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Benefits rules are lagging behind the needs of today's foster carers, writes Gary Vaux.

One of the constant themes of this column has been the inflexibility of social security policy in the face of a changing world.

One example is that developments in foster care have to be shoe-horned into a rigid benefits system designed to reflect an outdated vision of what foster care is about. I recently heard about a social services department that has introduced a "skills payment" for foster carers. This is paid at one of four bands, according to the skills of the relevant foster carer. It's paid in addition to the basic fostering allowance and acts as a retainer when the foster carer has no child placed with them.

That local authority's excellent welfare rights team pointed out that this arrangement could affect any means-tested benefits in payment to the foster carer. The carers were strongly advised to inform their relevant local social security office, which replied by saying that the benefits would not be affected.

The income support legislation covering all fostering payments is paragraph 26, schedule 9 of the Income Support General Regulations. There are equivalent rules for jobseekers' allowance, housing and council tax benefit and tax credits.

In my view the skills payments do fall within these regulations, and so are fully disregarded for means-tested benefit purposes. But this would only apply in the weeks that a child is actually placed with the carers. This is also on the assumption that the council is paying them out of any "boarding-out" budget it has; as such the payments fall within Section 23(2)(a) of the Children Act 1989. The income support legislation talks about disregarding any payment made to the claimant with whom a child is accommodated. The key is the link between the payment and the child being physically present in the foster home.

But the social security legislation does not mirror the reality of many fostering arrangements, where a child may only be accommodated short-term, often with frequent stays back with the natural parent. Foster carers may also be required to attend training or pre-placement visits. Retainers are crucial to maintain continuity for the child and to retain the services of elusive foster carers.

Where no child is accommodated, however, the money counts in full as income. When the Department of Social Security (as was) considered this matter at national level some years ago, it came to the same conclusion. Whether local social security offices would be sophisticated enough to spot this is another matter. It's ironic that we almost have to tell them their job in order to avoid potential overpayments. If foster carers tell social security the full story (including the retainer aspect) and social security do not act on it, then the issue becomes one of whether it is a "recoverable" (that is, repayable) overpayment.

This treatment of the retainer could be enough to lift people off income support altogether, or make fostering very unattractive. Also, foster carers are exempt from having to sign on as unemployed. In the weeks when they are only getting a retainer, then they are not foster carers so would have to sign on (unless exempt for another reason).

And finally, for working families tax credit purposes, the carers would be treated as (self) employed while getting the skills payment - the basic fostering allowance would be disregarded. This opens up tax credits as an alternative to income support - hardly a satisfactory solution. Surely the Department of Work and Pensions and the Department of Health need to agree that retaining foster carers is crucial and then adjust the benefit system to further rather than limit that goal.

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