Worse off working

Work is the best form of welfare. That is the message that the government has been pumping out for years. But the structure has to be there: for example, child care places, reliable transport to take people to work and so on. The benefit and tax credit system also has to be structured in such a way that work actually pays while those benefits and tax credits have to be administered efficiently.

So what happened to one lone parent who went back to work may be a familiar story to many, but it illustrates what folks are up against in the real world.

Joanne is a single parent who wanted to return to work when her youngest child started at school full time. She was on income support and accepted a “new deal for lone parents” interview at her local Job Centre Plus office. The personal adviser was helpful and pleasant, and helped Joanne find a suitable job. In addition, she was provided with advice about the tax credits that she could claim.

And that’s where the problems started. First, the estimated tax credit did not match the actual assessment when she started work. Several weeks into the job, reality hit Joanne when she received a tax credit award of £5 a week rather than the expected £30.

Second, Joanne’s housing benefit took several weeks to resolve and thus she remained uncertain about her overall financial commitments. Ironically, the underestimate on the tax credit meant that Joanne received more housing and council tax benefit than expected.

Third, the credit card companies to which Joanne owed money began to demand higher repayments. While she was on income support they had held off a little because they knew she had no disposable income. But once they realised she was working, it was different.

Last, the hidden costs of Joanne going to work (travel, clothes, paying for school meals, school trips, lunches at work) came to about £30 a week.

This case shows what we are up against in trying to give advice on “in work” benefits, especially with the problems over tax credits.

It is becoming almost impossible to accurately predict what a person will receive from tax credits. There are two main reasons for this. The first is Inland Revenue incompetence in assessing cases accurately; the other is that unpredicted underpayments or overpayments from previous years can affect how much is paid. Joanne wanted to work – and was even prepared to be less well-off than she was on benefits for a short while – but the overall impact on her family has made her consider giving up work.

The housing benefit issue ought to have been easy to resolve, for example. The housing benefit “run-on” for people coming off benefits into work should give enough time for re-assessment based on wages. But again the tax credit issue causes another problem. Until the correct tax credit is received, the housing benefit calculation will be wrong as well, although at least that is based on what the client actually receives, not on what they should be receiving.

In short, welfare-to-work policies are not simply a matter of pointing people in the right direction.

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.