Means Testing - Public Accounts Committee Contents

Conclusions and recommendations

1.  No single body is responsible for coordinating means testing across government. As a result there is limited oversight of the interactions of benefits that are based on means testing with each other and with those that are not. There needs to be clear responsibility for ensuring the system as a whole works for claimants and taxpayers and addresses the overall balance between means-tested and non-means-tested benefits. HM Treasury has overall responsibility for ensuring that means testing is applied in a consistent and coordinated way across government. But the department does not intend to take the direct lead, so it needs to allocate this responsibility to a designated department or agency that can be held accountable for the operation of means testing as a whole and the interaction between different benefits, whether means tested or not.

2.  It is not clear what effect some means-tested benefits have on claimants' incentives to work. Improving incentives to work is a key objective of Universal Credit. At present there is no clear picture of how the entire benefit system affects claimants' incentives to work. Instead departments focus their attention on the core DWP and HMRC benefits and do not look at the wider impact benefits such as free school meals have on incentivising claimants' behaviour. We expect departments to do more to understand what impact multiple benefits have on an individual. In particular, HMT and DWP should ensure they understand how the wider benefit system affects incentives when they assess the impact of a policy change.

3.  Departments do not understand the impact of administering more means-tested benefits locally. Many more bodies are now using means tests to determine eligibility to benefits, including local authorities for Council Tax Benefit and universities for bursaries. Locally determined entitlements could have a large effect on a family's total income and incentives, for example, if families lose entitlement to a student's university bursary when household income rises. HM Treasury should work with DCLG, DWP and other affected departments to ensure that guidance to local bodies is consistent with broader welfare policies, and to identify the impact of locally-designed benefits on claimants.

4.  The benefit system is difficult to understand and places a high burden on claimants. Some benefits, such as savings credit for pensioners, are extremely complex. Current reforms aim to move many claims online, and DWP are testing online systems to ensure they are easy for claimants to use. However, other initiatives to improve the claimants' experience are no longer being pursued. For example, the 'Tell Us Once' programme allows claimants to inform one government agency of a death and that agency will then inform other public organisations. The 'Tell Us Once' approach could be expanded to other changes in circumstances but this option is not being actively pursued. The Department for Work and Pensions, along with other departments with means-tested benefits, needs to develop a better understanding of the financial costs and other burdens placed on claimants applying for benefits. We would expect this information to be used in delivering Universal Credit so as to improve benefit take-up.

5.  Departments don't understand why administrative costs of means-tested benefits vary so significantly. The estimated cost of administering a new claim for Pension Credit is £351 while a new claim for Income Support costs £181. There remains little confidence in departments' estimates of the unit costs of administering claims, although DWP has made some progress in identifying the factors that affect costs. Without understanding the costs and benefits of different forms of means testing it is difficult for departments to establish whether they are achieving value for money. DWP and HMRC must build on existing information to identify why their costs vary for different means tests and where efficiencies can be made.

6.  Real-time information systems will be difficult to implement for small businesses. The implementation of tax credits shows that lags in updating information about claimants can lead to billions of pounds of unanticipated overpayments. HMRC is developing a real-time information (RTI) system which will be central to Universal Credit reforms but HMRC has not established how RTI will affect employees in businesses that do not have electronic payroll systems. HMRC must clarify how RTI will affect small businesses and the self-employed. To try to prevent a repeat of the problems that have affected tax credits, HMRC should develop an effective approach for those claimants and businesses that are likely to be outside the RTI system.

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Prepared 12 January 2012