LITRG’s response to housing benefit reform proposals urges cross-government collaboration so that tax and tax credits are considered in assessing how best to support claimants moving off benefit into work. 

The consultation

The Department for Work and Pensions’ (DWP) consultation ‘Supporting people into work: the next stage of housing benefit reform’ explores how people might be supported when moving into work, for example with ‘transition into work’ payments or fixed benefits awards. 

But how do tax and tax credits impact on the proposals?  LITRG’s response highlights a number of key issues:

We can see the attraction of transition into work payments for some claimants which might, for example, fix the level of Housing Benefit (HB) for three months at the rate in payment immediately before the claimant moves into work. However, there needs to be clarity about what changes of circumstances need to be reported during this period so as to avoid confusion with other ‘normal’ periods of HB.  In this context, there are already numerous reporting requirements for benefits and tax credits which may become confused in claimants’ minds. 

The advantage of fixed awards is certainty. However, there should be an option for re-assessment if income falls, or tax credits are withdrawn or become overpaid, so that claimants are not left without vital support.

Travel to work costs can be a major disincentive to moving off benefits.  Due to such costs often being unavoidably high, claimants can find themselves worse off in work than on benefits.  This is a matter we have highlighted in a previous response to consultation and we reassert here that it is one to which HMRC and DWP jointly should give more consideration. 

Unfortunately, we rarely see any appreciation of the impact of tax (and its mechanics via PAYE and Self Assessment) when someone moves from benefits into work.  DWP and HMRC should jointly consider the issues, and address how both Departments might work together, for example, to increase take-up of housing benefit among tax credit claimants.

Cross-government working

As the above points show, the solutions to overcoming disincentives to work in moving off benefits and into work can only come through DWP working together with other providers of benefits – local authorities and HMRC.  Any proposals must be fully assessed in terms of how they interact with the tax credits system, which is a key mechanism for delivering in-work benefits. 

Useful links

LITRG’s full response to the consultation is available on the group’s website.

Article Added Thursday, 04 March 2010 | 1061 Hits

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