Second Report - Benefit levels in the UK

The Department should set out when it intends to conclude its review of research on the experience of carers.

The Government should commission further research to understand the impact of benefit levels on the health and wellbeing of claimants and its relationship with economic productivity. (Paragraph 55) Setting benefit levels: Purpose, principles and policy objectives

Discussion on the adequacy of benefit levels can often be sidetracked by debate on whether it is possible to define essential costs or needs. We agree that it would be a useful first measure for the Government to set out a framework of principles to underpin the design and delivery of benefit policy. The Government should, following consultation with stakeholders, outline a set of principles to guide the design and delivery of benefit policy, and to inform decisions on how benefit levels are set.

DWP is clear that benefit levels and the design of benefit policy are intended to incentivise work. This is welcome. The Department does not however directly acknowledge the other purpose of benefits: to provide financial support for living costs to jobseekers, people with low earnings, and to those who are unable to or not expected to work. We find this surprising given that the cost associated with benefits is significant—to claimants, to the taxpayer and across Government spending. Setting out clear, measurable objectives and a benchmark for benefit levels linked to living costs would enable DWP to measure progress and improve accountability in the system. DWP should outline a clear benchmark for income-replacement benefits (such as Universal Credit) which relates to living costs as well as incentivising work. When deciding what benefit levels ought to achieve and/or prevent in relation to living costs, the Department could, for example, consider the methodology used in the Joseph Rowntree Foundation and Trussell Trust’s ‘Essentials Guarantee’. The Government should then present a statement of objectives for these benefits within the first session of the next Parliament.

Having established a benchmark, the Department should review the extent to which current benefit levels are meeting this benchmark. If DWP finds that it is not meeting these objectives, it should set out how it intends to reach them alongside annual uprating, for example, by ratcheting-up benefit levels where fiscal headroom allows.

Support provided through Personal Independence Payment (PIP) is not operating as intended. Evidence suggests that insufficient means-tested benefits frequently necessitate PIP recipients to use their extra costs benefits to cover day-to-day living costs. (Paragraph 98) Benefit levels in the U 75

DWP has not clearly stated the extent to which PIP should contribute towards the extra costs incurred by claimants with a health condition or disability. We heard that for some claimants, the shortfall in support provided was significant enough to worsen physical and mental health outcomes, as well as to increase their likelihood of experiencing financial hardship

We welcome the Government’s recommitment in its February 2024 Disability Action Plan to take forward plans to set up an Extra Costs Taskforce to understand the extra costs disabled people face in their daily lives. DWP should be part of the Extra Costs Taskforce. Once operationalised, DWP should use findings from the Taskforce to set a benchmark for the health and disability related costs it intends PIP to cover. It should then set out how it intends to reach this benchmark alongside annual uprating.

There is a persuasive case that there should be a greater number of levels of support provided through PIP—both higher and lower—to reflect more accurately the experiences of claimants. The Department should introduce further levels of support through PIP and the new Health Element of Universal Credit in time for the start of financial year 2025–26. (Paragraph 101) Benefit uprating: Procedure and scrutiny

We understand that to increase legacy benefits, changes must be made to DWP IT systems several months in advance—with work needing to be completed by the end of November, for increases to be enacted the following April. Parliament however is not presented with the secondary legislation to approve these changes until months after the decision is announced, by which time it would not be possible for the Government to change its course should it be persuaded. We are concerned that the process does not provide genuine opportunity for Members to scrutinise the Government’s plans. The Government should devise and bring forward further opportunities for Parliament to scrutinise its decisions on benefit uprating. For example, ahead of debate on the benefit Uprating Order, the Government should provide this Committee with a statement of how its decision on benefit uprating has taken into account its newly stated set of principles and objectives.

We welcome the Government’s decision to take a consistent decision and uprate all working-age benefits for 2024–25 by the September 2023 CPI inflation rate of 6.7%. We also welcome the Chancellor’s announcement in the 2023 Autumn Statement that Local Housing Allowance rates will be reset at the 30th percentile of local market rents in April 2024, after several years of freezes and increasing rent prices.

There remains uncertainty for some benefits each year as to whether they will be uprated. We agree with the assessment of the Secretary of State that it is important that “there is an element of fairness to the consistency” of how uprating decisions are made. From financial year 2025–26, the Government should make an ‘Uprating Guarantee’ to uprate benefits annually with a consistent measure, for example prices. (Paragraph 122) 76 Benefit levels in the U

If the Government decides to deviate from the ‘Uprating Guarantee’, it should clearly set out its reasoning to Parliament. The Government should also undertake work to understand what impact the decision to not follow consistent practice would have on its benchmark of objectives for benefit levels.

Policies which reduce the level of support claimants can receive, such as the capital limit rule in means-tested benefits, the benefit cap, and the earnings threshold in Carer’s Allowance, risk reducing benefit levels if they are not regularly uprated in line with other prices. To ensure that policies designed to allocate and limit benefit entitlement operate as originally intended, the Government should commit to uprating the capital limit rule in means-tested benefits, the benefit cap and the earnings threshold in Carer’s Allowance on an annual basis.

We recognise the Department cannot shorten the reference period for benefit uprating due to the DWP IT systems used to uprate legacy benefits. In the longer term, and following the completion of migration to Universal Credit, the Government should aim to reduce the length of time between the measure of inflation used for uprating, and the uprating implementation date. The Government should retain this new, shorter uprating reference period each year to maintain consistency within the system.

It is welcome that the Government is extending the Household Support Fund (HSF) for a further six months until September 2024. Alongside other benefits, the HSF has provided a vital layer of additional support to households during the cost of living crisis. The Household Support Fund should be made a permanent feature of the social security system. This would enable local authorities to plan their provision of discretionary support to households better.

The evidence is clear that support for housing costs cannot be viewed in isolation from wider support provided through other benefits. When and if claimants experience a shortfall in rent, this can impact other parts of household budgeting and erode income otherwise intended for daily living costs. The Government should make a commitment to uprate annually Local Housing Allowance so that it retains its value at the 30th percentile of rents in a Broad Rental Market Area (BRMA).

The Government of the day has a political mandate to make decisions about benefit adequacy, but its decision-making might be assisted by independent advice. There is scope for DWP to commission independent research, either via an independent body, such as the Social Security Advisory Committee, or ad-hoc, to supplement its own review of the extent to which current benefit levels are meeting its objectives for what benefit levels should achieve in relation to living costs. (Paragraph 146) Factors affecting benefit levels

We are concerned that there is not sufficient capacity in the system to absorb the number of claimants who will be made subject to conditionality, or increased conditionality, following announcements made in the 2023 Spring Budget and 2023 Autumn Statement, as well as planned changes to the Work Capability Assessment. This could have a negative impact on claimants and on Work Coaches, who conduct Benefit levels in the U 77 valued work in our constituencies. To improve transparency, the Department should include in its quarterly statistics release, the number of Work Coaches and the average number of claimants they are responsible for. This would help inform an understanding of the pressures on Work Coaches, provide information on the number of Work Coaches working in Jobcentres and help inform an assessment of whether there is sufficient Work Coach capacity in the system. The Department should also include the number of Disability Employment Advisers (DEAs), the number of Disability Employment Adviser Leads (DEALs), and the number of Work Coaches DEAs and DEALs are supporting in Jobcentres. (Paragraph 158) 78 Benefit levels in the U