Review of Benefit Levels and Income Support - Report - 28 March 2011

Health, Social Security and Housing

Scrutiny Sub-Panel

Review of Benefit Levels

Presented to the States on 28th March 2011

S.R.3/2011

CONTENTS

1. Chairman's Foreword.............................................................................................3
2. Key Findings and Recommendations.....................................................................7
3. Terms of Reference..............................................................................................15
4. Sub-Panel Membership........................................................................................17

1. Health, Social Security and Housing Scrutiny Sub-Panel ...............................17
2. Advisors..........................................................................................................17

5. Introduction.............................................................................................................19

6. Case Studies..........................................................................................................27
7. Jersey Income Distribution Survey 2009 / 10 .........................................................35
8. Jersey Annual Social Survey 2010 (JASS 2010)....................................................41
9. The Levels of Income Support................................................................................49
10. The relationship between Income Support and relative income standards.............51
11. Family Composition, Income Support and risk of Low Income...............................57
12. The relationship between Income Support and minimum income standards.........63
13. Accountability and Transparency Issues. ..............................................................69
14. Income Support and the Housing Market ..............................................................75
15. Funding Social Housing: A Failing System............................................................81
16. Income Support and Private Sector Rental............................................................85

17. Income Support and Earnings. ..............................................................................89
18. Income Tax............................................................................................................97
19. Pensions and Savings.........................................................................................103
20. Health Care..........................................................................................................109
21. Conclusion...........................................................................................................117
22. Glossary...............................................................................................................119 Appendix 1...................................................................................................................121 Appendix 2...................................................................................................................123

1. Chairman's Foreword

1. When the HSSH Income Support Sub-Panel set out in October 2009, to produce a report on the levels of benefit and the structures put in place under the Income Support system, I realised that we had taken on a massive task. Not only was Income Support designed to replace some 14 separate benefits, it was intended to be both the safety net for the vulnerable and to support those in work.
2. In addition, Income Support is a complex system, which attempts to meet the needs of a wide range of households. We also had to examine the interaction of Income Support with other fiscal and social policies such as minimum wage levels and rental policies.
3. The HSSH Sub-Panel has been fortunate to be able to co-ordinate its own research with the publication of two other pieces of work undertaken by the States of Jersey Statistics Unit:

• Jersey Income Distribution Survey 2009/10
• Jersey Annual Social Survey 2010

4. The first of these is vital in setting accurate and up to date low-income thresholds by which Income Support levels can be judged. We were pleased to work with the Social Security Department and States Statistics Unit to devise a comprehensive questionnaire, which formed the basis for chapter 12 in the Jersey Annual Social Survey 2010. The survey explored individual reactions to the financial difficulties involved in living in Jersey.
5. With such an ambitious piece of research, it is almost inevitable that some topics receive greater attention than others do. In this case we have not managed to give due attention to the interaction of Income Support with other benefits for those with disability. This topic deserves its own investigation at some stage.
6. However, 3 years on from the introduction of Income Support, this report is able

to make some definitive analysis of the effectiveness of the system. Despite evidence of some improvements in the ability of the Income Support system to alleviate conditions for those in our community who are the least well off, the overall picture is of a system that contains inherent structural faults which cannot be described as "minor teething troubles". These structural faults, in the opinion of the Sub-Panel require a fundamental rethink of what the realistic goals of Income Support should be, and how it can best be organised to achieve those aims.

7. Relative Low Income

Analysis of the levels of income produced for a wide range of household types shows that the basic components of Income Support produce levels that are consistently below (between 75% and 92%) the relative low income threshold (60% of median After Housing Costs) for those family types.

8. The persistence of these substandard incomes in those household groups (pensioners and single parents) which dominate the lowest income quintile indicates that Income Support is insufficiently funded. There is early evidence that households with children suffer increased financial difficulties.
9. Rent levels

There is substantial evidence that a major contributor to financial hardship on the island is the high cost of accommodation with corresponding high rent levels. The inclusion of the rental component within Income Support, which can be over 50% of entitlement, produces an unwelcome risk of a "benefit trap". Equally, insufficient supply of States social housing puts families at risk of increased hardship in the private rental sector. The current system of funding social rented housing is unsustainable.

10. Minimum Wage

Income Support clearly contains insufficient incentives to work with the result that it is difficult for many household types on the minimum wage to escape from the need for Income Support. The tapers and disregards in Income Support result in work at the minimum wage producing only £1 per hour additional income. Income Support can be seen as propping up the current level of the minimum wage through tax revenues.

11. Income Support and income tax

For some household types it is possible simultaneously to be in receipt of Income Support and to pay income tax. This is obviously inefficient and must be addressed.

12. Pensioner Savings

The system of "deemed income" applied to capital assets is a heavy disincentive to save and discriminates against those (especially pensioners) who have managed to save. It should be replaced by a system which encourages saving.

13. Medical Costs

There is substantial evidence that medical, dental and ophthalmic costs are a cause of financial hardship for many households, especially for pensioners and families with children, where demand is high. There is also evidence that there is sufficient anxiety about medical costs to prevent some from seeing their GP when they fall ill. This runs directly against policies to promote preventative care through the primary care system, and must be addressed as a priority.

14. All of the above problems go beyond the possibility of "minor" adjustments to the system, but require a major rethink of the structure and performance of Income Support.
15. It is hoped that this scrutiny report will be seen as a positive contribution to better understanding the issues involved in formulating and properly targeting social and economic policy over the coming decade.

16. This has been a significant piece of work that has been achieved as a result of the hard work of the supporting officers. The many extra hours involved in the public consultation part of the review is recognised and appreciated.
17. The Sub-Panel wishes to extend its thanks in particular to them and to all those who have contributed to this report.

Deputy G.P. Southern of St. Helier,

Chairman,  Health,  Social  Security  &  Housing  Scrutiny  Sub-Panel:  Income Support

2. Key Findings and Recommendations

Please note: Each key finding is accompanied by a reference to that part of the report where further explanation and justification may be found.

Key Finding 1 (Page 40)

The introduction of Income Support has reduced, by one third, the numbers of single  parent  and  pensioner  households  in  relative  low  income  since  2002. However, significant proportions of these households remain below the current low-income threshold. These groups also show significant depth of poverty.

Recommendation 1 (Page 40)

If Income Support is to achieve the policy aim of "enabling people to avoid poverty"[1], the Minister for Social Security must undertake a fundamental overhaul of the Income Support system and its funding.

Key Finding 2 (Page 47)

Over two fifths of households in the lowest quintile and of those receiving Income Support report difficulties in coping financially.

Key Finding 3 (Page 47)

With the exception of those households whose income is over £70,000 per year, at least two fifths of all households report that their financial situation is worse than it was a year ago. Of those who find it very difficult, 58% state that their financial position is much worse.

Recommendation 2 (Page 47)

The Minister for Social Security must not allow the Comprehensive Spending Review to reduce benefit levels.

Key Finding 4 (Page 56)

High rental levels are a major contributor to financial hardship in Jersey. 21% of households in the lowest quintile report arrears for rent whilst between 10% and 15% were in arrears for their domestic energy bills.

Key Finding 5 (Page 59)

The HSSH Sub-Panel considers that the eligibility rules for the rental component of Income Support for under 25 year olds are discriminatory and may be subject to challenge under the Human Rights (Jersey) Law 2000.

Recommendation 3 (Page 59)

The Minister for Social Security must review, as a matter of urgency, his policy on the eligibility for the accommodation component of Income Support of under 25 year olds.

Key Finding 6 (Page 62)

The basic components of Income Support are currently set at rates that are well below the relative low-income threshold for a wide range of household types.

Recommendation 4 (Page 62)

The Minister for Social Security must bring a report to the States outlining his targets for  more  closely  aligning  Income  Support rates  with  the low  income threshold over a measured timescale.

Key Finding 7 (Page 68)

Despite the additional weighting in the original design of Income Support given to families with children, the evidence contained in this chapter indicates increased financial difficulties for these households.

Recommendation 5 (Page 68)

The Minister for Social Security must address the role of Income Support for families  with  children,  in  conjunction  with  the  development  of  the  Strategic Framework for Children and Young People.

Key Finding 8 (Page 70)

Applicants for Income Support do not receive sufficient information to allow them to understand how their benefit is made up.

Recommendation 6 (Page 70)

The Minister for Social Security must ensure that applicants for Income Support are given a breakdown of their Income Support components in the letter notifying them of their award. The Income Support calculator must be made available to the public by the Social Security on its web site and in the department.

Key Finding 9 (Page 71)

There is clearly a need to make public a regular report schedule on Income Support, including the cost of each component.

Recommendation 7 (Page 71)

The Minister for Social Security must publish the cost of each component of Income Support in his Department Annual Report and Accounts.

Key Finding 10 (Page 72)

The effectiveness of Income Support at reaching vulnerable groups has not so far been analysed.

Recommendation 8 (Page 72)

The Minister for Social Security should agree, across departments, a set of standards for assessing the needs of particular vulnerable groups and for the measurement of performance in targeting those needs.

Key Finding 11 (Page 73)

There is no evidence that research has been conducted into the under claiming of Income Support.

Recommendation 9 (Page 73)

The  Minister for  Social  Security  should  analyse  the  data  contained  in  JIDS 2009/10 and other sources to assess take-up rates for Income Support.

Key Finding 12 (Page 80)

Accurate figures for the sums which are paid to the States Housing Department and to private landlords are essential for the development of future housing policy.

Recommendation 10 (Page 80)

The Sub-Panel recommends that the Minister for Social Security makes public accurate figures of gross annual payments of the accommodation components of Income Support.

Key Finding 13 (Page 83)

Clearly, there are significant structural problems in the social housing finance policy, causing restricted access to affordable social rented housing. It puts great pressure on the tenants receiving Income Support subsidies in the private sector.

Recommendation 11 (Page 83)

The Minister for Social Security must work with the Ministers for Treasury and Resources  and  Housing  to  ensure  that  the  mechanism  for  financing  social housing is separate from the provision of means-tested Income Support benefits.

Key Finding 14 (Page 87)

The application of the accommodation component of Income Support set at the fair rent level to those households renting in the private sector may result in increased hardship especially for families with children.

Recommendation 12 (Page 87)

The Ministers for Social Security and Housing must establish a mechanism for reviewing fair rent levels at regular intervals.

Key Finding 15 (Page 88)

The  current  savings  requirements  imposed  by  the  Comprehensive  Spending Review places the funds available to maintain the accommodation component at fair rent' levels at risk.

Recommendation 13 (Page 88)

Pending a long term solution to the funding of social housing, (Recommendation 12) the Minister for Social Security must resist any pressure to cap the rising cost of the accommodation component of Income Support.

Key Finding 16 (Page 95)

At its current rate, the minimum wage results in high demand for Income Support from a wide range of household types.

Recommendation 14 (Page 95)

The Minister for Social Security, in his own review of Income Support, must examine the interaction between the level of the minimum wage and the overall cost of Income Support.

Key Finding 17 (Page 95)

The system of tapers and disregards for earned income in the Income Support structure provides insufficient incentives to work.

Recommendation 15 (Page 95)

The Minister for Social Security, in his own review of Income Support, must conduct a thorough overhaul of tapers and disregards for earned income in order to greatly improve incentives to work.

Key Finding 18 (Page 101)

Potential or actual overlap between Income Support and Income Tax thresholds is a major defect in the system.

Recommendation 16 (Page 101)

The  Ministers  for  Social  Security  and  Treasury  and  Resources  must  work together to reduce the overlap between Income Support levels and Income Tax thresholds  at  the  lower  end  of  the  earnings  distribution  in  order  to  correct inefficiencies and report their findings within 12 months.

Recommendation 17 (Page 101)

The Ministers for Social Security and Treasury and Resources should pursue the potential  benefit  from  improved  modelling  of  the  tax  and  benefit  system  to produce profiles similar to that produced by the UK Government entitled "Tax Benefit Model Tables" and report their findings within 12 months.

Key Finding 19 (Page 107)

The current Deemed Income system, which is currently charged on savings at an annual interest rate equivalent to 20.9%, severely penalises those who have saved for their retirement.

Recommendation 18 (Page 107)

The Minister for Social Security should set an interest rate to be charged on savings over the threshold at a realistic level to reflect actual bank interest rates. This rate should be reviewed annually.

Key Finding 20 (Page 115)

There  is  evidence  to  show  that  medical  costs  (G.P,  dental  and  ophthalmic consultations) are a serious problem for many households, especially low-income households in receipt of Income Support, to the extent that significant numbers of people report that the cost stops them going to their GP.

Recommendation 19 (Page 115)

The Minister for Social Security must ensure that information is fully and readily available to the recipients of Income Support about how medical costs are to be met.

Key Finding 21 (Page 115)

In  principle,  Household  Medical  Accounts are  a  useful  mechanism  to  assist Income Support clients to save for their GP costs.

Recommendation 20 (Page 115)

The Minister for Social Security should ensure that all Income Support claimants who wish to can set up a Household Medical Account.

Key Finding 22 (Page 116)

The withdrawal of free access to GPs for some low-income households under the HIE scheme following the introduction of Income Support has, in many cases, had a negative impact.

Recommendation 21 (Page 116)

The Minister for Social Security should review the funding of medical care to develop  a  costed  scheme  to  provide limited  free  access to  GPs  for  certain vulnerable groups and report his findings within 12 months.

3. Terms of Reference

The Sub-Panel agree to the following Terms of Reference (ToR):

ToR 1

To assess whether Income Support benefit levels and structures are set appropriately in relation to:

• The changing income distribution and the relative poverty standard; and
• Minimum standard of living and price inflation, with particular reference to rent levels and the effects of price inflation on households below average income

ToR 2

To assess how the level of Income Support benefits and their design potentially interact with other areas of fiscal and social policy, with particular regard to:

Income tax thresholds,

Social Insurance contributions,

Minimum wage levels,

Pensions and

Social rent-setting policy and housing finance

With particular examination of:

Treatment of earned and unearned income,

Tapers and disregards,

Fixed Tariff Income and

The incentive structures that result from such design, especially those regarding incentives for employment and saving.

ToR 3

To review the delivery of Special Payments with particular regard to dental and medical needs.

ToR 4

To examine the structure of the components of Income Support and their treatment of potentially vulnerable target groups, to specifically include:

Children,

Pensioners,

Single parent families, Young people and Those with a disability.

ToR 5

To examine evidence concerning the impact of the phasing out of transitional payments.

ToR 6

To consider any other pertinent matters that may arise during the course of the review.

4. Sub-Panel Membership

1. Health, Social Security and Housing Scrutiny Sub-Panel Membership: Income Support Review of Benefit Levels

Deputy G.P. Southern of St. Helier: Chairman

Deputy D.J. De Sousa of St. Helier: Vice-Chairman

Connétable S.A. Yates of St. Martin

(until 21st June 2010 and from 7th October 2010) Connétable D.W. Mezbourian of St. Lawrence

Deputy T.A. Vallois of St. Saviour (until 15th February 2011)

2. Advisors

Mr. E. Le Quesne

Mr. E. Le Quesne retired in 2001 as Head of Science at Victoria College, a post he enjoyed for 28 years. He has taken an interest in local issues, for example as a founder member and current Treasurer of JHOG (Jersey Homeless Outreach Group). He is secretary of the CTJ Housing Trust, which has over 120 properties to rent. He is chairperson of the Amos group of Christians Together in Jersey, which meets monthly to look at social issues in Jersey and comment on proposals put forward by States ministers. The group made comments and were consulted on the original proposals for an Income Support system. Mr Le Quesne also assisted on a previous Income Support Sub-Panel.

Dr. Martin Evans

Dr. Martin Evans is Senior Research Fellow in the Department of Social Policy and Social Work and works in both the Social Disadvantage Research Centre and the Centre for South African Social Policy at the University of Oxford. He joined the Department in March 2007 having previously worked at the University of Bath and at the London School of Economics. His research interests are in income, poverty and social security, developing countries, neighborhood deprivation and welfare to work programmes.

He was an Economic and Social Research Council Research Fellow 2005-08 during which his research profiled the changes in British social policy since 1979 using an innovatory model lifetime approach. In 2006 he was Visiting Fellow at the School of Social Welfare at the University of California, Berkeley. He is an associate of the Centre for Analysis of Social Exclusion at the LSE. Before gaining his PhD from the LSE in 1992, Martin worked in community law centre and advice centres.

Dr. Susan Harkness

Dr. Susan Harkness (DPhil London; MA Sussex; MA Cantab) is a senior lecturer in Social Policy at the University of Bath. She is a labour economist and was previously a lecturer in economics at the Universities of Bristol and Sussex and a researcher at the LSE. Her main research interests are in the areas of poverty and inequality, female and household patterns of employment and child poverty.

Officers

Mrs. C. Le Quesne, Scrutiny Officer. Mr. M. Robbins, Scrutiny Officer.

5. Introduction

1. The Income Support system was introduced to replace 14 separate welfare benefits from a number of sources. It was designed to produce a more coherent and efficient mechanism for the delivery of benefits to the poor and the vulnerable. There can be no doubt that the introduction of Income Support has been the most significant piece of social policy reform of the last decade.
2. Income Support has now been operating for three full years, since January 2008. Previous reviews of Income Support have dealt with the design and performance of Income Support.

1. HSSH Delivery of Income Support: Structure (S.R.5/2006)
2. HSSH Review of Income Support (S.R.17/2007)
3. Distributional Analysis of Income Support Households. June 2008 Social Security Department.
4. HSSH Review of Income Support (S.R.5/2009)

3. The Panel decided, at the end of 2009, to constitute a Sub-Panel to undertake a review on benefits and to focus on the policy underlying the provision of the existing system. The intention of the Sub-Panel was to look at Income Support on a fundamental level, in terms of what it does to alleviate poverty.
4. Since then, of course, the Income Support system has come under increasing pressure from the impact of the recession on household incomes. This has resulted in increased demand on resources and the increasing bill for Income Support has had to be met through additional temporary funding from the Treasury. The Sub-Panel notes, however, that funding for Income Support remains subject to potential reductions in the Comprehensive Spending Review plans for 2012 and 2013.

5. In focussing on what benefits are being delivered to what household types, the Panel has been able to draw on extensive data from the Department of Social Security (DSS). In addition, the review has been designed to draw on two further pieces of research conducted by the States of Jersey Statistics Unit:

Jersey Income Distribution Survey Report 2009/10 (JIDS 2009/10) Jersey Annual Social Survey 2010 (JASS 2010)

6. The former, published in October 2010, was based on data collected in late 2009 and early 2010. It therefore forms an accurate basis for comparison of levels of Income Support with relative low income levels and median / mean income levels in the Island.
7. The Sub-Panel conducted a large survey regarding the ability for households to cope financially in Jersey.
8. In conducting this part of the research the Sub-Panel decided to incorporate some new methods of engaging with the public in addition to the usual media approach.
9. The survey could be accessed in several ways
   1. On the Scrutiny web site.
   2. Through Facebook.
   3. In face to face interviews at Brook and elsewhere.
   4. At the Scrutiny Big Red Tent' in King Street on several occasions, when members of the public were able to give their opinions directly to the Members of the Sub-Panel.
   5. By post and hard copy to the Parish Hall s and other locations.
   6. There were 870 respondents.
10. This self-selecting survey of opinion gave many useful insights into the financial situation of Jersey Households. This is reflected in the many quotes from the public included in this report.

11. However, the real value of this approach to deprivation markers' is given by the properly weighted numbers contained in the JASS 2010 (Chapter 12), conducted by the States Statistics Unit, which can be taken with a high level of confidence to be representative of the overall population.
12. The report accompanying the Draft Income Support (Jersey) Regulations 200- (P.90/2007) which put the Income Support system into operation, contained some very ambitious aims;

"The new system will help and enable people to both avoid poverty and to take appropriate actions and life decisions to get out of poverty. The system will do this by effectively tackling real needs whilst promoting work and encouraging self-reliance" [2]

13. Notwithstanding these lofty ambitions, the HSSH Panel, based on its research into the structures proposed for the implementation of Income Support, published a number of reservations in SR 17/2007 as follows;

Policy makers, States Members and Ministers have to be more questioning of simple platitudes of strategic policy aims and think more about design and implementation and the necessary resources to make them happen. Platitudes are easy, making things improve across the board is a bigger challenge.

Second, some priorities have to be agreed. Commitments to end child and pensioner poverty within a set timetable and programmes re-orientated to do so could be adopted. Such promises will require better-understood and considered programmes to support employment and saving. Such an approach would better match the wider policy aims and may help focus policy makers' minds on the real trade-offs that have to be made when trying to promote opportunity to work alongside income benefits.

Third, there is the opportunity to tinker with the structures of Income Support – but fundamentally, it is not an anti-poverty programme that makes work pay. Neither is it an anti-poverty programme for the elderly that supports saving for old age. The essence of the reforms has been to squeeze out any resources that promote and reinforce work to those on low to moderate incomes. Any radical change is beyond tinkering but would require complete rethinking.

Fourth, there is the need to prepare for the potential negative effects that Income Support will have on work and saving, even if no larger reform is possible. These are potentially considerable without some immediate action to change the incentive structures to improve the gains from work and to reward savings.'

14. In this report we have built on the earlier research and we examine the fact that during the development process many key funding elements considered to be essential to the effective delivery of Income Support were not incorporated into the new scheme. For example, the work done by the Centre for Research in Social Policy (CRSP) "minimum budget standards"[3], which was intended to provide a costed set of family-based minimum living standards that could be used to calibrate an anti-poverty programme such as Income Support, was abandoned.
15. Income Support was subsequently implemented on 28 January 2008 to over 8,000 households' and the only intervening report on the numbers and composition of recipients was published in June 2008 and referred to the position in late April 2008 on 8,079 households.[4]
16. It is now more than two years since the release of those detailed statistics on the numbers of Income Support claimants and the amount of public reporting

of  further  statistical  information  to  show  the  operation  of  the  new  Income Support scheme has been minimal. The Social Security department provided the data for a single Table to show the population relying on Income Support for 31st December 2009 (replicated below as Table 1).

Table 1: Participants of Income Support Claims on 31st December 2009[5]

Note: Number of claims in payment on 31st December 2009 is 8,257

Source: Social Security Dept.

17. The  Sub-Panel's  ongoing  concern  through  all  of  its  reviews  is  that fundamentally  the  new  system  has  been  designed  to  be revenue  neutral in the  first instance  and  has  not  been  developed  on  the  basis of  current  and updated economic and statistical evidence to ensure that the above aims can be delivered.
18. That concern was raised during the course of the previous Sub-Panel review when the Minister for Social Security at a Public Hearing made the following statement on the 3rd March 2009;

I went back to the issue [of] the money available for Income Support. It is the money that has been approved by the States and is approved by the States in the Annual Business Plan. Although I might have intellectual aims of what I want to achieve with Income Support, it is limited to that extent by the amount of money that there is to distribute and it is a matter of trying to distribute that in the way that a society, and we, as politicians find is the fairest.'

19. The Sub Panel believes that there is still no clear indication as to whether or not benefit levels are appropriate to ensure that low-income households do not suffer hardship and that raw data upon which to base those levels is currently not available. The Minister for Social Security stated at a public hearing on the 21st May 2010;

That is one of the things that will come out of the Income Distribution Survey. We will be able to see where people are, what incomes they are living on, how they are managing and we will be able to see whether Income Support is effectively reaching them and they are being helped. We have not done any other piece of work there but that is one big thing that we believe will come out and that will help us look at where our component levels are, whether they are set at the appropriate level or not, whether they need to be adjusted or not. It is an important piece of work that.'

20. The intention of this report is to focus on two areas:

1. whether the levels of benefit are set at the correct level to address the financial hardship experienced by different groups in society and
2. where the greatest needs are and how best to focus on delivering support where demand is greatest.

21. A better understanding of the answers to these questions should form the basis for social policy decisions.
22. The Sub-Panel has focused its attention on understanding the financial pinch points' felt by low-income families and those requiring help from Income Support. It has sought to identify areas which appear to need further investigation by the Minister.

23. Incentives to work and to save, the cost of childcare, high rental levels and medical costs are all issues that have repeatedly been drawn to the Sub- Panel's attention. It recognises that the existing Income Support system is an administrative system that does not include the old community care aspects that formed part of the former parochial welfare system. It must be said, however, that as a result the services delivered by Income Support are far more inflexible than the system it replaced. The existing structure has insufficient discretion to respond effectively to individual needs in a crisis.

6. Case Studies

1. "I feel that I need to grovel to Income Support by way of going into Social Security every week and getting my 'Looking for work' booklet signed, yet when I was working I didn't ask Social to justify taking 6% of my wages every week. I am desperate to get off Income Support as it makes me feel like a scrounger. Since becoming unemployed I have applied for so many jobs but only a handful have got back to me which is very disheartening!"[6]
2. In this part of the report the Panel considers hypothetical case studies[7] that examine Income Support income levels and incentives to work. These case studies graphically illustrate some of the failings of the current level and structure of the Income Support system. For these examples, current 2010/11 Income Support rates from the revised DSS Income Support Calculator for October 2010[8] are used.
3. Single Householder of Working Age: Marie'
4. In this hypothetical case study Marie' is 26 and rents a one-bedroom flat. Her basic needs are covered in the basic components' of Income Support that total £140.70 per week (£7,352 per year). In addition, her rent will be covered in full (as long as the rent is at or below the accommodation component that Income Support uses for such property types).
5. Until recently, Marie was sleeping on her friend's couch and had been for two months. Despite looking for accommodation which was affordable, she had been unable to find anything suitable. During this time her weekly Income Support to meet her basic needs was £92.12 (£4,813.27 per annum) as a non-householder.

6. The large majority of Income Support recipients rent their accommodation (68% of all claimants). As a single, fit and healthy young person with no special needs, Marie is not eligible for States housing despite being a low earner. She therefore is one of the 30% of all Income Support claimants who rent in the private sector. After two months of searching, she is grateful to have found a one bedroom flat at the fair rent level of £152.53. Her rent is fully covered by the accommodation component of her Income Support.
7. When we add together her basic and rent components we see that rent is a very high proportion of her overall Income Support levels. Her total Income Support is £293.23 (£140.70 +152.53) of which 52% is rent. Her annual income from Income Support is £15,247.
8. Marie works full time (37.5 hour weekly), at the minimum wage of £6.20 per hour. She therefore earns a gross weekly wage of £232.50 which is a net wage of £218.55 after social security contributions. This means that her earnings are topped up by Income Support by the amount of £113.04 a week.
9. Marie's employer asks her to increase her hours to 40 hours a week (an additional 2.5 hours). Her gross earnings rise to £248 and her take-home pay to £233.12. Her Income Support, however, falls to £101.03 per week. This means that her extra wages of £15.50 only gave rise to a net increase in income of £2.56. Her additional hours had a real hourly rate of just £1.02 as she faced an effective deduction rate' (from social security contributions and Income Support withdrawal) of 83% for every pound of additional earnings.
10. Her extra hours are because several other colleagues at work have been made redundant and her boss has told her that her job is also not secure. Marie is worried about being made redundant but realises that if she were, she would only be £40.92 worse off if she were unemployed. She works out that she would be able to manage on the £293.23 she would get if she were unemployed. Maybe redundancy would not be that bad but she worries about getting another job.

11. Some weeks later it is pointed out to her that if she continues to work 40 hours a week, her gross earnings over the year will rise to £12,900, and that this is above the tax threshold of £12,650 (until January 2011) on her gross earnings. By working the additional 2.5 hour a week, she has made herself eligible to pay tax. She is £133.12 pence better off a year but is now liable to pay tax at the marginal rate of 27% on £250 of her earnings; a tax bill of £67.50.
12. Does Marie's income from Income Support mean that she is in poverty'?
13. The after housing cost (AHC) relative low-income threshold for Marie, taken from JIDS2009/10 data, is £210 (60% of median). If she continues to work 40 hours a week, her net income, after she pays her rent, will be £181.62, leaving her below the low-income threshold.
14. Marie's case shows that she is caught in a poverty trap' because

• she needs help from Income Support even when working a full week at the minimum wage;
• of the combination of a low minimum wage and high rent levels;
• working extra hours produces very little reward;
• her weekly income will drop by only £40 if she were to become unemployed.

On top of which, she may be liable to pay income tax whilst still receiving Income Support.

15. A Married Couple with no Children: Jackie and Bill'
16. The second hypothetical case study is a family profile of a married couple of working age, called Jackie and Bill' for illustrative purposes, who have no children.
17. Their Income Support basic components total £232.82 a week (£12,165 per annum), made up of two adults (at £92.12) and household component of £48.58.

As a couple, Jackie and Bill receive 166% of a single person's basic components. Like Marie, Jackie and Bill can have their rent met in full at the fair rent level of £152.52. This brings the maximum level of Income Support entitlement to £385.34 a week, (£20,037 per annum).

18. Jackie and Bill both work full time on the minimum wage. At a 37.5 hour working week, this provides a combined take-home pay of £437.10 per week. This level of earnings reduces their Income Support to £24.98 in 2010. Their total income in this year is £462.08 a week.
19. This case study so far has assumed that Jackie and Bill are paying the fair rent' for their accommodation. The reality of the housing situation makes this extremely unlikely. Jack and Bill have no children; are fit and able; without special needs and are under 50 years of age. They are not eligible for States housing and have to live in the private sector. Jackie and Bill are paying £200 per week[9] for their 1 bedroom flat.
20. At the market rate of £200 per week Jackie and Bill fall significantly below 60% of the equivalised median income (relative low income threshold) for a couple. Even if Jackie and Bill were paying the fair rent' at £152.52, their income would still fall below this low-income threshold after housing costs.
21. Their scenario is not unusual in Jersey. Meeting the cost of such a high rent takes them below the 60% equivalised median after housing costs and below the relative low-income level by £51 per week.
22. Liability for income tax for couples also depends on the number of earners as liability is based on joint earnings and there is Wife's Earned Income Allowance alongside the Married Personal Allowance.

23. The potential overlap between Income Tax and Income Support therefore also depends on how such allowances are taken up alongside individual and dual earnings. The level of annual earnings at which Jackie and Bill begin to pay Income Tax has remained constant through 2009 and 2010 and is £20,280 if there is just one earner and £24,780 if both are earning.
24. Their gross earnings were £24,180 not including Income Support. As Income Support is exempt from Income Tax, they fall below the level where they would be required to pay tax. The couple are better off by £76.73 each week if they work than they would be if unemployed and solely supported by Income Support.
25. Bill gets the offer of promotion at work. He is offered a post of supervisor at £7 an hour. This means that he is responsible for training up new recruits. His annual salary rises by £1,560, from £12,090 to £13,650. Their entitlement to Income Support, however, is reduced by £23.25 to £1.73. This equates to his earning an extra £6.25 per week.
26. His salary now stands at £13,650, which combined with his wife's earnings of £12,090 takes them to combined gross earnings of £25,740. This is £960 over the income tax threshold for a working couple. It will result in a tax bill of £259 at the end of a full year or £4.98 each week.
27. By taking a promotion and improving his earnings, he is better off by the grand total of £1.27 per week.
28. Jackie and Bill's case shows:

• the effect of high rents in the private sector;
• the need for both to work if they are to escape the need for Income Support and
• the potential overlap between Income Support and the income tax threshold which reduce incentives to earn more.

29. A Working Age Couple with Children: The Maretts'
30. The last hypothetical case examines the Maretts, who have two children of school age. Here we first examine the interaction between wages and Income Support levels before turning to the costs of childcare.
31. The Maretts' basic Income Support entitlement for a family with two children is £360.78 per week. The accommodation component for a three-bedroomed house is £251.72. That is, a total entitlement of £612.50, when neither parent is in work. In this case, we shall assume that the Maretts are living in States accommodation and pay no more than the fair rent' level. However, it must be noted that a significant proportion of families with children are housed in the private sector[10] and may be subject to higher rent levels. As noted elsewhere, this means that families will use other components to make up the shortfall. The end result is that children are less well supported by the system.
32. If only one of the Maretts works on minimum wage for 37.5 hours a week, this would result in £218.55 take home pay. Income Support provides £432.31, which gives a total income before housing costs of £650.86 for this family of four, making the family £38.36 better off than they would be without work.
33. If one partner works full time and the other part time, that raises their take home pay by £104.90. As a result of this increase in earnings, however, the Income Support that they receive is reduced by £86.49 per week. This leaves the family better off by a further £18.41.
34. The reason why there is so little net benefit from the hours worked is that the household is already in receipt of all the disregards and tapers it is entitled to. Given that the additional part time work would incur some associated expenses' such as bus fares which could easily amount to £16 per week[11], it effectively means that the net additional income coming into the household could be £2.41 pence per week.

35. The Maretts have seen little significant improvement to their situation from the extra part time work. Mrs Marrett decides to work full time. Their combined take home pay is now £437.10 per week. Their Income Support entitlement drops to £252.13, providing a total weekly income of £689.23. The combined total of 75 hours work each week makes them better off by £76.73 than they were with neither of them working.
36. Are the Maretts poor? The After Housing Cost low income threshold for a couple with two children is given in Table 5 as £438 per week. When both the Maretts are working full time at the minimum wage, their combined take home pay is £437.10 per week as we have seen above. Income Support at £252 effectively covers their rent. Their total income puts them almost exactly at the low-income threshold after housing costs (AHC).
37. Full time work at the minimum wage is required if this family are to maintain anything close to a decent standard of living. However, any interruption to full time work, for example, should the children fall ill, will cause financial difficulties. Any time taken off work is unlikely to be paid and the Income Support system does not automatically provide support for a parent taking unpaid leave. Income Support is not designed to respond to instances of very short-term loss of earnings. In addition to losing income, the family will of course be subject to medical costs.
38. With both parents working full time some form of child care at either end of the school day is likely to be necessary. For example, the cost of breakfast club for one hour per day before school and two hours after school club, including transport is £117.50 per child, per week. For the Maretts, this totals £235 per week[12]. In this case, the Maretts would not receive support for childcare, because the weekly cost of the childcare exceeds the gross wages of one parent. Full time work for both parents is, therefore, an unlikely option.

39. When considering Income Tax, the Maretts noted that the tax threshold for their family is £30,780. They recognise that they are earning £24,180, which is below the threshold. The money they receive from Income Support is exempt.
40. The Maretts' case shows that:

• without adequate funding for the provision of childcare the financial benefit of both parents working is negated;
• This is the result of the combination of a low minimum wage with
  • Unrealistic disregards and tapers
  • Inadequate funding of childcare
• A standard working week on the minimum wage is insufficient to meet the criteria of the childcare component of Income Support.

7. Jersey Income Distribution Survey 2009 / 10

1. "At the moment we are living as a family in constant debt, but if it were not for buying most of our food from the out of date section at all of the supermarkets I really don't know if we could afford to, or want to live in Jersey where it costs so much to live here. If it were not for the safety and beauty of the Island for our children, I think we would be off at the drop of a hat."[13]

"[It is] very difficult to manage on state pension always having to dip into savings each year."[14]

2. The Jersey Income Distribution Survey 2009/10 (JIDS 2009/10) contained a number of findings on household incomes which are relevant to this review of benefit levels. Of particular importance in discussing the alleviation of poverty are the following terms:

1. Median Income

This differs from the mean (average income), being the income of the middle, or 50th percentile household. The median household income is particularly useful

where the distribution is skewed, as income distributions usually are. The median (equivalised) for households in Jersey, before housing costs (BHC), was £667 per week, and £522 after housing costs (AHC).

2. Relative Low Income

Relative Low Income is defined as an equivalised household income below 60% of the median (See chapter 10.3). In 2009/10 this threshold was £400 per week BHC and £313 AHC.

3. The Income Distribution Survey gives the first indication of the relatively high cost of accommodation in Jersey as follows:

Table 2. Median equivalised household income by tenure

Source: Table 8 JIDS 2009/10

4. Households living in States, Parish and Housing Trust rent accommodation, in qualified  rental  accommodation,  and  in  non-qualified  accommodation  saw equivalised  household  income  fall  by  around  a  third  (34%,  33%  and  31% respectively) once housing costs were taken into account.
5. In effect, housing costs account for a third of rental households' disposable income.
6. Further information on those households in Jersey below the relative low income threshold is provided in Table 3 below.
7. This  shows  that  almost  half  (46%) of  single  pensioners  and  one  quarter of pensioner couples are below the relative low income threshold after housing costs. Over half (51%) of single parents with at least one dependent child are also below the threshold.

Table 3. Percentage of Households in Relative Low Income' in Jersey by housing type

Derived from Table 12 JIDS 2009/10

8. In addition to the presence of these vulnerable groups in relative low income, it is significant that a high proportion (25%) of working age persons living alone in Jersey also fall below the low income threshold.
9. Furthermore,  the  Income  Distribution  Survey  can  also  be  used  to  give  an indication  of  the  depth  of  relative  poverty  of  certain household  types.  For example, Table 4 below shows that over a quarter (28%) of single parents with at least  one  dependent  child  have  an  income  lower  than  50%  of  the  median income, AHC. A similar proportion of pensioners living alone (25%) are also below this threshold of relative low income. Significantly, almost a fifth (19%) of working age persons living alone fall into this band, achieving less than 50% of median AHC.

Table  4. Percentage  of  each  household  type  falling  below  given  relative  low income threshold, after housing costs.

Derived from Table 17 JIDS 2009/10

10. Since JIDS 2009/10 is based on a questionnaire covering all members of the household  and  includes  all  income,  both  earned  and  unearned,  including pensions, benefits and Income Support, these figures might suggest at this early stage that:

• Either  Income  Support  is  set  at  levels,  which do  not  lift  these households above relative low-income thresholds; or
• Income Support is not being claimed in all cases.

11. The JIDS 2009/10 report gives an indication of how successful Income Support has been in alleviating poverty for a variety of households. Thus Table 5 shows that there has been a 12.5% reduction overall in the numbers of households below the relative low-income threshold. Significantly, there has been a reduction in the numbers of single parent households and pensioner households in relative poverty by around one third.

Table 5.  Percentage change  of each household type at "Relative Low-Income" in Jersey, after housing costs, 2002 and 2009/10 compared.

Derived from Table 23 JIDS 2009/10

A minus figure represents a reduction in the number of households.

12. Having said that, over two fifths of single parent households are in relative low- income  along  with  a  third  of  single  pensioners  and  a  quarter  of  pensioner couples.
13. The persistence of such high proportions of pensioners and of single parents in relative low income, after the introduction of Income Support, is worrying. It is especially so in the case of single parents who have been targeted for additional help in the design of the Income Support system.
14. This  would also indicate  that  Income  Support  is  failing  as  an  anti-poverty programme for the elderly that supports saving for old age. Priorities must be set and agreed.
15. As discussed previously, the Minister for Social Security set aims within the report of P90/2007 to create a system that "enables people to avoid poverty". Clearly, if the specifically targeted areas of the scheme such as single parents are not achieving those aspirations, as evidenced above, the current system is failing in that regard,

16. That such failure sits alongside the lofty ambitions suggests that the scheme may be designed to a budget, rather than to meet the stated aspirations. Difficult decisions need to be made to confirm the position. Either more money needs to be made available or the aspirations of the scheme need to be re-defined.

Key Finding 1

The introduction of Income Support has reduced, by one third, the numbers of single  parent  and  pensioner  households  in  relative  low  income  since  2002. However, significant proportions of these households remain below the current low-income threshold. These groups also show significant depth of poverty.

Recommendation 1

If Income Support is to achieve the policy aim of "enabling people to avoid poverty"[15],  the  Minister for  Social  Security  must  undertake  a  fundamental overhaul of the Income Support system and its funding.

8. Jersey Annual Social Survey 2010 (JASS 2010)

1. "Got into difficulty after losing a well paid job over a year ago and has been a struggle since working now but only earning half as much."[16]

"Pay freeze for public sector employees has hit me badly. Price s rising but wages staying the same constitutes a pay cut. As a teacher contributing a great deal to Jersey, I feel under valued and am contemplating returning to the UK."[17]

2. We now turn to examine the results of the JASS 2010 questionnaire on how well or otherwise households are coping with their financial burden in 2010. Around 3,200 households were selected at random by the States Statistics Unit to complete the survey in June and July 2010. The response from the public was extremely high, with over 51% of sampled households completing and returning the forms. This means that the results from the survey are both representative and accurate. The results are contained in Chapter 12 "Money Matters" of JASS 2010.
3. The first thing to note from this survey was that JASS was able to obtain responses from the full range of household incomes, as given below in figure 1.
4. It is noteworthy that two thirds (66%) of households with total annual income of less than £15,000 were comprised of one adult.

Figure 1. Approximately, what is your household's total annual income?

15% 10%

5% 0%

9 9 9

5,000 99 99 00 +

< £1 - £54, - £64,99 - £84, £95,0

00 - £34,999 00  00  00  00 - £94,999

000 - £44,999

5,0 5, 5,0 5,0 5,0 5,0

£15,000 - £24£,9299 £3 £4 £5 £65,000 - £74£,9799 £8

Source: Fig 12.1 JASS 2010

5. The responses to the question "How easy or how difficult do you find it to cope financially as a household?" were analysed in Figure 2, as follows:
6. This highlights a marked difference between households with children and those without. Twice the proportion (38%) of households with children report difficulties with  coping  financially  compared  to households  without  children  (18%).  The problems of childcare costs and the balance between work and child rearing responsibilities and its impact on household incomes is discussed in some detail later in this report.
7. Given the preponderance of pensioner households below the relative low-income threshold, illustrated in JIDS, the response obtained from pensioner households comes as somewhat of a surprise. Pensioner households, in fact, report the lowest (9%) figure for difficulty in coping financially.

Figure 2. As a household, how easy or difficult do you find it to cope financially?

• Very easy Quite easy Neither easy or difficult Quite difficult Very difficult

Household with children

Household without children

Household with pensioner

Household without pensioner

All households

0% 20% 40% 60% 80% 100% Source: Fig 12.2 JASS 2010

8. This low rate may be explained in one of two ways;

• either pensioners are better at coping, that is, they do manage their budgets better and to some extent are prepared to "do without"; or
• whether they are coping or not, they simply do not complain about it.

9. Respondents to JASS were asked whether they or anyone in their household received Income Support[18]. The responses indicated that around half (49%) of households  with  a  total  income  of  less  than  £20,000  per  year  did  include someone who receives Income Support, compared to about one in eight (13%) of those households with total income between £20,000 and £33,333.
10. A difference was apparent between pensioner and non-pensioner households; a fifth (20%) of households containing at least one pensioner reported receiving Income  Support  compared  to  about  one  in  ten  (11%)  of  non-pensioner households. However, there was no difference in the proportions of households with and without children which received Income Support.

11. Comparing those households that contain someone who pays income tax/ITIS with those households that contain someone receiving Income Support showed that:

• around one in twenty (6%) households that have someone paying income tax/ITIS also contained someone receiving Income Support;
• Six out of ten households (59%) with no member paying income tax/ITIS contain someone who receives Income Support.

Table 6. As a household, how easy or difficult do you find it to cope financially? Percentages

Pay

Receive Income Support

As a household, how easy  income tax/ITIS

or difficult do you find it to

cope financially? Yes No Yes No All

Very or Quite Easy 17 40 39 23 37

Neither Easy nor Difficult 39 39 39 41 39

Very or Quite Difficult 44 21 22 36 24

Total 100 100 100 100 100 Source: Table 12.2 JASS 2010

12. More  than  two-fifths  (44%)  of  households  with  someone  receiving  Income Support reported finding it difficult at some level to cope financially, compared with  about  a  fifth  (21%)  of  households  not  containing  a  person  on  Income Support. The reverse trend applies to those households who pay income tax. Only 22% of tax paying households find it difficult to cope compared with 36% of those households without a taxpayer.
13. Interestingly  there  is  a  reported  overlap  (6%) where  households  contain members who pay income tax and members in receipt of Income Support. The potential for overlap between those who pay Income Tax and Income Support is explored in greater detail in chapter 19 of this report.

14. Analysing the responses by equivalised household income shows that greater proportions of households in the lower quintiles find it difficult to cope financially, with more than two-fifths (42%) of those in the lowest quintile reporting it difficult to cope compared with around 6% in the upper quintile (see Figure 3).
15. Unsurprisingly, there is a clear inverse relationship between household income and the difficulty of coping financially. Those with the lowest incomes (below £20,000 per year) find it most difficult.

Figure 3. As a household, how easy or difficult do you find it to cope financially? By equivalised income quintile

Very easy

Quite easy Neither easy or difficult Quite difficult Very difficult

< £20,000

£20,000 - £33,333 £33,334 - £50,000 £50,001 - £70,000

> £70,000

0% 20% 40% 60% 80% 100%

Source: Figure 12.4 JASS 2010

16. Impact of the recession
17. Obviously, Income Support has faced additional pressures over the past two years from the effects of the recession on the economy. Wages have stayed low whilst costs have gone up. Income Support has had to deal with increased pressure from the number of unemployed especially amongst the young.
18. Respondents were asked to compare their current financial situation with that one year previously. Overall, twice as many households (39%) said their situation

was a little or much worse, whilst almost one-fifth (18%) indicated that their situation was a little or much improved.

19. Figure 12.5 shows how people view their current situation compared to one year ago  analysed  in  terms  of  how  easy  or  difficult  they  now  found  it  to  cope financially:

• three-quarters (75%) of those who said that they found it very difficult to cope financially said that their current situation was worse than a year ago;
• three-fifths (61%) of those who said that they found it quite difficult to cope financially said that their current situation was worse than a year ago.

Figure 4. As a household, how easy or difficult do you find it to cope financially compared with the situation one year ago?

Much improved Little improved About the same A little worse Much worse

Very easy Quite easy

Neither easy or difficult Quite difficult

Very difficult

0% 20% 40% 60% 80% 100%

Source: Figure 12.5 JASS 2010

20. The proportions reporting that their current situation was a little or much worse than that a year ago were similar across all household types. When analysed by income, however, it is clear that with the exception of the highest earners in the top quintile, all households whether middle or low earners, are reporting similar levels of financial difficulty (at around the 40% level).

Figure 5. As a household, how easy or difficult do you find it to cope financially compared with the situation one year ago? By equivalised income quintile

Much improved