Incentives To Work (Hansard, 5 July 1995)

§ Mr. Roger Evans

My right hon. Friend the Secretary of State for Social Security has today published a consultation paper, "Piloting change in Social Security—Helping people into work". This sets out the Government's proposals to test out in eight pilot areas a new in-work benefit. The benefit is designed to make work more rewarding for those with limited earnings power, by enhancing their earnings. It is called earnings top-up.

It will be directed towards people without dependent children and will complement family credit, which already helps some 600,000 lower paid workers with children.

The proposed earnings top-up will increase the rewards of work by an average of about £23 a week for a couple without dependent children and about £19 for a single person of 25 or over. The Government propose to test the effectiveness of two different rates in the pilot areas. The maximum level of help could be up to £54 a week.

The proposals mark the first occasion in the UK in which a social security benefit will be tested out on a pilot basis. The extension of in-work benefits to all people on low incomes would be a major step. There is no experience from any other country on which to draw. So it is right to establish its effectiveness by testing it on a local basis before deciding whether or not to develop a national scheme. Such a decision would only be taken if the pilot scheme proves its worth.

The pilot scheme will cost about £75 million over three years, before taking account of behavioural effects. Parliamentary approval for expenditure on the scheme will depend on the Appropriations Act via an appropriate reference in the departmental estimates. Introduction of a new benefit on a local and temporary basis does not require express statutory authority. The scheme will be 292W subject to detailed rules governing conditions of entitlement, claiming and other matters normally covered in regulations. These will be set out in a publicly available document and Parliament will be given an opportunity to discuss its principle and details. If it is decided to proceed from a temporary pilot to a permanent national scheme, the Government will introduce the necessary primary legislation.

The Government believe that there is a case for extending in-work benefits in this way, but it is not yet proven. People with limited skills and experience may have earning power not much above the level of their out-of-work benefit entitlement. As a result, the net reward for, and incentive to, work is not great.

To forbid employers to pay less than a minimum level of pay would merely mean that anyone unable because of their limited skills, aptitudes and experience to contribute more in value than that minimum would no longer be able to find employment. The ideal solution is, of course, to increase people's earning power by improving their skills, educational attainments and experience. All the Government's education and training reforms are geared to that objective. But most valuable skills and experience are obtained at work. Social security can, therefore, help by making it more rewarding to work, thereby enabling people to get on the first rungs of the ladder of employment, climbing further as they acquire experience and skills.

The consultation document sets out the criteria on which we propose to define and select the eight pilot areas in which earnings top-up will be paid, together with four control areas. It includes a shortlist of 28 areas from whcih the final selection is likely to be made, subject ot the outcome of the consultation. Since the decision on whether or not to proceed to national implementation will be governed by the outcome of the pilot, we attached great importance to getting the pilot areas right and establishing a robust framework for evaluation.

Our present plans are to pay earnings top-up in the pilot areas in the same way as other social security benefits. But we propose also to discuss with employers the feasibility of paying the top-up alongside the wage package, in order to make clearer to recipients the increased gain form working. Depending on the outcome of the discussions, the pilot scheme may be enhanced to test out how this might work in practice. Participation by employers in such a scheme would be voluntary.

The decision to pilot a new benefit locally before deciding whether to introduce it nationally represents a radical departure for social security policy. It will increase the openness and effectiveness of policy making. It is also a major step in seeking solutions to the problems of unemployment, work incentives and the dispersion of earnings power affecting the least skilled. These are problems which every developed country faces. The UK is already a pioneer in its successful use of in-work benefits such as family credit to improve work incentives. We now aim to explore whether to go further.