2009/2010.2Currentbenefitrates,numbersofclaimantsandexpenditure
figuresaregivenintheDepartmentforWorkandPensions(DWP)sAnnualReports
andtheannualpressreleasedetailingnewbenefitrates.3Inaddition,muchofthe
information contained herein can be found on the DWP website,
http://www.dwp.gov.uk. The Department of Social Security (forerunner to the DWP)
publications The Growth of Social Security and The Changing Welfare State: Social
SecuritySpendingcontainoverviewsofthetrendsseenoverthelast50years.4

1 NotethatthebenefitsysteminNorthernIrelandisidenticalbutismanagedbytheDepartmentforSocial
DevelopmentofNorthernIreland(DSDNI),whichdoesnotprovidecomparableindicesofclaimantsand
expenditure.
2 ChildPovertyActionGroup,WelfareBenefitsandTaxCreditsHandbook2009/2010,London,2009.
3 DepartmentforWorkandPensions,PressRelease,11December2008,
http://www.dwp.gov.uk/newsroom/pressreleases/2008/december2008/pens092111208.shtml.
4 DepartmentofSocialSecurity,TheGrowthofSocialSecurity,HMSO,London,1993;DepartmentofSocial
Security,TheChangingWelfareState:SocialSecuritySpending,London,2000,availablebyemailingarequest
toElectronicArchive@dwp.gsi.gov.uk.

Institute for Fiscal Studies, 2009

2. Government Spending on Social Security Benefits


In200708,about158billionwasspentonsocialsecuritybenefitsinGreatBritain.5
This amounts to approximately 2,580 for every man, woman and child in the
country, and represents 25.6 per cent of total government expenditure (11.4 per
cent of GDP). Expenditure on social security represents by far the largest single
function of government spending, the next largest being expenditure on health
(whichaccountsfor18.3percentoftotalexpenditure).6
Approximately30millionpeopleintheUKapproximatelyhalfthetotalpopulation
receiveincomefromatleastonesocialsecuritybenefit.Formeanstestedbenefits
such as Income Support, receipt of the benefit usually depends on the claimants
familyincome,togetherwiththeirfamilycircumstancesandpersonalcharacteristics.
For contributory benefits such as employment and support allowance, eligibility
usually depends on the claimant alone having paid sufficient National Insurance
contributions (NICs) during their lifetime. NICs are made by all employees and
employers where earnings are above 110 per week (known as the earnings
threshold), although the government usually treats those earning between 95
(known as the lower earnings limit, LEL) and 110 per week as though they were
makingcontributions.7Somebenefits,suchaschildbenefit,areneithercontributory
nor meanstested and are universally available to all people who meet some
qualificationcriteria.
Allbenefitsrequiresomeresidenceconditionstobemet(usuallythatthepersonbe
present and resident in the UK), although different degrees of residence are
requiredfordifferentbenefits.Byandlarge,peoplesubjecttoimmigrationcontrol
(i.e.peoplewhorequireleavetoenterortoremainintheUKbutwhodonothave
it) are unable to claim benefits. As the UK was a signatory to the 1951 UN
Convention on the Status of Refugees, refugees in the UK have the right to claim
certainbenefits,suchasIncomeSupport.However,theAsylumandImmigrationAct
1999 removed asylum seekers from mainstream benefit payments, and they now
havepaymentsadministeredbytheNationalAsylumSupportService.

5 AppendixAprovidesdetailsofgovernmentspendingonsocialsecurityfrom194849to200708.
6 Sources:Populationfiguresfromhttp://www.statistics.gov.uk/cci/nugget.asp?id=6,GDPfrom
http://www.hmtreasury.gov.uk/economic_data_and_tools/gdp_deflators/data_gdp_fig.cfmandgovernment
expenditure(includingbreakdownbyfunction)fromDepartmentforWorkandPensions,BenefitExpenditure
Tables,http://research.dwp.gov.uk/asd/asd4/medium_term.asp.Thequoted11.4percentiscalculatedbased
onanestimateofGBGDP,whilstsometaxcreditfiguresincludedhereareforUK;11.4percentistherefore
perhapsaslightoverestimate.Unfortunately,taxcreditexpenditureforGreatBritainonlyisnotreadily
available.
7 FormoreabouttheNationalInsurancesystem,seeS.AdamandJ.Browne,ASurveyoftheUKTaxSystem,IFS
BriefingNote9,London,2009,http://www.ifs.org.uk/bns/bn09.pdf.Entitlementconditionsforcontributory
benefitsarecomplexseeChildPovertyActionGroup,WelfareBenefitsandTaxCreditsHandbook2009/10,
London,2009.

Institute for Fiscal Studies, 2009

Table 2.1. GB expenditure and claimant figures for all benefits and tax credits, 200708

Expenditure(m)

Benefitsforfamilieswithchildren
Childbenefit(includingformeroneparentbenefit)
ChildTrustFund
Childtaxcredit
Statutorymaternitypay
Maternityallowance
Guardiansallowance
Educationmaintenanceallowance
Totalbenefitsforfamilieswithchildren
Benefitsforunemployedpeople
Incomebasedjobseekersallowance
Contributionbasedjobseekersallowanceand
unemploymentbenefit
NewDealprogrammes(YoungPeopleand25Plus)
Jobgrant
Totalbenefitsforunemployedpeople
Benefitsforpeopleonlowincomes
IncomeSupport
Workingtaxcredit
Housingbenefit
Discretionaryhousingpayments
Counciltaxbenefit
SocialFundpayments
Totalbenefitsforpeopleonlowincomes
Benefitsforelderlypeople
Basicretirementpension(contributory)
Basicretirementpension(noncontributory)
Earningsrelatedretirementpension
Pensioncredit
Retirementpensiontotal
Winterfuelpayments
Concessionarytelevisionlicences
Totalbenefitsforelderlypeople
Benefitsforsickanddisabledpeople
Statutorysickpay
Incapacitybenefit
Employmentandsupportallowance
Severedisablementallowance
Disabilitylivingallowance
Attendanceallowance
Carersallowance
IndependentLivingFunds
MotabilitySpecialisedVehicleFund
Industrialinjuriesbenefits
Warpensionsp
Totalbenefitsforsickanddisabledpeople
Benefitsforbereavedpeople
Widowsandbereavementbenefits
Industrialdeathbenefit
Totalbenefitsforbereavedpeople
Otherbenefits
Christmasbonus
Othersmallbenefits
Totalotherbenefits
TOTAL

Institute for Fiscal Studies, 2009

10,650c
c
168
e,f
13,700
1,469
247
2
597j
26,833

1,816k
427k
110
47
2,400

8,948
e,f
5,800
15,732
20
4,023
625
35,148

47,369
40
10,184
7,463
65,056
2,071
510
67,637

48
6,658
m
898
9,867
4,444
1,280
299
12
760n
1,014e,q
25,280

737
38
775

147
1
148
158,221

%oftotal
expenditure

b
Claimants

6.73%
0.11%
8.66%
0.93%
0.16%
0.00%
0.38%
16.96%

1.15%

7,529,700d
Notavailable
5,676,000g
Notavailableh
52,400
3,400i
609,000j

935,400

0.27%
0.07%
0.03%
1.52%

5.66%
3.67%
9.94%
0.01%
2.54%
0.40%
22.21%

29.94%
0.03%
6.44%
4.72%
41.12%
1.31%
0.32%
42.75%

0.03%
4.21%

0.57%
6.24%
2.81%
0.81%
0.19%
0.01%
0.48%
0.64%
15.98%

0.47%
0.02%
0.49%

0.09%
0.00%
0.09%
100

378,200
157,990
Notavailable

2,045,220
2,261,000l
4,403,980
Notavailable
5,428,230
12,034,100awards

12,226,260
26,300
Notavailable
2,723,610

12,123,000
3,993,000

Notavailable
2,221,890
175,810
243,200
3,043,990
1,578,640
502,500
21,440
NotAvailable
327,260o
190,745

60,720r
9,000

Notavailable
Notavailable

NotestoTable2.1
a
Figuresareestimatedoutturns.Outturnsandpercentagesmaynotsumexactlyduetorounding.
b
Detailsofsourcesandofthedateonwhichtheclaimantcountforeachbenefitwastakenaregiven
intherelevantpartofSection3ofthissurvey.
c
Source:HMRCsAccounts,availableathttp://www.hmrc.gov.uk/about/hmrcdepacct0708.pdf.
d
Numberoffamilies,covering13,298,000childrenintotal,inAugust2007.
e
UKexpenditure.
f
ThesefiguresaretakenfromHMRCsAccountsfor200708.Theyrepresentfinalentitlements
ratherthanpaymentsmade,andthusdonotincludeanyimpactofoverpayments.Totalpayments
madedifferfromfinalentitlementforworkingtaxcreditandchildtaxcreditby0.5billion;
however,adetailedsplitbetweenworkingtaxcreditandchildtaxcreditisnotavailable.Notethat,
unlikethefiguresforthenumberoffamilies(seenoteg),thesefiguresdonotincludepayments
madetofamiliesreceivingtheequivalentamountsviaoutofworkbenefits,whichareestimatedto
havetotalled1.7billionin200708(seefootnote12).Suchspendingisincludedwithinthe
relevantbenefits.
g
Numberoffamilies,covering10.1millionchildren,asatApril2009.Thisfigureincludesbothinwork
familiesreceivingthechildtaxcredit(4.3million)andoutofworkfamiliesreceivingthechildtax
creditortheequivalentamountviaoutofworkbenefits(1.4million).Source:HMRevenueand
Customs,ChildandWorkingTaxCreditsStatistics:April2009,
http://www.hmrc.gov.uk/stats/personaltaxcredits/cwtcapr09.pdf.
h
Dataarenolongercentrallycollatedforstatutorymaternitypay.
i
NumberoffamiliesasatDecember2008.FigurecourtesyofHMRevenueandCustoms.
j
ThesefiguresarethesumoffiguresfromEngland,WalesandScotlandfor200708andreferto
thosewhohavereceivedatleastonepaymentintheyear.Sources:EnglishfiguresfromLearning
andSkillsCouncil,AnnualReportandAccounts200708,availableat
http://www.lsc.gov.uk/aboutus/annualreport/annualreport0708/;WelshfiguresfromtheNational
AssemblyforWalesathttp://www.assemblywales.org/el_3__11
09__p1__fforwm_written_evidence_on_ema__e.pdf;ScottishfiguresfromtheScottish
Governmentathttp://www.scotland.gov.uk/Topics/Statistics/Browse/Lifelong
learning/PublicationEMA200708.
k
Thesefiguresareconsiderablyhigherfor200809(risingtoaforecast2.15billionforincome
basedJSAandto733millionforcontributionbasedJSA)owingtoalargeincreasein
unemployment.
l
Numberoffamilies(includingbothindividualsandcouples,regardlessofwhethertheyhave
children).
m
Expenditurefigurefor200809is140million(notincludedintotalfor200708),forecastonly.
n
Includesindustrialinjuriesdisablementbenefit,reducedearningsallowanceandretirement
allowance(seeSection3.5.8andAppendixB).Otherbenefitsnotincludedinthisfigurearethe
workerscompensationsupplementationschemeandthepneumoconiosis,byssinosisand
miscellaneousdiseasesbenefitscheme(bothpayabletopeoplewhocontractedcertainindustrial
illnessespriorto5July1948).Expenditureontheseschemesamountstoaround1million.
o
Figureisforindustrialinjuriesdisablementbenefitandreducedearningsallowance,asofDecember
2008;notethatmorethanoneassessmentmaybeawardedtoanindividual.Source:Department
forWorkandPensions,IndustrialInjuriesDisablementBenefitQuarterlyStatistics:December2008,
availableathttp://statistics.dwp.gov.uk/asd/iidb.asp.
p
Figuresincludebothwardisablementandwarwidow(er)spensions.
q
Source:
http://www.mod.uk/DefenceInternet/AboutDefence/CorporatePublications/AnnualReports/MODA
nnualReport0809/.
r
Thisfigureincludesclaimantsofbereavementallowanceandwidowedparentsallowance;
claimantsofthewarwidowspensionareincludedinthewarpensionsstatistics(seenotepabove).
Source: http://research.dwp.gov.uk/asd/asd4/medium_term.aspunlessstatedotherwiseinnotes.

Institute for Fiscal Studies, 2009

Figure 2.1. Expenditure by recipient as a percentage of total, 200708

Bereaved Others
0%
0%

SickandDisabled
16%

Families
17%
Unemployed
2%
Families
Unemployed
LowIncome
Elderly

LowIncome
22%

SickandDisabled
Widows
Others

Elderly
43%

Sources:AsforTable2.1,includingnotes.

Table2.1presentsabreakdownofestimatedexpenditureforeachbenefitfor2007
08 and a claimant count for February 2009,8 organised by primary recipient. The
categories are: families with children, unemployed people, those on low incomes,
elderly people, sick and disabled people, bereaved people, and others. Figure 2.1
also provides a breakdown for these groups. Retirement pensions are the most
expensivebenefit,accountingforjustover41percentoftotalexpenditure.Thetop
five benefits retirement pensions, housing benefit, child tax credit, child benefit
and disability living allowance together make up almost threequarters of total
expenditure. There are many other benefits on which total expenditure is quite
small.
NotethatalthoughmostofthefiguresinTable2.1relatetoGreatBritain,figuresfor
somebenefitswereonlyavailableonaUKbasis,e.g.childbenefit.However,since
totalNorthernIrelandbenefitexpenditureisonlyaround4billion,figuresforGreat
Britainwouldnotbesignificantlydifferentforthesebenefits.

8 February2009isthedateonwhichtheclaimantcountwastakeninmostcases.SeeSection3fordetailsof
exceptions.

Institute for Fiscal Studies, 2009

3. ADescriptionoftheCurrentBenefitSystem,200809
We look at the current system by dividing it into six major categories of primary
recipient:familieswithchildren,unemployedpeople,thoseonlowincomes,elderly
people,sickanddisabledpeople,andbereavedpeople.Eachsubsectionstartswitha
tablethatsummariseseverybenefitintermsofwhetheritistaxableornontaxable,
contributory or noncontributory, and whether or not receipt is meanstested. We
alsogivedetailsoftotalexpenditureandthetotalnumberofclaimants.
The Christmas bonus is the only national benefit not included in any of these
sections.Thisisaoneoffpaymentof10totherecipientsofcertainbenefitsinthe
weekbeginningthefirstMondayofDecember.Onlyonebonuscanbereceivedper
person, although in couples where both partners receive qualifying benefits, two
separate payments can be made. Total expenditure on the Christmas bonus was
estimated at around 153 million in 200708. Claimant figures are not readily
available.

Institute for Fiscal Studies, 2009

3.1.BenefitsforFamilieswithChildren

Benefit

3.1.1
3.1.2
3.1.3
3.1.4
3.1.5

Childbenefit
ChildTrustFund
Guardiansallowance
Childtaxcredit
Statutorymaternity,
paternityandadoptionpay
3.1.6 Maternityallowance
3.1.7 Childmaintenance
premium
3.1.8 Educationmaintenance
allowance

Claimants,asat Expenditure,
Feb.2009a
200708(m)b
7,529,700c
10,650d
Notavailable
168e
f
3,400
1.9
5,676,000g
13,700h
Notavailablei
1,469j

8
8
8
8
8

8
8
8
8
9

8
8
8
9
8

8
8

9
8

8
9

52,400
Notavailable

247
Notavailable

609,000k

597k

T=taxable,C=contributory,M=meanstested
a
Unlessotherwisespecified.
b
Estimated.
c
Numberoffamilies,covering13,298,000childrenintotal,inAugust2007.Source:HMRevenueand
Customs,ChildBenefitQuarterlyStatistics:August2007,
http://www.hmrc.gov.uk/stats/child_benefit/aug07.pdf.
d
UKexpenditure.Sinceonly3.4percentofchildrenbenefitingin2007werefromNorthernIreland
however,figuresforGreatBritainwouldnotbesignificantlydifferent.(Source:HMRevenueand
Customs,ChildBenefitQuarterlyStatistics:August2007,
http://www.hmrc.gov.uk/stats/child_benefit/aug07.pdf.)
e
ThisisanestimateofUKexpenditurefor200708fromHMRCsAccounts,availableat
http://www.hmrc.gov.uk/about/hmrcdepacct0708.pdf.
f
Numberoffamilies.FigureisasatDecember2008courtesyofHMRevenueandCustoms(currently
unpublished).
g
Numberoffamilies,covering10.1millionchildren,asatApril2009.Thisfigureincludesbothinwork
familiesreceivingthechildtaxcredit(4.26million)andoutofworkfamiliesreceivingthechildtax
creditortheequivalentamountviaoutofworkbenefits(1.42million).Source:HMRevenueand
Customs,ChildandWorkingTaxCreditsStatistics:April2009,
http://www.hmrc.gov.uk/stats/personaltaxcredits/cwtcapr09.pdf.
h
ThisfigureistakenfromHMRCsAccountsfor200708.Itrepresentsfinalentitlementsratherthan
paymentsmade,andthusdoesnotincludeanyimpactofoverpayments.Totalpaymentsmade
differfromfinalentitlementforworkingtaxcreditandchildtaxcreditby0.5billion;however,a
detailedsplitbetweenworkingtaxcreditandchildtaxcreditisnotavailable.Notethat,unlikethe
figureforthenumberoffamilies(seenoteg),thisfiguredoesnotincludepaymentsmadeto
familiesreceivingtheequivalentamountsviaoutofworkbenefits,whichareestimatedtohave
totalled1.7billionin200708.Suchspendingisincludedwithintherelevantbenefits.
i
Dataarenolongercentrallycollatedforstatutorymaternity,paternityoradoptionpay.
j
Figureisforstatutorymaternitypayonly.
k
ThesefiguresarethesumoffiguresfromEngland,ScotlandandWalesfor200708andreferto
thosewhohavereceivedatleastonepaymentintheyear.Source:EnglishfiguresfromLearningand
SkillsCouncil,AnnualReportandAccountsfor200708,
http://readingroom.lsc.gov.uk/lsc/National/natannualreport0708jul08.pdf.Welshfiguresfromthe
NationalAssemblyforWalesathttp://www.assemblywales.org/el_3__11
09__p1__fforwm_written_evidence_on_ema__e.pdf;ScottishfiguresfromtheScottish
Governmentathttp://www.scotland.gov.uk/Topics/Statistics/Browse/Lifelong
learning/PublicationEMA200708.
Institute for Fiscal Studies, 2009


3.1.1.ChildBenefit
Nontaxable,Noncontributory,Nonmeanstested
Just over 7.5 million families received child benefit (CB) in August 2007, covering
over13millionchildren.IntroducedinApril1977toreplacethefamilyallowanceand
the child tax allowance, CB has remained universal, payable to all families with
childrenregardlessofincome.Itispaidatahigherratefortheeldestoronlychild,
and then at a lowerrate for all subsequent children. For the purposesof receiving
CB,achildissomeoneundertheageof16,orunder19andinfulltimeeducation
ortraining.

Table3.1.1.Currentratesofchildbenefit,perweek
Eldestoronlychilda
Subsequentchildren(each)
a

20.00
13.20

Priorto6July1998,anadditionalpaymentfortheeldest(oronly)childwasavailabletolone
parents.Thishigherrateremainsavailabletoclaimantswhowereeligibletoreceiveitpriortothe
policychange(andwhoremainsotoday).

In200708,childbenefitisestimatedtohavecosttheexchequer10.65billion.
3.1.2.ChildTrustFund
Nontaxable,Noncontributory,Nonmeanstested
TheChildTrustFundwasproposedintheleaduptothe2001election,andthe2003
Budget announced that any child born after 1 September 2002 will receive an
account.TheChildTrustFundisdifferentfromtraditionalcashtransferpaymentsin
that it provides support in the form of a financial asset. More specifically, a Child
TrustFundisafinancialassetthatiscreatedforeachnewlybornchild,withaninitial
endowmentprovidedbythestate.Childrenwillbegivenaccesstothefundsatage
18andnorestrictionswillbeplacedonhowthematuredfundcanbeused.
Allchildrenreceiveanendowmentofatleast250,andthosefromfamilieswiththe
lowestincomesareeligiblefor500.Thefirstpaymentsbegantobedistributedin
April 2005. Children are eligible for the larger (500) initial endowment where
household income is not greater than the child tax credit threshold (16,040 in
200910).Atthechildsseventhbirthday,thestatewillmakeanadditionalpayment
into the fund. As with the initial endowment, the value of this second payment
dependsonincome,withthosewhosefamilieshaveincomeinexcessofthechildtax
credit threshold getting 250 and those whose family incomes are less than this
thresholdgetting500.

Institute for Fiscal Studies, 2009

10

SinceApril2007,childrenunderthecareoflocalauthoritieshavereceivedanextra
paymentof100peryear.FromApril2009,thechildrenofthosereceivingdisability
livingallowancehavebeenentitledtoanadditionalannualpaymentof100(those
receivingseveredisabilityallowancereceiveanextra200).
An HMRC consultation process9 is considering the possibility of further topup
paymentstobemadewhenchildrenreachsecondaryschoolage.Thisconsultation
isconsideringtheageatwhichpaymentscouldbemade,aswellasthegenerosity
andstructureofthepossiblepayments.
Familyandfriendsofthechildcanmakecontributionstotheaccountduringits18
yearterm,subjecttoalimitof1,200ayear.Inasimilarwaytothetaxreliefthat
applies to funds held in individual savings accounts (ISAs), there is no tax on any
interestorgainsaccruingtofundsinaChildTrustFund.
In 200708, the Child Trust Fund is estimated to have cost the exchequer
168million.
3.1.3.GuardiansAllowance
Nontaxable,Noncontributory,Nonmeanstested
Guardiansallowanceisabenefitpaidinadditiontochildbenefittofamiliesbringing
up a child or children whose parents have died. If only one parent has died,
guardiansallowancemaystillbepayableifthewhereaboutsoftheotherparentis
unknown. A stepparent does not count as a parent and so may be entitled to
receiveguardiansallowanceforraisingastepchildifbothnaturalparentshavedied.
Theclaimantneednotbethechildslegalguardian,butthechildmustbelivingwith
theclaimantortheclaimantmustbemakingcontributionsforthemaintenanceof
thechildofatleast14.10perweek.Adoptiveparentsofanorphanedchildcannot
claim.Therulesconcerningwhocountsasachildarethesameasforchildbenefit
(seeSection3.1.1).
In December 2008, 3,400 families were receiving guardians allowance, with
expenditureamountingtoanestimated1.9millionin200708.
Table3.1.2.Currentrateofguardiansallowance,perweek
Allchildren(each)

14.10

9 Informationathttp://www.hmtreasury.gov.uk/media/F/E/ctfbriefing_160305.pdf.

Institute for Fiscal Studies, 2009

11

3.1.4.ChildTaxCredit
Nontaxable,Noncontributory,Meanstested
The child tax credit (CTC) combines, into a single integrated benefit, support
previouslyprovidedbythechildrenstaxcredit,childcreditsintheworkingfamilies
tax credit,10 child additions to most nonmeanstested benefits,11 and the child
elements(i.e.childadditionsandfamilypremiums)ofIncomeSupportandincome
basedjobseekersallowance.12CTCispaidontopofchildbenefit(seeSection3.1.1)
anddirectlytothemaincarerinthefamily(aswiththechildcareelementofworking
taxcredit(WTC)seeSection3.3.2).
CTC is made up of a number of elements: a family element, a baby element (for
familieswithachildundertheageof1),achildelement,adisabledchildadditional
elementandaseverelydisabledchildsupplement(seeTable3.1.3).Entitlementto
CTCdoesnotdependonemploymentstatus,butdoesrequirethattheclaimantbe
responsibleforatleastonechildundertheageof16(oraged1619andinfulltime
education). As with WTC, certain changes in family circumstances (for example, a
single claimant becoming part of a couple, or vice versa) must be reported
immediatelytoHMRevenueandCustomsifpenaltiesaretobeavoided.
Table3.1.3.Currentratesofchildtaxcredit

perannum
Familyelement
545
Babyelement
545
Childelement(each)
2,235
Disabledchildadditionalelement(each)
2,670
Severelydisabledchildelement(each)
1,075

IncomebelowwhichmaximumCTCispayable
6,420
IncomebelowwhichmaximumpayableifnotentitledtoWTC
16,040
Firstwithdrawalrate
39%
Secondincomethreshold
50,000
Secondwithdrawalrate
1in15

perweek
10.45
10.45
42.86
51.21
20.62

123.12
307.62
39%
958.90
1in15

Note: Weeklynumbersarecalculatedbasedupontherebeing365/7weeksperyear.

10 Fordetailsofthese,seeS.AdamandJ.Browne,ASurveyoftheUKTaxSystem,IFSBriefingNote9,London,
2009,http://www.ifs.org.uk/bns/bn09.pdf.
11 Thesebenefitsarecarersallowance,incapacitybenefit,retirementpensionandwidowedparentsallowance.
Thereisalsonochildelementofthenewemploymentandsupportallowance(whichreplacesincapacity
benefitfornewclaimants).ThosewhohavechildrenandwhoclaimincomerelatedESAmustalsoclaimCTC.
12 FamiliesthathavebeenclaimingIncomeSupportorjobseekersallowancewiththesechildelementssince
beforeApril2004stillreceivetheseadditionsunlesstheyapplyforchildtaxcreditinstead.Thisispurelyfor
administrativereasonstheamountreceivedisthesamewhetherpaidthroughchildtaxcreditoradditions
tooutofworkbenefitsandthegovernmentintendseventuallytomigrateallthesefamiliesontochildtax
credit,butthedateforthismigrationhasbeencontinuallypostponedsinceApril2003becauseofcontinuing
uncertaintyastowhethertheITsystemoperatingtaxcreditswillbeabletocope.

Institute for Fiscal Studies, 2009

12

CTC and WTC are subject to a single means test operating at the family level.
Families with annual pretax income of 6,420 or less (16,040 for families eligible
onlyforCTC,i.e.notforWTC)areentitledtothemaximumCTCandWTCpayments
appropriate for their circumstances. Income from most other benefits (including
child benefit, housing benefit, disability living allowance and council tax benefit) is
not included in the CTCWTC calculation, while entitlement to Income Support,
incomebasedjobseekersallowanceorpensioncreditactsasanautomaticpassport
tomaximumCTC.(SeeSection3.3.2fordetailsofWTC.)
For annual family pretax income above 6,420, CTC and WTC awards are tapered
awayatarateof39percent.ThemainWTCentitlementiswithdrawnfirst,thenthe
childcareelementofWTC,andfinallythechildanddisabilityelementsofCTC.The
familyelementofCTC,however,isnotwithdrawnuntilannualfamilypretaxincome
exceeds 50,000, and even then only at a rate of 1 in 15. Both CTC and WTC are
refundable,meaningthattheyarepayableeveniftheiramountexceedsthefamilys
incometaxliability.
AswithWTC,CTCpassportsitsrecipientstoavarietyofotherbenefits,suchasfree
prescriptions,dentaltreatment,andsighttestsandglasses,providedannualfamily
income does not exceed 15,276. Free school meals are also available to those in
receiptofCTCwithannualpretaxfamilyincomeof16,040orless,i.e.thosewho
receivethemaximumamountofCTCbutarenotentitledtoWTC.
HM Revenue and Customs estimates that the total tax credit entitlement of
claimants in 200708 was 13.7 billion in CTC and 5.8 billion in WTC. However,
since their introduction, child and working tax credits have suffered from a major
problem of overpayments: many families have been paid more than their true
entitlementovertheyear,eitherbecauseofadministrativeerrorsorbecausefamily
circumstanceschangedtoreducetheirentitlement(e.g.incomerose)andHMRCdid
notfindoutearlyenough(ordidnotrespondquicklyenough)tomakethenecessary
reduction in payments for the rest of the year. Largely as a result of this, actual
spending on tax credits, at 20.0 billion in 200708,13 was significantly higher than
the 19.5 billion of total entitlements.14 A further 1.7 billion was paid in child
additionstooutofworkbenefits.
AsatApril2009,5.7millionfamilieswerereceivingCTC(ortheequivalentamountin
outofworkbenefits),ofwhich4.3millionwereinwork.

13 Thesplitinthis20.0billionbetweenchildtaxcreditandworkingtaxcreditisnotavailable.
14 Formoreontheoperationalproblemswithtaxcreditsandattemptstosolvethem,seeM.Brewer,Tax
credits:fixedorbeyondrepair?,inR.Chote,C.Emmerson,R.HarrisonandD.Miles(eds),TheIFSGreen
Budget:January2006,Commentary100,InstituteforFiscalStudies,London,2006,
http://www.ifs.org.uk/budgets/gb2006/06chap7.pdf.

Institute for Fiscal Studies, 2009

13

3.1.5.StatutoryMaternityPay,StatutoryPaternityPayandStatutoryAdoptionPay
Nontaxable,Contributory,Nonmeanstested
Statutorymaternitypay(SMP)isalegalminimumamountthatemployersmustpay
to their employees during maternity leave, although almost all the cost can be
recoupedfromthegovernment.Manywomenreceivemorethantheminimum,but
thisispaidforbyemployersandnotbythegovernment.Toclaim,thewomanmust
havebeenincontinuousemploymentwiththesameemployerforatleast26weeks
uptoandincludingthe15thweekbeforetheweekthebabyisdue.Shemusthave
earned at least the lower earnings limit for National Insurance contributions
(currently95perweek)onaverageduringtheeightweeksuptoandincludingthe
15thweekbeforetheweekinwhichthebabyisdue.ToclaimSMP,thewomanneed
notintendtoreturntowork.
Under new regulations set out by the Work and Families Act of 2006, for women
whosebabiesweredueonorafter1April2007,SMPcanbepaidforupto39weeks:
thefirstsixweekspaywillbeatahigherrate,andtheremaining33atalowerrate
(seeTable3.1.4).Priorto1April2007,SMPwaspayableforupto26weeks:forthe
firstsixweeks,atthehigherrate;fortheremaining20,atthelowerrate.Theperiod
ofpaymentcanbeginatanytimefromthe11thweekbeforethebabyisdueuntilthe
weekafterthebirthitself(tocoincidewithmaternityleave).
Government expenditure on SMP in 200708 is estimated to have been
approximately1.47billion.
Table3.1.4.Currentratesofstatutorymaternity,paternityandadoptionpay,
perweek
HigherrateofSMP
LowerrateofSMP,SPP,SAP

90%oftheclaimantsaverageweeklyearnings
Thelesserof123.06or90%ofaverageweeklyearnings

Statutorypaternitypay(SPP)andstatutoryadoptionpay(SAP)wereintroducedon6
April 2003. Both are legal minimum amounts that employers must pay to their
employeesduringpaternity/adoptionleave,andmostofthecostcanbereclaimed
from the government. SPP is usually paid to individuals whose partner has given
birth,butcanalsobepaidwhenachildisadopted.SAPcanonlybeclaimedbyone
parent(theothermaybeabletoclaimSPP).
TheeligibilityrequirementsforSPPandSAPareverysimilartothoseforSMP,except
that they include more stringent employment conditions. For SPP (birth), the
claimant must satisfy the 26week employment rule (see above), but must also be
continuouslyemployedbythesameemployerfromtheendofthe15thweekbefore
thechildisdueuntilthechildisborn.ForSPP(adoption)andSAP,theclaimantmust
have been continuously employed for at least 26 weeks ending the week in which
notification is received that a child has been matched for adoption. For SPP
Institute for Fiscal Studies, 2009

14

(adoption)only,employmentmustthencontinuewiththesameemployeruntilthe
childarrives.
BothSPPandSAParepayableatthelowerSMPrate.SPPisavailableforuptotwo
consecutive weeks between the date the child arrives and eight weeks after this
date.SAPisavailableforupto26weeks,startingnolaterthanwhenthechildarrives
andnoearlierthantwoweeksbeforehand.
ClaimantfiguresforSMP,SPPandSAP,andexpenditurefiguresforSPPandSAP,are
notrecordedcentrally.
3.1.6.MaternityAllowance
Nontaxable,Contributory,Nonmeanstested
Maternity allowance (MA) is payable to pregnant women who are unable to claim
statutory maternity pay. To be eligible for MA, claimants must satisfy both an
employment test and an earnings condition. To satisfy the employment test, the
claimant must have been employed or selfemployed (not necessarily continuously
or for the same employer) for at least 26 of the 66 weeks up to and including the
weekbeforethebabyisdue(knownastheemploymenttestperiod).Theearnings
conditionrequiresthataverageweeklyearningsinany13oftheprevious66weeks
areatleastequaltotheMAthresholdthatappliesatthestartoftheemployment
testperiod;theMAthresholdiscurrently30.00perweek.
MA (and SMP) claimants receiving certain meanstested benefits may also be
entitledtoreceiveaSureStartmaternitygrantfromtheregulatedSocialFund(see
Section3.3.6andAppendixCforfurtherdetails).
MAispayableforupto39weeks.Theperiodinwhichthiscanbeginisthesameas
forSMP,i.e.fromthe11thweekbeforethebabyisdueuntiltheweekafterthebirth
itself.Claimantsmaybeentitledtoanadditionalpaymentforadependentspouseor
other dependent adult who caresfor at leastone of their children, but this is only
availableifthedependantsearningsarenottoohigh.
InFebruary2009,52,400womenwerereceivingMA.Thetotalexpenditureforthe
year200708wasestimatedataround247million.
Table3.1.5.Currentratesofmaternityallowance,perweek
Standardrate

Thelesserof123.06or
90%ofaverageweeklyearnings
41.35

Adultdependant(payableforone)a
a

Increasesforchilddependantshave,since6April2003,beenreplacedbychildtaxcredit(CTC)for
allnewclaimants;however,existingclaimantsmaystillbeentitledtoclaimtheseadditionsviaMA
ratherthanCTC(seeAppendixB).

Institute for Fiscal Studies, 2009

15

3.1.7.ChildMaintenancePremium
Nontaxable,Noncontributory,Meanstested
The child maintenance premium (also known as the child maintenance disregard)
wasintroducedon3March2003asareplacementforthechildmaintenancebonus
(nowonlyavailabletoexistingclaimantsseeAppendixB).Individualsareeligibleif
they (or their partner) start or return to work, or increase hours worked or hourly
earnings,suchthattheyarenolongereligibleforIncomeSupport(seeSection3.3.1)
orincomebasedjobseekersallowance(seeSection3.2.1).
In order to reduce the disincentive to work induced by the withdrawal of means
testedbenefitsasincomeincreases,20ofweeklychildmaintenanceisdisregarded
in the calculation of eligibility for Income Support or incomebased jobseekers
allowance.Figuresonthenumberofclaimantsofchildmaintenancepremium,and
consequentbenefitexpenditure,arenotreadilyavailable.15
3.1.8.EducationMaintenanceAllowance
Nontaxable,Noncontributory,Meanstested
The education maintenance allowance (EMA) comprises a combination of weekly
andindividualbonuspaymentsforyoungpeoplefromlowincomefamilieswhostay
onfortwoyearsofacademicorvocationalschooling(ofatleast12hoursperweek)
beyond the schoolleaving age of 16. The programme was extended nationwide in
September 2004, following a pilot scheme in a number of areas. It is currently
available to anyone whose 16th birthday falls between 1 September 2007 and 31
August 2009, and whose family income is no more than 30,810 per year. Weekly
payments are made on the basis of attendance and vary according to the level of
familyincome.Bonuspaymentsof100aremadeinJanuaryandJulyofeachyearof
attendance,andOctoberinthesecondyear(assuming,ofcourse,thatthestudent
has returned to the programme). These payments are also conditional on meeting
targetssetbythestudentstutors.16
Table3.1.6.Ratesofeducationmaintenanceallowancefortheacademicyear
200910,perweek
Familyincome:

Upto20,817peryear
20,81825,521peryear
25,52230,810peryear

30
20
10

Note:Whencalculatingentitlementforthe200910academicyear,familyincomeforthe200809
financialyearisappliedtothesethresholds.

15 Informationontherecipientsofchildmaintenanceingeneralcanbefoundat
http://www.childmaintenance.org/.
16 Source:http://ema.direct.gov.uk/ema.html.

Institute for Fiscal Studies, 2009

16

Expenditure on EMA in 200708 is estimated to be around 597 million in Great


Britain.Therewereover540,000claimantsinEnglandin200708,31,190inWales
and37,815claimantsinScotland.

Institute for Fiscal Studies, 2009

17

3.2.BenefitsforUnemployedPeople

Benefit

Incomebased
jobseekersallowance
3.2.1
Contributionbased
jobseekersallowanced
3.2.2 Jobgrant
3.2.3 NewDealprogrammes

Claimants,asat
Feb.2009a

Expenditure,
200708(m)b

935,400c

1,816

378,200

427

Notavailable
157,990e

47
110f

8
8
9
n/a n/a n/a

T=taxable,C=contributory,M=meanstested
a
Unlessotherwisespecified.
b
Estimated.
c
Source:DepartmentforWorkandPensions,JobseekersAllowanceClaimantstabulationtool,
availableathttp://83.244.183.180/5pc/jsa_prim/tabtool_jsa_prim.html.
d
Figuresincludeunemploymentbenefit.
e
ThenumbersofindividualsparticipatingintheNewDealforYoungPeopleandtheNewDeal25
Pluswere101,080and56,910respectively,asatFebruary2009.Source:DepartmentforWorkand
Pensions,NewDealforYoungPeopleandNewDeal25plustabulationtool,availableat
http://research.dwp.gov.uk/asd/asd1/tabtools/tabtool_nd.asp.
f
ThisisthesumofexpenditureonNewDealforYoungPeopleallowances(54million)andNewDeal
25Plusallowances(56million).

3.2.1.JobseekersAllowance
Taxable,eitherContributoryorMeanstested
JobseekersAllowance(JSA)replacedunemploymentbenefitandIncomeSupportfor
unemployed people from 7 October 1996. There are two main types of JSA:
contributionbased JSA is paid to individuals who have satisfied the National
Insurancecontribution(NIC)conditions;incomebasedJSAispaidtoclaimantswho
satisfy a family incomebased means test (more details below).17 It is possible to
receivecontributionbasedJSAwithanincomebasedJSAtopup.
Toqualifyforeithertype,theclaimantmustbeunder60ifawomanorunder65ifa
man,18andmustnotbereceivingIncomeSupport.Inaddition,theclaimantmustnot
be working for 16 hours or more per week, and must be capable of starting work
immediatelyandofactivelytakingstepstofindajob,suchasattendinginterviews,
writing applications or seeking job information. They must also have a current
jobseekers agreement with Jobcentre Plus, which includes such information as
hoursavailableforwork,desiredjobandanystepsthattheclaimantiswillingtotake
tofindwork.Claimantsmustbepreparedtoworkforupto40hoursperweekand
haveareasonableprospectoffindingwork(i.e.notplacetoomanyrestrictionson
17 Athirdtypeofjobseekersallowance,jointclaimJSA,ispaidtomembersofjointclaimcouples.Itisvery
similartoincomebasedJSA.FiguresforincomebasedJSAincludejointclaimJSA.
18 AsofOctober2003,thoseaged6065mustclaimpensioncreditratherthanJSA.

Institute for Fiscal Studies, 2009

18

thetypeofworktheyarewillingtoundertake).Ifaclaimantrefusestotakeupajob
offerwithoutgoodreason,theymaybedeniedfurtherpaymentsofJSA.
Peopleaged1824whohavebeenunemployedandclaimingJSAforsixmonthsor
morearerequiredtoparticipateintheNewDealforYoungPeople;thoseaged25or
over must participate in the New Deal 25Plus programme if they have been
unemployedandclaimingJSAfor18months(seeSection3.2.3).
ContributionBasedJobseekersAllowance
ContributionbasedJSAcanbepaidforupto26weeks.Toclaimcontributionbased
JSA,theindividualmusthavepaidsufficientClass1NICsineachofthetwotaxyears
prior to the beginning of the year in which they sign on and claim benefit.19 The
individualmustnothaveearningsaboveaspecificlevel(seebelow).Iftheclaimant
qualifies, theycanreceive contributionbased JSA irrespective of savings, capital or
partnersearnings.
If the claimant has any earnings, 5 per week is disregarded (20 for some
occupations). Any income over this disregarded amount is deducted from the
contributionbased JSA penny for penny. Thus the most someone aged 25 or over
couldearnperweekandstillreceivecontributionbasedJSAis69.29(assumingthat
theyarenotinoneofthespecialoccupations).Forthosereceivinganoccupational
or personal pension, any amount below 50.00 per week does not affect
entitlement,regardlessofage.
In February 2008, 148,400 people were receiving contributionbased JSA, at an
estimatedcosttotheexchequerof427millionin200708.ByFebruary2009,this
figurehadincreasedto378,200claimants,andspendingover200809isforecastto
growto733million.
Table3.2.1.Currentratesofcontributionbasedjobseekersallowance,perweek
Ageofclaimant:

Under25
25orover

50.95
64.30

IncomeBasedJobseekersAllowance
ThosewhodonotqualifyforcontributionbasedJSAmaybeabletoreceiveincome
based JSA if they have sufficiently low income. Only one partner in a couple can
receiveincomebasedJSA,andthepartneroftheclaimantmustnotbeworkingfor
more than 24 hours per week (as described above, both forms of JSA require that
19 Formoreinformationaboutthecontributionconditionsthatmustbesatisfied,seeChildPovertyAction
Group,WelfareBenefitsandTaxCreditsHandbook2009/2010,London,2009,section31.4.

Institute for Fiscal Studies, 2009

19

theclaimantisnotworking16hoursormoreperweek).AsofMarch2001,couples
without children must claim JSA jointly. This means that both have to sign on and
meettheconditionsforbenefit.
Incomebased JSA works much like Income Support (see Section 3.3.1), topping up
income to a specified level (called the applicable amount), which is intended to
reflect the needs of the claimants family. The applicable amount is the sum of
personalallowances,premiumsandsomehousingcosts(primarilymortgageinterest
payments).TheamountallowedforeachisidenticaltothatforIncomeSupport(see
Table3.3.1).20Clearly,tobeeligible,theclaimantsincome(minusthesameearnings
disregards as for Income Support) must be less than their applicable amount.
IncomebasedJSAisonlypayableiftheclaimantscapitaldoesnotexceedaspecified
level. These capital limits are the same as for Income Support (see Section 3.3.1).
IncomebasedJSAispayableforaslongasthequalifyingconditionsaremet.
In February 2009, 935,400 awards of incomebased JSA were made, while
expenditure on the benefit is forecast to be 2.15 billion in 200809. Receipt of
incomebased JSA automatically entitles individuals to free school meals, health
benefits (including free prescriptions, dental treatment and sight tests), maximum
council tax benefit, maximum housing benefit and certain Social Fund payments
(includingtheSureStartmaternitygrantandfuneralpayments;seeAppendixC).
Table3.2.2.Currentratesofincomebasedjobseekersallowance,perweek

Personalallowancesingleperson:
Aged1624
Aged25orover
Personalallowancecouple:

a
b

Oneorbothaged1617
Bothaged18orover

50.95a
64.30

Variesb
100.95

Thisrateappliestoloneparentsagedunder18;loneparentsaged18oroverreceive64.30.
Ifbothmembersofthecoupleareunder18,therearetworates:50.95and76.90(payablein
specialcircumstances).Ifonlyoneisunder18,therearethreerates:50.95(iftheotheris1824),
64.30(iftheotheris25orover)and100.95(payableinspecialcircumstances).

3.2.2.JobGrant
Nontaxable,Noncontributory,Meanstested
Job grant is a oneoff, taxfree payment to individuals aged 25 or over who are
startingorreturningtofulltimework,21includingthosewhoobtainfulltimeworkas
partoftheNewDeal(seeSection3.2.3).Thepaymentis100inthecaseofsingle
peopleandcoupleswithoutchildrenand250forthosewithchildren.Tobeeligible,
20 DependentchildallowancescancurrentlystillbeclaimedunderincomebasedJSA(ratherthanchildtax
credit).Thisisduetotemporarytransitionalarrangements.
21 Fulltimeemploymentisdefinedas16hoursormoreperweek.

Institute for Fiscal Studies, 2009

20

the job must be expected to last for at least five weeks, and applicants must have
beenreceivingaqualifyingbenefitsuchasjobseekersallowance(seeSection3.2.1),
IncomeSupport(seeSection3.3.1),employmentandsupportallowance(seeSection
3.5.3)orseveredisablementallowance(seeAppendixB)fortheprevious26weeks.
In200708,approximately47millionwaspaidoutinjobgrants.
3.2.3.NewDealProgrammes
TheNewDealprogrammesaredesignedtohelpunemployedindividualsintowork.
Inthepast,therewerefourdistinctprogrammes:

TheNewDealforYoungPeople(forthoseaged1824)andtheNewDeal25Plus
(forthoseaged2549)werebothcompulsoryforclaimantsofJSAwhometthe
relevant criteria after a given amount of time receiving JSA (six months for the
Young People scheme, 18 months for 25Plus). They provided employment
subsidiesandtraininggrantstoemployerswhotookonpreviouslyunemployed
individuals.

The New Deal 50Plus was voluntary and only included a training grant (wage
topupswerealsoavailable,buthavesincebeenreplacedbythe50pluselement
ofworkingtaxcreditseeSection3.3.2).

TheNewDealforLoneParentswasalsovoluntary.Itofferedtraininggrantsand
childcareassistancetothosewhoqualified.

A report published in June 2004,22 however, advocated a much more flexible


approachtotheNewDeal.Underthenewsystem,participationremainscompulsory
for those aged 1824 after six months of receiving JSA, and for those aged 2549
after18months.Mandatoryparticipationafter18monthsisalsobeingconsidered
for those aged 5059 (subject to an evaluation of the impact of such an
undertaking).However,thereisnowtheoptiontoreceiveNewDealassistanceona
voluntary basis after six months receipt of JSA, as well as the opportunity for the
mostdisadvantagedindividualstoreceivespecialistassistanceassoonastheystart
claiming JSA. The help on offer to claimants is also more flexible, with a menu of
optionsavailable(includingeducation,voluntaryworkandsubsidisedpaidwork).For
the2549agerange,pilotschemesareadditionallybeingusedtotestamandatory
shortprogrammeofassistanceatthesixmonthmarkinordertoseewhetherthis
enablestheseindividualstomovebackintoworkmorerapidly.
The government is introducing a new scheme called the Flexible New Deal. This
currently operates in Wales and some parts of England and Scotland. Under the
scheme, claimants on jobseekers allowance for 12 months are referred to a
22 DepartmentforWorkandPensions,BuildingonNewDeal:LocalSolutionsMeetingIndividualNeeds,2004.

Institute for Fiscal Studies, 2009

21

specialistreturntoworkproviderfromthepublic,privateorvoluntarysector.Such
servicesarefundedonthebasisofresultsachieved.Thiswilleventuallyreplacethe
current New Deal for Young People, New Deal 25+ and Employment Zones23
programmes.
InFebruary2009,therewere157,990participantsinNewDealforYoungPeopleand
NewDeal25+,withanestimatedcosttotheexchequerin200708of110million.

23 Thisisaprogrammetohelpthelongtermunemployedbacktoworkincertaindeprivedareas.See
http://www.jobcentreplus.gov.uk/JCP/Customers/outofworkhelplookingforwork/Getting_job_ready/Progra
mmes_to_get_you_ready/014878.xml.html.

Institute for Fiscal Studies, 2009

22

3.3.BenefitsforPeopleonLowIncomes

AppendixC

3.3.1
3.3.2
3.3.3
3.3.4
3.3.5
3.3.6

Benefit

IncomeSupport
Workingtaxcredit
Housingbenefit
Counciltaxbenefit
Discretionaryhousingpayments
SocialFundpayments:
Regulated:
SureStartmaternitygrants
Coldweatherpayments
Funeralpayments
Discretionary:
Communitycaregrants
Budgetingloans
Crisisloans

8
8
8
8
8
8

8
8
8
8
8
8

9
9
9
9
9
9

Claimants,as
atFeb.2009a
2,045,220c
2,261,000d
4,403,980f
5,428,230f
Notavailable

262,600g
8,416,000g
40,500g

252,000g
1,098,000g
1,965,000g

Expenditure,
200708(m)b
8,948
5,800e
15,732
4,023
20

123
210
46

139
50
57

T=taxable,C=contributory,M=meanstested
a
Unlessotherwisespecified.
b
Estimated.
c
Source:DepartmentforWorkandPensions,IncomeSupporttabulationtool,availableat
http://83.244.183.180/100pc/is/tabtool_is.html.
d
Numberoffamilies(includingbothindividualsandcouples,regardlessofwhethertheyhave
children),asatApril2009.
e
ThisfigureistakenfromHMRCsAccountsfor200708,availableat
http://www.hmrc.gov.uk/about/hmrcdepacct0708.pdf.Itrepresentsfinalentitlementsratherthan
paymentsmade,andthusdoesnotincludeanyimpactofoverpayments.Totalpaymentsmade
exceededfinalentitlementforworkingtaxcreditandchildtaxcreditby0.5billion;however,a
detailedsplitbetweenworkingtaxcreditandchildtaxcreditisnotavailable.Thefigurerelatesto
UKratherthanGBexpenditure.
f
Source:DepartmentforWorkandPensions,FirstRelease:HousingBenefit&CouncilTaxBenefit
Statistics,August2009,http://research.dwp.gov.uk/asd/asd1/hb_ctb/FirstRelease_19082009.pdf.
ThesefiguresrefertoclaimantsinMay2009.
g
Numberofawardsmadein200809.Source:AnnualReportbytheSecretaryofStateforWorkand
PensionsontheSocialFund2008/09,http://www.dwp.gov.uk/docs/2009annualreportsocial
fund.pdf.

3.3.1.IncomeSupport
Nontaxable,Noncontributory,Meanstested
Income Support (IS) is a benefit paid to people on low incomes, although it is not
available to the unemployed (who may be able to claim jobseekers allowance) or
those in fulltime work24 (who may be able to claim working tax credit). IS is thus
24 Theclaimantmustworklessthan16hoursperweekandtheirpartnerlessthan24hoursperweek.

Institute for Fiscal Studies, 2009

23

mainly payable to lone parents and carers, disabled people, and those who are
incapableofwork(althoughsomeotherindividualsarealsoeligible).
Table3.3.1.CurrentratesofIncomeSupport,perweek
Personalallowancesingleperson:

50.95a
64.30

Aged1824
25orover

Personalallowancecouple:

Variesb
100.95

Oneorbothaged1617
Both18orover

Dependentchild allowance:

(each)

56.11

Family
Disabledchild(each)
Carer
Disability:single
Couple
Enhanceddisability:dchild(each)e
Single
couple
Severedisabilityf
Pensioner(couple)

17.30
51.24
29.50
27.50
39.15
20.65
13.40
19.30
52.85
97.50

Premiums:

Loneparentsaged1824receive64.30,thesamerateassinglepeopleaged25orover.
Ifbothareunder18,therearetwopossiblerates:50.95and76.90(iftheyhaveresponsibilityfor
achild).Ifonlyoneisunder18,theavailableratesare50.95,64.30and100.95.Theamount
payabledependsupontheageofeachpartnerandwhetheroneorbothwouldbeeligibleforIS(or
incomebasedJSA)weretheysingle.
c
AnindividualisclassedasachilduntiltheSeptemberfollowingtheir16thbirthday(oruntiltheir19th
birthdayiftheyareinfulltimeeducation).
d
Theenhanceddisabilitypremiumispayablewheretheclaimant(ortheirpartner)receivesthe
highestrateofdisabilitylivingallowance(care)andisaged60orbelow.
e
ThiselementofIScanonlybeclaimediftheclaimforIncomeSupportthatbeganbefore6April
2004includeddependentchildrenandtheclaimanthasnotyetbeenawardedchildtaxcredit.
f
Doubletheamountispayableifbothpartnersqualify.
b

Tobeeligible,theclaimantsfamilyincome(minusanyearningsdisregards)mustbe
less than their applicable amount. The applicable amount is the sum of basic
personalallowancesandpremiums(seeTable3.3.1)andhousingcosts.25Thelevelof
ISpayableistheamountneededtotopupfamilyincometotherelevantapplicable
amount.Since6October2003,pensioncredithasreplacedISformostpeopleaged
60 or over (see Section 3.4.3), although in a small number of cases pensioner
premiumsarestillpayableunderIS(forexample,whenaclaimantagedunder60has
apartneragedover60).Althoughallowancesandpremiumsrelatingtochildrenare
beingphasedout(tobereplacedbythechildtaxcreditseeSection3.1.4),families
25 Housingcostsincludeanallowanceformortgagerepaymentsontheclaimantshouse(uptoavalueof
100,000),butexcluderent(whichistakenaccountofinanyentitlementtohousingbenefit).Deductions
fromhousingcostsaremadefornondependantsinthesamewayasforhousingbenefit(seeSection3.3.3
andTable3.3.3).

Institute for Fiscal Studies, 2009

24

currentlyinreceiptofISmuststillclaimtherelevantchildallowancesviaIS(rather
thanCTC).26Thisalsoappliestothechildpremiumsforjobseekersallowance.
Somebenefitsarenotcountedasincome(e.g.attendanceallowance,disabilityliving
allowance27),andrecipientsofcertainbenefitsmayhaveupto20oftheirincome
disregardedfortheentitlementcalculation.ISisnotpayableiftheclaimantandthe
claimantspartnertogetherhavemorethan16,000capital.Capitalupto6,000is
ignored (10,000 for those in care homes).28 Between these two thresholds, IS
entitlementisreducedby1forevery250capitalexceedingthelowerthreshold.
Since October 2008, lone parents whose youngest child is over 12 have no longer
beenabletoclaimISsolelyonthegroundsofbeingaloneparent.InOctober2009,
thisagewasloweredto10,andthegovernmentintendstoreduceitto7byOctober
2010.29 They will, if eligible, be able to transfer to jobseekers allowance or other
benefits.
Lone parents who have been on IS or incomebased jobseekers allowance for at
leastayearareentitledtoa40perweek(60inLondon)InWorkCreditpayment
ontopofotherbenefitsandtaxcreditsiftheycommenceemploymentofmorethan
16 hours a week. Payment is made for 12 months, much like the returntowork
creditinPathwaystoWork(seenextsubsection).
InFebruary2009,2.05millionpeoplereceivedIS.Roughly56percentweredisabled
and 36 per cent were lone parents. Total expenditure on IS for 200708 was
estimatedtobe8,948million.ReceiptofISautomaticallyentitlesindividualstofree
school meals, health benefits (including free prescriptions, dental treatment and
sight tests), maximum council tax benefit, maximum housing benefit and certain
Social Fund payments (including the Sure Start maternity grant and funeral
payments;seeAppendixCforfurtherdetails).
Income Support on grounds of incapacity was replaced by the employment and
supportallowancefornewclaimantsinOctober2008(seeSection3.5.3).
PathwaystoWork
ThisschemeprovidesfinancialincentivesforclaimantsofIS,incapacitybenefit,and
employmentandsupportallowancetoreturntowork,withareturntoworkcredit
of40perweekifearningsarebelow15,000forthefirstyearofemploymentafter
comingoffbenefits.

26 Thereisatemporarytransitionalarrangementinplaceforadministrativereasons.
27 Childbenefitisalsodisregardedforthoseinreceiptofchildtaxcredit.
28 Noneofthesethresholdsincludesthevalueofowneroccupiedproperty.
29 Source:TransformingBritainsLabourMarket:TenYearsoftheNewDeal,January2008.

Institute for Fiscal Studies, 2009

25

WorkFocusedInterviews

In 2001, the government began introducing compulsory workfocused interviews


(WFIs)forallnewclaimantsofcertainbenefits.IncomeSupportisonesuchbenefit.
Thismeansthattheclaimant(andtheirpartnerinsomecases,includingpartnersof
ISrecipients)mustattendinterviews(theideaofwhichistohelpandencourageyou
to keep in contact with the employment market and eventually begin fulltime
work30) at trigger points (i.e. when certain criteria are met) as a condition of
continuing benefit receipt. These interviews are compulsory for all claimants of IS,
employment and support allowance (see Section 3.5.3), carers allowance (see
Section3.5.6)andbereavementbenefits(seeSection3.6),betweentheagesof18
and60.31Additionally,iftheapplicantisclaimingonthebasisofincapacityforwork,
thenparticipationinmorefrequentWFIsisalsocompulsoryaspartofthePathways
toWorkscheme.
3.3.2.WorkingTaxCredit
Nontaxable,Noncontributory,Meanstested
Workingtaxcredit(WTC)hasbeenavailablesince6April2003andprovidesinwork
support for lowpaid working adults. It replaced the adult and childcarecost
elements of the working families tax credit, disabled persons tax credit and the
New Deal 50Plus employment credit, and extended inwork support to cover
households without children. Since WTC is a tax credit, it is administered by HM
Revenue and Customs. Under international accounting conventions, tax credits are
counted as negative taxation to the extent that they are less than the income tax
liabilityofthefamilyandasgovernmentexpenditureforpaymentsexceedingthetax
liability.32Forourpurposes,however,wecountalltaxcreditexpenditureasifitwere
publicspending.
Familieswithchildren,andworkerswithadisability,areeligibleforWTCprovidedat
leastoneadultworks16ormorehoursperweek.Workerswithnochildrenandno
disabilityareonlyeligibleiftheyareaged25oroverandworkatleast30hoursper
week.
WTC is made up of a number of components (see Table 3.3.2). There is a basic
element, with an extra payment for couples and lone parents (i.e. for everyone
exceptchildlesssinglepeople),aswellasanadditionalpaymentforthoseworkingat
least 30 hours per week (30 hours in total for couples). WTC also includes
supplementarypaymentsfordisability,severedisabilityandthoseover50returning
30 Source:Page997ofChildPovertyActionGroup,WelfareBenefitsandTaxCreditsHandbook2009/2010,
London,2009.
31 Ingovernmentissuedguidelines,severedisablementallowance(SDA)isalsoincludedinthelistofbenefitsfor
whichnewclaimantsareobligedtoattendWFIs;however,SDAisnolongeravailabletonewclaimants(see
AppendixB);henceitsinclusionundertheWFIschememaybemisleading.
32 Formoreinformation,seehttp://www.hmrc.gov.uk/stats/announcepage_1.htm.

Institute for Fiscal Studies, 2009

26

to work. Severe disability supplements are payable where the recipient or their
partnerreceivesthehighestrateofthecarecomponentofdisabilitylivingallowance
(seeSection3.5.4)orthehigherrateofattendanceallowance(seeSection3.5.5).
Table3.3.2.Currentratesofworkingtaxcredit

Basicelement
Coupleandloneparentelement
30hourelement
Childcareelementa

Onechild
Twoormorechildren

Disabledworkerelement
Severedisabilityelement
50plusreturntoworkpayment(1629hours)
50plusreturntoworkpayment(30+hours)

IncomebelowwhichmaximumWTCispayable
Withdrawalrate

perannum
1,890
1,860
775

2,530
1,075
1,300
1,935

6,420
39%

perweek
36.25
35.67
14.86
175.00
300.00
48.52
20.62
24.93
37.11

123.12
39%

80percentofeligiblechildcarepaymentsarepayable(uptothemaximumshown).
Note: Weeklynumbersarecalculatedbasedupontherebeing365/7weeksperyear.

ThemaximumamountofWTCpayableiscalculatedbyaddingtogetherallapplicable
elements. Claimants are automatically entitled to the maximum amount of WTC if
theyreceiveIncomeSupport,incomebasedjobseekersallowanceorpensioncredit,
althoughitshouldbenotedthattherearefewsituationsinwhichbothWTCandIS
orJSAcanbeclaimed(duetotheworkingrestrictionsplacedoneligibilityforISand
JSA).WTCalsocountsfullyasincomeinpensioncreditcalculations.
WTC that either includes a disability element or is received with child tax credit
passports recipients to a number of health benefits, including free prescriptions,
dentaltreatment,andsighttestsandglasses,providedgrossannualincomedoesnot
exceed15,276.
ThechildcareelementofWTCisavailabletoloneparentsworking16hoursormore
perweekandtocoupleswherebothpartnersworkfor16hoursormoreperweek
(orifoneisincapacitatedandthusunabletocareforchildrenandtheotherworks
for 16 hours or more per week). This element is payable until the September
followingthechilds15thbirthday(16thbirthdayfordisabledchildren),andcaremust
begivenbyapprovedproviderssuchasregisteredchildminders,nurseriesandafter
school clubs. The childcare component provides 80 per cent of eligible childcare
expenditureofupto175perweekforfamilieswithonechildor300forfamilies
withtwoormorechildren(i.e.upto140or240perweekrespectively).Unlikethe
rest of WTC, which is necessarily paid to the individual in fulltime work (or to the
Institute for Fiscal Studies, 2009
27

individualagreeduponbythecouplewherebothareinfulltimework),thechildcare
creditispaiddirectlytothemaincarer,aswithchildtaxcredit(seeSection3.1.4).
WTCissubjecttoajointmeanstestwithchildtaxcredit(seeSection3.1.4).ForWTC
claimsmadebeforethebeginningofataxyear,awardsapplytothewholeofthat
taxyear(i.e.6Aprilto5April).Forclaimsmadeafterthetaxyearhasbegun,awards
apply to the remainder of that tax year. In some instances, changes to personal
circumstances affect WTC entitlement, and HM Revenue and Customs must be
notifiedimmediately.Examplesincludeasingleclaimantbecomingpartofacouple
(or vice versa), or where childcare costs are reduced by 10 per week or more for
fourconsecutiveweeks.Otherchangestocircumstancescanbedisclosedeitherat
thetimethattheyoccurorattheendofthetaxyear,althoughthelattercoursemay
subsequentlyleadtoanecessaryrepaymentofoverpaidtaxcreditsifentitlementis
reduced.
InApril2009,approximately2.26millionfamilieswerereceivingWTC,1.8millionof
which were also receiving child tax credit (see Section 3.1.4). This means that
approximately20percentofWTCrecipientshadnodependentchildren.33For2007
08, expenditure on WTC, based on actual entitlement, is expected to be around
5.8billion(seeSection3.1.4formoredetailsoftheproblemofoverpayment).
3.3.3.HousingBenefit
Nontaxable,Noncontributory,Meanstested
Housingbenefit(HB)ispayabletofamilieswithlowincomeswhorenttheirhomes
(for families who own their own homes, mortgage interest payments may be met
through Income Support see Section 3.3.1). People on Income Support, income
based jobseekersallowance or the guaranteecreditelement of pension credit are
automaticallyentitledtothefulllevelofHB.Forotherclaimants,theamountofHB
payabledependsuponincomeinmuchthesamewayasforISorincomebasedJSA.
ThemaximumlevelofHBisequaltoeligiblerentminuspossibledeductionsmade
foranynondependantsbecausetheyareexpectedtocontributetowardstherent.
Anamountisdeductedforeachnondependantagedatleast18basedontheirgross
weekly income.34 Eligible rent is the weekly contractual rate of rent less ineligible
charges included in the rent (such as certain fuel charges, service charges for
washing, cleaning, etc., and water charges). However, eligible rent is capped at a
localreferencerent,therentofsuitablysizedaccommodationinthesamelocality.

33 Source:HMRevenueandCustoms,ChildandWorkingTaxCreditsStatistics:April2009,
http://www.hmrc.gov.uk/stats/personaltaxcredits/cwtcapr09.pdf.
34 Nodeductionsaremadeforanynondependantifeithertheclaimantortheclaimantspartnerisblind,or
receivesattendanceallowanceorthecarecomponentofdisabilitylivingallowance.Nodeductionsaremade
foranindividualnondependantwhenthenondependantisafulltimestudent,orunder25andonISor
incomebasedJSA,orinarangeofothersituations.Asingledeductionismadefornondependentcouples.

Institute for Fiscal Studies, 2009

28

Table3.3.3.Currentratesofhousingbenefit,perweek
Personalallowancesingleperson:

Under25
Aged2559
Aged6064
Aged65orover

Aged1659
Oneorbothaged6064
Oneorbothaged65+

Personalallowancecouple:

Dependentchildallowance:

(each)

50.95a
64.30
130.00
150.40

100.95b
198.45
225.00

56.11

Premiums:

17.30
27.80
22.20
32.70
51.24

Family
Familywithchildagedunder1
Loneparentd
Loneparentwithchildagedunder1d
Disabledchild(each)

Disability:dsingle
couple

27.50
39.15

Enhanceddisability:echild(each)
single
couple

20.65
13.40
19.30

Severedisabilityf
Carerf

52.85
29.50

Thisratedoesnotapplytoloneparentsaged1824.Theyreceive64.30,thesamerateassingle
peopleaged2559.
b
Ifbothareunder18,thisisreducedto76.90.
c
AnindividualisclassedasachilduntiltheSeptemberfollowingtheir16thbirthday(oruntiltheir19th
birthdayiftheyareinfulltimeeducation).
d
Onlyoneofthesepremiumscanbepaidatanyonetimetoanyoneclaimant(includingthelone
parentpremium,nowavailableonlytoexistingclaimants,furtherdetailsofwhichcanbefoundin
AppendixB).
e
Theenhanceddisabilitypremiumispayablewheretheclaimantorafamilymemberreceivesthe
highestrateofdisabilitylivingallowance(carecomponent)andisaged60orbelow.
f
Doubletheamountispayableifbothpartnersqualify.

The amount of HB actually received depends on the claimants household income


relative to the applicable amount and household capital. For HB, the applicable
amountisthesumofpersonalallowancesandpremiums(butnothousingcostsas
with IS and incomebased JSA). These allowances and premiums (set out in Table
3.3.3)aresimilartothoseforISandincomebasedJSA.Asof6October2003,those
aged 60 or over and not claiming IS or incomebased JSA are entitled to higher
personalallowances,buttheyarenolongereligibleforthepensionerpremium.This
isduetotheintroductionofpensioncredit(seeSection3.4.3).Ifincomeislessthan
Institute for Fiscal Studies, 2009

29

or equal to the sum of allowances and premiums, maximum HB is payable. When


incomeexceedsthislevel,thereisa65percenttaper(soHBentitlementisequalto
maximum HB minus 65 per cent of the amount by which income exceeds the
applicableamount).
SinceOctober2009,childbenefithasbeendisregardedinthecalculationofincome
forhousingbenefitandcounciltaxbenefit.
Some benefits are not counted as income (e.g. attendance allowance, the care
componentofdisabilitylivingallowance),andrecipientsofcertainbenefitsmayhave
up to 20 of their income disregarded for the entitlement calculation. Some
childcarecostscanalsobededucted(upto175perweekforonechild,or300for
two or more). If the claimant and their partner together have capital that exceeds
16,000,noHBisnormallypayable.Capitalofbetween6,000(10,000forthosein
residential care) and 16,000 is assumed to generate 1 of income per 250 of
capital. There is no capital limit for individuals receiving the guarantee credit
element of pension credit, and assumed income from capital for those aged 60 or
overis1forevery500.InNovember2009,thelowercapitallimitwillbeincreased
to10,000forallbeneficiariesover60.
Roughly 4.4 million people received HB in May 2009, of whom 69 per cent also
receivedIS,incomebasedJSA,incomerelatedemploymentandsupportallowance,
ortheguaranteecreditofpensioncredit(andwerethereforeentitledtomaximum
HB).35ExpenditureonHBin200708was15.7billion.
The government has recently introduced a reform of housing benefit, replacing it
with a local housing allowance (LHA) for private sector tenants. LHA was piloted
before it was introduced in April 2008. Initially, the key difference between the
previoussystemandLHAisthatthelatterwasbasedonlocalrentlevels,ratherthan
ontheclaimantsactualrent.Tenantswereabletokeepupto15perweekofany
difference between this local rent level and the rent they pay. This gave them an
incentivetokeeptheirrentdown,whereasbefore,marginalincreasesinrentwould
simplyresultinhigherHBpayments.
However, it was announced in the 2009 Budget36 that, in order to cut costs,
claimantswillnolongerbeabletoreceivemoreinLHAthantheypayinrent.This
reversesthecentralfeatureofLHA,meaningthatthenewsystemwillbe,ineffect,
nodifferentfromtheoldhousingbenefit.

35 Source:DepartmentforWorkandPensions,FirstRelease:HousingBenefit&CouncilTaxBenefitStatistics,
August2009,http://research.dwp.gov.uk/asd/asd1/hb_ctb/FirstRelease_19082009.pdf.
36 Availableathttp://www.hmtreasury.gov.uk/bud_bud09_index.htm.

Institute for Fiscal Studies, 2009

30

3.3.4.CouncilTaxBenefit
Nontaxable,Noncontributory,Meanstested
Council tax benefit (CTB) is payable to families with low incomes that are liable to
paycounciltaxonapropertyinwhichtheyareresident.Manyoftheconditionsfor
claiming are the same as those for housing benefit (see Section 3.3.3), including
those on capital thresholds, applicable amounts and premiums (although since
nobodyundertheageof18isliableforcounciltax,nobodyunder18canclaimCTB).
In addition, if the claimant is aged 60 or over, and neither the claimant nor their
partner receives income support or incomebased jobseekers allowance, then
different(moregenerous)rulesapply(seeSection3.4.3).
There is also an alternative benefit, known as the second adult rebate, which is
payableinsteadofsocalledmainCTBtopeoplewhohaveanadultlivingwiththem
whoisnotliableforcounciltaxandwhodoesnotpayrent.Claimantseligibleboth
forCTBandforthesecondadultrebatearepaidwhicheverisofhighervalue.Second
adultrebateisclaimedbyfarfewerpeoplethanmainCTBandwillbeignoredforthe
remainderofthissection.
PeopleonIS,incomebasedJSAortheguaranteeelementofthepensioncreditare
automaticallypassportedentitlementtomaximumCTB.MaximumCTBistheweekly
costofcounciltax,workedoutastheannualbilldividedbythenumberofdaysin
the year and multiplied by seven. If there is more than one person in the house
eligible to pay council tax, the maximum benefit is the share of the total bill that
eachbenefitunitiseligiblefor.So,forexample,iftherewereamarriedcoupleanda
thirdpersonalleligibletopaycounciltaxforagivenproperty,onememberofthe
couplewouldbeentitledtoclaimuptoatwothirdsshareoftheweeklytax,andthe
third person could claim a onethird share. As with housing benefit, there may be
deductions for nondependants, with the amount of the deduction based on their
gross weekly income.37 For people not on IS or incomebased JSA with an income
abovetheirapplicableamountforhousingbenefit(seeSection3.3.3),thetaperis20
percent.
PeoplelivinginhighvaluepropertiesincounciltaxbandsF,GorH(housescosting
over 120,000 in England in 1991) who claim CTB after 31 March 1998 have their
maximumCTBrestrictedtothatofabandEproperty.38
In May 2009, nearly 5.5 million people received main CTB. It is estimated to have
costapproximately4billionin200708.OfthosereceivingmainCTB,69percent
37 Deductionsfornondependantsaremadeonasimilarbasistothoseoutlinedforhousingbenefit(seeSection
3.3.3),exceptthatallnondependantsonISorincomebasedJSA(notjustthoseunder25),andthoseon
pensioncredit,areignoredinthecalculationofdeductions.
38 Formoreoncounciltaxvaluations,seeS.AdamandJ.Browne,ASurveyoftheUKTaxSystem,IFSBriefing
Note9,London,2009,http://www.ifs.org.uk/bns/bn09.pdf.

Institute for Fiscal Studies, 2009

31

werealsoinreceiptofIS,incomebasedJSA,incomebasedemploymentandsupport
allowance,ortheguaranteecreditofpensioncredit.39
3.3.5.DiscretionaryHousingPayments
Nontaxable,Noncontributory,Meanstested
Discretionary housing payments are payments to help meet rent or council tax
liabilities.Theyarepayabletothoseentitledtohousingbenefit,counciltaxbenefit
or local housing allowance, who require additional financial assistance in order to
meettheirhousingcosts.Noonehasarighttodiscretionaryhousingpayments,and
awards are made out of a cashlimited budget. The amount and duration of
paymentsvary.In200708,thevalueofthesepaymentswasaround20million.
3.3.6.SocialFundPayments
Nontaxable,Noncontributory,Meanstested
TheSocialFundwasintroducedin1987toprovidemoneyforpeopleinneedundera
varietyofcircumstances.SomeofthepaymentsfromtheSocialFund(includingcold
weather payments, funeral payments and Sure Start maternity grants) constitute a
legal entitlement under certain conditions for certain people. Other payments
(includingcommunitycaregrants,budgetingloansandcrisisloans)arediscretionary
andbudgetlimited,andarepaidouttopeoplewhosatisfythequalifyingrulesona
casebycase basis. The various payments from the Social Fund are described in
AppendixC.For200708,totalnetexpenditurefromtheSocialFundisestimatedto
be625million.

39 Source:DepartmentforWorkandPensions,FirstRelease:HousingBenefit&CouncilTaxBenefitStatistics,
August2009,http://research.dwp.gov.uk/asd/asd1/hb_ctb/FirstRelease_19082009.pdf.

Institute for Fiscal Studies, 2009

32

3.4.BenefitsforElderlyPeople

Benefit

Claimants,as
atFeb.2009a
12,226,260c

Expenditure,
200708(m)b
47,409

69,360

Notavailable

5,655,000d

10,184

8
8
8

8
8
8

9
8
8

2,723,610e
12,123,000f
3,993,000f

7,463
2,071
510

Part

3.4.1 Basicstatepension
3.4.2 Earningsrelatedstate
pensions:

Graduatedretirement
benefit

SERPSandstatesecond
pension(S2P)
3.4.3 Pensioncredit
3.4.4 Winterfuelpayments
3.4.5 ConcessionaryTVlicences

T=taxable,C=contributory,M=meanstested
a
Unlessotherwisespecified.
b
Estimated.
c
Source:DepartmentforWorkandPensions,StatePensiontabulationtool,availableat
http://83.244.183.180/100pc/sp/tabtool_sp.html.
d
19992000,forSERPSonly.Morerecentfiguresarenotreadilyavailable.
e
Source:DepartmentforWorkandPensions,PensionCredittabulationtool,availableat
http://83.244.183.180/100pc/pc/tabtool_pc.html.Justunderhalfofclaimantsreceivebothsavings
andguaranteecredit,withsimilarnumbersreceivingonetypeofcreditonly.
f
Source:TableC1athttp://research.dwp.gov.uk/asd/asd4/medium_term.asp(outturn200708).

3.4.1.BasicStatePension
Taxable,Partlycontributory,Nonmeanstested
The basic state pension (BSP) was introduced in 1948, following the Beveridge
Report,withtheaimofprovidinganincomeforoldagepensionersbasedupontheir
record of National Insurance contributions. Originally, the idea was for the BSP to
operateonafundedbasis,witheachgenerationpayingforitsownpensionsthrough
NICs.Thiswasabandonedimmediatelyonintroductionsothatthepensioncouldbe
madepayabletotheexistinggenerationofpensioners.Thisleftthecurrentpayas
yougo pension system, whereby the NICs from those currently in work fund the
pensionspaidouttothegenerationcurrentlyinretirement.
TheBSPispayablefromthestateretirementage,whichatpresentis60forwomen
and65formen.Allpensionsarepaidforlife.Theretirementageforwomenwillbe
increasedbysixmonthseachyearfrom2010sothatequalisationat65isachievedin
2020.Marriedpartnersoverthestateretirementagereceiveadependantsaddition
on top of the BSP, unless each partner in the couple is able to qualify for a larger
pension on the basis of their own contribution record. Widows and widowers are
able to inherit their deceased partners pension entitlement in full if this is worth
morethantheirownentitlement.Thosenotqualifyingforthefullamount(because
Institute for Fiscal Studies, 2009

33

ofinsufficientNICsseebelow)areabletoreceiveaproportionoftheBSP,subject
tothisbeingatleast25percentofthefullamount.Thoseagedover80areableto
receive the less generous noncontributory basic state pension if this is more than
theentitlementbasedontheirowncontributionrecord.
InordertoqualifyforthefullBSP,individualsneedtohavepaidNICsfor90percent
of a working lifetime;40 however, individuals are credited with NICs (at the lower
earningslimit)forperiodsspentoutofthelabourmarketduetoillness,disabilityor
unemploymenthencecoverageamongmalepensionersinparticularisveryhigh.41
Manymarriedfemalepensionersdonot qualifyfortheBSP,becausepriortoApril
1977theycouldopt outoftheBSP,inreturnforwhichtheypaidalowerrateof
NationalInsurance.SinceApril1977,optingouthasbeenprohibited,andtimespent
lookingafterchildrenhasreducedtheperiodforwhichcontributionsarerequired.42
Combinedwithincreasingfemalelabourmarketparticipation,thismeansthatmore
womenwillqualifyfortheBSPinfuture.
From April 2005, individuals can choose to defer receipt of the BSP for as long as
they like, as compared with a maximum of five years before then. If an individual
putsoffclaimingtheirstatepensionforatleast12months,theycanchooseoneof
twooptionswhentheydofinallyclaim.Thefirstoptionistoearnextrastatepension
at1percentforeveryfiveweekstheyputoffclaiming(thisisequivalenttoabout
10.5percentextraforeveryyearcomparedwithabout7.5percentextrabefore6
April2005).Thesecondoptionisaoneofftaxablelumpsumpaymentbasedonthe
amount of normal weekly state pension they would have received, plus interest
added each week and compounded.43 Individuals then also get their state pension
whentheyclaimit,paidatthenormalrate.Individualsmustput off claimingtheir
statepensionforatleast12consecutivemonths,whichmustallhavefallenafter5
April2005,tobeabletochoosealumpsumpayment.Bothoftheseoptionsuseany
earningsrelated state pension (see Section 3.4.2) that the individual is eligible to
receive in calculating their higher state pension or lumpsum payment. Additional
amounts are available to those receiving the agerelated addition for longterm
incapacity benefit (see Section 3.5.2) and to those with adult or child dependants
(although increases for dependent children have now been replaced by child tax
creditfornewclaimantsseeSection3.1.4andAppendixB).

40 Aworkinglifetimeisdefinedastheperiodinclusiveofthetaxyearinwhichthepersonturns16,upto(but
notincluding)theyearinwhichtheyreachpensionage(ortheyearinwhichtheydie).Formoreaboutthe
NationalInsurancesystem,seeS.AdamandJ.Browne,ASurveyoftheUKTaxSystem,IFSBriefingNote9,
London,2009,http://www.ifs.org.uk/bns/bn09.pdf.
41 Itshouldbenotedthatatleastonefullyearofactualpaidcontributionsisrequiredinordertoqualifyforthe
contributoryelementofthebasicstatepension.
42Forinformationonhomeresponsibilitiesprotection,see
http://www.direct.gov.uk/en/MoneyTaxAndBenefits/BenefitsTaxCreditsAndOtherSupport/Caringforsomeone
/DG_10018691.
43 Thecompoundedratewillbe2percentagepointsabovetheBankofEnglandsbaserate(soifthebaserate
were4.5percent,theannualrateofreturnwouldbe6.5percent).AstheBankofEnglandbaseratemay
changefromtimetotime,therateofinterestusedtocalculatethelumpsumcouldalsochange.

Institute for Fiscal Studies, 2009

34

Until the early 1970s, the level of the BSP was uprated on an adhoc basis, but by
more than enough to keep pace with increases in average earnings. It was then
formallylinkedtothefasterofgrowthinpricesorgrowthinearningsandremained
so until 1981, when it was formally linked to price inflation. The value of the BSP
relativetoearningshasthereforechangedconsiderablyovertime,fromjustunder
14percentwhenitwasfirstintroduced,toaround20percentintheearly1980s,
beforefallingtojustunder16percenttoday.ThePensionsAct200744envisagesa
relinkageofthebasicstatepensiontoaverageearningsin2012.
Costingsome47.4billionin200708andreceivedby12.2millionpensioners,the
BSP is the largest single benefit, constituting approximately 30 per cent of
expenditureonallbenefitsandtaxcredits.TheChristmasbonusispayablewithBSP.
Table3.4.1.Currentratesofbasicretirementpension,perweek
Basicstatepension
Noncontributorybasicstatepension

Increasefordependants:

Adult(forone)

95.25
57.05

57.05

3.4.2.EarningsRelatedStatePensions
Taxable,Contributory,Nonmeanstested
GraduatedRetirementBenefit
The graduated retirement benefit (GRB) scheme operated between April 1961 and
April 1975. It involved an earningsrelated element to NICs, on top of the then
standard flatrate contribution. This was designed to entitle individuals to an
earningsrelated element to their state pension. Initially, all individuals had to
contributetothescheme.Thisrequirementchangedfrom5October1966,sothat
individualswhoweremembersofanoccupationalpensionschemecouldcontribute
atareducedrate,inreturnforwhichtheyreceivedareducedrateofGRB.Average
payments under this scheme are relatively ungenerous, not least because
entitlements were frozen in cash terms between April 1961 and November 1978
during which period prices quadrupled. The largest graduated retirement benefit
thatbeneficiariescanreceiveis328ayearforawomanand392ayearforaman.
Oncetheclaimantreachestheageof80,theyareentitledtoanadditional25pence
perweek.TheGRBispayableeveniftheindividualisnotinreceiptofthebasicstate
pension.TheChristmasbonusispayablewithGRB.
InFebruary2009,69,360individualswerereceivingthisbenefit.

44 Availableathttp://www.opsi.gov.uk/acts/acts2007/ukpga_20070022_en_1.

Institute for Fiscal Studies, 2009

35

StateEarningsRelatedPensionScheme
The State EarningsRelated Pension Scheme (SERPS) was introduced in 1978 to
provide additional retirement income to around half the workforce, whose
employers did not provide an occupational pension scheme. Despite being
introduced with crossparty support, perhaps its most noticeable feature is how
shortlivedithasbeen:SERPSwascutdramaticallyintheSocialSecurityActsofboth
1986and1995,beforebeingreplacedbythestatesecondpension(S2P)from2002
(see below for more details). As of April 2002, no future SERPS benefits are being
accrued.SERPSispayableeveniftheclaimantisnotinreceiptofthebasicpension.
In order to avoid crowding out existing private pension provision, those who were
members of a defined benefit (final salary) pension were allowed to opt out of
SERPS on its introduction in 1978. In return, their employer made lower National
Insurance contributions on their behalf and the individuals contribution rate was
alsoreduced.Inaddition,from1988,individualswereallowedtooptoutofSERPS
intoadefinedcontribution(moneypurchase)pensionscheme,inreturnforwhicha
proportion of their NICs were paid into the individuals pension fund. This led to
rapid growth in personal pensions, particularly among the young, for whom SERPS
representedaworsedeal.45
TheoriginalSERPSformulatookindividualsearningsineachyearandupratedthem
by average earnings growth to the year before the individual reached state
retirement age. The lower of this amount and the annualised upper earnings limit
(UEL)intheyearbeforeretirementwasusedintheSERPScalculation,withthevalue
of the annualised lower earnings limit (LEL) in the year prior to retirement then
deductedfromthisfigure.TheSERPSpensionthatanindividualwouldreceivewas
equal to onequarter of this amount, averaged over the best 20 years earnings of
their life. No SERPS was paid on earnings below the LEL, since it was deemed that
these were covered by the basic state pension. No additional SERPS was paid on
earningsabovetheUEL,sincethosewhowerecontractedoutofSERPSonlyreceived
a rebate on NICs between the LEL and the UEL. Importantly, while contributions
wereindexedinlinewithearningsbetweentheyearinwhichtheyweremadeand
the year of retirement, once in payment SERPS was indexed to price inflation. In
addition, surviving partners could inherit the full amount of their spouses
entitlement.
The 1986 Social Security Act cut future SERPS expenditure (and hence generosity).
Individuals will now receive onefifth rather than onequarter of their revalued
earningsbetweentheUELandtheLEL.Inaddition,thiswillbeaveragedovertheir
entirelifetime,ratherthantheirbest20yearsofearnings.Thesecutswerephasedin
between April 1999 and April 2009, although earnings from before April 1988 will
45 Formoredetails,see,forexample,R.DisneyandE.Whitehouse,ThePersonalPensionsStampede,Institute
forFiscalStudies,London,1992.

Institute for Fiscal Studies, 2009

36

continue to accrue at the more generous level. The 1986 Social Security Act also
reducedtheamountthatasurvivingpartnercouldinherit,from100percentto50
percentoftheirspousespension.Originally,thiswastoapplytosurvivingpartners
from 6 April 2000, but due to government documentation failing to inform
individualsofthechange,itwasdelayeduntilOctober2002.Itisnowbeingphased
inovera10yearperiod.46,47
The1995SocialSecurityActfurtherreducedthegenerosityofSERPS.Thiswasthe
resultoftwochanges.Firstwastheincreaseinthestateretirementageforwomen,
being phased in between 2010 and 2020. Second, there was a technical change to
theSERPSformula.Thismeantthat,insteadofsubtractingtheLELintheyearbefore
retirement,nowtheactualLELisdeductedfromearningsbeforetheyareupratedby
averageearningsgrowth.Thisislessgenerousforthoseretiringnowandforseveral
yearstocome,sincetheLELbeingdeductednowisessentiallybeingupratedinline
withearningstothecurrentyearwhiletheLELthatwaspreviouslybeingusedwas
increasedonlyinlinewithprices.
In 200708, just over 10 billion was spent on state earningsrelated pensions. A
totalof9.2millionpeoplewerereceivinganearningsrelatedstatepensionin1999
2000.48Approximately60percentofthesepensionerswereentitledtoSERPS,and
aboutthreequartersreceivedsomeformofgraduatedpension.
StateSecondPension
From6April2002,SERPSwasreplaced(fornewcontributions)bythestatesecond
pension,essentiallyamoregenerousversionofSERPS.Theformulausedtocalculate
theamountofS2PentitlementismuchthesameasthatusedforSERPS,exceptthat
itdeliberatelyfavourslowerearners:in200910,individualsearningbelow13,900
qualify for S2P worth 3,584 (40 per cent of the income remaining after the
annualised LEL, 4,940, has been subtracted from 13,900), regardless of actual
earnings. An individual qualifies for an additional 10 per cent of earnings between
13,900 and 31,800, and an additional 20 per cent of earnings between 31,801
andtheannualisedUEL(currently43,875);allthresholdsareupratedannually.This
ratherstrangestructureisdesignedsothatnoonelosesoutfromthereform.
The1998PensionsGreenPaper49envisagedthattheS2Pwouldbecomeaflatrate
topup to the basic state pension. This would create some losers, as all individuals
46 SeePensionService,InheritingaSERPSPension:InformationforMarriedPeopleandCivilPartners,2007,
http://www.direct.gov.uk/prod_consum_dg/groups/dg_digitalassets/@dg/@en/@over50/documents/digital
asset/dg_180215.pdf.
47 FormoredetailsofSERPSandinheritancerules,seeDepartmentforWorkandPensions,WhattoDoaftera
DeathinEnglandorWales,2009,
http://www.jobcentreplus.gov.uk/JCP/stellent/groups/jcp/documents/websitecontent/dev_016117.pdf.
48 Source:SocialSecurityStatistics.Morerecentfiguresarenotavailable.
49 DepartmentofSocialSecurity,ANewContractforWelfare:PartnershipinPensions,London,1998.

Institute for Fiscal Studies, 2009

37

wouldreceive40percentof13,900(againminustheLEL),regardlessoftheiractual
earnings level. Originally, the change was scheduled for April 2007, but the 2002
PensionsGreenPaper50statedthatitsintroductionwastobekeptunderreview.
3.4.3.PensionCredit
Nontaxable,Noncontributory,Meanstested
Pensioncredit(PC)wasintroducedinplaceofIncomeSupportforthoseaged60or
over(alsoknownastheminimumincomeguarantee,MIG)on6October2003inan
attempt to improve the incentives to save for retirement. Before this date,
pensionerswithincomeinexcessofthebasicstatepension(butlessthantheMIG)
faced a 100 per cent marginal withdrawal rate (1 of support lost for every
additional 1 of their own income). Pension credit attempts to reduce this
disincentivetosave,bycuttingthemarginalwithdrawalrateto40percent.
Table3.4.2.Currentratesofguaranteecredit,perweek
Standardamount:

Additionalamounts:

Singleperson
Couple

130.00
198.45

Severedisability
Carer
Housingcosts
Transitional

52.85
29.50a
Variesb
Variesc

Doublethisamountispayableifbothpartnersqualify.
HousingcostpaymentsareverysimilartothoseforIncomeSupport(seeSection3.3.1).
c
AtransitionalelementispaidtothosepreviouslyonIncomeSupportorincomebasedjobseekers
allowancewhowouldbemadeworseoffbymovingontoPC.Thetransitionalpaymentcoversthe
differencebetweenthefinalISorincomebasedJSAapplicableamountandthePCappropriate
amount(asidefromafewadjustments).
b

There are two elements to the PC: guarantee credit and savings credit. Claimants
maybeentitledtooneorbothelements.GuaranteecreditworksmuchliketheMIG,
toppingupincometoaspecifiedminimumlevel(calledtheappropriateamount).
The appropriate amount is the sum of a standard amount and additional amounts
for special needs or housing costs (see Table 3.4.2). To receive guarantee credit,
claimantsmustbeagedatleast60(thiswillincreaseto65between2010and2020
in line with the retirement age for women see Section 3.4.1) and have family
incomebelowtheappropriateamount.Thesumpayableisthedifferencebetween
familyincomeandtheappropriateamount.AswiththeMIG,capitalisassumedto
yield a flow of income, but the PC rules are more generous: capital below 6,000
(10,000forthoseincarehomes)isdisregarded,andabovethislevelevery500of
capitalisassumedtoprovide1ofincome.Thereisnoupperlimitontheamountof
50 DepartmentforWorkandPensions,Simplicity,SecurityandChoice:WorkingandSavingforRetirement,
London,2002.

Institute for Fiscal Studies, 2009

38

capitalthatcanbeheld.InNovember2009,thelowercapitallimitwillbeincreased
to10,000.
Recipients of guarantee credit are automatically entitled to maximum housing
benefit(seeSection3.3.3),maximumcounciltaxbenefit(seeSection3.3.4),health
benefits (including freeprescriptions, dental treatment and sight tests) and certain
SocialFundpayments(seeAppendixC).Recipientsofthesavingscreditmayalsobe
entitled to some Social Fund payments. The Christmas bonus is payable with the
guaranteecredit.
Savingscreditrewardspeopleaged65oroverwhohavesavedforretirement.Only
thosewithincome(excludingguaranteecredit)thatexceedstheappropriatesavings
creditthreshold(seeTable3.4.3)areeligible.51Forthosewithincomebetweenthis
amount and the appropriate amount (see above), the amount of savings credit
payableis60percentofincomeabovethesavingscreditstartingpoint.Thisimplies
a maximum savings credit payment of 60 per cent of the difference between the
appropriate amount and the savings credit starting point. For those with income
greater than or equal to the appropriate amount, savings credit is withdrawn at a
rateof40percent.Thismeansthataclaimantwhoseincomeisexactlyequaltothe
appropriate amount will receive the maximum award, but each additional 1 of
incomereducestheawardby40pence.
In 200708, spending on the pension credit was 7.46 billion. It was claimed by
around2.7millionasofFebruary2009.
Table3.4.3.Currentratesofsavingscredit,perweek
Savingscreditstartingpoint:

Singleperson
Couple

Maximumsavingscredit:

Singleperson
Couple

Withdrawalrate

96.00
153.40

20.40
27.03

40%

3.4.4.WinterFuelPayments
Nontaxable,Noncontributory,Nonmeanstested
Lumpsumwinterfuelpayments(WFPs)wereintroducedin1997andareavailable
tohouseholdswithatleastoneresidentovertheageof60(withtheweekbeginning
the third Monday of September used as the qualifying period). For claimants who
51 Differentmeasuresofincomeareusedatdifferentpointsinthecalculationofentitlementtosavingscredit.
SeePensionService,PensionCredit:DoIQualifyandHowMuchCouldIGet?,
http://www2.halton.gov.uk/pdfs/socialcareandhealth/benefits/pensioncredit.

Institute for Fiscal Studies, 2009

39

livealone,orwhereonlyonememberofthehouseholdqualifiesforaWFP,orwhere
the claimant receives pension credit (see Section 3.4.3), incomebased jobseekers
allowance(seeSection3.2.1)orincomerelatedemploymentandsupportallowance
(seeSection3.5.3),theamountreceivedwillbe250iftheclaimantisagedbetween
60and79or400ifaged80orover.
Onlyonepaymentismadeperhousehold.Thepaymentissplit,unlesstheclaimants
receivepensioncredit,orincomebasedJSAasacouple,inwhichcaseitcanbepaid
toeitherclaimant.52
Thoseinresidentialcarehomes,andnotreceivingpensioncredit,incomebasedJSA
orincomerelatedemploymentandsupportallowance(thelatterconditionapplying
onlytothoseunder80),areentitledtohalftheregularpayment(125ifaged60
79;200ifaged80orover).Iftwopeopleinthehouseholdareeligible,andneither
is receiving pension credit, then they also receive half the normal payment. If a
householdcontainsmorethanoneeligibleperson,withsomehouseholdmembers
beingaged6079andothersbeingover80,thenthoseover80receive275.
In 200405, an additional nontaxable, noncontributory, non meanstested age
related payment was made available for those aged 70 and upwards. This was
extended to those aged 65 and upwards the following year, but has since been
discontinued.TheBudgetinApril2009announcedaoneoffadditionalpaymentthis
winter of 50 to households with someone aged over 60 and 100 to households
withamemberover80.
In 200708, approximately 12 million WFPs were made, at an estimated cost of
2.07billion.
3.4.5.ConcessionaryTelevisionLicences
Nontaxable,Noncontributory,Nonmeanstested
Since September 2000, households including an individual over the age of 75 have
not had to pay for a television licence. As of November 2009, the cost of a colour
televisionlicenceis142.50.In200708,nearly4millionhouseholdsbenefitedfrom
afreeTVlicence,atacostofaround510million.

52 Page530ofChildPovertyActionGroup,WelfareBenefitsandTaxCreditsHandbook20092010,London,
2006.

Institute for Fiscal Studies, 2009

40

3.5.BenefitsforSickandDisabledPeople53

Benefit

3.5.1 Statutorysickpay
3.5.2 Incapacitybenefit
3.5.3 Employmentandsupport
allowance
3.5.4 Disabilitylivingallowance
3.5.5 Attendanceallowance
3.5.6 Carersallowance
3.5.7 Warpensions
3.5.8 Industrialinjuriesbenefits
3.5.9 IndependentLivingFunds
3.5.10 MotabilitySpecialised
VehicleFund

T
9
9
9

8
8
9
8
8
8
8

Claimants,as
atFeb.2009a
8
8
Notavailable
9 Part
2,221,890c
Part Part
175,810

8
8
3,043,990e
8
8
1,578,640f
8
8
502,500g
8
8
157,955h
8
8
327,260j
8
9
21,440l
8
8
NotAvailable
C

Expenditure,
200708(m)b
48
6,658
140d
9,867
4,444
1,280
1,014i
760k
299
12

T=taxable,C=contributory,M=meanstested
a
Unlessotherwisespecified.
b
Estimated.
c
Source:DepartmentforWorkandPensions,IncapacityBenefittabulationtool,availableat
http://83.244.183.180/100pc/ib/tabtool_ib.html.
d
Figurefortheyear200809.
e
Source:DepartmentforWorkandPensions,DisabilityLivingAllowancetabulationtool,availableat
http://83.244.183.180/100pc/dla/tabtool_dla.html.
f
Source:DepartmentforWorkandPensions,AttendanceAllowancetabulationtool,availableat
http://83.244.183.180/100pc/aa/tabtool_aa.html.
g
Source:DepartmentforWorkandPensions,CarersAllowancetabulationtool,availableat
http://83.244.183.180/100pc/ca/tabtool_ca.html.
h
FigureforApril2009.Excludeswarwidow(er)spension.Source:DefenceAnalyticalServicesand
Advice,Buildyourowntable,availableat
http://www.dasa.mod.uk/applications/newWeb/www/index.php?page=30.
i
UKexpenditure.Includesbothwardisablementandwarwidow(er)spensions.Source:Ministryof
Defence,MODAnnualReportandAccounts2008/09,
http://www.mod.uk/DefenceInternet/AboutDefence/CorporatePublications/AnnualReports/MODA
nnualReport0809/.
j
Figureisforindustrialinjuriesdisablementbenefitandreducedearningsallowance,asofDecember
2008;notethatmorethanoneassessmentmaybeawardedtoanindividual.Source:Department
forWorkandPensions,IndustrialInjuriesDisablementBenefitQuarterlyStatistics:December2008,
availableathttp://statistics.dwp.gov.uk/asd/iidb.asp.
k
Includesindustrialinjuriesdisablementbenefit,reducedearningsallowanceandretirement
allowance(seeSection3.5.8andAppendixB).Otherbenefitsnotincludedinthisfigurearethe
workerscompensationsupplementationschemeandthepneumoconiosis,byssinosisand
miscellaneousdiseasesbenefitscheme(bothpayabletopeoplewhocontractedcertainindustrial
illnessespriorto5July1948).Expenditureontheseschemesamountstoaround1million.
53 Detailsofseveredisablementallowance,whichwasabolishedfornewclaimantsinApril2001,aregivenin
AppendixB.

Institute for Fiscal Studies, 2009

41

Asat31March2008.OfthosereceivingILFawards,4,362receivethemfromtheExtensionFund
(openonlytoclaimantsclaimingpriorto1993)and17,078collectfromthe1993Fund.Source:
IndependentLivingFunds,UserProfile;detailsavailableat
http://www.ilf.org.uk/cms_media/files/profile_march_2008_complete.pdf.

3.5.1.StatutorySickPay
Taxable,Noncontributory,Nonmeanstested
Statutorysickpay(SSP)isabenefitpaidbyemployersforamaximumof28weeksto
employeeswho are incapable of work. It is a legal minimum, and many employers
willpaymorethanthisamount.Aswithstatutorymaternity,paternityandadoption
pay(seeSection3.1.5),muchofthecostofSSPisreclaimedfromthegovernment.
To be incapable of work, an employee must be unable to do work that they could
reasonablyhavebeenexpectedtodounderthetermsoftheiremploymentcontract.
Evenifthisisnotthecase,SSPmaystillbepayableundersomecircumstances(for
example,ifadoctorhasstatedthattheemployeeshouldnotworkinordertorestor
convalesceafteraperiodofillness).SSPispayableiftheperiodofincapacitylastsfor
atleastfourdays.Thoseunder16orover65yearsofagecannotclaimSSP(although
the latter condition is subject to possible amendment and in any case individuals
over the age of 65 can continue to receive it if they claimed prior to their 65th
birthday and their period of entitlement has not yet ended). Also excluded are
employees on contracts of less than three months, although those who work on a
seriesofshorttermcontracts(forthesameemployer)canclaimSSPaslongasthe
totalperiodofemploymentislongerthan13weeks.SSPcannotbeclaimedifweekly
earningsarelessthanthelowerearningslimit,currently95perweek.
SSPiscurrentlypayableataweeklyrateof79.15.ThetotalcostofSSPin200708
wasestimatedtobearound48million.
3.5.2.IncapacityBenefit
Taxable,Contributory,Partiallymeanstested
Employedclaimantswhocannotworkduetosicknesswillnormallyreceivestatutory
sickpay(seeSection3.5.1)forthefirst28weeksoftheirabsence,andwillthenbe
abletoclaimincapacitybenefit(IB)iftheyhavebeencreditedwithenoughNational
Insurance contributions, or, under some circumstances, if they are a widow or
widower.54 If claimants are not entitled to SSP, then IB may be claimed from the
outset. The NIC conditions are similar to those for contributionbased jobseekers
allowance(seeSection3.2.1).
Claimantsmustbeincapableofwork.Capabilityforworkisdeterminedbytheown
occupation test for the first 28 weeks of incapacity, which determines whether or

Institute for Fiscal Studies, 2009

42

not the claimant is capable of returning to the type of job that they were doing
before they became incapacitated. After 28 weeks, the claimant must satisfy the
personal capability assessment, which tests ability to perform any type of work.
Claimants of IB are usuallyexempt from the personal capability assessment if they
areinreceiptofanotherdisabilityrelatedbenefit.
RatesofIBaregiveninTable3.5.1.IBclaimantsmustbeatleast16yearsold;55for
theshorttermrates,theycannotbemorethanfiveyearsabovepensionage;forthe
longtermrate,theycannotbeabovepensionage.Thelowershorttermratethe
only rate of IB that is taxfree is payable for the first 28 weeks of sickness if the
claimantisnotentitledtoSSP,andthehigher(taxable)shorttermrateispayable(in
allcases)fromweeks29to52.Afterayearofentitlement,the(taxable)longterm
ratebecomespayable.Recipientsofthelongtermratemaybeentitledtoanage
relatedadditiontotheirbenefitdependentontheiragewhenentitlementtoIBor
SSP began.People who are terminally ill or who areentitled to the highest rateof
the care element of disability living allowance (see Section 3.5.4) can receive an
amountequaltothelongtermrateofIBafter28weeksofeligibilityinsteadofone
year.
Table3.5.1.Currentratesofincapacitybenefit,perweek

ShorttermIB(lowerrate)
Increasefordependants:

ShorttermIB(higherrate)
Increasefordependants:

LongtermIB
Increasefordependants:
Agerelatedaddition:

Standard
Adulta

Standard
Adulta

Standard
Adulta
Under35
Under45

Claimantunder
pensionableage
67.75
41.35

80.15
41.35

89.80
53.10
15.65
6.55

Claimantover
pensionableage
86.20
51.10

89.80
51.10

n/a
n/a

Increasesforchilddependantshave,since6April2003,beenreplacedbychildtaxcredit(CTC)for
allnewclaimants;however,existingclaimantsmaystillbeentitledtoclaimtheseadditionsviaIB
ratherthanCTC(seeAppendixB).

Since 6 April 2001, there has been a 50 per cent withdrawal rate on any pension
income above 85 a week for those in receipt of personal, occupational or public
servicepensions.
54 TheWelfareReformAct2007(http://www.opsi.gov.uk/Acts/acts2007/pdf/ukpga_20070005_en.pdf)
replacedincapacitybenefitwiththeemploymentandsupportallowanceforallnewclaimants(seeSection
3.5.3).
55 Individualsundertheageof20(25withaspellinfulltimeeducation),whomaynotbeabletofulfiltheNIC
requirementsforIBeligibility,maystillbeentitledtoclaim.

Institute for Fiscal Studies, 2009

43

In200708,totalexpenditureonIBwasestimatedataround6.66billion,withjust
over2.2millionpeopleclaimingthebenefitinFebruary2009.Ofthese,36,360were
on the lower shortterm rate, 70,410 were on the higher shortterm rate and
1,179,510 were on the longterm rate (with the remaining 935,610 claiming
incapacitybenefitcredits).56RecipientsoflongtermIBareentitledtotheChristmas
bonus.
3.5.3.EmploymentandSupportAllowance
Taxable,Partiallycontributory,Partiallymeanstested
Employment and support allowance (ESA) replaced incapacity benefit and Income
SupportongroundsofdisabilityfornewclaimantsinOctober2008.Likejobseekers
allowance, there are two forms of ESA: a contributory form and an incomebased
form.ContributoryESAisonlypaidtoclaimantswhomeettheappropriateNational
Insuranceconditions.IncomerelatedESAispaidtoclaimantswhohavenotsatisfied
the NI criteria but have passed a means test. The Christmas bonus is payable with
contributoryESA.
Table3.5.2.Currentratesofemploymentandsupportallowance,perweek

Assessmentphase

Mainphase

64.30
64.30

64.30
64.30

Singleperson
Under25
25orover

50.95
64.30

Under18
18orover

50.95
64.30

Loneparent

Couple(incomebasedESAonly)
Oneorbothunder18
Both18orover

Variesa
100.95

Variesb
100.95

Ifbothmembersareunder18,eachreceives50.95perweekduringtheassessmentphaseor
76.90iftheyareresponsibleforachild.Ifoneisunder18andtheotherisover18,therearetwo
rates50.95(iftheolderofthetwoisaged1824)and64.30(iftheoldermemberis25orover).
b
Ifbothmembersareunder18,thereisastandardrateof64.30andarateforthosewhoare
responsibleforachildof100.95.Ifonlyoneisunder18,therateis64.30.

56 Source:DepartmentforWorkandPensions,IncapacityBenefitandSevereDisablementAllowancetabulation
tool,availableathttp://83.244.183.180/100pc/ibsda/tabtool_ibsda.html.

Institute for Fiscal Studies, 2009

44

When claimants first apply for ESA, they must first go through an assessment
phase,whichusuallylastsfor13weeksaftertheclaimismade.Duringthisphase,
paymentsarelowerforsomeclaimants.ThisperiodisusedbytheDepartmentfor
WorkandPensionstoassesstheclaimantscapabilitytowork.
Entitlements to incomerelated ESA are calculated in the same way as for Income
Support (see Section 3.3.1), topping up income to a specified level (called the
applicableamount),whichisintendedtoreflecttheneedsoftheclaimantsfamily.
The applicable amount is the sum of personal allowances (which depend on age),
premiumsandsomehousingcosts(primarilymortgageinterestpayments).
ItispossibletoreceivecontributoryESAtoppedupwithincomerelatedESAinthe
event that the entitlement for incomerelated ESA is higher than that for
contributoryESA.
Individualswhoarenotjudgedashavinglimitedcapabilityforworkrelatedactivity
aftertheassessmentphasereceivetheworkrelatedactivitycomponentofincome
related ESA. This is an additional payment conditional on attending workfocused
interviews (see Section 3.3.1). Those who are deemed unable to work receive the
supportcomponentasadditionalpaymentaftertheassessmentphase.
Table3.5.3.Currentpremiumsforemploymentandsupportallowance,perweek
ComponentsofESA:

Workrelatedactivitycomponent
Supportcomponent

25.50
30.85

Premiums(incomerelatedESAonly):

Pensioner:
single
couple
Enhanceddisability:
single
couple
Severedisability:
single
couple,onequalifies
couple,bothqualify
Carer

Variesa
Variesb

13.40
19.30

52.85
52.85
105.70

29.50

Intheassessmentphase,thisis65.70perweek.Inthemainphase,itis40.20iftheclaimantis
entitledtotheworkrelatedactivitycomponentofESAand34.85ifhe/sheisentitledtothe
supportcomponent.
b
Intheassessmentphase,thisis97.50perweek.Inthemainphase,itis72.00iftheclaimantis
entitledtotheworkrelatedactivitycomponentofESAand66.65ifhe/sheisentitledtothe
supportcomponent.

Institute for Fiscal Studies, 2009

45

In 200809, total expenditure on ESA was estimated at around 140 million, with
nearly176,000peopleclaimingthebenefitinFebruary2009.
In the future, all current incapacity benefit claimants will be moved onto ESA,
although a date for this has not yet been decided. In anticipation of the change, a
processofaligningtheratesofESAandincapacitybenefitwasbeguninApril2009.57
3.5.4.DisabilityLivingAllowance
Nontaxable,Noncontributory,Nonmeanstested
Disabilitylivingallowance(DLA)wasintroducedon1April1992forindividualswho
become disabled before the age of 65. It replaced and extended attendance
allowanceandmobilityallowance,suchthatpeoplewhocouldnothavequalifiedfor
these benefits are now able to claim DLA. Recipients are entitled to the Christmas
bonus.
DLAhastwocomponents,reflectingthebenefitsthatitreplaced:acarecomponent
and a mobility component.58 Each element is available at different weekly rates
dependingupontheseverityoftheclaimantsdisability.
DisabilityLivingAllowanceCareComponent
TherearethreeratesofDLA(care):

For the lowest rate of DLA (care), the claimant must be 16 or over and so
disabled that they cannot prepare a cooked main meal for themselves if given
the ingredients. Alternatively, they must be so disabled that they require
attention from another person for a significant part of each day in connection
withbodilyfunctions.

ForthemiddlerateofDLA(care),theclaimantmustrequirefrequentattention
from another person throughout the day or night in connection with bodily
functions,orcontinualdailyorprolongednightlysupervisiontoavoidsubstantial
dangertothemselvesorothers.

ForthehighestrateofDLA(care),theclaimantmustbesoseverelydisabledthat
theyrequireconstantsupervisionorattentionthroughoutthedayandnightwith
respecttobodilyfunctions,ortopreventdangertothemselvesorothers.

For each rate, the individual must have satisfied the conditions for at least three
months prior to claiming, and they must be likely to continue to satisfy these
conditionsforatleastsixmonthsaftertheclaimhasbeenmade.Childrenunderthe
age of 16 must satisfy an additional disability test in order for DLA (care) to be
awarded(unlesstheyareterminallyillseebelow).
57 FormoreinformationonESA,seehttp://campaigns.dwp.gov.uk/esa/.
58 TheindividualonlyhastomakeoneclaiminordertobeconsideredforbothcomponentsofDLA.

Institute for Fiscal Studies, 2009

46

Once DLA (care) has been awarded, there is no upper age limit on continued
payment; however, no new claims can be made after the age of 65, except where
the individual is already in receipt of DLA (mobility) and their condition worsens
sufficientlytobeeligibleforthemiddleorhigherratesofDLA(care).
Terminallyillclaimantswithalifeexpectancyofsixmonthsorlessareautomatically
entitled to the highest rate of DLA (care) and do not have to satisfy the qualifying
period.
Table3.5.4.Currentratesofdisabilitylivingallowance(care),perweek
Highestrate
Middlerate
Lowestrate

70.35
47.10
18.65

DisabilityLivingAllowanceMobilityComponent
ToqualifyforDLA(mobility),claimantsmustbeagedbetween5and65(3and65for
the higher rate) when making the claim, and must show that they would benefit
from taking outdoor journeys. Further, they must satisfy the relevant disability
conditions (outlined below). Children under the age of 16 applying for lowerrate
DLA(mobility)mustalsosatisfyanadditionaldisabilitytest.Therearetworatesof
DLA(mobility):

To claim lowerrate DLA (mobility), the claimant must show that they cannot
walkoutsidewithoutsubstantialsupervisionorguidance.

To claim higherrate DLA (mobility), the claimant must be (virtually) unable to


walk because of their disability, or be deaf and blind, or be severely mentally
impaired with severe behavioural problems and qualify for the highest rate of
DLA(care).

ForbothratesofDLA(mobility),theclaimantmusthavesatisfiedtheconditionsfor
atleastthreemonthsandbelikelytocontinuetosatisfythemforthefollowingsix
months.Terminallyillclaimantswithalifeexpectancyofsixmonthsorlessarenot
guaranteedtoreceiveDLA(mobility),butiftheyareentitledtoit,theydonothave
tosatisfyanyqualifyingperiod.
Table3.5.5.Currentratesofdisabilitylivingallowance(mobility),perweek
Higherrate
Lowerrate

49.10
18.65

InFebruary2009,justover3millionpeoplewerereceivingDLA.Ofthese,400,030
people received only the care component, 507,490 received only the mobility
Institute for Fiscal Studies, 2009
47

componentand2,136,470peoplereceivedbothcomponents.Table3.5.6showsthe
combinationsofcareandmobilitycomponentsreceivedbyDLAclaimants.
Table3.5.6.Recipientsofdisabilitylivingallowance,asatFebruary2009

Carerate

None
Highest
Middle
Lowest
Total

Mobilityrate
None
0
42,520
113,130
244,380
400,030

Higher
407,390
489,610
444,810
408,950
1,750,760

Lower
100,110
163,510
440,580
189,000
893,190

Total
507,490
695,650
998,510
842,330
3,043,990

Source: DepartmentforWorkandPensions,DisabilityLivingAllowancetabulationtool,availableat
http://83.244.183.180/100pc/dla/tabtool_dla.html.

OfthosereceivingsomeformofDLAinFebruary2009,about19percentsuffered
mainly from arthritis, approximately 28 per cent had learning difficulties or other
mentalhealthproblems,and16percentsufferedfrommuscle,bone,jointorback
ailments.59DLApaymentsareestimatedtohavecosttheexchequerapproximately
9.9billionin200708.
3.5.5.AttendanceAllowance
Nontaxable,Noncontributory,Nonmeanstested
Attendance allowance (AA) is a benefit paid to individuals over the age of 65 with
careorsupervisionneeds.ToqualifyforAA,theclaimantmustsatisfytherelevant
disabilityconditionsandmusthavedonesoforaperiodofsixmonthsimmediately
beforereceiptofAAbegins.
AA is paid at two rates: the lower rate is paid if the disability conditions for the
middlerateofDLA(care)aremet(i.e.theclaimanthasdayornightneeds)andthe
higherrateispaidiftheconditionsforthehighestrateofDLA(care)aremet(i.e.the
claimanthasdayandnightneeds).
People with a terminal illness and/or those with a life expectancy of less than six
monthsareautomaticallyeligibleforthehigherrateofAAanddonothavetosatisfy
thesixmonthqualifyingperiod.
In February 2009, approximately 1.6 million people were entitled to AA at an
estimated cost of just over 4.4 billion in 200708. Recipients of AA receive the
Christmasbonus.

59 Source:DepartmentforWorkandPensions,DisabilityLivingAllowancetabulationtool,availableat
http://83.244.183.180/5pc/dla/tabtool_dla.html.

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48

Table3.5.7.Currentratesofattendanceallowance,perweek
Higherrate
Lowerrate

70.35
47.10

3.5.6.CarersAllowance
Taxable,Noncontributory,Nonmeanstested
Carers allowance (CA), previously known as invalid care allowance, is payable to
peopleaged16oroverwhoaregivingsubstantialandregularcare(usuallydefined
asatleast35hoursperweek)toapersonreceivingthehighestormiddlerateofDLA
(care),orAA,orconstantattendanceallowanceunderthewarpensionsorindustrial
injuries scheme (see Sections 3.5.7 and 3.5.8 and Appendix D). The claimant must
notearnmorethan95perweekorbeinfulltimeeducation.
On top of the basic payment, CA also includes an additional allowance for adult
dependants. Child dependant payments (previously available under the old invalid
careallowancerules)havenowbeenincorporatedintothechildtaxcreditandare
only available to existing (and continuous) claimants (see Appendix B). Individuals
caringformorethanonedisabledpersoncannotclaimadditionalawardsofCA.
Claimants of CA are now required to take part in a workfocused interview as a
conditionofreceiptoftheirbenefit(seeSection3.3.1formoredetails).
InFebruary2009, 502,500peoplewerereceivingCA,andexpenditurefor200708
totalledanestimated1.28billion.Nearly74percentofclaimantsarefemale.60The
ChristmasbonusispayablewithCA.
Table3.5.8.Currentratesofcarersallowance,perweek
Basicbenefit
Increaseforadultdependants

53.10
31.70

3.5.7.WarPensions
Nontaxable,Noncontributory,Nonmeanstested
IndividualswhohavesufferedinjuryordisabilityasaresultofserviceintheArmed
Forces may be entitled to a war disablement pension, consisting of a number of
allowances and supplements (see Appendix D for a detailed breakdown of the
various benefits available). Pensions are also available to widows, widowers and
dependants of those killed in service (see Section 3.6.2 and Appendix D). As of 31
60 Source:DepartmentforWorkandPensions,CarersAllowancetabulationtool,availableat
http://83.244.183.180/100pc/ca/tabtool_ca.html

Institute for Fiscal Studies, 2009

49

July 2009, there were 187,375 claimants of war disablement pension in the UK.61
(SeeAppendixDforadetaileddescriptionofwarpensions.)
3.5.8.IndustrialInjuriesBenefits
Nontaxable,Noncontributory,Nonmeanstested
Industrial injuries disablement benefit (IIDB) is payable to individuals who have
sufferedinjuryinanindustrialaccident,orwhohavecontractedanindustrialdisease
while at work, and, as a result, experience loss of faculty and are consequently
consideredtobeatleastpartiallydisabled.Inthecaseofinjury,benefitispayable
onlyforanindustrialaccident,suchthataninjurythataccumulatesoveranumber
of years, through, for example, heavy manual labour, will not normally attract
benefit.Toreceivepaymentinthecaseofdisease,theclaimantmustprovethatthe
diseasewascausedbytheoccupationitself.Inpractice,however,onsetofdisease
withinamonthoflastworkingintheprescribedoccupationisnormallyregardedas
sufficient evidence. In addition, a period of 90 days must have elapsed after the
onsetofthedisease,orthetimeoftheaccident,beforeIIDBcanbeclaimed.
The maximum rates of IIDB are shown in Table 3.5.9. The benefit actually paid
dependsupontheextentofdisablement(assessedonapercentagebasis).Toqualify
forIIDB,disablementusuallyhastobeatleast14percent.Abovethislevel,benefit
ispaidattheappropriatefractionofthemaximumrate,exceptthatdisablementof
between14and20percentcountsas20percent,andallassessmentsabove20per
cent are rounded to the nearest 10 per cent (multiples of 5 per cent are rounded
upwards). Thus a person who is 63 percent disabled would receive 60 percentof
the appropriate maximum rate, while 78 per cent disability attracts 80 per cent of
themaximum,andsoon.Increasesfordependantsareonlyavailableiftheclaimant
isalsoreceivingunemployabilitysupplement(US),abenefitwhichwasabolishedfor
newclaimantsofIIDBinApril1987;UScanstillbeclaimedbysomewarpensioners
(seeAppendixD).
Table3.5.9.Currentmaximumrateofindustrialinjuriesdisablementbenefit,
perweek

100%disablement

Claimantagedunder18,
nodependants
88.05

Allotherclaimants
143.60

Constant attendance allowance (CAA) or the exceptionally severe disablement


allowance(ESDA)mayalsobepayabletothoseinreceiptofIIDB.Tobeeligiblefor
CAA, the claimant must be entitled to the maximum level of IIDB and must also
requireconstantattendanceasaresultoftheirdisablement.Toreceivethehigher
61 Source:DefenceAnalyticalServicesandAdvice,Buildyourowntable,availableat
http://www.dasa.mod.uk/applications/newWeb/www/index.php?page=30.

Institute for Fiscal Studies, 2009

50

rate of CAA, the claimant must be entirely (or almost entirely) dependent on such
attendance and must be likely to remain so for a prolonged period. For the lower
rate, constant attendance must be required to a substantial extent over a
prolongedperiod.
ESDAispayableiftheindividualisinreceiptofthehigherrateofCAAandislikelyto
remainsoonapermanentbasis.Theweeklyamountpaidis57.50.
In February 2009, there were an estimated 327,260 claimants of industrial injuries
disablementbenefitandreducedearningsallowance,atacosttotheexchequerin
200708ofaround760million.
Table3.5.10.Currentratesofconstantattendanceallowance,perweek
Higherrate

Lowerrate

Payableifdisablementisexceptionallysevere(but
notenoughtoqualifyforthehigherrate)
Ifattendanceisparttime

115.00
57.50
86.25

28.75

3.5.9.IndependentLivingFunds
Nontaxable,Noncontributory,Meanstested
TheIndependentLiving(1993)Fundisagovernmentfinancedtrusttohelpseverely
disabledpeopleliveathomeratherthanmoveintoresidentialcare.Claimantsmust
bebetween16and65yearsofage,andinreceiptofthehighestrateofDLA(care)or
thehigherrateofattendanceallowance.Aslongastheclaimantisreceivingatleast
320 worth of services each week from the local authority,62 they are eligible to
receiveuptoanextra455perweekfromtheFundtohelppayforcareassistance.63
The amount received depends on weekly care requirements and is meanstested
(excludingearnedincome).Every250ofsavingsabove14,000isassumedtoyield
1ofincome,andclaimantswithsavingsofgreaterthan23,000arenoteligiblefor
assistancefromtheFund.ExpenditureonIndependentLivingFundsfor200708is
estimatedtobearound299million,withapproximately21,400beneficiariesasat
31March2008.

62 Source:IndependentLivingFunds,http://www.ilf.org.uk/making_an_application/eligibility/index.html.
63 Source:http://www.direct.gov.uk/en/DisabledPeople/HomeAndHousingOptions/YourHome/DG_4019444.

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51

3.5.10.Motability
Nontaxable,Noncontributory,Nonmeanstested
Motability is an independent charity set up as a partnership between the
government,charitiesandtheprivatesector.Itoffersdisabledpeopleinreceiptof
the higher rate of DLA (mobility) hire or hirepurchase facilities on cars, electric
wheelchairsandelectricscooters.UndertheCarSchemerecipientspaysomeorall
of their DLA (mobility) allowance towards the cost of hiring a vehicle. There is a
12,000 mile per annum limit on the distance that can be travelled (without
additional payments being required), and the claimant must cover costs such as
petrolandoil;however,extramoneyisavailabletohelpfinancetheadaptationof
vehiclestosuitparticulartypesofdisabilitiesthroughtheSpecialisedVehicleFund.
The Car Scheme of Motability had approximately 512,000 beneficiaries in March
200964. Government expenditure on the Motability Specialised Vehicle Fund was
around12millionin200708.

64

Source:
http://www.motability.co.uk//documents/website/Mot/Annual%20Accs/Annual%20Report%20200
8_09.pdf.

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52

3.6.BenefitsforBereavedPeople65

Benefit

3.6.1 Bereavementallowancec
3.6.2 Warwidow(er)spension
3.6.3 Widowedparents
allowanceh
3.6.4 Bereavementpaymenti

8
8
8

Claimants,as
atFeb.2009a
18,730d
32,790f
41,990d

Expenditure,
200708(m)b
n/ae
n/ag
n/ae

Notavailable

n/ae

9
8
9

9
8
9

T=taxable,C=contributory,M=meanstested
a
Unlessotherwisespecified.
b
Estimated.
c
Bereavementallowancereplacedthewidowspensionfrom9April2001.However,therewerestill
55,010claimantsofthewidowspensioninFebruary2009.
d
Source:DepartmentforWorkandPensions,BereavementBenefittabulationtool,availableat
http://83.244.183.180/100pc/bb/tabtool_bb.html.
e
Expenditureonbothwidowsandbereavementbenefitsin200708isestimatedat683million.
f
FigureforApril2009.Source:DefenceAnalyticalServicesandAdvice,Buildyourowntable,
availableathttp://www.dasa.mod.uk/applications/newWeb/www/index.php?page=30.
g
Totalexpenditureonwarpensions(includingwardisablementandwarwidow(er)spensions)for
200708wasestimatedtobe1,014millionintheUK.
h
Widowedparentsallowancereplacedthewidowedmothersallowancefrom9April2001.
However,therewerestill10,660claimantsofthewidowedmothersallowanceinFebruary2009.
Source:WidowsBenefittabulationtool,availableat
http://83.244.183.180/100pc/wb/tabtool_wb.html.
i
Previouslywidowspayment.

3.6.1.BereavementAllowance
Taxable,Contributory,Nonmeanstested
Bereavementallowance(BA)replacedthewidowspensionfrom9April2001andis
payabletomenandwomenwidowedonorafterthisdate.Claimantsmustbeunder
pensionable age, but aged at least 45 when their spouse died. The spouse must
eitherhavesatisfiedtheNICconditionsi.e.musthavepaid(orbeencreditedwith)
NICs for 90 per cent of a working lifetime, including at least one year where
contributionswereactuallypaid(seeSection3.4.1fordetailsofthedefinitionofa
working lifetime) or have died as a result of an industrial injury or disease. BA is
payableforupto52weeksafterthedateofdeath,unlesstheclaimantremarriesin
thattime(inwhichcaseentitlementceases).Itcannotbeclaimedatthesametime
as widowed parents allowance (WPA), although recipients of WPA may become
entitled to BA once they are no longer eligible to receive WPA. Women whose
husbandsdiedbefore9April2001canclaimwidowspension,payableatthesame
rate as BA (men cannot claim widows pension), and can receive this pension until
65 DetailsofindustrialdeathbenefitaregiveninAppendixB.

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53

they reach the age of 65, whereas BA is payable for only one year. The Christmas
bonusisalsopayablewiththewidowspension,butnotwithBA.From5December
2005,survivingcivilpartnersaretreatedthesameaswidowsforthepurposesofthe
paymentofbereavementbenefits.
ThebasicrateofBAis95.25perweekforclaimantsaged55oroverandwherethe
NIC conditions are satisfied in full. For every year under that age, the claimant
receives7percentlessperweek,i.e.93percentofthebasicrateatage54(88.58
perweek),downto30percentofthebasicrateatage45(28.58perweek).Ifthe
spousehasmadeinsufficientNICs,thentheamountofBAisreducedinproportion
tothenumberofyearsofcontributionsthathavebeenmade.
InadditiontoBA,70percentofanySERPS(fallinginstagesto50percentby2010)
and half of any S2P to which the spouse was entitled pass to the claimant after
death.
InFebruary2009,approximately18,730peoplewereclaimingBA.
3.6.2.WarWidow(er)sPension
Nontaxable,Noncontributory,Nonmeanstested
The war widow(er)s pension (WWP) is payable to widow(er)s of those who have
died as a result of service in the Armed Forces. Widow(er)s of war pensioners can
alsoclaimiftheirspousereceivedconstantattendanceallowance(seeAppendixD)
at the time of their death, or was assessed as at least 80 per cent disabled and in
receipt of the unemployability supplement of the war disablement pension (see
AppendixD)upondeath.Paymentisnormallyforlifeunlessthewidoworwidower
remarries.
ThebasicWWPispayableattworates.Thehigherrateispaidiftheclaimantisaged
40orover,orisagedunder40buthaschildrenorisunabletosupportthemselves
financially. It is also automatically payable to all claimants whose spouses were
rankedaboveMajor(orequivalent).Childlessclaimantsundertheageof40receive
the lower rate (until they reach 40, whereupon they graduate to the higher rate).
WWPratesvaryaccordingtotherankofthelatespouse.Fulldetailsofratespayable
canbefoundinAppendixD.
Additional payments are made for dependent children and for recipients reaching
theagesof65,70and80.WWPisnotpayableinadditiontoacontributorywidows
pensionorbereavementallowance(seeSection3.6.1),butitcanbepaidwithabasic
retirementpension(seeSection3.4.1)earnedbythewidow(er)sowncontributions.
TheChristmasbonusispayablewithWWP.
A number of other groups are also entitled to a war pension. These include
unmarrieddependantswholivedasaspousewiththedeceased,childorphansand
infirmadultorphans.
Institute for Fiscal Studies, 2009
54

In April 2009, there were 32,790 individuals claiming WWP, with total UK
expenditureonallwarpensionsin200708estimatedataround1.014billion.
3.6.3.WidowedParentsAllowance
Taxable,Contributory,Nonmeanstested
Widowed parents allowance (WPA) replaced widowed mothers allowance from 9
April2001andisaweeklybenefitpayabletomenandwomenwidowedonorafter
thisdate.Claimantsmustbepregnantorhavequalifyingchildren(underthesame
definition as child benefit see Section 3.1.1). The late spouse must either have
satisfied the NIC conditions (see Section 3.6.1) or have died as a result of an
industrial injury or illness. Claimants must be under pensionable age. Men whose
wifediedpriorto9April2001canclaimWPA,solongastheywereunder65onthat
date and have not remarried. Women receiving a widowed mothers allowance
before9April2001(menwerenoteligible)cancontinuetodoso.Itispayableatthe
same rate as WPA, at a basic rate of 95.25 per week, and attracts the Christmas
bonus.
Details of increases for child dependants (now available only to existing claimants)
can be found in Appendix B. If the late partners NICs entitled him or her to an
additionalpensionunderSERPSorS2P,thenpartofthisispayableasanadditional
elementofWPA(thesamerulesapplyasforbereavementallowanceseeSection
3.6.1).AlowerbasicrateofWPAmaybepayableifthelatespousesNICrecordis
insufficient.TheWPAmayalsobereducediftheclaimantfailstoturnuptoawork
focusedinterview(seeSection3.3.1formoredetails).
In February 2009, 41,990 people claimed WPA. Expenditure on widows and
bereavement benefits in 200708 amounted to approximately 737 million. WPA
attractstheChristmasbonus.
3.6.4.BereavementPayment
Nontaxable,Contributory,Nonmeanstested
Bereavement payment is a oneoff, lumpsum payment of 2,000 available to
widowsandwidowers(includingsurvivingcivilpartners)whoclaimwithin12months
of their spouses death. Claimants must be under pensionable age, unless their
spouse was over pensionable age and not receiving the basic state pension (see
Section3.4.1),inwhichcaseentitlementisextendedtothoseoverpensionableage.
Further,thespousemusthaveactuallypaid(ratherthanbeencreditedwith)NICsin
any tax year before their death, or died as the result of an industrial illness or
accident, in which case this NIC condition is automatically regarded as being
satisfied. Claimants who also receive a meanstested benefit could additionally be
entitledtoafuneralpayment(seeAppendixCfordetails).
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55

4. TrendsinSocialSecuritySpending
Inthissection,welookathowspendingonbenefitshaschangedovertime,bothin
termsofhowtotalexpenditurehaschangedandintermsofhowthetargetingofthe
spendinghasalteredwithrespecttotherecipientgroupsdefinedinSection3.We
thengoontoconsidersomeofthereformstotheUKbenefitsystemthatarelikely
tobeintroducedoverthenextfewyears.
4.1.SocialSecuritySpending,194849to200708
Socialsecurityspendingincreasedalmostcontinuouslyasashareofnationalincome
from1948totheearly1980s.AsshowninFigure4.1,socialsecurityspendingwas
just over 4 per cent of GDP in 194849, but had reached 11.5 per cent of GDP by
198384. This was due to an increase in the generosity of many state benefits, as
wellasanincreaseinthenumberseligibletoclaimthem.Perhapsthebestexample
ofthisisthebasicstatepension,whichincreasedingenerosityfromaround14per
centofaveragemaleearningsin194849tonearly20percentintheearly1980s.At
thesametime,thenumberofpeopleoverstateretirementageincreasedfrom6.8
million in 1951 to 10 million in 1981.66 Another important feature is the large
increaseinthenumberofpeopleclaimingunemploymentbenefits,from340,000in
1950to1,665,000in1980.67

66 Source:GovernmentStatisticalService,AnnualAbstractofStatistics,2000edition.
67 Source:OfficeforNationalStatisticswebsite,http://www.statistics.gov.uk.

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56

Figure4.1.SocialsecurityexpenditureasapercentageofGDP,194849to200708
14

12

Percentage of GDP

10

Note: Includesworkingtaxcreditandchildtaxcredit,whereappropriate.
Sources:DepartmentforWorkandPensions;authorscalculations;GDPfromhttp://www.hm
treasury.gov.uk/data_gdp_fig.htm.

Thelate1980ssawthefirstsubstantialfallinsocialsecurityspendingasashareof
GDPsince194849.Thiswastheresultofrapideconomicgrowthandtheassociated
fallinclaimantunemployment,combinedwiththefactthatmanybenefits,themost
notable of which was the basic state pension, were only increased in line with
inflation. The economic downturn in the early 1990s, however, saw the economy
contractandunemploymentriseto2.9million.Thisledtoanotherdramaticrisein
theshareofnationalincomespentonsocialsecurity,whichreachedanhistorichigh
ofalmost13percentin199394.Afterthat,socialsecurityspendingfellasashare
of GDP, as the economy grew and the unemployment count dropped. The
proportion of GDP allocated to social security expenditure gradually increased
followingtheturnofthemillennium,despitecontinuedeconomicgrowth.Thiswas
mainlyduetotheincreasinggenerosityofbenefitstargetedatpensioners(e.g.the
pension credit) and families with children (e.g. the child tax credit).The onset of
recessionislikelytohaveincreasedexpenditureasaproportionofGDPfurtherstill.
AswiththeshareofGDP,realexpenditureonbenefitshasrisenalmostcontinuously
sincethe1940s.Figure4.2showstheaverageannualrealincreasesinsocialsecurity

Institute for Fiscal Studies, 2009

57

spendingseenovereachfiveyearperiodsince19555668togetherwiththerateof
growth over the past three years. Over this period, social security spending has
grown(onaverage)inrealtermsbyjustover4.0percentperyear;however,there
havebeenlargefluctuationsinthepatternofthisgrowth,particularlyoverthelast
20years.
Figure4.2.Averagerealincreasesinsocialsecurityspendingoverfiveyearperiods,
195556to200708

8.00%

7.00%

Average percentage growth rate

6.00%

5.00%

4.00%

3.00%

2.00%

1.00%

0.00%
55/56-59/60

59/60-64/65

64/65-69/70

69/70-74/75

74/75-79/80

79/80-84/85

84/85-89/90

89/90-94/95

94/95-99/00

99/00-04/05

04/05-07/08

-1.00%

Period

Note: Thefirstandlastbarsareforfouryearandthreeyearperiodsrespectively.
Sources:DepartmentforWorkandPensions;authorscalculations;GDPdeflatorsfromHMTreasury
website,http://www.hmtreasury.gov.uk/data_gdp_fig.htm.

4.2.ChangesintheCompositionofSocialSecuritySpending
Not only have there been substantial increases in social security spending since
194849; there have also been large changes in the composition of that spending.
Figure4.3showsthepercentageofsocialsecurityspendinggoingtodifferenttypes
of benefits over the period from 194849 to 200001, the last year for which a
consistent series of this type is available. Figure 4.4 shows benefit spending from
197879to200708dividedveryroughlyintofivecategoriesofrecipient,inasimilar
waytoTable2.1andFigure2.1.
The graphs show that retirement and bereavement benefits have been easily the
largestcomponentsofbenefitspendingsince194849.Theymadeup40percentof
social security spending at the beginning of the period, then rose to nearly 60 per
68 Thefirstbarisforafouryearperiod.

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58

centbythemid1970s,asthepopulationagedandtherewererealincreasesinthe
generosityofthebasicstatepension.Themostprominentchangesincethe1970s,
as seen in Figure 4.4, is the fall in the share of benefits going on retirement and
bereavementbenefits,from51.2percentin197879to35.0percentin199596,
and its recent rise up to 43.5 per cent by 200708. However, the latter largely
reflects the repackaging of Income Support for the elderly (which we classify as
support for those on low incomes) as pension credit (which we allocate to the
elderly).
Itisworthemphasisingatthispointthatsuchissuesofclassificationmeanthatthese
breakdowns must be treated with caution. Figure 4.3 appears to show a large
increase in universal benefits for children in the late 1970s. However, this is
somewhat misleading because the incoming child benefit replaced not only family
allowance(accountedforhere)butalsochildtaxallowance,which,aspartofthetax
system, is not included in this graph. Also, the introduction of child tax credit in
200304, like the introduction of pension credit, involved a repackaging of part of
IncomeSupport(amongstotherthings)aswellasanincreaseingenerosity,helping
to explain that years small increase in the share of benefits going to families with
children shown in Figure 4.4. Nevertheless, the recent rise in benefits directed at
suchfamiliesisgenuine:havingfallenfrom16.0percentin197980to9.7percent
in199394,theshareofbenefitsgoingtofamilieswithchildrenhasrisenunderthe
currentgovernmentto16.7percentin200708.69
Perhaps the most significant change in the allocation of spending since the mid
1970sisthesharpincreaseintheshareofbenefitstorelievehousingcostsandlocal
taxes shown in Figure 4.3. This has at least partly been a result of the substantial
reduction in the provision of council housing since 1980. The increase in these
benefitsshareoftotalspendingplaysamajorpartinexplainingtherise(from20.8
percentin197879to23.7percentin200708)intheshareofspendinggoingto
thoseonlowincomesandunemployedpeopleshowninFigure4.4.

69 Foramoredetailedandconsistentquantificationofsupportforfamilieswithchildren,seeS.Adam,M.
BrewerandH.Reed,TheBenefitsofParenting:GovernmentFinancialSupportforFamilieswithChildrensince
1975,Commentary91,InstituteforFiscalStudies,London,2002,http://www.ifs.org.uk/comms/c91.pdf.

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59

Figure4.3.Shareoftotalexpenditurebybenefittype,194849to200001

Source: DepartmentofSocialSecurity,TheChangingWelfareState:SocialSecuritySpending,2000,
availablebyemailingarequesttoElectronicArchive@dwp.gsi.gov.uk.

Figure4.4.Shareoftotalexpenditurebyrecipientgroup,197879to200708

Others

Sick and
Disabled
Elderly and
Bereaved
Low Income
(including
Unemployed)
Families with
Children

Sources:AsforTable2.1,includingnotes.

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60

4.3.MajorReformssince1948,andtheLikelyDirectionofFutureReforms
There have been substantial changes to the benefit system since 1948. These are
brieflysummarised(byrecipient)inBox4.1.

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61

Box4.1.MajorchangestotheUKbenefitsystemsince1948

FamilieswithChildren

ChildbenefitreplacedfamilyallowanceandthechildtaxallowancefromApril1977.Whilechildbenefitis
payabletoallqualifyingchildren,familyallowancewaspayableonlytothesecondandsubsequentchildren.

Child tax credit replaced childrens tax credit (and the additional child elements of a number of other
benefits,includingthoseinworkingfamiliestaxcredit)fromApril2003.Childrenstaxcreditwasoriginally
introducedinApril2001.

UnemployedPeople

Jobseekers allowance replaced unemployment benefit and Income Support for the unemployed from
October1996.

PeopleonLowIncomes

IncomeSupportreplacedsupplementarybenefitfromApril1988.Supplementarybenefitreplacednational
assistancefromNovember1966.

Working tax credit replaced working families tax credit and disabled persons tax credit in April 2003.
Working families tax credit replaced family credit in October 1999, and family credit replaced family
incomesupplementinApril1988.Familyincomesupplementwasintroducedin1971.Disabledpersonstax
creditreplacedthedisabilityworkingallowanceinOctober1999.

Between 1948 and 1966, many local authorities provided recipients of meanstested benefits with
additional help for rent and local taxes. In 1966, a national rebate scheme was introduced. This was
reformedmanytimespriorto1990.Sincethen,helpwithrentshasbeendeliveredthroughhousingbenefit,
whilerebatesforlocaltaxeswereavailablefrom1990throughcommunitychargebenefitand,since1993,
throughcounciltaxbenefit.

ElderlyPeople

PensioncreditreplacedIncomeSupportforpeopleaged60oroverfromOctober2003.

Although the basic state pension has been in place since 1948, the system of retirement pensions as a
whole has been subject to some major changes. Between April 1961 and April 1975, the graduated
retirementbenefitwasrunningtoprovideanearningsrelatedelementontopofthebasicpensionrate.In
1978, the State EarningsRelated Pension Scheme (SERPS) was introduced for people who were not
members of an occupational pension scheme. SERPS is now being replaced by the state second pension
(S2P).

SickandDisabledPeople

IncapacitybenefitreplacedinvaliditybenefitandsicknessbenefitfromApril1995.

Disabilitylivingallowancereplacedmobilityallowanceandattendanceallowanceforthoseagedunder65
fromApril1992.

Employment and support allowance replaced incapacity benefit and Income Support on grounds of
disabilityfornewclaimantsinOctober2008.

BereavedPeople

BereavementbenefitsreplacedwidowsbenefitsinApril2001.Priortothis,theoneoffwidowspayment
replacedwidowsallowanceandindustrialdeathbenefitforcaseswherethehusbanddiedonorafter11
April1988.

Animportantdistinctionbetweendifferenttypesofbenefitsistheextenttowhich
theyarenoncontributoryratherthancontingentonhavingmadeNationalInsurance

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62

contributions.70 Again, detailed figures for expenditure on each type of benefit are
onlyavailablebackto197879.TheyaregivenforselectedyearsinFigure4.5,which
shows that less than half of benefit expenditure (41.3 per cent) currently goes on
contributorybenefits.Thisfractionhasbeendecliningalmostconstantlysince1979
80. In fact, these figures overestimate expenditure on benefits for which
contributionshavebeenmade,sinceindividualscanbecreditedwithNICswithout
havingactuallypaidthem.Thiscanoccurforseveralreasons:forexample,periods
spent in fulltime education or as registered unemployed are credited with
contributionshavingbeenmade.Also,sinceApril2000,individualsearningbetween
thelowerearningslimitandtheearningsthresholddonothavetopayanyNICs,but
arecreditedasifacontributionhasbeenmade.
Figure4.5.Relativeimportanceofspendingoncontributory,incomerelatedand
otherbenefits,197980to200708,selectedyears

100%

90%

21.1

18.1

17.8

28.2

28.0

18.0

22.1

22.1

21.6

36.1

37.0

80%

70%

15.7
35.8

60%

31.9

50%

Noncontibutorynon
incomerelated

Incomerelated

40%

30%

Contributory

63.2
53.7

54.3
46.2

46.0

20%

41.7

41.4

200405

200708

10%

0%
197980

198485

198990

199495

19992000

Sources:DepartmentofSocialSecurity,TheChangingWelfareState:SocialSecuritySpending,2000,
availablebyemailingarequesttoElectronicArchive@dwp.gsi.gov.uk;DWPexpenditure
tables;authorscalculations.

Thedecliningrelativeimportanceofcontributorybenefitshaslargelybeentheresult
ofthegrowthofnoncontributorybenefitssincethelate1970s.Inrealterms(2007
70 FordetailsofthecurrentsystemofNICs,seeS.AdamandJ.Browne,ASurveyoftheUKTaxSystem,IFS
BriefingNote9,London,2009,availableathttp://www.ifs.org.uk/bns/bn09.pdf.ASocialSecuritySelect
Committeereportalsolookedatthecontributoryprinciple:FifthReport,2000,availableat
http://www.publications.parliament.uk/pa/cm199900/cmselect/cmsocsec/56/5602.htm.

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63

08 prices), real expenditure on incomerelated benefits has increased from 10.8


billion in 197879 to 38.7 billion in 200708, an increase of over 250 per cent.
Expenditure on noncontributory nonincomerelated benefits has, over the same
period,grownby80percent.Incontrast,realexpenditureoncontributorybenefits
increasedfrom42.0billionin 197879to67.3billionin 200708,anincreaseof
just60percent.71Thevastmajorityofspendingoncontributorybenefitsisonthe
basicstatepensionandSERPSorthestatesecondpension(S2P).
Recentdevelopments,suchasincreasesingovernmentexpenditureontaxcredits,
continuethistrendbyexpandingwelfarepaymentstothoseonlowincomesrather
thanfocusingonthosewhohavepaidintothesystem.Otherexamplesincludethe
current governments policy of focusing additional resources on the poorest
pensioners by increasing pension credit (and, before it, the minimum income
guarantee) in line with earnings while the basic state pension remains linked to
prices.
FutureBenefitReforms
There are several reforms to the benefit system that are either in the pipeline or
currentlybeingconsideredbythegovernment.
BenefitsforLoneParents
Workrelatedactivitypremium(WRAP)isanewschemethatisbeingpilotedinafew
areas from April 2007. The scheme provides 20 per week to nonworking lone
parents with children aged 11 or over if they actively take steps to make the
transitionbackintotheworkplace. Inpractice,thismeansperformingthenecessary
taskstoprepareforworkbeforeapplyingforajob(suchasreviewingskills,writinga
CV, planning childcare, etc.). Quarterly workfocused interviews with a personal
adviserareprovidedforrecipientsoftheWRAP.
Asimilarscheme,worksearchpremium(WSP),hasbeenrunninginpilotareassince
April 2004 and provides payments of 20 per week for lone parents who been
receiving Income Support or jobseekers allowance for at least a year, have joined
theNewDealforLoneParents,andareactivelyseekingemployment.WSPisnottied
tospecificjobsearchactivities,butreceiptisatthecontinualdiscretionofapersonal
adviser with whom the recipient discusses job search on a fortnightly basis. It is
availableforamaximumofsixmonths.

71 Sources:DepartmentforWorkandPensions,BenefitExpenditureTables3and3a,June2009,availableat
http://research.dwp.gov.uk/asd/asd4/medium_term.asp;GDPdeflatorsfromhttp://www.hm
treasury.gov.uk/data_gdp_fig.htm;authorscalculations.

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64

BenefitChangesforJobseekers
The White Paper on Welfare Reform, published in 2008,72 set out a number of
proposed changes to the delivery of jobseekers allowance (JSA). The White Paper
built on a number of recommendations made in a review of the benefit system
conductedbyProfessorPaulGregg.73Thesechangesincluded:

Aftersixmonthsonbenefit,claimantswilldrawupabacktoworkactionplan.
Elementsagreedaspartofthisplanwillbemandatory,andfailuretocomplywill
resultintheimpositionofsanctions.

Claimantsstillonbenefitsaftertwoyearswillberequiredtoundertakeaperiod
offulltimeworkexperience,eitherinthecommunityorwitharegularemployer
aspartofaprogrammecalledWorkfor YourBenefit.Thisprogrammewillbe
pilotedinsomeJobcentrePlusdistrictsin2010.

Finally, mandatory workfocused interviews every six months are being


introducedforthepartnersofJSAclaimantswithchildren.

InadditiontothesechangestotheexistingsystemofJSA,anewschemecalledNew
DealPlusforLoneParentsiscurrentlybeingpiloted.Originallyavailableonlytolone
parents,ithassincebeenextendedtoallcoupleparentsinthepilotareas.Itbrings
togetheranintegratedpackageofmeasuresthatincludeselementsoftheNewDeal
for Loan Parents available nationally, a range of other existing measures that
complementtheNewDealforLoanParents,andasetofpilots.Itincludes:74

aguaranteeaboutacleargainfromwork(InWorkCredit,taxcredits),andsome
protectionwhenworkbreaksdown(InWorkEmergenciesFund);

a guarantee of support in finding appropriate childcare (brokered by childcare


partnership managers) and, in some cases, additional financial support for
childcare;

a guarantee of the ongoing help of professional welltrained and properly


supported advisers (more adviser contact outside of mandatory workfocused
interviews;moretraining,supportandtoolsforloneparentpersonaladvisers).

It was initially anticipated that the pilot would end in March 2008. However, an
extendedandexpandedpilotwaslaunchedinApril2009torununtilMarch2011.A
72 DepartmentforWorkandPensions,RaisingExpectationsandIncreasingSupport:ReformingWelfareforthe
Future,2008,http://www.dwp.gov.uk/docs/fullversion.pdf.
73 P.Gregg,RealisingPotential:AVisionforPersonalisedConditionalityandSupport,anindependentreportto
theDepartmentforWorkandPensions,availableathttp://www.dwp.gov.uk/policy/welfare
reform/legislationandkeydocuments/realisingpotential/.
68 Formoreinformationandabriefsummaryoftheevaluationofthisscheme,see
http://www.dwp.gov.uk/newsroom/pressreleases/2007/may2007/emp021.shtml.

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65

qualitative evaluation of New Deal Plus for Lone Parents was published in May
2007.75
PensionReform
ThePensionsCommissionwassetupin2002tokeepunderreviewtheregimefor
privatepensionsandlongtermsavingandtomakerecommendationsonwhether
there is a case for moving beyond the current voluntarist approach. It was set up
amidconcernsthatpeoplewerenotsavingenoughforretirement.
FollowingtheCommissionsfinalreportinApril2006,76thegovernmentpublisheda
White Paper in May 2006.77 Many of the recommendations that it contained were
partofthePensionsAct2007.78Provisionsincluded:

Increasing the state pension age for both men and women from 65 to 68, in
gradualstepsfrom2024to2046.ThePensionCommissionreportsuggestedthat
future increases in the state pension age should be linked to changes in life
expectancy.

Reestablishingthelinkbetweenthebasicstatepensionandaverageearnings,as
opposedtoprices,from2012,althoughthiscouldbedelayeduntil2015.

Reducing the required number of qualifying years from 44 for men and 39 for
women to 30 from 2010. Credits for caring responsibilities are to be reformed,
which,onaverage,willmakethemmoregenerousandbringprovisionsforthe
basicandstatesecondpensionintolinewitheachother.Bothofthesechanges
wouldbenefitwomeninparticular.

Reformingthestatesecondpensionsothatfrom2030(orshortlythereafter)all
furtheraccrualsareflatrate.

ThegovernmentpublishedasecondWhitePaperinDecember2006.79Itadvocated
the introduction of a new privatelyrun system of Personal Accounts, in which all
employeesnotautomaticallyenrolledinanemployerprovidedpensionplanwould
automaticallybeenrolled,butwitharighttooptout.AspartoftheNationalPension
Savings Scheme (NPSS), employers would contribute at least 3 per cent of pretax
salaries, with employee contributions subject to a minimum of 4 per cent which,
together with government tax relief of just over 1 per cent, would guarantee a
75 M.HosainandE.Breen,NewDealPlusforLoneParentsQualitativeEvaluation,DWPResearchReport426,
2007,http://research.dwp.gov.uk/asd/asd5/rports20072008/rrep426.pdf.
76 PensionsCommission,ImplementinganIntegratedPackageofPensionReforms,2006,
http://www.webarchive.org.uk/pan/16806/20070802/www.pensionscommission.org.uk/publications/2006/fi
nalreport/final_report.pdf.
77 DepartmentforWorkandPensions,SecurityinRetirement:TowardsaNewPensionsSystem,2006,
http://www.dwp.gov.uk/policy/pensionsreform/securityinretirement/whitepaper/.
78 Availableathttp://www.opsi.gov.uk/acts/acts2007/ukpga_20070022_en_1.
79 DepartmentforWorkandPensions,PersonalAccounts:ANewWaytoSave,2006,
http://www.dwp.gov.uk/policy/pensionsreform/personalaccounts/.

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66

minimumjointcontributionof8percent.Employerswouldonlybeallowedtoopt
outoftheschemeiftheyofferindividualsapensionschemethatalsooperateswith
autoenrolmentandisatleastasgenerousasthisdefaultoption.The2007Pensions
ActcreatedthePersonalAccountsDeliveryAuthoritytoadviseonthedeliveryofthe
PersonalAccountsproposals.80
StatutoryMaternityPay
The government has set a goal of extending statutory maternity pay from nine
months to 12 months by 2010. This applies to all women claiming statutory
maternitypayormaternityallowance.
In addition to the extension of paid maternity leave, the government is also
proposingtoallowmotherstotransfersomeoftheirleaveentitlementtofathersby
2010. Fathers will be able to take the remainder of the maternity leave period as
paid paternity leaveif the mother returns to work after six months but before the
endoftheninemonthpaidmaternityleaveperiod(thismeansthatfatherscantake
up to three months paid paternity leave if the mother returns to work at six
months).
TheSavingGateway
The Saving Gateway is a new form of savings account aimed at some families (or
adults in families) with lower incomes within certain pilot areas in England. The
policyisintendedtoincreaseratesofsavingandassetownership81amongeligible
families.Thekeyfeatureoftheaccountsthatwouldencourageindividualstoplace
fundsintotheiraccountisthatanindividualscontributionstohisorheraccountwill
bematchedatsomefixedratebythegovernment.Afirstpilotof18monthSaving
Gatewayaccountsoperatedbetweenmid2002andlate2004andwasdesignedto
gainpracticalunderstandingoftheoperationofasavingsaccountforlowerincome
groups.82Asecond,largerpilotof18monthaccountswaslaunchedinMarch2005,
andresearchersfromMORI,alongwithateamfromIFS,wereinvolvedinevaluating
thissecondpilot.83
The relatively large size of the new pilot scheme, with slightly more than 20,000
accounts across six areas and a total cost of around 15 million, allowed scope to
80 Formoreinformationonthispolicy,seeC.EmmersonandM.Wakefield,AmountsandAccounts:Reforming
PrivatePensionEnrolment,Commentary110,InstituteforFiscalStudies,London,2009
http://www.ifs.org.uk/comms/comm110.pdf.
81 AbstractinHMTreasury,SavingandAssetsforAll,TheModernisationofBritainsTaxandBenefitSystem,
Number8,London,2001,http://www.hmtreasury.gov.uk/d/36.pdf.
82 E.Kempson,S.McKayandS.Collard,IncentivestoSave:EncouragingSavingamongLowIncomeHouseholds,
FinalReportontheSavingGatewayPilotProject,http://www.hm
treasury.gov.uk/media/35D/E1/Incentives_to_save.pdf.
83 Informationavailableathttp://www.direct.gov.uk/savinggateway.

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67

investigate the effect of varying some of the parameters of the policy: different
matchratesof1,50pand20pweretrialled.Thesematchrateswerecombinedwith
different monthly and account lifetime limits on the amount of matching that an
accountholdercanaccrue.Theeffectofpayinganinitialendowment,toencourage
individuals to open an account, was also examined. Different educational
interventions to promote financial understanding were also combined with the
policy.
The final evaluation report was published in May 2007.84 A key aim of the Saving
Gateway would be to increase saving and boost the number of savers in lower
income households. The evidence from the evaluation report suggested that
accountsinthesecondpilotofthepolicydidleadtoindividualsholdingmorefunds
in cash deposits, but there was no significant evidence of increases in broader
measuresoffinancialwealthandonlylimitedevidencethatindividualsweremaking
new savings through economies in expenditure. The evidence that pointed to
possible increases in overall saving was only among the lowerincome subgroup of
participants in the pilot, with no evidence that higherincome participants saved
moreasaresultofopeninganaccount.
Itwasannouncedinthe2008Budgetandreaffirmedinthe2009Budget85thatthe
SavingGatewayschemewouldberolledoutnationallyby2010.Thegovernmentis
to provide an initial subsidy of 50p for every additional pound saved, with an
estimated8millionpeoplebeingeligibleforthescheme.
PrivateSectorandThirdSectorInvolvement
The 2008 White Paper on welfare reform86 makes clear that the private and third
sectorswillplayanincreasingroleinthedeliveryofbenefitservices.Areasinwhich
thisinvolvementmightbeseenincludePathwaystoWork,intensivereturntowork
consultationsafter12monthsofjobsearch,andNewDealprogrammes.TheWhite
Paper makes clear the desire to move towards resultsbased funding, with those
organisations that prove successful in getting individuals back to work being given
greater funding. One proposal is the invest to save approach, which would
encourage private providers to invest in putting people back to work and then
beingpaidoutoftheresultingbenefitsavings.

84 StafffromInstituteforFiscalStudiesandIpsosMORISocialResearchInstitute,FinalEvaluationoftheSaving
Gateway2Pilot:MainReport,2007,http://www.hm
treasury.gov.uk/media/7/0/savings_gateway_evaluation_report.pdf.
85 Paragraph4.23ofHMTreasury,Budget2008,http://www.hmtreasury.gov.uk/d/bud08_completereport.pdf;
paragraphs5.46and5.47ofHMTreasury,Budget2009,http://www.hm
treasury.gov.uk/d/bud09_completereport_2520.pdf.
86 DepartmentforWorkandPensions,RaisingExpectationsandIncreasingSupport:ReformingWelfareforthe
Future,2008,http://www.dwp.gov.uk/docs/fullversion.pdf.

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68

SingleWorkingAgeBenefit
In the 2008 Gregg Review of the benefit system, a proposal was made to work
towards a single workingage benefit. This would effectively combine jobseekers
allowance, employment and support allowance, and Income Support. The idea
behindthereformisthatanindividualsreadinesstowork,ratherthanthebenefit
category to which they have been assigned, should determine the conditions and
sanctionsthatapplyandthekindofsupportgiven.Therearenoplanstointroduce
suchasystematthemoment.However,theDepartmentforWorkandPensionsdid
stateinthe2008welfarereformWhitePaperthatitremainsattractedtotheideaof
a single workingage benefit and will continue to explore whether, over the longer
term,thisistherightapproachforouraimsforthesocialsecuritysystem.87
87

DepartmentforWorkandPensions,RaisingExpectationsandIncreasingSupport:ReformingWelfareforthe
Future,2008,http://www.dwp.gov.uk/docs/fullversion.pdf.

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5. Conclusions
Thesocialsecuritysystemhasbeensubjecttoalmostcontinualreformoverthelast
40 years. The need for such reform has, in part, reflected changes to patterns of
householdformationandincreasedlevelsofunemploymentsincetheWelfareState
was first introduced after the Second World War. Another important driver of
reformshasbeendifferentdistributionalobjectivesofsuccessivegovernments.This
makesfurtherreforminevitable.However,itisimportantthatcontinualreformdoes
notleavethesystemlookingevermorecomplicated.TheUKpensionsystemisone
prime example. The reforms of recent years have led to an unnecessarily
complicated system of delivering income to those in retirement. Other areas of
socialsecurityareinneedoffurtherreform,withperhapsoneofthemostimportant
areas being the current system of housing benefit / local housing allowance. The
challenge for policymakers is to introduce social security reform thatsimplifies the
currentsystemwithoutanyunwanteddistributionalsideeffects.

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AppendixA.BenefitExpenditurefrom194849to200708
TableA.1.Spendingonbenefitsincashtermsandrealterms(200708prices),real
increasesandspendingasashareofGDP
Cash
terms
(m)

Real
Real
%of
terms
rise(%) GDPa
(m)

194849 471 12,001


194950 598 14,915
195051 611 14,901
195152 642 15,194
195253 775 16,951
195354 817 16,762
195455 839 16,766
195556 942 18,443
195657 981 17,813
195758 1,051 18,278
195859 1,287 21,795
195960 1,350 22,647
196061 1,390 22,854
196162 1,553 24,736
196263 1,646 25,413
196364 1,891 28,797
196465 1,962 28,994
196566 2,322 32,709
196667 2,457 33,197
196768 2,790 36,647
196869 3,172 39,754
196970 3,392 40,317
197071 3,637 39,918
197172 4,230 42,621
197273 4,898 45,479
197374 5,505 47,673
197475 6,902 49,965
197576 9,338 53,903
197677 11,114 56,482
197778 13,367 59,747

24.28
0.10
1.97
11.56
1.11
0.03
10.00
3.42
2.61
19.24
3.91
0.92
8.23
2.74
13.32
0.68
12.81
1.49
10.39
8.48
1.41
0.99
6.77
6.70
4.82
4.81
7.88
4.78
5.78

4.00
4.80
4.62
4.39
4.91
4.85
4.69
4.86
4.73
4.79
5.68
5.57
5.41
5.76
5.81
6.21
5.90
6.52
6.50
6.97
7.30
7.27
7.01
7.30
7.43
7.48
7.85
8.53
8.69
8.98

Cash
terms
(m)
197879
197980
198081
198182
198283
198384
198485
198586
198687
198788
198889
198990
199091
199192
199293
199394
199495
199596
199697
199798
199899
199900
200001
200102
200203
200304
200405
200506
200607
200708

15,873
18,777
22,658
27,700
31,629
35,332
38,250
41,769
44,920
46,608
47,318
50,144
56,478
66,304
75,259
82,438
84,859
88,707
92,215
93,346
95,554
100,290
106,016
114,426
120,460
129,497
136,006
143,168
149,125
158,221

Real
Realrise %of
terms
(%)
GDPa
(m)
63,920
64,672
65,963
73,570
78,546
83,845
86,159
89,080
92,818
91,090
86,599
85,669
89,442
99,131
109,154
116,379
117,958
119,863
120,124
118,497
118,797
122,279
127,584
134,695
137,368
143,625
146,765
151,663
153,434
158,221

6.98
1.18
2.00
11.53
6.76
6.75
2.76
3.39
4.20
1.86
4.93
1.07
4.40
10.83
10.11
6.62
1.36
1.62
0.22
1.35
0.25
2.93
4.34
5.57
1.98
4.55
2.19
3.34
1.17
3.12

9.32
9.17
9.70
10.78
11.26
11.55
11.63
11.56
11.61
10.82
9.88
9.56
10.02
11.17
12.28
12.69
12.35
12.20
11.91
11.33
10.99
10.87
10.97
11.35
11.29
11.45
11.46
11.53
11.34
11.42

The%ofGDPfiguresslightlyoverestimatethetruefiguressincewedivideourmeasureofbenefit
expenditure(whichincludesexpenditureontaxcreditsinNorthernIreland)byGBGDP.(Figureson
expenditureontaxcreditsinGBarenotavailable.)
Note: Figuresshouldbeinterpretedwithcaresincemanychangeshaveoccurredtothewaysin
whichgovernmentsupportforindividualsisdelivered.Formoredetails,seeappendixCof
DepartmentofSocialSecurity,TheChangingWelfareState:SocialSecuritySpending,London,
2000,availablebyemailingarequesttoElectronicArchive@dwp.gsi.gov.uk.
Sources:DepartmentforWorkandPensionsforbenefitexpenditurefigures,availableat
http://research.dwp.gov.uk/asd/asd4/medium_term.asp;HMTreasuryforGDPfigures,
availableathttp://www.hmtreasury.gov.uk/data_gdp_fig.htm.

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AppendixB.BenefitsAvailableOnlytoExistingClaimants
ChildMaintenanceBonus
Nontaxable,Noncontributory,Meanstested
The child maintenance bonus (CMB) was designed to reduce the disincentives to
workinducedbythewithdrawalofmeanstestedbenefits,asitwasavailableifthe
claimant(ortheirpartner)startedorreturnedtowork,orincreasedhoursworkedor
hourlyearnings,suchthattheywerenolongereligibleforISorincomebasedJSA.
TheamountofCMBavailabledependedontheclaimantsbonusperiod,definedas
anyperiodsince7April1997(until3March2003)whentheclaimantortheirpartner
was entitled to IS or incomebased JSA, and was receiving (or was meant to be
receiving) child maintenance. The exact amount payable is the lowest of the
followingamounts:

5foreachweekduringthebonusperiodwhentheclaimantwaspaid(ormeant
tobepaid)atleast5maintenance,plus,foreachweekwhentheclaimantwas
paidlessthan5,theamountofmaintenancedue;
theactualamountofchildmaintenancereceivedoverthebonusperiod;
1,000.

Thisbenefitwaswithdrawnon27October2008,evenforthosewhohadqualified
forpayments,unlesstheironlyqualifyingchildhaddiedbeforethisdate.
HousingBenefit(Elementof)
Nontaxable,Noncontributory,Meanstested
Aloneparentpremium(4.90)hasbeenpayableonlytoexistingclaimantssince6
April 1998. As of this date, new loneparent housing benefit claimants (under60s
only)havebeenentitledtothefamilypremiumalone.SeeSection3.3.3fordetailsof
themainbenefit.
BasicStatePension(Elementof)
Taxable,Partlycontributory,Nonmeanstested
Asof6April2003,dependentchildadditionstothebasicstatepensionarenolonger
availabletonewclaimants,astheyhavebeenreplacedbychildtaxcredit;however,
they continue to be available to existing (and continuous) claimants. See Section
3.4.1fordetailsofthemainbenefit.
Currentratesofbasicretirementpension,perweek
Increasesfordependants:

Eldestoronlychild
Subsequentchildren(each)

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72

8.20
11.35

IncapacityBenefit(Elementof)
Taxable,Contributory,Partiallymeanstested
As of 6 April 2003, the dependent child supplements to incapacity benefit are no
longeravailabletonewclaimants,astheyhavebeenreplacedbythechildtaxcredit;
however, they continue to be available to existing (and continuous) claimants. See
Section3.5.2fordetailsofthemainbenefit.
Currentratesofincapacitybenefit,perweek
Increasesfordependants
ShorttermIB(lowerrate)
Eldestoronlychild
Subsequentchildren(each)

Claimantunder
pensionableage

8.20
11.35

Claimantover
pensionableage

8.20
11.35

8.20
11.35

8.20
11.35

8.20
11.35

ShorttermIB(higherrate)
Eldestoronlychild
Subsequentchildren(each)

LongtermIB
Eldestoronlychild
Subsequentchildren(each)

MaternityAllowance(Elementof)
Nontaxable,Contributory,Nonmeanstested
Thedependentchildsupplementstomaternityallowancearenolongeravailableto
new claimants as of April 2003, as they have been replaced by child tax credit;
however,theycontinuetobeavailabletoexisting(andcontinuous)claimants.Those
claiming before this date can receive the following payments for each child who is
receivingchildbenefit:
Currentratesofmaternityallowance,perweek
Increasesforchilddependants:

Eldestoronlychild
Subsequentchildren(each)

Institute for Fiscal Studies, 2009

73

8.20
11.35

SevereDisablementAllowance
Nontaxable,Noncontributory,Nonmeanstested
Benefit
Severedisablementallowance

Recipients,as
atFeb.2009
243,200a

Expenditure,
200708(m)
898b

Source:DepartmentforWorkandPensions,IncapacityBenefitandSevereDisablementAllowance
tabulationtool,availableathttp://83.244.183.180/5pc/sda/tabtool_sda.html.
b
Estimated.Source:DepartmentforWorkandPensions,BenefitExpenditureTable3,June2009,
availableathttp://research.dwp.gov.uk/asd/asd4/medium_term.asp.

Severe disablement allowance (SDA) is payable to individuals who are incapableof


workbutwereunabletoclaimincapacitybenefitbecausetheyfailedtosatisfythe
NICconditions.Ithasbeenabolishedfornewclaimantssince6April2001.However,
people who were entitled to SDA before that date may continue to claim it.
RecipientsofSDAareentitledtotheChristmasbonus.
The capability tests to determine eligibility for SDA are the same as those for
incapacity benefit (see Section 3.5.2), with people claiming SDA prior to 12 April
1995exemptfromthepersonalcapabilityassessment.Threegroupsofpeoplecan
qualifyforSDA(thequalifyingconditionsmusthavebeenmetpriorto6April2001):

thosewhoareincapableofworkforaconsecutive28weekperiodthatbeganon
orbeforetheclaimants20thbirthday;

those who have been incapable of work for a consecutive 28week period and
areatleast80percentdisabled(includingregisteredblindpeople);

those who were entitled to claim noncontributory invalidity pension before


November1984.

Claimantsmustbeagedbetween16and65,althoughthereisnoupperlimitonthe
age at which entitlement can continue once an award has been made. Claimants
undertheageof20on6April2001weretransferredtolongtermincapacitybenefit
by6April2002,withnorequirementtohavesatisfiedtherequisiteNICconditions
(see Section 3.5.2). Recipients over the age of 20 can continue to claim SDA for as
long as they meet the eligibility criteria, with the linking of periods of entitlement
alsoenablingpreviousclaimantstobecomeeligibleforSDAonceagain.

Institute for Fiscal Studies, 2009

74

Currentratesofseveredisablementallowance,perweek

Basicbenefit

Increasesforchilddependants:
Increaseforadultdependanta
Agerelatedaddition:

Eldestoronlychild
Subsequentchildren(each)

Under40
4049inclusive
5059inclusive

57.45

8.20
11.35
31.90
15.65
9.10
5.35

Theadultdependantincreaseisnotpaidif,inthepreviousweek,thedependantsearningswere
sufficientlyhigh.

SDA comprises two elements: a basic allowance and an agerelated addition


dependent upon the age at which the incapacity for work began. Increases for
dependent children were abolished on 6 April 2003; however, those who were
entitledtothesepriortothisdatecanstillclaimthem.
Inthefuture,thegovernmentintendstotransferthoseclaimingSDAontothenew
employmentandsupportallowance(seeSection3.5.3).
InFebruary2009,anestimated243,200peoplereceivedSDA,andexpenditurewas
estimatedtobearound898millionin200708.
CarersAllowance(Elementof)
Taxable,Noncontributory,Nonmeanstested
As of 6 April 2003, the dependent child supplements to carers allowance are no
longer available to new claimants, as they have been replaced by child tax credit;
however, they continue to be available to existing (and continuous) claimants. See
Section3.5.6fordetailsofthemainbenefit.
Currentratesofcarersallowance,perweek
Eldestoronlychilda
Subsequentchildren(each)

Increasesforchilddependants:
a

8.20
11.35

Noincreaseispayableforaneldestoronlychildiftheclaimantspartnerearns180ormoreper
week.Every24perweekabove180leadstothelossofentitlementforanotherchild(ifany).

IndustrialInjuriesBenefits(Elementof)
Nontaxable,Noncontributory,Nonmeanstested
The reduced earnings allowance (REA) is a supplement payable only to those
assessedas1percentormoredisabledasaresultoftheirindustrialinjuryordisease
Institute for Fiscal Studies, 2009

75

and whose claim began prior to 1 October 1990.88 The payment is made to
compensate people for loss of earnings if they are unlikely to be able to return to
theirregularoccupationortoemploymentofanequivalentstandard.Theamountof
REA payable is the difference between the wage earned in their previous regular
employment and the wage in a job they are likely to be able to do, given their
disability,uptoamaximumof57.44aweek.
Retirementallowance(RA)iseffectivelyareducedformofREAforindividualsover
pensionableage(forwhomREAisnotpayable).RecipientsofREAofatleast2per
weekwhoreachpensionableageandgiveupregularemploymentareentitledtoRA.
Theamountpayableisthelowerof25percentoftheREAthatwasbeingpaidor
14.36perweek.
InDecember2008,therewere65,670claimantsofREAaloneand56,980claimants
receivingitinadditiontoindustrialinjuriesdisablementbenefit(seeSection3.5.8).
WidowedParentsAllowance(Elementof)
Taxable,Contributory,Nonmeanstested
Increasesforchilddependantsinwidowedparentsallowancewereabolishedfrom
6April2003duetotheintroductionofchildtaxcredit.However,claimantsexisting
before6April2003canusuallycontinuetoreceivechildpaymentsaspartofWPA.
SeeSection3.6.3fordetailsofthemainbenefit.
Currentratesofwidowedparentsallowance,perweek
Increasesforchilddependants:

Eldestoronlychild
Subsequentchildren(each)

8.20
11.35

IndustrialDeathBenefit
Taxable,Noncontributory,Nonmeanstested
Benefit
Industrialdeathbenefit

Claimants,in
200708
9,000a

Expenditure,
200708(m)
38b

Source:TableC1:Numbersreceivingbenefitsat
http://research.dwp.gov.uk/asd/asd4/medium_term.asp.
b
Estimated.Source:DepartmentforWorkandPensions,BenefitExpenditureTable3,June2009,
availableathttp://research.dwp.gov.uk/asd/asd4/medium_term.asp.

Industrialdeathbenefit(IDB)ispayabletowidowsofmenwhodiedasaresultofan
industrial accident or disease before 11 April 1988. After this date, other
88 Newclaimscanalsobemadeprovidedevidencecanbeproducedshowingthattheaccidentoccurred(or
diseasewascontracted)priorto1October1990.

Institute for Fiscal Studies, 2009

76

bereavement benefits (mainly the bereavement payment and widowed parents


allowance) are payable instead. Recipients of IDB are entitled to the Christmas
bonus.
IDBispayabletoexistingrecipientsatoneoftworates,dependingupontheageat
whichtheywerewidowed.Allowancesarealsopayablefordependentchildren.An
ageadditionof25penceperweekispayableatage80,aslongasthisadditionisnot
beingreceivedwithanyothersocialsecuritybenefit.
In 200708, approximately 9,000 people received IDB, at a total cost to the
exchequerofapproximately38million.
Currentratesofindustrialdeathbenefit,perweek
Basicrates:

Higherrate
Lowerrate

Childrensallowances:

Eldestoronlychild
Subsequentchildren(each)

Institute for Fiscal Studies, 2009

77

95.25
28.58

8.20
11.35

AppendixC.TheSocialFund
BelowisadetailedbreakdownofallSocialFundpaymentsfor200809(seeSection
3.3.6).Figuresfortherecipientsofeachpaymentandexpendituresaretakenfrom
Annual Report by the Secretary of State for Work and Pensions on the Social Fund
2008/09.89

Budgetingloans
Coldweatherpayments
Communitycaregrants
Crisisloans
Funeralpaymentsb
SureStartmaternitygrants
a
b

Discretionary
9

9
9

Regulated

9
9

Repayablea
9

9
9

Allrepayableloansareinterestfree.
Funeralpaymentsarerecoverablefromanymoneyfromthedeceasedpersonsestate.

BudgetingLoans
Budgeting loans are interestfree loans available to people on Income Support,
incomebasedJSA,incomerelatedESAorpensioncredittohelpthemcoverspecific
intermittent expenses that may be difficult to budget for. Loans are made from a
limitedbudget.Tobeeligible,claimantsmusthavebeenreceivingIS,incomebased
JSA,incomerelatedESAorpensioncreditthroughouttheprevious26weeks(short
breaksareignored).Loansvarybetween100and1,500dependingonfamilysize
andthelengthoftimetheapplicanthasbeeninreceiptofoneoftheabovebenefits.
Iftheapplicanthascapitalover1,000(or2,000iftheclaimantortheirpartneris
aged 60 or more), the maximum available loan is reduced by the amount of the
excesscapital.Theloanmustberepaid,and,indeed,likelihoodtorepayisoneofthe
criteriaonwhichallocationofavailablefundsisdetermined.
In200809,1.55millionpeopleappliedforabudgetingloan.Oftheseapplications,
1.098million(71.4percentofinitialdecisions)resultedinaloanbeingawarded,the
averagesizeofwhichwas410.90Totalexpenditurewas454.9million,and453.9
millionwasrecoveredfrompreviousloans;thereforenetexpenditureonbudgeting
loansin200809was1million.

89 DepartmentforWorkandPensions,AnnualReportbytheSecretaryofStateforWorkandPensionsonthe
SocialFund2008/2009,Cm.7677,availableathttp://www.dwp.gov.uk/docs/2009annualreportsocial
fund.pdf.
90 ForallSocialFundpayments,themethodofcalculatingtheaverageawardistodivideinitialexpenditure
(excludingthevalueofreviewawards)bythenumberofinitialawards.

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78

ColdWeatherPayments
Cold weather payments are available to people receiving Income Support, income
relatedESAintheassessmentphase,incomebasedJSAorchildtaxcredit(including
a disability element) who are also entitled to any of the pensioner or disability
premiums or who have a child under the age of 5. Those awarded incomerelated
ESA including a workrelated activity or support component and those entitled to
pensioncreditalsoqualifyforthecoldweatherpaymentaslongastheydonotlive
inacarehome.
Thesystemlinksalleligibleindividualstooneof76nationalweathercentres.Ifthe
dailymeantemperature(theaverageofthemaximumandminimumtemperatures
recorded) at the relevant station is, or is forecast to be, 0C or below for seven
consecutive days, the cold weather payment of 25 per week is automatically
payable.Capitalisdisregarded.
Clearly, the total cost of this payment is greatly influenced by factors outside the
control of the government. For the winter of 200809, 8.4 million payments were
madeatacostof210million,whilstin200708,472,000paymentsweremadeata
costof4.0million.
CommunityCareGrants
Community care grants(CCGs) are payable to people in special circumstances who
areinreceiptofIncomeSupport,incomerelatedESA,incomebasedJSAorpension
credit.Theyaredesignedtohelppeopleliveindependentlyinthecommunity,i.e.to
preventresidentialcarefrombecomingnecessary,ortoeasetransitionbackintothe
communityfollowingaresidentialcareplacement;paymentscanthereforebemade
topeoplewhoarelikelytoreceiveanyoftheabovebenefitsontheirreturn.Grants
canalsobepaidtohelpwiththecareofprisonersontemporaryrelease,tohelpwith
travel expenses, to help people set up home as part of a planned resettlement
programme, or to help ease pressure on individuals and their families when
communitycareisinvolved.
The minimum award is 30 (with minor exceptions). There is no legal maximum.
Claimantswithcapitalover500(1,000forthoseaged60orabove)mayhavetheir
entitlement reduced. In 200809, 588,000 applications were received and 582,000
decisionsweremade,with252,000awardsmade(43.2percentofinitialdecisions).
The average award was 442, with total expenditure on CCGs of around 139
million.
CrisisLoans
Crisis loans are interestfree and are available to people who have suffered an
emergency or disaster and have no other means of preventing serious risk to the
Institute for Fiscal Studies, 2009

79

wellbeingofthemselvesortheirfamily.Itisnotnecessaryfortheapplicanttobein
receipt of any other benefits to qualify for a crisis loan. There is no minimum
payment,butthemaximumamountavailableis1,500lessanyoutstandingSocial
Fundloan(suchasabudgetingloan)totheapplicantortheirpartner.Applicantswill
not normally be loaned more than they can afford to repay over a period of 78
weeks.
In 200809, there were 2.895 million applications and 2.870 million decisions
regardingcrisisloans,with1.965millionawardsbeingmade(68.5percentofinitial
decisions). The average award was 81, total expenditure was 167 million, and
83.1 million was recovered from previous loans; thus net expenditure on crisis
loansin200809amountedto83.9million.
FuneralPayments
Funeral payments can be awarded to claimants who are (for good reason)
responsible for organising a funeral, but who are unable to meet such a large
expense.Claimants(ortheirpartners)mustbeinreceiptofIncomeSupport,income
relatedESA,incomebasedJSA,housingbenefit,counciltaxbenefit,childtaxcredit
(at a rate exceeding the family element), working tax credit (including a disability
element) or pension credit. The amount payable covers the costs of burial or
cremation,documentationnecessaryforthereleaseofthedeceasedsassets,some
travel expenses and up to 700 for other costs (e.g. flowers or funeral directors
fees).
In200809,therewere69,000applicationsand68,000decisions,resultingin41,000
awards(59.4percentofinitialdecisions).Theaverageawardwas1,194,andgross
expenditurewas48.4million,with0.7millionbeingrecovered(funeralexpenses
canberecoveredfromthedeceasedpersonsestate).
SureStartMaternityGrants
IndividualsareeligibleforaSureStartmaternitygrantifthey(oramemberoftheir
family)arepregnant,orhavegivenbirthinthelastthreemonths;oriftheclaimant
(ortheirpartner)hasadoptedachildwhoislessthan12monthsold,orreceiveda
parentalorderenablingthemtohaveachildbyasurrogatemother.Claimants(or
their partner) must also be in receipt of Income Support, incomerelated ESA,
incomebasedJSA,childtaxcredit(atarateexceedingthefamilyelement),working
tax credit (including a disability payment) or pension credit, and must prove that
they have received professional advice on the health and welfare of the child or
expectantmother.Theamountpayableis500perchild.Therearenocapitallimits.
In 200809, there were 362,000 applications for the Sure Start maternity grant, of
which 263,000 (72.6 per cent of initial decisions) resulted in an award. Total
expenditurewas132.9millionatanaverageof506peraward.
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80

AppendixD.WarPensions
Thefollowingisabriefdescriptionofthevariouspensionsandallowancesavailable
to war pensioners. Figures for recipients of each payment are taken from the
Defence Analytical Services Agencys War Pensions Quarterly Statistics.91 Rates
informationcomesfromtheServicePersonnelandVeteransAgencypublication,VA
Leaflet 9,92 correct as of April 2009. Unfortunately, no figures for expenditure on
eachallowanceareavailable.
WarDisablementPension
Wardisablementpension(WDP)ispayabletoindividualswhohavebecomeatleast
20 per cent disabled (as assessed by Department for Work and Pensions doctors)
whileservinginHMForces.Itispayableatvaryingratesaccordingtothedegreeof
disablement (to the nearest 10 per cent), with a oneoff gratuity (lumpsum
payment) available to those who are less than 20 per cent disabled. The current
maximum rate of WDP is 7,952 per annum for officers and 152.40 per week for
other ranks, payable to those assessed as 100 per cent disabled.93 In June 2009,
155,185 people received WDP, of whom some 88,250 were aged 70 or over and
131,545wereassessedas50percentdisabledorless.Lessthan4percent(5,155)
wereassessedas100percentdisabled.TheChristmasbonusispayablewithWDPif
therecipientisaged65orover.
UnemployabilitySupplement
Unemployability supplement (US) is payable to war pensioners who are (virtually)
unemployableasaresultoftheirdisability.Newclaimantsmustbeundertheageof
65, with disability assessed to be at least 60 per cent. The current rate of US is
94.20perweekfornonofficersand4,915perannumforofficers,withincreases
availableforbothadultandchilddependants.94InJune2009,7,645peoplereceived
US,alongsidewhichtheChristmasbonuscanbepaid.
RecipientsofUSmayalsobeentitledtoreceiveinvalidityallowance,ataratethat
depends upon the age at which unemployability began. There are three rates for
invalidity allowance: the highest rate (if aged under 40) is 18.65 per week, the
middlerate(ifagedbetween40and49)is12perweekandthelowestrate(ifaged
91 DefenceAnalyticalServicesAgency,WarPensionsQuarterlyStatistics,June2009,http://www.veterans
uk.info/pdfs/wp_quarter_stats/0609.pdf.
92 ServicePersonnelandVeteransAgency,RatesofWarPensionsandAllowances,20092010,
http://www.veteransuk.com/pdfs/publications/va_leaflets/valeaflet9.pdf.
93 Forthoseassessedas20percentdisabled(theminimumlevelforreceiptofWDP),theratesare1,590per
annumforofficersand30.48perweekforallotherranks.
94 Arateof53.10perweekispayableforanadultdependantofanonofficer(2,771perannumforthe
dependantofanofficer);12.35perweekispayablefortheoldest(and14.50foreachsubsequent)childof
anonofficer(644and757perannumrespectivelyforthechildrenofofficers).

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81

between50and59)is6perweek973,626and313perannumrespectively.
Invalidityallowancewasreceivedby6,495peopleinJune2009.
ConstantAttendanceAllowance/ExceptionallySevereDisablementAllowance
Constantattendanceallowance(CAA)ispayabletowarpensionerswhoneeddaily
careandattention,andwhosewardisablementpensionispayableatthe80percent
rate or above. CAA is payableat four rates: the parttime(halfday)rate of 28.75
perweekfornonofficers(1,500 perannumforofficers)ifattendanceisrequired
forhalfadayorless;thenormalmaximumrateof57.50perweekfornonofficers
(3,000perannumforofficers)ifattendanceisneededformorethanhalfaday;the
intermediate rate of 86.25 per week for nonofficers (4,501 per annum for
officers)forthosewhoareseverelydisabledandrequireextraattendance;andthe
exceptional rate of 115.00 per week for nonofficers (6,001 per annum for
officers)forveryseverelydisabledpeoplewhoareentirelydependentuponfulltime
attendancefortheireverydayneeds.TheChristmasbonusispayablewithCAA.
ClaimantsofeithertheintermediateortheexceptionalrateofCAAwhoseneedfor
constantattendanceislikelytobepermanentmayalsoqualifyfortheexceptionally
severe disablement allowance (ESDA) of 57.50 per week for nonofficers (3,000
perannumforofficers).InJune2009,2,900peoplereceivedCAA;ofthese,600(21
per cent) also received ESDA. Recipients of either of the highest two rates of CAA
whoarestillingainfulemploymentmayalsobeentitledtotheseveredisablement
occupationalallowanceof28.75perweekfornonofficers(1,500perannumfor
officers),althoughthiswasonlyreceivedby5people(0.2percentofthosereceiving
CAA)inJune2009.95
AllowanceforLoweredStandardofOccupation
Anallowanceforloweredstandardofoccupationispayabletowarpensionerswith
reduced earnings capacity if their disablement prevents them from pursuing their
regularoccupation.Claimantsmustbeunder65andmusthaveadisablementofat
least40percent(butlessthan100percent).Themaximumallowancepayableto
nonofficersis57.44perweek(2,997perannumforofficers),and11,565people
receivedthisallowanceinJune2009.
AgeAllowance
Age allowance is payable to war pensioners aged 65 or over whose disablement is
assessedtobe40percentormore.Theamountvariesaccordingtothedegreeof
disability,withthemaximumrate(for100percentdisability)currentlystandingat
95 Source:DefenceAnalyticalServicesandAdvice,Buildyourowntable,availableat
http://www.dasa.mod.uk/applications/newWeb/www/index.php?page=30.

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82

31.30 per week for nonofficers (1,633 per annum for officers). In June 2009,
37,385peopleclaimedageallowance.
ClothingAllowance
Anannualclothingallowance(currently196)maybepayabletowarpensionersif
they are an amputee or if their disability causes exceptional wear and tear on
clothing.InJune2009,3,740peopleclaimedclothingallowance.
ComfortsAllowance
Comfortsallowancemaybepayabletoaseverelydisabledwarpensionerreceiving
CAA or US, to help with the extra expenses associated with severe disability. It is
payableatahigherrateof24.70oralowerrateof12.35perweekfornonofficers
(1,289 and 644 per annum for officers). Comforts allowance was paid to 8,575
peopleinJune2009.
MobilitySupplement
Themobilitysupplementispayabletowarpensionerswhoareatleast40percent
disabledandhaveseveredifficultywalking.InJune2009,14,690peoplereceivedthe
mobility supplement. The current rate is 54.85 per week for nonofficers (2,862
perannumforofficers).TheChristmasbonusispayablewithmobilitysupplement.
WarWidow(er)sPension
Therewere32,290warwidow(er)spensionsinpaymentinJune2009.Seethenext
pagefordetailsofcurrentmaximumrates.

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83

Currentmaximumratesofwarwidow(er)spension

Rankoflatehusband
Private,Corporal,Sergeant,StaffSergeant,
WarrantOfficerClassIandII
FirstorSecondLieutenant
Captain
Major
LieutenantColonel
Colonel
Brigadier
MajorGeneral
Supplementarypension:d
Officers
Otherranks

Ageallowances:
Officers:
Aged6569

Aged7079

Aged80+
Otherranks:
Aged6569

Aged7079

Aged80+

Increasesforchildren:
Officers:
Eldestoronlychild
Subsequentchildren(each)
Otherranks:

Eldestoronlychild
Subsequentchildren(each)

Maximumrentallowance:
Officers

Otherranks
a

Lowerratea

27.68p.w.

Standardrateb

115.55p.w.

1,674p.a.
6,098p.a.
1,903p.a.
6,123p.a.
2,135p.a.
6,147p.a.

6,192p.a.c

6,225p.a.c

6,317p.a.c

6,413p.a.c
4,034.56p.a.
77.32p.w.

689p.a.
1,320p.a.
1,959p.a.
13.20p.w.
25.30p.w.
37.55p.w.

947p.a.
1,059p.a.
18.15p.w.
20.30p.w.

2,275p.a.
43.60p.w.

Forthoseunder40withnochildren.
Forthoseover40andforthoseunder40withchildren.
c
Theratesareslightlyhigherfor1914Waronly.
d
Payabletowidow(er)sofForcespersonnelwhoseserviceendedbefore31March1973.
Source: ServicePersonnelandVeteransAgency,RatesofWarPensionsandAllowances,20092010,
availableathttp://www.veteransuk.info/pdfs/publications/va_leaflets/valeaflet9.pdf.
b

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