Income supplement: analysis of options

Analysis undertaken to inform the development of the income supplement policy, a flagship commitment in our Tackling Child Poverty Delivery Plan for 2018-2022.

This document is part of a collection

3. Social Security for Families with Children

This section provides an overview of the social security system and sets out key facts about the Scottish Parliament's powers in relation to low income, child-related benefits and introducing new or top-up payments, as well as the reserved means-tested system.

3.1 Devolved Social Security

The Scotland Act 2016 devolved powers to the Scottish Parliament in relation to social security. These powers include:

1. Full responsibility for setting the rules and rates for eleven benefits in three broad categories:

  • Benefits for disabled people, people with ill-health and carers
  • Benefits within the Regulated Social Fund
  • Discretionary Housing Payments

2. Powers to make administrative changes to Universal Credit and vary the housing cost element within it.

3. Powers to create new benefits in areas of devolved responsibility and top-up reserved benefits.

Over the next few years the Scottish Government will take control over these benefits from DWP. Carers Allowance Supplement, Best Start Grant and Universal Credit Scottish Choices are already being implemented.

The Scottish Government's new social security system is being administered by Social Security Scotland. As an executive agency of the Scottish Government, its purpose is to administer the Scottish social security system effectively, in accordance with the principles in the Social Security (Scotland) Act 2018 and the Social Security Charter. Once fully operational, Social Security Scotland will deliver benefits to an estimated 1.4 million people and provide £3.5 billion in payments every year.

The new social security system in Scotland is underpinned by core principles as set out in Section 1 of the Social Security (Scotland) 2018.[11] These eight principles have been adopted in the Social Security Charter and are presented in Box 2.[12]

Box 2: Social Security Scotland – The Core Principles

1. social security is an investment in the people of Scotland

2. social security is itself a human right and essential to the realisation of other human rights

3. the delivery of social security is a public service

4. respect for the dignity of individuals is to be at the heart of the Scottish social security system

5. the Scottish social security system is to contribute to reducing poverty in Scotland

6. the Scottish social security system is to be designed with the people of Scotland on the basis of evidence

7. opportunities are to be sought to continuously improve the Scottish social security system in ways which—

(i) put the needs of those who require assistance first, and

(ii) advance equality and non-discrimination

8. the Scottish social security system is to be efficient and deliver value for money

Prior to the Scotland Act 2016, local authorities in Scotland were already delivering social security assistance through discretionary payments via, for example, the Scottish Welfare Fund and Discretionary Housing Payments. These payments are primarily targeted at households on low income.

Discretionary Housing Payments (DHPs) are delivered by local authorities to provide financial assistance towards housing costs for recipients of Housing Benefit or Universal Credit (housing entitlement), including where entitlement has been affected by the Removal of the Spare Room Subsidy, also known as the Bedroom Tax. In 2019/20 the Scottish Government is expected to spend £64 million on DHPs.[13]

The Scottish Welfare Fund (SWF), introduced in 2013, is a national discretionary grant scheme delivered on behalf of the Scottish Government by local authorities. Every year it provides around £33 million to low income families who are in need through the Crisis Grants and Community Care grants.[14]

Whilst not a social security benefit, Council Tax Reduction (CTR) replaced the Council Tax Benefit in April 2013 and is also delivered by local authorities. CTR provides low income households with a reduction in their Council Tax liability and can offer significant support for families. The CTR[15] scheme currently supports around 500,000 households to meet their council tax liability and more detail is provided in Box 3.

Box 3: Council Tax Reduction – key facts

√  Eligibility for CTR is determined by each Council based on household net income.

√  Eligibility relies on the individual being resident of a chargeable dwelling for Council Tax purposes.

√  Each Local Authority compares the household's weekly income to an 'applicable amount' which is effectively an income threshold under which a household is not expected to pay any council tax. The applicable amount consists of different allowances and/or premiums to reflect different household circumstances.

√  How much CTR a household receives depends on whether household net income is above or below the applicable amount. If household net income is below the applicable amount, the household receives a 100% CTR and pays no council tax (nil council tax liability).

√  If household net income is above the applicable amount, then CTR is determined through a formula dependent on how much higher income is relative to the applicable amount and the council tax liability.

√  If the household receives UC then the applicable amount is the UC maximum amount plus an additional child element of £16.73 per child.

√  Council tax liability is determined by the property band and the local authority the household lives in and whether the household is a single-occupier (excluding dependents).

3.2 Reserved Social Security

This section sets out the existing reserved benefit support that is available for working-age families with children. The UK Government remains responsible for all regular means-tested benefits, although some of the one-off benefits, such as the Best Start Grant, Funeral Support Payments and Cold Spell Heating Assistance, which are delivered or due to be delivered by the Scottish Government, are means-tested.

Over recent years, the UK system of working age means-tested benefits has been undergoing significant reform, with the replacement of six working-age benefits by Universal Credit (UC).

Under UC, a household's maximum award is calculated based on household's characteristics, such as the number of children, or housing costs. The household net income is then considered to determine whether, and by how much, this maximum award should be reduced. Should this income exceed a set income threshold (known as the UC work allowance), the UC award will be gradually withdrawn by applying a taper. The UC taper rate, currently set at 63%, means that each additional £1 of income reduces UC entitlement by 63 pence. This ensures a phased withdrawal of the UC award once the family's income exceeds the work allowance. Further information on how UC works is included in Box 4 and Annex I.

Box 4: Universal Credit – key facts

√  The UC payment is a means-tested, tapered benefit where the final award depends on household composition and level of net income (post income tax and National Insurance contributions).

√  UC award can be reduced where households have capital higher than £6,000. Households with capital above £16,000 are not eligible for UC.

√  Families with children can earn a certain amount before the UC award starts getting withdrawn. This is known as the work allowance. In 2019/20, families with children who receive support for their housing costs can earn up to £287 a month after tax before their UC award starts reducing by 63p for any additional £1 earned. A higher work allowance of £503 per month is in place for households who do not receive housing support.

√  Families with children are entitled to the child element of Universal Credit. They can receive up to an additional £2,780 per year per child for a maximum of two children for those born after April 2017.

√  This two child limit does not apply if the children are born before April 2017. Exemptions can apply in some circumstances, such as multiple births.

√  For children born before April 2017 families can receive a higher child element for the first child (an additional £3,324 per year rather than £2,780). For first children born after April 2017 this higher amount is not available.

√  UC is paid on a monthly basis.

Families with children also receive support from the reserved system through Child Benefit. Prior to 2013, Child Benefit was not means-tested and all parents could receive payments for each of their children. The new means test meant that households with individuals on high incomes receive reduced or no support. The detail is provided in Box 5.

Box 5: Child Benefit – key facts

√  People responsible for one or more children under 16 (or 20 if they are in approved education or training) can claim Child Benefit.

√  In 2019/20, the weekly entitlement is £20.70 for the eldest or only child in the family.

√  In 2019/20, the weekly entitlement is £13.70 for subsequent children.

√  Payments are normally made on a four-weekly basis, although lone parents and Income Support recipients can request weekly payments.

√  Entitlements have been frozen since 2015/16 and are expected to resume rising in line with CPI inflation in 2019/20.

√  Eligibility is determined by annual gross individual income. This means that income tax and contributions are not taken into account, although pension contributions are deductible.

√  In couple families eligibility is determined by the annual gross income of the highest earner.

√  Child Benefit used to be entirely universal until 2013 when HMRC introduced a means test for individual annual incomes above £50,000. For each £100 of gross income beyond £50,000, 1% of the family's entitlement is claimed back through the tax system.

√  If the claimant or their partner earn more than £50,000 then some of the benefit is claimed back through the tax system.

√  Therefore entitlement is effectively reduced to zero when individual gross income exceeds £60,000.

3.3 Spending on Social Security

As illustrated in figure 2, £19.5 billion was spent on social security in Scotland in 2017/18. Of this spending, £6.8 billion came through benefits reserved to the UK Government and was targeted towards children and working-age people, with Tax Credit spending being the single largest component. A further £1.7 billion of spending on children and working-age people comprised benefits which have or will be devolved to the Scottish Government as a result of Scotland Act 2016. Discretionary payments administered by local authorities, together with the Council Tax Reduction, amount to around £0.5 billion. The remainder of spending on social security is aimed at pensioner households, with both devolved and reserved spend amounting to around £10.6 billion.

Figure 2: Social Security spending in context [16],[17]

Figure 2: Social Security spending in context



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