Income Support and GST food costs bonus: additional funding.

STATES OF JERSEY

INCOME SUPPORT AND GST FOOD COSTS BONUS: ADDITIONAL FUNDING

Lodged au Greffe on 21st October 2008 by the Minister for Treasury and Resources

STATES GREFFE

PROPOSITION

THE STATES are asked to decide whether they are of opinion

in a c cordance with Article  11(8) of the Public Finances (Jersey) Law 2005 to amend the expenditure

approval for 2009 approved by the States on 22nd September 2008 in respect of the Social Security Department head of expenditure, to permit the withdrawal of an additional £3,400,000 from the consolidated fund for its net revenue expenditure in order to fund amendments to the benefits payable under the Food Costs (Offset of Average GST) Bonus and Income Support Scheme and as set out in Table A on page 3 of the attached report.

MINISTER FOR TREASURY AND RESOURCES

REPORT

1. I n t roduction

In accordance with the approval by the States Assembly of Deputy Le Fondré's Proposition (P.138/2008), the Minister for Treasury and Resources proposes a package of appropriate increases to Income Support, the Food Costs (Offset of Average GST) Bonus and Income Tax allowances and/or exemptions with a total cost equivalent to the tax revenue that would have been lost had foodstuffs and domestic energy been zero-rated for GST.

The total package of measures totals £5.8  million which is split in the following proportions –

£2.4  million for tax allowances, being proposed in the 2009 budget; and

£3.4  million for the GST Bonus and Income Support schemes.

The Minister for Social Security has assembled a package to improve and increase Income Support payments with effect from 1st February 2009 and to double the GST Bonus scheme payment in 2009, as well as changes to bring forward the payment of the Bonus from October 2009 to March 2009.

2. S u m  maryofProposals

The proposed amendments to the rates of Income Support and GST Bonus, with a total cost of £3.4  million, are set out in Table A –

Table A

3. G  S T Bonus

The current budget for the GST Bonus is £400,000 with households eligible to receive a fixed bonus of £75 per annum. The Treasury estimates that approximately 5,000  households will claim this bonus.

It is proposed to double the value of the Bonus so that the amount paid in 2009 is £150 per household. The additional cost is estimated at £400,000 per annum. The cost of administration will not increase significantly but it is likely that there will be a slightly higher take-up under the amended scheme.

Increasing the GST Bonus by £75 per annum is equivalent to £1.44 extra per household per week.

It is proposed to alter the timing of the GST Bonus so that applications can be made throughout the year. At present, applications cannot be made until 1st October in a given year. Providing for applications throughout the year will enable applicants to claim the increased benefit of £150 from March 2009, rather than waiting until October to receive any assistance, so that they have the benefit of the Bonus ahead of facing spending pressures, instead of in arrears.

Allowing applications throughout the year is likely to result in a small increase in the number of eligible claims because it will allow people to choose between tax assessments in respect of one or 2  years previously. However, other than in 2009, each tax assessment will only be able to be used to claim the Bonus once.

The proposed amendments to the GST Bonus Regulations, to bring these changes into effect are set out in the Draft Food Costs (Offset of Average GST) Bonus (Amendment) (Jersey) Regulations 200- (P.164/2008).

A copy of the draft Regulations is attached at Appendix A. Summary of Proposals

Double the value of the GST Bonus from £75 per annum to £150 per annum for 2009 with the 2010 value uprated by the annual rise in the food cost index;

Allow applications for the GST Bonus at any time during the year from March 2009 onwards.

4. I n c omeSupport

Income Support provides the opportunities and tools to increase the level of income for claimants in a number of ways –

Increasing entitlement for all on income support by increasing the basic, fixed level components in respect of adults, children and household costs (N.B. not rental costs);

Improving incentives in the scheme to encourage greater financial independence;

Increasing certain component rates and disregards to target greater assistance to those less able to find work.

All three of these mechanisms are combined in this package to ensure guaranteed minimum increases for all on income support, together with a real improvement in the incentives available within the system.

Basic component increases

All Income Support claims include basic components for adults, children, lone parents and households as appropriate. Increasing these rates ensures that every claim will receive a certain level of additional benefit. The amount of additional benefit will depend on the number of people in the household, with larger households receiving a higher amount than smaller households.

Increasing incentives to work and provide for retirement

It has always been the intention to improve work incentives within Income Support. The proposed package of disregards will increase the incentive for earned income to 10% of gross earnings, i.e., for every additional pound earned, the individual will retain an additional 10p, instead of the current 6p.

It is also proposed to increase the pension income disregard by approximately £5 per week for a single pensioner aged over 65 years and by just under£8 per week for a couple aged over 65 years (both receiving pensions), thereby improving both the incentive and reward for making provision for income in retirement.

Maintenance income disregards

It is acknowledged that the current lack of a disregard for those receiving maintenance income means that there is no incentive for them to pursue, or even claim, maintenance. It is proposed to introduce a new 10% maintenance income disregard to provide a real incentive for maintenance agreements to be put in place.

Targeted support

There are certain groups who encounter additional barriers to accessing the workplace and so will be less likely to be able to take advantage of the improved incentives above. A package of measures is proposed to compensate these groups.

Pensioners below the age of 65  years

Whilst some people may opt to retire early, there are others who are forced into retirement, for example as result of ill-health. To provide additional support to this group, it is proposed to introduce a disregard of 5% for pension incomes to those under the age of 65  years.

Long Term Incapacity Allowance (LTIA)

Individuals receiving LTIA have a long-term illness or disability which may well reduce their opportunities for employment. It is proposed to introduce a 5% disregard on LTIA income. This will also include individuals still claiming Invalidity Benefit under previous benefit rules.

Individuals with moderate or high personal care needs

Many individuals with high personal care needs will benefit from one or more of the above proposals. However, there will be some individuals who are unlikely to be able to enter the labour market and who, for a variety of reasons, do not receive LTIA or a pension.

Providing an increase in the Personal Care components levels 2 and 3 will ensure that this group also receive additional benefit. The components will be increased by £7 per week.

The full year cost of these increases is estimated at £3.0  million in total.

This combination of increased components and disregards will ensure that all Income Support households will benefit from the increased funding being made available.

Summary of Income Support proposals Increase in weekly component rates

The proposed amendments to the Income Support Regulations to bring these changes into effect are set out in the Draft Income Support (Amendment No.  3) (Jersey) Regulations 200- (P.165/2008).

A copy of the draft Regulations is attached at Appendix B. Increase in disregards

The above will be enacted through the approval of an Order by the Minister for Social Security, should the States agree this proposition.

A copy of the proposed Income Support (General Provisions) (Amendment No.  2) (Jersey) Order 200- is attached as Appendix C.

5. T r a nsitionalArrangements – Protected payments

There are about 2,900  households who will continue to receive protected payments at a level above their Income Support entitlement, after the proposed improvements have been introduced. These households will continue to receive their full protection until October 2009 following the additional £2.2  million funding agreed in the States Business Plan.

Furthermore, unless they are taxpayers, they will also receive the additional GST Bonus payment described above. However, they will not benefit directly from the increases in Income Support components and disregards until their protected payments cease in up to 5  years' time.

The increase in Income Support rates does however lead to a reduction in the cost of the transitional protection scheme. This saving will amount to approximately £840,000 in 2009. It is proposed that this saving be ring- fenced and used to improve the protection arrangements for pensioner and disability households and also to fund pilot schemes to assist jobseekers in returning to work. As individual measures prove their cost effectiveness they will be incorporated into the main Income Support budget at no additional ongoing cost. Further details of these measures will be published in early 2009.

6. I m  plementation

Administrative systems will need to be amended to implement these changes. It is proposed that the improved Income Support rates will be paid from 1st February 2009, and that the GST Bonus will be available from 1st March 2009.

The implementation of these proposals will incur some additional administrative and system costs and staff will need to be diverted from other tasks while the enhancements are implemented.

To minimise delays, overtime and temporary staff will be used. The staff and IT development costs will be contained within the proposed allocation of funds.

7. I m  pact of IncomeSupportchanges

For households receiving Income Support, the following examples illustrate the additional weekly benefit that will be available to various typical families –

• Single pensioner, receiving a pension – £6.44/week

• Pensioner couple, both receiving pensions – £10.36/week

• Pensioner couple, both receiving pensions, one with high personal care needs – £17.36/week

• Lone parent family, no earnings, one child, £50/week maintenance – £7.10/week

• Working family earning £400 gross per week – 2 adults, 2 children – £19.71/week

• Working family earning £300 gross per week, 2 children, one with a disability – £22.71/week

• Single person, no earnings, 60% LTIA – £6.63/week

• Single person, with disability, living with parents – £7.98/week

• Single jobseeker – £1.47/week (£76.44 year).

8. F i n ancialandmanpower implications

There are no permanent manpower implications. The full year additional cost to Income Support and GST Bonus payments is £3.4 million.

Implementation costs, including administration, are estimated at a maximum of £25,000 and will be funded from within the £3.4 million or the consequential savings to the protected payment budget in 2009.

9. C  o nclusion

The addition of £3.4 million will make a significant improvement to the level of benefits available. Income Support rates were adjusted in May 2008 to compensate fully for the introduction of GST. These additional increases (together with the increase in the Winter Fuel Allowance) will ensure that Income Support households are also well protected from the recent increases in food and fuel costs.

The level of the GST Bonus will double from its original level and will provide some protection against the cost of food itself in addition to the cost of the GST levied on food items. The extension of protection previously agreed in the Annual Business Plan and the additional protection included in these proposals ensures that families just above the Income Support level will also receive additional benefits for a number of years.