Income Support System

STATES OF JERSEY

r

INCOME SUPPORT SYSTEM

Lodged au Greffe on 26th April 2005

by the Employment and Social Security Committee

STATES GREFFE

PROPOSITION

THE STATES are asked to decide whether they are of opinion

to r e fer to their Act dated 2nd May 2000 in which they charged the Employment and Social Security

Committee to identify the likely effects of a new income support system, to their Act dated 17th February 2004 in which they agreed that the new system should contain a disability component' for the extra cost of disability to replace all the existing non-contributory disability benefits and to their Act dated 9th September 2003 in which they agreed that the new scheme should be established by 2006, and to agree that –

( 1 )( a ) the existing benefits defined in the Family Allowance (Jersey) Law 1972, the Attendance

Allowance (Jersey) Law 1972, the Invalid Care and Disability Allowances (Jersey) Law 1978 (except Invalid Care Allowance), the Disability Transport Allowance (Jersey) Law 1997, the benefits described under the Childcare Allowance and Discount Schemes, the Health Insurance Exception Scheme, the Educational Allowance Scheme, the Milk at a Reduced Price Scheme, the Rent Rebate and Abatement Schemes and the Parish Welfare and Non-Native Welfare Systems be discontinued;

( b ) the benefits described in paragraph  (a) be replaced by one system based on a common evaluation

of current household income;

( c ) payments made under the new system be based on a series of components as described in

Section  5.3.4.1 of the report of the Employment and Social Security Committee dated 21st April 2005;

( d ) the Health Insurance (Jersey) Law 1967 be amended to target individuals who may have chronic

ill health and to allow more flexibility in the delivery of benefit; and

( e ) a Citizen's Fund be established as part of the system to help with such expenses as are currently

met through the Parish Welfare system and the Social Fund Budget of the Employment and Social Security Committee as described in Section  5.3.8 of the report of the Employment and Social Security Committee;

(2 ) th e Employment and Social Security Committee be politically accountable for the new system and

its development, co-ordination and administration;

(3 ) ( a )  the cost of payments made under the system, its development, implementation, administration and

manpower as described in Sections 6 and 7 of the report of the Employment and Social Security Committee be funded from general revenues of the States;

( b ) the Employment and Social Security Committee be charged with devising a scheme of phased

protection to those households who may be affected by the removal of existing benefits as set out in paragraph  (1)(a) above to be funded from general revenues of the States as described in Sections 6.2 and 6.3 of the report of the Employment and Social Security Committee;

( 4 )( a )  the Employment and Social Security Committee be charged with making the legislative and

administrative arrangements to bring the system into effect;

( b ) any Committee developing a strategy that will have an impact on the income support system be

charged to liaise with the Employment and Social Security Committee.

EMPLOYMENT AND SOCIAL SECURITY COMMITTEE

REPORT: PROPOSALS FOR A SYSTEM OF INCOME SUPPORT

1. I n t roduction

Benefit reform is never easy. There is the desire to keep the system simple, but where the system is the last resort, there is also a pull to add complexity in order to meet every eventuality. No-one wants to create a culture of benefit dependency, yet there is a need to achieve a level of financial support high enough to provide a basic standard of living without it being so high as to undermine the incentive to work and save. In Jersey this has to be achieved within the Island's existing and future means. The ultimate aim is that of reducing poverty in the Island.

2. E x e cutiveSummary

• 7 5 %   of households in Jersey are able to support themselves. The remaining 25% will require ongoing support or help at certain times. In 2004, £51  million was spent supporting households through a range of means-tested benefits.

• B  as e d on available research, the incidence of poverty in Jersey is close to the European average, but the severity or depth of poverty is less (despite spending less). Having reviewed the current systems, the Committee has concluded that overall, they contribute to the low level of poverty. Nevertheless the systems are difficult to understand, do not always target money to best effect and cause much duplication of effort and frustration amongst those trying to get support at difficult times of their lives.

• T h e Committee concludes that there is a need for change and proposes a new Income Support system to replace the  existing Welfare,  Housing,  Educational  Maintenance  Grant  and non-contributory benefit systems. Each of these means-tested benefits has its own income test and policies and the combined effect is an uneven distribution of resources and some disincentives. Replacing them with one benefit and one consistent income assessment will create a fairer, more transparent and accessible system which could be the foundation for the drive to eradicate poverty from Jersey.

• T h e report sets out a framework of eligibility criteria, rights and responsibilities, including a more consistent focus on self-responsibility and work, wherever possible.

• S u p p ort will be available to people from the age of 18 who have been resident in the Island for 5  years and whose income is insufficient to sustain an acceptable living standard. It covers people both in and out of work though there will be an absolute requirement to work, or seek work, unless the person is caring, sick or retired.

• T h e Income Support for each household unit will be calculated by adding up different components

relating to the individual and family circumstances, such as for day-to-day living and housing costs and, extras, as needed, for disability, carer and childcare expenses, then, deducting a proportion of all income (with separate rules for capital) to give a modest incentive to work and save. The remaining amount would be paid as Income Support.

• T h e new system will introduce –

– F o u r levels of support towards the additional costs of disability for low income groups, the two highest based on the level of care required and another two levels where a disability incurs a cost when compared to someone of the same age and sex.

– A C arer's Allowance to anyone, (of any age), on a low income caring for a severely disabled person. At the same time, the current Invalid Care Allowance, which protects carers of working age, will be retained.

– M o r e directed support towards health costs, particularly to help low income families, and for those

with chronic health conditions (through the Health Insurance Scheme), at times when they have high costs.

– A n improved contribution towards registered childcare costs to enable low income parents to work and train for work.

– A C itizen's Fund to help with exceptional expenses that may not be covered in the regular Income Support payment.

• I f t h e numbers of people falling into the last resort' or safety net' Income Support system are to be kept as low as possible, then the Social Security Contributory Insurance scheme must retain a very strong role in keeping people out of poverty, supported by policies on Employment and Economic Growth to provide the jobs, security and earnings on which people can live.

• T h e high cost of housing and rentals remains the single biggest challenge for many, even with a reasonable wage or other income. It is this aspect, more than any other which will drive up numbers of households needing Income Support.

• W o r king to the actual expenditure levels in 2004 across Welfare, Housing and non-contributory benefits (£51 million), current estimates indicate that over 7,000 households could qualify for the proposed new Income Support.

• M o v ing from the old system to the new will be a step change that will require protection for some

households which may be affected by the change. The Finance and Economics Committee has agreed that this protection is necessary and should be tailored to fit the circumstances of these households at the time that the system is implemented. Further detailed information will have to be collected to achieve this aim but an estimated additional cost of £20 million over a number of years for protection has been approved, in principle, by Finance and Economics.

• P r o t ection should also be afforded to income support claimants for any increased living costs generated by the introduction of GST, if approved by the States. The report of the Finance and Economics Committee (P.44/2005) proposes an additional sum of up to £2 million for this purpose.

• I n c onclusion, the Committee is working towards the aspiration that all people in Jersey have a decent standard of living, with enough money to pursue modest activities that allow them to participate in

society.

3. B a c kground

A major review and reform of the Social Security Insurance system took place in the late 1990s, in order to update and strengthen it in the light of demographic and social trends.

This reform highlighted the need to review the underpinning "safety net" system – a wide range of means-tested benefits which had grown up in an uncoordinated way under Parishes (Welfare Grants), Housing (Rent Rebate and Abatement schemes) and Employment and Social Security (family, healthcare and disability benefits).

Not surprisingly, it was found that this means-tested system produces some inequities and disincentive' effects across lower incomes as a result of the different policy intents behind each of the benefits with their own rules and means tests. The interface with the income tax system was also identified as creating further complications.

In trying to address the issues raised by the last review, the then Benefits and Welfare Working Party concentrated on improvements to the existing system. These included reforms to modernise the Welfare system and initiatives of the Social Policy Strategy Group to plug identified gaps in provision such as for home adaptations, special dietary and equipment needs, and dental, optical and chiropody care for the elderly. Assistance with the cost of childcare through the tax system and childcare allowance schemes were also approved by the States.

However, it was eventually realised that improvements to the existing system could only go so far and that if it was to be further improved, then major reform would be required. The Employment and Social Security Committee lodged a Report and Proposition (P.44/2000) "Minimising Material and Social Deprivation: Low Income Support" outlining proposals to abolish all existing means-tested benefits and replace them with a new income support system. As a result, the States charged the Committee with identifying the likely effects of such a system and to report on the financial, legislative, manpower and administrative consequences, and to make recommendations.

Subsequently, a Steering Group was formed of representatives from all interested Departments and Parishes to share knowledge of the different systems and develop a new approach. The Steering Group was supported in its work by Professor Robert Walker (University of Nottingham and Institute of Fiscal Studies) and the Centre for Research in Social Policy (CRSP), Loughborough University.

The Steering Group produced its first report in September 2001 and set out the following Vision: "Income Support should seek to guarantee an adequate standard of living for all". The Group noted from its research that: "Policymakers throughout the industrialised welfare states are facing pressures to devise integrated approaches to targeting and confronting disincentives, inhibit fraud, limit transaction costs, avoid stigma and promote transparency in decision making .. there do not appear to be, as yet, fully integrated approaches that could provide a model of good practice for Jersey".

The Steering Group identified key policy issues and considerations on which direction was needed to enable Jersey to develop its own system. The issues raised at the time were substantial ones, including the qualifying period for Housing Benefit, (since reduced from 20 years to 15 years), immigration, health and other matters and also the level of household budgets from which benefit levels could be determined, (subsequently researched by CRSP). The main policy issues were described more fully in the report "Aiming for a Fairer Society" put together by Professor Walker and published at the end of 2001.

In the absence of clear policy direction on the key issues mentioned above as well as fundamental aspects such as information on the causes of poverty and social exclusion in Jersey, the Group found that it was unable to take its work forward.

A review of data available at the time showed that it was not adequate to develop and cost a new system. It was some time before funding could be made available, but an income distribution survey was finally commissioned by the Policy and Resources Committee in 2002. It was a major exercise, this being the first time such a survey had been carried out in Jersey. Reports were received in September 2003 and July 2004, enabling a computer model to be built recently by Oxera to help cost income support proposals.

The Committee made use of this time in between to commission other work to support the development of a new system, consult and build a general consensus. The Committee also took the opportunity to carry out a "Policy Review of the Social Insurance system in Jersey" and presented an interim report to the States (R.C.49/2004) together with a progress report on Income Support (R.C.48/2004) in November 2004, which helped to bring together all the issues and enable a wide body of Stakeholders, and States members, to comment on emerging ideas.

The Committee acknowledges the support of the many people and organisations who have contributed in putting forward its proposals. Before doing so, the next section sets the context and summarises main conclusions from research undertaken to date.

4. C  o ntext

1. C r itique ofexistingIncomeSupportSystem

The following observations and research on the current system have influenced the Committee in the design of the proposed new Income Support system. While the critique focuses on the need for change, it is important to remember that the current system also has some good aspects. This is borne out by the less severe relative poverty there is in Jersey, though the favourable economic climate, high levels of employment and tax thresholds must also have contributed to this situation. Nevertheless, the sense of exclusion amongst some of the population in Jersey is very real as is the gap between the less well off and rich people in our society.

1. Welfare

The Parish Welfare system, originally set up to help the "needy" born within the Parish, is currently the Island's main "safety net". Help is now also given to "non-natives" who have been resident more than 5 years (or 10 year for people coming to Jersey after the age of 55). A living allowance is set and a rental component paid where necessary. The total amount depends on the family set-up, and on household income and savings. Rates are such that only those unable to work, or people on very low incomes, receive support. The largest single group receiving welfare support is pensioners.

The closeness of the Parish to its Parishioners is a strength in many ways. Though administration is carried out individually by each of the 12  Parishes, a common application form, standard rates of benefit and guidelines on the use of discretion have been agreed. Nevertheless, there is still a perception that there is not always consistency in decision making across all Parishes and that there is some stigma attached to claiming welfare which may affect take up.

2. FamilyAllowance

When introduced in 1951, Family Allowance was paid to all families with 2 or more children. It changed in 1972 to provide a contribution to the cost of bringing up children based on an income assessment. The income test was linked to the income tax assessment and so based on historic, not current, income. Originally there was a direct relationship between the tax system and family allowance in that there was an income point at which Family Allowance ceased to be paid and Income Tax began to be paid. The scheme was altered over the years, to direct payments to the first and second children in a family and, to give a weighting to single parent families. Changes to the income tax structure, particularly the allowances for married couples, also meant that the link between the tax system and family allowance was lost. A group of families was created that were technically "too poor" to pay tax but "too rich" to be paid through the Family Allowance system.

The crucial disadvantage with the Family Allowance system is that it does not meet immediate need, being based on an historic income and cannot therefore, react quickly to changes in income or family circumstances. Attempts to change the system (for more extreme cases of redundancy, and change in family constitution), have led to difficulties with overpayments of the allowance.

In short the Family Allowance Law works well in cases where families have a persistent and regular relatively low income but it does not provide the financial support necessary to meet changing needs in families with children.

3. ChildcareAllowance Childcare 5 to12yearsscheme

Under this scheme, private providers receive funds to subsidise the after school and non-term-time care of children from lower income families. The Jersey Child Care Trust administers the scheme on the Department's behalf and processes the grants to the private providers based on the number of children being supported. The extent of subsidy is dependent upon the family income, with a greater discount (up to 60%) being available the lower the family income (the highest discount being available to families with income below £10,000). The number of children supported by this scheme continues to grow each year, and generally, it has been assessed as an effective scheme in providing care, supporting families, and giving the opportunity to work. There are some concerns that the discounts are insufficient for those on very low incomes to bear the cost of childcare.

Childcare 0 to 5 years scheme

The 0 – 5  scheme is a direct benefit payment, based on childcare costs incurred and paid in arrears, for families below the tax thresholds who are in work. It is administered by the Employment and Social Security Department. Assistance continues into the income tax bracket in the form of a tax deductible childcare allowance. The number of beneficiaries has reduced for some years, and currently only a small number of families claim this support. Some have moved into the tax bracket as personal allowances have been frozen and earnings have risen, and therefore claim the tax allowance instead.

At the same time, because of budget constraints, the level of benefit support available (up to £110 per child – maximum of 2 children) usually represents a proportion of the costs of childcare and could deter families from joining the scheme as the net benefits of going out to work may be insufficient. (Currently the average cost is £3.42 per hour in private nurseries.) The scheme does not cover childcare costs for those undertaking training although such costs are sometimes covered by Parishes for those on welfare.

Some parents may delay returning to work until the youngest child is at school. This is borne out by the increase in numbers accessing the 5 – 12  scheme. Recent reforms to the Social Security system enable parents to make choices as contribution credits are awarded to the parent staying at home to look after children up to the age of 5  years.

4. Disability Benefits

There are a number of Disability Benefits targeted to people with a range of disabilities.

Attendance Allowance, introduced in Jersey in 1972, was intended to compensate for the extra cost incurred by being severely disabled, similar to the benefits in the U.K. However, in Jersey, entitlement was defined as requiring "assistance by day or night" instead of "assistance by day and night" as in the U.K. At the time of the debate, both means-testing and a universal approach were rejected in favour of a simple income bar. The income bar was set at a relatively high level and has been increased annually since 1972.

Children over the age of 4 can receive the allowance, but in general terms the benefit is paid to the elderly (73% of the total number of claimants). Over the years since its introduction, a number of issues have arisen around the income bar, and whose income should be included in the definition of family income, when a relative lives "en famille". The allowance is poorly named in that a person who has no attendants whatsoever can receive the benefit.

Overall, this benefit works for long-term chronic situations but, it does not lend itself to very acutely ill cases whose need for attendance may only be for the last few days/weeks of life. Attached to this benefit, there is an Invalid Care Allowance, introduced in 1978, for carers under the age of 65 discussed later in this report.

Disabled Child's Allowance was introduced in 1978 to recognise the potential additional cost of bringing up a child with a disability. Over the years, the determination of this allowance has been difficult (albeit that numbers are small), as it requires distinguishing between disability and illness. This is made even more difficult when some perceived minor long lasting conditions can be controlled in children with treatments that may seem disproportionately expensive, whereas more serious conditions may have less cost implications. The same income bar that exists for Attendance Allowance is used for Disabled Child's Allowance but, unlike Attendance Allowance (which was subject to change through a private member's amendment) the income to be assessed is that of the family, not solely the child.

The thrust of the legislation was to provide some financial help for those people disabled from birth through their childhood. This theme continued into Disabled Adult's Allowance which can follow in continuation from Disabled Child's Allowance, if a congenital disability for example does not allow a person to take up employment. The test of disability means that a person is incapable of taking up paid employment and that the person cannot claim Social Security benefits as contributions have not been paid. In the early years, the take up of this allowance was low, with few people benefiting. However, numbers began to increase when married women, who had opted out of the Social Security system many years earlier, began to claim. Only 21% of claimants are male.

One of the difficulties of the Allowance is the disincentive of losing all benefit if any attempt at work is made. The fear of failure, and the subsequent re-qualification period, is often cited as a disincentive even though the advantages of entering the Social Security system, and paying contributions to gain benefit and pension entitlement are clear. Again, the same income bar as that defined in the Attendance Allowance legislation is used.

The most recent of the disability benefits, Disability Transport Allowance, has origins dating back to the 1970s and the U.K.'s Mobility Allowance. In 1988, the States approved a 25% increase on all non-contributory disability benefits, rather than the introduction of a Mobility Allowance, on the basis that likely claimants would already qualify for existing benefits, and that all should benefit, not just those with mobility problems. The Finance and Economics Committee of the time warned that even though this increase was approved, it would not stop further calls for a mobility allowance. This was the case almost immediately and over three States debates, the Employment and Social Security Committee's original proposals were amended to the system that exists today.

The original proposals were for a system targeted to people under the age of 65 who were not in residential or nursing care. The benefit had 2  rates: a higher rate for those in work; and a lower rate for those not in work. In policy terms the benefit was there to help those people with disabilities who had difficulty getting out and about. This policy was translated into a basic qualifying criterion of a person unable or virtually unable to walk. During States debates, the scheme was made into a single rate benefit available to people with disabilities, regardless of age and whether in care or not.

With 3,000 claimants, and a cost of £6 million a year, the benefit is the most criticised benefit of all with perceptions of waste, misuse and over-provision. A review of the benefit clearly demonstrated that, whilst a valuable aid to mobility for some, the allowance had become an additional living allowance, often used within the household budget rather than specifically for transport.

The largest group claiming the allowance is the elderly who have difficulty getting out and about rather than people who have a specific disability.

5. Carers

Invalid Care Allowance is paid to people who give up the opportunity of work to care for a disabled person who is so severely disabled that they themselves are in receipt of Attendance Allowance. The benefit is a "compensation for the loss of earnings" and, at the same time, money is paid to the Social Security scheme to protect the pension position of the carer, for the period of time the caring is undertaken. It currently ceases at age 65, even if caring continues. This can mean a reduction in income at age 65 for some carers depending on the level of entitlement to a Social Security Pension.

In the reforms of the Social Security system following "Continuity and Change", the rate of Invalid Care Allowance was increased considerably, from £203 to £494 a month in 1999. This increase brought the allowance to the full rate of benefit or pension, which recognised the social values of foregoing work to care, the need to move away from the idea of dependency in such cases and to continue to protect pension entitlement. This reform has been well received by such carers.

6. Housing

Housing Benefit is a major element of the existing benefit system, accounting for over 40% of the overall income support expenditure in 2004.

Concerns about this cost have been expressed in many quarters. Some believe that the existing system of Housing Benefit acts to inflate the level of rentals within the local market. Others are of the view that costs are primarily the result of an imbalance between supply and demand.

The Housing Committee has responsibility for the number of public-sector properties available for rental and any housing policy which may or may not control rentals in the private sector. The fact is that the costs of property and rentals are high in Jersey and help towards housing costs will continue to make up a large part of a budget of any Income Support scheme whilst they remain so.

One cause of hardship in the Island in relation to housing costs has been the lack of support available to residents without residential qualifications. The Housing Committee has already made much progress in this area with consecutive reductions in the qualifying period from 20 to 15  years. The length of this qualification period causes difficulties in merging the Housing Benefit system with the other means-tested benefits which have varying qualifying periods: Welfare and HIE are 5  years, but Family Allowance is only one year.

There are other differences between housing and the other means-tested benefits. The Rent Abatement and Rebate schemes create a limit on the percentage of income to be paid in rent, with no regard as to whether the income left after rent relates to a household's needs. Parish Welfare, on the other hand, seeks to provide a basic living allowance for households in need, but will pay rent to preserve a basic income within a household. Family Allowance seeks to help low income families with the cost of raising children and various Disability Benefits provide support with the additional cost of chronic disability.

Also, unlike Welfare Grants, for example, the Housing Committee does not impose any requirement to seek work if unemployed, nor any requirement for either or both adults in a family to seek employment, once the children reach a certain age.

Finally, the existing Housing Benefit system requires single tenants to be aged 25 years. There is discretion in certain circumstances such as when the person has started their own family. This age limit is set at a relatively high level to discourage young adults from leaving the family home, finding they cannot afford to do so, and attracting a rental subsidy for themselves. The Welfare system will generally accommodate people over 18 and the non-contributory (Social Security) benefits relate more to the circumstances rather than age.

7. Health

For people in normal health and with reasonable means, the current health insurance system works well in mitigating the cost of G.P. services and prescriptions. Similar "co-payment" or user charge systems of funding are used extensively throughout the world. The underpinning Health Insurance Exception (HIE) scheme ensures those unable to work (largely, long-term sick, single parents and pensioners), with relatively low incomes, can access free health care. This works well for those in the HIE system but creates difficulties in managing demand and inequities across the population as a whole. There is no HIE provision, for example, for (full-time) working people with low incomes. In addition, the Health Insurance system is outdated, being based on the old Beveridge model of the male bread-winner. This makes targeting specific individuals impossible, leading to a degree of inequity between similar families containing chronically ill members. It is also known that low income families can find health costs difficult at times, particularly for their children.

In terms of the help for the chronic sick, who are not covered by the HIE system, the Health Insurance system is perverse. The subsidy and patient cost is driven by the number of visits to the General Practitioner, so more visits result in more subsidy but also in more cost to the patient.

Finally, some people perceive a stigma attached to HIE whilst others are keen to acquire the benefit which has become a passport' to many other benefits over the years, thus creating even more inequalities.

8. EducationalMaintenanceGrant

Educational Maintenance Grant (EMC) (not to be confused with Student Grants), is paid to children between the ages of 16 and 18, who stay on past the compulsory school leaving age that might have otherwise left school to take up employment. With the widespread increase in post-16 education' take-up, this incentive may be unwarranted. The grant, paid to the student, is an incentive not to work and, being subject to an assessment of household means, does not fully compensate for lost earnings'. Payment is also subject to adequate school reports, and therefore, is not the same as Family Allowance payments which can be paid to children at school between ages 16-18. Clearly, however, there is some duplication and whilst the benefits, Family Allowance and EMC, serve different purposes, and potentially slightly different child populations, there would seem to be merit in bringing EMC into the Income Support system within an increased 16-18 child component.

2. R e search

Drawing on information from several studies the main observations are –

• T  h e incidence of poverty in Jersey is close to the European average but the severity of poverty is less ( Hart 2005); the definition of poverty used here is the widely accepted measure of household income of

60% (or less) of the median income.

• S  p en ding on social protection as a percentage of its GDP is less in Jersey than any other European

country. In this context, the higher tax thresholds and lower levels of personal taxation than other EU countries have to be taken into account. Within the overall spend, on a per capita basis however, Jersey's expenditure on housing is comparatively high whilst expenditure on sickness, healthcare and disability is close to the European average. Expenditure attributable to families and children, old age and unemployment is less ( Hart 2005).

• T h e relatively high cost of housing disproportionately affects those at the lower end of the income scale.

The comparison of households living in relative poverty indicates that the cost of housing is a significant factor in drawing households into poverty. Before housing costs are taken into account 16% of households live below the relative low income threshold (U.K. 17%). After housing costs are included the figure rises to 24% (U.K. 22%). (Income Distribution Survey (IDS) 2004).

• J e rs e y has a high labour market participation rate amongst men and women. This means that most people

are contributing to their own upkeep even if they are not able to earn enough to meet their basic needs. In Jersey, more women and men of working age (16-59/64  years) are economically active (i.e. in work or looking for work) than in the U.K.; the rate in Jersey is 4 percentage points higher than the U.K., for both genders (87% compared to 83% for men; and 76% compared to 72% for women) (2001 Jersey Census) (IDS 2004).

• T h e largest relative low income groups are single parents and single pensioners, with 64% and 45% of each having a household income that is 60% or less of the Median household income after housing costs

(IDS 2004).

• T h e r e are inequalities in the current systems, including access to health care and the cost of housing to

people without qualifications, which lead to specific poverty issues. Because Income Support is currently made up of a number of disparate systems, it is not user-friendly and lacks flexibility to deal with all situations ( Walker 2001).

• T h e number of separate systems means that administration is disjointed, with the same information often being collected in different Departments, leading to duplication and difficult access for the customer

(P.44/2000).

• T  h er e are various rates of marginal tax, or marginal deduction rates (MDR) across the benefit and tax systems which act as disincentives for some to enter employment or increase earnings (Task Group on

Marginal Tax Rates 1998).

• T h e threshold levels of the taxation system are higher in Jersey than the U.K. (Jersey Budget Book 2004).

• A r e view of other systems and experiences indicates that there is no suitable template for Jersey to adopt.

Income support systems around the world have developed in response to specific national economic, social and cultural circumstances. Therefore Jersey must develop its own (Centre for Research in Social Policy 2004).

3. T h e combined effect ofthe existing IncomeSupportSystems

The combined effect of the various benefits described above is that net income can vary depending on the different combination of benefits claimed. The schemes are administered by 4  organisations and each applies its own rules, without regard to the overall effect on the claimant. There is therefore duplication of effort in claim processing, the capturing of data, payment and other aspects such as reviews and detection and prevention of fraud. For the customer, the system is inflexible and difficult to understand, with benefits not always directed to those in most need.

The overall result is shown below.

The graph illustrates the disincentives that a two-child family might meet. The blue line shows the family's income after housing costs have been deducted. Initially it is straight, as Welfare supports up to a defined income level. As income increases above the level of Welfare support, the family is still receiving Family Allowance and Housing Benefit. But as their income increases, both these benefits reduce at the same time but at different rates, so the disposable income is less. The green and red lines show the tapering-off of Welfare and Family Allowance as income increases. The orange line shows the comparatively generous tapering of the housing subsidy, so much so, that some recipients of housing subsidy are paying Income Tax.

5. T h  e proposed new IncomeSupport System

1. P u rpose

The Committee is of the view that the main purpose of the new simplified system should be to help and enable people to –

• a v o i d poverty, and

• t a k e appropriate actions and life decisions to get out of poverty.

It should also provide a firm foundation on which the Island can work towards the eradication of financial and social exclusion in the Island.

2. P r inciples

The Committee set the following overriding principles for the design of a new Income Support system. The system should –

– b e e ffective in tackling real needs;

– p ro m ote work;

– en c o urage self-reliance;

– b e e asily understood and accessible;

– b e e quitable, consistent and sustainable; and

– ta k e account of the whole needs of the family.

Real needs have to be tackled effectively to give more immediate support to families on low incomes and, specifically, to encourage higher take-up amongst low income pensioners.

People will be encouraged to work to support themselves when capable of doing so and keep their affairs in order and plan for retirement wherever possible.

In designing a more accessible system, the Committee recognise that there may have to be some trade offs' between simplicity versus complexity. The new system must strive to be fair to the community as a whole, striking the balance between individual, taxpayer and State, and must be sustainable now and through the demographic changes ahead.

The system will be based on a common philosophy of award based on need, a common assessment, and one administration and will take account of the needs of the whole family.

3. T h e proposed system

1. IncomeSupportAssessment:Context

Any general income support system must work with the contributory Social Security Insurance scheme and Income Tax system. The contributory system promotes work and encourages people to save for times when they are unable to support themselves through work, retirement, sickness or maternity. Ultimately, there will always be some who fall through this first tier for whom the income support system is the safety net. It is important to get the balance right between the two.

The relationship between Income Tax and both the insurance and income support systems must ensure that there are incentives to increase income and that there is sufficient disposable income for families to live on. The ideal interface would be a period of increasing income after exiting Income Support before entering the Tax system. This would imply that the components of the Income Support system should be closely related to the Tax thresholds in the Tax system. It would also avoid the current situation where the States, through benefits, give households direct financial support yet, through direct taxation, require the same households to pay money back to the States.

At this stage, without States approval of a new Income Tax structure, it is difficult to put forward proposals on the interface. This will have to be developed as more detailed decisions are taken by the States.

2. IncomeSupportAssessment:Summary

In broad terms, the proposed assessment consists of a series of components to meet day to day living costs such as for food, clothing and housing. Further components may be added in respect of additional needs such as for disability or childcare. The benefit entitlement is calculated specifically to each household's particular circumstances. For example, a married couple with a child and with no other costs would have 2 components: one for a couple, and an additional component for a child. If both parents were working, and needed childcare, an extra childcare component would be added and if the family were in rented accommodation, a further housing component would be added. The resulting total of all components would be the maximum Income Support benefit for the family.

The total income of the family (net of social security contribution payments) would also be calculated with a proportion of the income (the Marginal Deduction Rate, MDR) and savings being exempt. The remainder of the income would be compared with the maximum Income Support total. If the net income is under the maximum level of Income Support, then the difference would be paid as Income Support.

Recognising that it is not always possible to save for larger household items or in case of emergencies, it is also proposed to set up a Citizen's Fund to help meet these costs either as one-off payments or on a loan basis.

The diagram below illustrates the complete system of financial support for social protection. Residents may enter the system through various routes. For example, they may receive a pension through the social security scheme, but support for a disability through Income Support. Those who have not been able to work and receive help through the social security scheme may access Income Support or the Citizen's Fund directly.

Social Protection System

Social Security System Pension, sickness, m aternity

Citizen's Fund Long-term & Crisis

Incom e Support Safety net

3. IncomeSupport:thedetailedproposals

Income Support will replace the present housing subsidy, Welfare, Educational Maintenance Grants and a number of  non-contributory  benefits  administered  by  the  Employment  and  Social  Security  Department.  Other  non- contributory benefits such as Invalid Care Allowance and Christmas Bonus will remain.

1. TheHouseholdUnit

All safety net systems consider the pooled income of the family unit. This is in contrast to social insurance systems which target the individual based on contributions paid.

However, some family units may also contain other (non-dependent) adult(s). For example, an older child still living at home and working. There is an expectation that they are contributing to the housing costs which would have to be accounted for in the family assessment. Alternatively, an elderly relative living with family may claim independently as their children would not be expected to meet the basic living costs of their parents.

The States have already agreed, in principle, that adult children should not be financially responsible for the welfare  of  their  parents  (P.236/2002),  hence  elderly  dependents  will  be  seen  as  separate  households.  This principle will have to be incorporated into the Income Support legislation.

The system should be neutral to gender and marital status.

2. Age

The Committee proposes that there be a minimum age of 18 at which the living allowances may be claimed. In normal circumstances, the full range of benefits, including the housing component may be claimed from the age of 21. However, younger adults may be given full support in certain circumstances, for example when they have their own family.

The current Housing Benefit excludes single adults under age 25. Parishes, on the other hand, may give some help to young adults from the age of 18. During the consultation process, there was a general feeling that 25 was too high and that qualification for Income Support should start at age 21. Setting a general limit any lower than this may encourage welfare dependency among some of the young. However, the Committee understands that it needs to be aware of the specific needs of young people between the age of 16 and 21 and will work closely with appropriate agencies to provide support as required.

3. Residency

The Committee proposes that claimants for Income Support should be both resident and present in Jersey for 5  years prior to the claim. Most countries have a time requirement for access to income support systems. The existing Welfare system in Jersey stipulates 5  years. Most taking part in the consultation process thought this to be a reasonable starting point for qualification in the new system. Some, however, would like to see that period reduced when it could be afforded.

It is usual to have exemptions from presence for short periods and the Committee suggests a 28-day period be allowed without loss of benefit, though longer periods would be appropriate for special reasons such as ongoing medical treatment. In addition there may be some special arrangements through Reciprocal Agreements with the U.K., where people would qualify before the 5  years for some benefit components. Special arrangements may also apply for those serving in H.M.  Forces and students.