Making work pay and tackling poverty Nick Burkitt

1
Making work pay and tackling poverty Nick
Burkitt
Welfare to Work Convention 2007
2

• The strategy
• Progress
• Challenges
• Policy design
• Delivery

3
Overall strategy

• Aim
• Improve work incentives- tackle unemployment and
  poverty traps
• Increase financial support to vulnerable groups -
  especially children
• BUT these goals can conflict
• Tax Credits work together with tax and NI
  reforms, National Minimum Wage, New Deals etc.

4
Financial support through tax credits
5
NMW tackles low pay and exploitation, but rises
have little effect on poverty

• 2.3m (9.3) households gain, average weekly gain
  of 4.30
• BUT lower deciles gain less on average
• Changing tax/benefit thresholds would move bars
  but not the line

6

• 2. Progress

7
Successes

• Child poverty down 600,000 on relative measure,
  2.1m on absolute measure
• Employment up 2.2 million
• Tax credits played a big part
• reaching 20 million people 6m families,10m
  children
• Take-up
• better than Family Credit and WFTC
• Rose to 82 in second year for CTC. 90 of the
  money claimed
• More spending on childrens items among
  low-income families

8
External evaluation

• Examining outcomes of Labours ultimate
  objectives would lead one to conclude that the
  make work pay policies have been a success Has
  Labour made work pay IFS,  
• IFS evaluation on effect of WFTC found it
  increased the labour supply of lone parents by 5
  percentage points.
• This is around half of the increase in lone
  parent employment since 1997
• around a quarter of the fall in the number
  of workless couples with children can be
  attributed to policy Welfare to work policies
  and child poverty, a report for the Joseph
  Rowntree Foundation

9
Unemployment trap- Incentive to work at all

• Can measure in different ways- e.g. cash gain to
  work, increase from moving off benefits into a
  job
• Have improved for first earners
• Better support for childcare noticeable
• Second earners improvement for those with worst
  incentives

10
Improvements in gains to work
Note lone parent wages are minimum wage couple
has typical male entry wage (6.60/ hour) full
time 35 hrs, part time 16 hrs.
11
Poverty trap - incentive to earn more

• Marginal deduction rate (MDR) measures how much
  of every extra earned is lost through tax and
  reduced benefits/tax credits
• How important is the MDR? Limited evidence on
  effects, partly due to lack of good longitudinal
  data
• Evidence of the impact of MDRs in bunching of
  employees around 16 and 30 hours
• IFS research suggests effects can be ambiguous

12
Poverty trap

• Have reduced some of the very highest Marginal
  Deduction Rates
• But at cost of spreading moderate to high rates
  to more people
• But new innovations allowing income to rise by
  up to 25,000 before tax credits reduced so get
  to keep all of pay rise for rest of tax year
• (this isnt factored into most analysis)

13
Take-home pay at different hours of work- Couple,
1 Child
14

• 3. Challenges

15
Challenges and response - tax credits

• Overpayments
• End-year adjustments are an integral part of a
  system that responds to families circumstances
  as they change.
• Value fell by a fifth in second year, and again
  in third year
• Changes announced at PBR 2005- effects not yet
  reflected in published stats, but expect to
  reduce by a third
• Recovery limits now protect awards from sharp
  falls

16
Challenges and responses - tax credits (cont)

• Administration
• IT improvements
• Processing accuracy up from 78.6 in 2003/04 to
  97.7 in 2005/06.
• 2006 renewals process successful despite shorter
  deadline
• HMRC working on more significant long-term
  improvements and customer-focused service
• Constantly improving measures against fraud
• Communications
• New award notices April 06
• Better helpline performance
• Work with other advice agencies

17
Need to improve trust and understanding of whole
system

• Need to improve trust
• make sure system delivers, and that claimants see
  real improvements
• Ensure awareness and understanding
• Better-off calculations vs word of mouth
• Better links between JC, HMRC, Local authorities
• Other agencies- CAB, housing associations

18
Overall conclusions

• Gains to work have improved for those who
  previously had the weakest incentives to work
  despite extra money to parents
• Service on tax credits improving, but plenty more
  to do to improve delivery of all financial
  support
• We face difficult choices over long-term
  direction - trading off goals of poverty
  reduction to meet 2010 target and work incentives