Measures to help people into work have the opposite effect

There is a carrot-and-stick approach to moving people off benefits. The carrots are tax credits, national minimum wage, benefit “run-ons”, special rules for disregarding earnings and so on. The sticks are just as numerous: tighter rules on proving that you are looking for work or establishing you are genuinely sick; penalties for turning work down; greater policing of the claimant’s out-of-work activity.

But what happens when even the carrots turn sticky? In other words, measures that are supposed to make moving into work easier have the opposite effect?

One example is the rule that limits unemployed claimants to studying fewer than 16 hours a week even if the course they want to do would drastically increase their employability. This rule has been belatedly recognised as a barrier to employment. From September, in as yet undefined pilot areas, low-skilled unemployed people will be able to attend full-time training and retain their jobseekers allowance.

Yet other barriers remain. The following example shows how the earnings rules, which are supposed to make work more attractive, serve as disincentives to work for people who receive means-tested benefits, carers allowance and working tax credit.

The carer, 39, lives with a partner of the same age who receives disability living allowance middle rate care and lower rate mobility component. They have two children, four and eight. The carer works outside the home for four hours a week at 5.05 an hour. They also receive income support, child benefit, child tax credit, carers allowance, housing and council tax benefit. They would like to increase their working hours. Their total income with work of four hours a week is 336.96 plus full housing and council tax benefit.

But if the client increases work to 15 hours a week, the extra earnings of 55.55 reduce their income support by the same sum, as any earnings above 20 reduce their income support penny for penny. The more generous rules that apply to carers allowance (where claimants can earn 84 a week) do not benefit them at all if they get income support. So 15 hours a week of employment leaves them no better off than if they do four hours – hardly an incentive to work.

But it gets worse. If the client increases their work to 16 hours a week, they lose income support and become eligible for working tax credit. This is relatively generous, giving them 63.49 a week extra income but that, in turn, reduces their housing and council tax benefit. The net effect is that they have 352.61 left to live on: less than 16 better off than they were when working only four hours a week.

Bizarrely, if the client increases their hours to 20 a week, they are nearly 11 worse off than if they worked four hours. This is because the carers allowance stops when earnings exceed 84. The carers premium paid within housing and council tax benefit will stop too.

There is something wrong with a benefit system that is so complicated that it’s difficult for people to make informed choices about what work they can safely undertake and not be worse off. And these are issues that must be addressed.

Gary Vaux is head of money advice, Hertfordshire Council. He is unable to answer queries by post or telephone. If you have a question to be answered please write to him c/o Community Care