Análisis de la dimensión ELABORACIÓN

An alternative to the default scheme for England that might be administratively easier to implement, as it would not require information on how much Universal Credit a family is receiving to be transferred from DSD to the NIHE or LPS, would be to ignore Universal Credit income for the purposes of the rate rebate means test. Since there would cease to be a need for allowances set equal to a family’s maximum entitlements to out-of-work benefits and CTC (see previous discussion), these allowances could be abolished. In this option we assume that:

 Unearned income would cease to be counted in the means test for rate rebates to prevent the situation where an additional pound of income from contributory benefits, private pensions or spousal maintenance led to total social security payments falling by more than £1.

 Childcare costs up to £175 per week for one child and £300 per week for two or more children would continue to be deducted from income for the purposes of the means test for rate rebates.

These decisions are both expensive as they lead to higher levels of rate rebate being received by those with large amounts of unearned income, and a more generous system of support for childcare costs.

Figure 4.4 shows how this form of rate rebate would affect the budget constraint for a lone parent with two children.

Figure 4.4: Budget constraint for a lone parent with two children with Universal Credit and rate rebate replacement scheme of the form described in the text

Notes: Assumes lone parent with two children who can choose how many hours to work at a given wage rate, £6.50 per hour, and has rent of £80 and domestic rates of £15 per week, no disability and no other income.

How much would this option cost, and who gains and loses?

We can see that in this case, the simultaneous withdrawal of Universal Credit and rate rebates lead higher EMTRs across the income range from 10 to 30 hours per week, reaching a peak of 84.4%. Rate rebates would still not start to be withdrawn until income reached this level because lone parents would have significant allowances to offset their private income against in the means test for rate rebates: lone parents have a £25 de minimis disregard plus allowances set equal to the amount of child benefit they receive.

This system would not significantly affect the cost of rate rebates. There are several offsetting effects that mean some claimants receive a higher rate rebate under this replacement scheme than at present, and other effects that mean that others receive less:

 The abolition of CTC and WTC (which are counted as income for the purposes of the rates rebate means test at the moment) increase spending on rate rebates. This means that those currently receiving these benefits receive a larger rate rebate as a result.

 Ceasing to count unearned income in the means test for rate rebates further increases the cost of rate rebates as this means those who have income from contributory benefits, spousal maintenance or private pensions receive a larger rate rebate.

 Removing the allowances we discuss, however, reduces the cost of rate rebates. This tends to reduce the rebate received by low earners.

Thus, although this option is roughly revenue-neutral, there would be winners and losers: we estimate that around 20,000 families would receive a larger rate rebate and 34,000 a lower one under this rate rebate replacement scheme. Those who would receive a higher rebate tend to be those who have

significant amounts of unearned income (and who, as we discussed in Chapter 3, tend to lose out from the introduction of Universal Credit: the higher rate rebate would only slightly offset this effect). By contrast, those who receive less are those who are in paid work. This is because they lose out from the reduced allowances that cause rate rebates to start to be withdrawn from a lower level of income.

£200 £250 £300 £350 £400 £450 £500 0 10 20 30 40 50 W ee kl y ne t in come

Hours worked per week, at £6.50 per hour Without rate rebate With rate rebate

How would this option work while some claimants are still in the current system of benefits and tax credits?

Reducing or abolishing the allowances we discuss here would not be sensible while there are still families claiming the existing set of benefits and tax credits as it would lead a situation where some people would be worse off after a pay rise. Therefore, if this system were to be considered before the transition to Universal Credit were complete, there would need to be separate systems for those on the existing set of means-tested benefit and tax credits and for those on Universal Credit. Of course, a similar system could be introduced that did not involve reducing allowances to avoid this problem, but this would be expensive: this option is only revenue neutral because the cost of not counting unearned income in the means test is offset by savings from reducing allowances.

Option 3: Ensuring that, wherever possible, entitlement to rate rebates is