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Welfare Reform on the Web (May 2009): Social security - UK

Hidden costs of the welfare state: employers' compliance costs and the Working Tax Credit

M. Godwin and C. Lawson

Social Policy and Society, vol. 8, 2009, p. 185-195

The Working Tax Credit (WTC) is a tapered benefit payable to employees and the self-employed who are at least 16 years of age, have low incomes, but work a minimum of 15 hours a week. One of its objectives was to encourage unemployed people to re-enter the labour market by making work pay. Up to 2006 it was administered and paid by employers. After a long and bitterly fought campaign by employers and their advocates, responsibility for payment was transferred to HMRC. This paper shows that compliance costs for some employers were significant and unevenly spread, bearing particularly hard on small firms. There is anecdotal evidence that some employers reacted by avoiding hiring WTC claimants, thus undermining the welfare to work aspects of the benefit.

HM Revenue and Customs: tax credits and income tax

Public Accounts Committee

London: TSO, 2009 (House of Commons papers, session 2008/09: HC 311)

HM Revenue & Customs (the Department) has paid 85 billion in tax credits since the scheme was introduced in 2003. Every year, the Department uses provisional data to decide the level of tax credits to pay to claimants. It makes a final assessment after the end of the year based on the claimant's actual circumstances. The final assessments often differ from the initial awards. The Department overpaid 7.3 billion in the first four years of the scheme and underpaid more than 2.0 billion. The Committee considers that the Department has not given claimants the support they need in making claims and reporting changes in circumstances, and it has assumed too much understanding of the tax credits system on the part of claimants. The Department is now doing more to target those with more complex circumstances and to provide them with more tailored support. It is introducing these changes progressively up to April 2009, as part of the Tax Credits Transformation Programme. Tax credits continue to suffer from high rates of error and fraud. The Department estimates that in 2006-07 claimant error and fraud led to incorrect payments of between 1.31 billion and 1.54 billion. The Department has now set a target to reduce claimant error and fraud to not more than 5% of the value of finalised awards by 2011.

Retrenching Incapacity Benefit: Employment Support Allowance and paid work

L. Piggott and C. Grover

Social Policy and Society, vol. 8, 2009, p. 159-170

In the UK from October 2008, new claimants of income replacement benefits for sick and disabled people have to claim Employment Support Allowance (ESA) instead of Incapacity Benefit. Drawing upon recent work on the retrenchment of welfare benefits and services, this paper examines the context of the changes, the contracting out to private providers of job placement services for ESA claimants, and the extension of conditionality to sick and disabled benefits claimants.

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