Policy paper

Government response: SSAC report on the future of working age contributory benefits for those not in paid work

Published 12 September 2023

Letter from DWP to SSAC

Dr Stephen Brien
Chair of the Social Security Advisory Committee
7th Floor Caxton House
Tothill Street
London
SW1H 9NA

Dear Stephen,

SSAC Report: The future of working age contributory benefits for those not in paid work

The department welcomes this timely report and the subsequent discussions we have had. As we complete the Move to Universal Credit (UC) and Transforming Support: Health and Disability White Paper has been published, this will provide an opportunity to review and consider the place, delivery, and customer experience of our working age contributory (“New Style”) benefits.

The research conducted by the Committee has recommended opportunities for improvement in the delivery of these benefits. In particular we note recommendation 15 (the proposal to adopt a journal approach to communicating with New Style claimants) and confirm that this specific recommendation, as well as the wider report, has been shared with colleagues to ensure the research and evidence basis is retained for the future.

Some other recommendations strike at the heart of the Department’s objectives for claimants of means-tested and/or contributory benefits. Recommendations 4, 11 and 12 specifically focusing on the claimant experience pinpoint opportunities for the Department to improve the quality of the service delivered. These have already been shared with operational delivery colleagues for insight as they begin to consider whether and how they may be best embedded in the delivery of New Style contributory benefits.

As the response to the recommendations attached shows, many of the issues the Committee identify are recognised within the Department. Whilst it is correct to say that the delivery of New Style contributory benefits has not been reformed in a significant way, the ability to do so has been, and continues to be, limited by the existing legacy benefit caseload, which as previously acknowledged will continue to diminish as claimants move to UC. Once that movement of legacy benefit claims to UC is completed the case for making changes to how we deliver New Style benefits will evolve. As such recommendations 5, 6, 7 and 9 are likely to be reconsidered with the reasoning the Committee has provided used in the evaluation for change.

DWP acknowledges that most of these recommendations reflect the modernisation of New Style benefits. A number of those which cannot be accepted at this time can be included in our longer-term strategy and be considered as we take forward work following the Health and Disability White Paper.

The attached Annex provides our responses to the Committee’s recommendations.

Yours Sincerely,

Angus Gray

Director, Universal Credit, Employment Support, International and Corporate Support.

Annex: responses to the Committee’s recommendations.

1. That the Government sets out a clear articulation of what it wants the two New Style benefits to provide and the extent to which those deemed to have paid into the system should be able to access support on a preferential basis to those qualifying for means-tested support.

New Style contributory benefits serve two purposes. New Style Jobseeker’s Allowance provides unemployment support to those made recently unemployed. New Style Employment and Support Allowance provides support to claimants who are not currently able to work due to a health condition or disability.

The benefits are paid when claimants have made the necessary national insurance contributions and, importantly, are unaffected by savings or a partner’s circumstances.

These benefits were introduced to run parallel with UC to replace the legacy contributory benefits, which were paid with the associated means-tested benefits that are being replaced by UC.

Whilst integration was originally envisaged, and legislative powers taken to achieve this, it now cannot proceed because of complexities arising from the interrelationship between UC and New Style benefits. That is not to say that lessons learned in the introduction of UC cannot be shared with New Style benefits in order to offer a more integrated service. Until we are in a position to modernise the underlying delivery architecture, we are improving signposting where a claimant may be eligible for a New Style benefit alongside UC. This will ensure the claimant can benefit from the Class 1 national insurance contributions that are awarded with the New Style benefit.

In addition, the Health and Disability White paper, published in March 2023, confirmed that we remain committed to retaining a health and sickness contributory benefit. The Department is currently looking at options to incorporate this alongside the reforms set out in the White Paper and will set out further detail in due course and in legislating for reform.

Having set out its strategy for these benefits they should also be renamed to reflect their role better, as the name “New Style” will not convey that to claimants. For example, their legal names, contributory ESA, and contribution based JSA, could instead be used.

DWP does not agree to this recommendation at the current time as we have not yet completed the move of income-based JSA and income-related ESA benefit claimants to UC.  When that move is complete, we will reconsider this recommendation.

‘New Style’ is merely a reference given to distinguish the new ‘iteration’ of the contributory benefits from the old-style legacy versions, which each had a contributory and a means-tested strand. Consideration has already been given to re-naming the benefits and when legacy JSA and ESA cease to exist the ‘New Style’ reference will no longer be needed as such they will revert to the already widely recognisable “Jobseeker’s Allowance” and “Employment and Support Allowance.” As previously mentioned, we are actively improving external communications to help claimants understand the nuances of these benefits.

2. We recommend the long-run goal of New Style policy should be to integrate both New Style JSA and New Style ESA into Universal Credit.

DWP does not agree to the recommendation to integrate the policies.

As was explained earlier, this was originally envisaged, however, it now cannot proceed because of complexities arising from the interrelationship between the UC and New Style benefit policies, in particular those relating to being able to make a claim whilst living abroad. That is not to say that lessons learned in the introduction of UC cannot be shared with New Style benefits in order to offer a more integrated service.

3. All claims for Universal Credit should be automatically assessed for entitlement to New Style JSA / New Style ESA.

DWP does not agree with this recommendation at this time.

As the benefits meet different purposes and have differing entitlement conditions there may be a risk that this could be potentially confusing for customers as it may become unclear which benefit they are claiming. As previously mentioned, going forward we are improving signposting where a claimant may be eligible for a New Style benefit alongside their UC.

4. For dual claimants of both UC and NS benefit, the Universal Credit system should measure – and then adjust automatically in response to changes in – receipt of New Style benefits.

DWP agrees with this recommendation.

UC already adjusts to any changes in the New Style benefit award because it is taken into account as unearned income. If a claimant does not agree with how changes have impacted their UC they can challenge their payment via the journal.

The report suggests that New Style benefits should be recorded via Real Time Information, however that system is outside social security payment mechanisms. It was introduced by HMRC (Her Majesty’s Revenue and Customs) in 2013 to provide a new system for employers to record the earnings information of their employees electronically in ‘real time’.

5. New Style payments should be automatic, requiring the work coach to intervene to reduce or stop payment if a claimant breaches their agreement.

DWP does not agree to this this recommendation at this time.

Work coaches currently review a claimant’s progress towards work (or more work) as part of the claimant commitment.

In the case of ESA, the payments are already relatively automatic with agents, in general, only intervening when there is a need to review medical (or other) evidence. Automating that aspect would be complex due to lack of medical evidence effectively preventing payment being made.

6. New Style JSA should be assessed and paid monthly, the same as Universal Credit.

DWP does not agree to this this recommendation at this time.

There are no current plans to change the JSA payment frequency, which would, in any event, likely be constrained by the IT limitations of the Jobseekers Allowance Payment System, (JSAPS). As the underlying IT is upgraded in the future it may be possible to change the frequency of payments.

7. New Style JSA claimants should automatically receive National Insurance credits when they reach the time limit for benefit payment.

DWP partially agrees with the recommendation.

New Style JSA claimants whose claim ends when they reach the time limit are currently reminded to register as unemployed to receive credits. Some claimants are not entitled to receive these such as claimants who already, or who subsequently, claim UC. Work is ongoing to ensure claimants wanting to apply for credits for unemployment can do so efficiently and at the right time.

8. Review the National Insurance credits awarded to claimants of Universal Credit and to claimants of New Style benefits with a view to crediting both in the same way.

DWP does not agree with this recommendation.

This would fundamentally change how contributory benefits operate and are differentiated from means-tested benefits.

From 2016, when the new State Pension was introduced, National Insurance Contributions and National Insurance Credits of each class have equal value, providing access to the same level of entitlement for all. There is also a comprehensive framework of credits available when people are out of the workforce, perhaps caring for children or elderly relatives. The National Insurance credits available will protect people’s State Pension positions for those periods.

As explained below, Class 1 contributions confer more benefits than Class 2 contributions (i.e. New Style JSA) as such crediting UC only claimants with the equivalent of a Class 1 contribution (instead of a Class 3 contribution) would thus disadvantage those who pay Class 2 contributions. A change to remedy this would require wholesale changes to the entire National Insurance system on that basis.

It is therefore not possible to reconcile the National Insurance credits awarded to claimants of New Style benefits (Class 1) with those of the claimants of UC only (Class 3) without a wider change to the differences between the classes of National Insurance contributions.

If such a change were possible and deliverable, it would not confer any advantage to claimants awarded UC except that it might help them access contributory benefits.

9. Contributory requirements to qualify for New Style benefits should be reviewed and reassessed.

DWP does not agree with this recommendation at this time.

The two New Style contributory benefits are for different purposes as such it is reasonable to have different qualifying conditions. Any changes would need to ensure we treat claimants fairly. The contribution requirements provide a link to recent work with the ESA requirements being slightly more generous than the JSA requirements. For example, the Class 2 National Insurance contributions paid by self-employed people allow access to ESA. In contrast Class 1 National Insurance contributions paid by employed people, with limited exceptions, provide JSA entitlement. However, support, by way of an easement in the contribution requirements, exists for those who could not work because of caring responsibilities, which allow for previous spells of caring to be considered and to, therefore, ensure people can claim New Style benefits. Those who cannot access New Style benefits because their contributions are less recent may still access work search support at Jobcentres via credits for unemployment if they are not eligible for UC.

The National Insurance system is naturally an annual system operating alongside the tax year system. A change to the evaluation of a contribution record by considering monthly contributions would risk use of inaccurate information (because national insurance records would not be reconciled for the self-employed and, as such, not be up to date) further increase complexity and potentially increase costs.

10. The means-tests against some private pension income in New Style ESA and New Style JSA should be reviewed in the light of “pensions freedoms” with a view to removing them.

DWP does not agree to this this recommendation.

We believe that it is right that some account should be taken of occupational pension income in deciding the amount of contributory benefit that an individual should receive. Taking account of occupational pensions has long been part of contributory benefits as the number of people with rights to such pensions increased. It is unreasonable to pay full New Style JSA or ESA to people who had retired from their regular occupation with a significant occupational pension before reaching state pension age.

11. Ensure a professional level of customer service and support that considers the claimant’s situation in an accurate/consistent/prompt way.

DWP agrees with this recommendation.

The current digital transformation work focuses on improving service delivery for both customers and our DWP colleagues.

12. Those on New Style benefits should be entitled by default to access all of the employment programmes available to those on Universal Credit.

DWP agrees with this recommendation.

The transformation work on New Style benefit delivery that is currently in train is focussed on improving experience for both DWP colleagues and claimants. Ultimately, when in receipt of New Style benefits, claimants will be supported by employment programmes delivered both locally and nationally by DWP or its contracted providers.

13. When a claimant moves from New Style to Universal Credit they should, by default, keep the same work coach unless it is explicitly decided that a change could be beneficial.

DWP does not agree with this recommendation.

Jobcentres have autonomy to decide locally how best to meet the needs of their claimants in light of the local labour market and the claimant characteristics. Some Jobcentres chose to specialise work coaches to either ‘legacy’ benefits or UC. Other Jobcentres work equally effectively by taking a slightly different approach whereby some work coaches support ESA claimants and UC claimants with health conditions; other work coaches support JSA claimants and those in the Intensive Work Search regime of UC. The divergence in the rules and purpose between New Style JSA, New Style ESA, and UC together with the differing size of Jobcentres and the labour market and claimant characteristics are factors that potentially render this recommendation unworkable.

14. Provide appropriate and tailored employment support for JSA and ESA claimants following initial assessment of needs.

DWP agrees with this recommendation.

This is the aim of the tailored commitment agreed at the initial interview stages of both JSA and ESA.  The claimant commitment sets out the agreed, tailored activities that give claimants their best prospects of getting work, moving closer to work or increasing their earnings. All claimant’s circumstances are different, and every commitment must be personal.

15. The Department should adopt a Universal Credit style of journal for New Style claimants.

DWP agrees with this recommendation.

UC has demonstrated that use of the journal benefits customers and improves delivery of the benefit. Contributory benefits use a different payment system with IT constraints that limit the scope of improvements that can be implemented. That is not to say, however, that the use of a journal, or similar tool, is not a long-term aspiration to improve the service afforded to New Style benefit claimants.