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OCTOBER 2013
Eliminating Social Welfare Poverty Traps
Eliminating Social Welfare Poverty Traps – A Discussion Paper
1 FIANNA FÁIL DISCUSSION PAPER ON ELIMINATING SOCIAL WELFARE POVERTY TRAPS
Introduction Sometimes an individual is financially better off by staying on social welfare rather than taking up employment. There are a number of “traps” in the social welfare code which makes it unaffordable for a person to move from welfare to work. Obviously these must be eliminated. However reducing social welfare is not the way to proceed. Ireland’s social welfare system needs fundamental reform. The “gains” made by social welfare recipients between 2001 and 2008 were built on a very low base. The past three budgets have been independently assessed as being regressive. The net affect has been that both persons dependent on social welfare and low income families have suffered more by comparison with the well off. The number living below the poverty line has increased substantially. One in five children in this country is now living in a household where the income is below the poverty line – this is twice the O.E.C.D. average. The following three proposals are designed to make it more attractive for people to move from welfare to work when it is available, without further punishing those who are forced to depend on welfare to live from week to week.
2 FIANNA FÁIL DISCUSSION PAPER ON ELIMINATING SOCIAL WELFARE POVERTY TRAPS
1. Family Income Supplement Family Income Supplement (F.I.S.) is a welcome attempt to make work more financially worthwhile. However as presently structured it contains an obvious poverty trap which should be removed. This arises from the fact that in order to qualify for F.I.S. a person has to work at least 38 hours per fortnight. For example a person earning €100 per week under the F.I.S. threshold for his or her family size would receive an income support payment of €60 per week whereas a person with a smaller income (and greater need for income support), working 37.5 hours per fortnight would receive nothing. In addition a F.I.S. payment, once calculated, is fixed for twelve months. There may be cases where a person’s family income (e.g. where a spouse loses maternity benefit), can change very early in this twelve month period and yet that would not be reflected until the twelve month period comes to an end. This can also work against the recipient. A person’s family circumstances can change for the better within the twelve month period and yet they will be entitled to receive a payment of F.I.S. which is higher than their income justifies. This situation can continue for up to twelve months. Examples of the poverty traps existing are highlighted below. a)
This man works three days per week at four hours per day for €180. He claims Jobseekers Allowance for himself, his spouse and four children. He has been offered an extra day’s work but this would render him ineligible for Job Seekers Allowance: he would not be eligible for F.I.S. as the extra four-hour day will bring him up to only 16 hours in total. His only option therefore is to refuse the extra day and thereby risk losing the job altogether, or for his spouse to apply for Job Seekers Allowance which is not practical as she has small children and cannot see how she can be available for work. The couple feels that no matter which way they turn there is no incentive to work and protect the best interests of their children.
b)
This man is in receipt of Job Seekers Allowance of €402.20 per week for himself, his wife and their three children. The family also receives full Rent Supplement. He has been offered two hours work per day over five days at minimum wage. This would amount to €86.50 per week. He wanted to know how his income would be affected. He would no longer have an entitlement to Job Seekers Allowance as he would be working more than three days a week. He would not be working enough hours to qualify for F.I.S. The only option remaining would be the Part Time Job Incentive Scheme which would give him a payment of €193 per week. Together with his earnings, this would be a lower weekly income of €279.50 compared to the current Jobseekers Allowance of €402.20 and so it is not a viable option (Rent Supplement would remain the same as it is 3
FIANNA FÁIL DISCUSSION PAPER ON ELIMINATING SOCIAL WELFARE POVERTY TRAPS
already at the maximum amount). He already had an idea and accepted that he would not benefit from the full amount of his proposed earnings but was very frustrated and disappointed to learn that he would actually be worse off financially by taking the job. c)
The annual review system whereby someone whose circumstances worsen (or whose family size increases) cannot apply for an increased rate of F.I.S. until their next annual review date is an issue that affected this gentleman greatly. This man was working full time receiving €350 net a week and F.I.S. of €62. His wife’s Maternity Benefit has just ended (January 2013). F.I.S. is not up for renewal until September. With earlier renewal they would be €150 per week better off between now and September. The Family is €40 under the Social Welfare Allowance rate but they cannot get SWA as the husband works more than 29 hours per week. (C.I.P.S.)
4 FIANNA FÁIL DISCUSSION PAPER ON ELIMINATING SOCIAL WELFARE POVERTY TRAPS
2. One Parent Family Payment The changes introduced by the Minister over the last two budgets in One Parent Family Payment should be reversed. In the first instance the earnings disregard of €130 per week should be maintained and the proposal to move single parents who do not have a child under the age of 7 from lone parents allowance to job seekers allowance should be delayed indefinitely. A huge percentage (perhaps a majority) of lone parents work on a part time basis. The changes introduced by the Minister mean that the incentive to work is hugely reduced and in many cases there would be a distinct incentive not to work. For example a person in receipt of One Parent Family Payment who has been employed for one or two hours per day as a home help now loses the One Parent Family Payment, is not eligible for F.I.S. (because of the 38 hour rule) or Job Seekers Allowance as the person is employed for more than three days per week. Example of the effect of the new legislation; A woman is in receipt of the One Parent Family Payment (O.P.F.P.) and was until recently, working part-time, over five days a week. Her net earnings were €750 per month and she was also in receipt of €190 per week O.P.F.P. She was also receiving F.I.S. Her child reached the age of 12 last month which means that she loses her O.P.F.P. but F.I.S. increases. However the F.I.S. increase only amounts to 60% of the lost O.P.F.P. which amounts to only €114 per week. Consequently as a result of the recent changes introduced by the Minister this lady is now €76 worse off per week.
5 FIANNA FÁIL DISCUSSION PAPER ON ELIMINATING SOCIAL WELFARE POVERTY TRAPS
3. The Three Day Rule The three day rule for payment of job seekers benefits has been identified as one of the main sources of the welfare / poverty trap. It should be replaced by a system based on earnings in order to recognise the reality of the modern labour market. Under the present system two people with comparable needs working the same number of hours and earning the same income can find themselves in very different positions depending simply on their work pattern. A person working for example 15 hours over three days might receive a fairly significant job seekers payment whereas another person working 15 hours over five days would receive no Job Seekers Allowance / Jobseekers Benefit.
6 FIANNA FÁIL DISCUSSION PAPER ON ELIMINATING SOCIAL WELFARE POVERTY TRAPS
Fianna Fáil Legislative Proposal
SOCIAL WELFARE APPEALS BILL The Social Welfare (Consolidation) Act 2005 is amended by inserting after Section 311 (3) on page 14 of the Act:
311 (4) :
(a) An Appeals Officer shall decide an appeal within a prescribed time of 60 working days from the date of receipt of the appeal. (b) Where notice of a decision under s.311 is not given to the appellant who made the appeal concerned before the expiration of the period specified in s.311(4)(a), a decision upholding the appeal shall be deemed to have been made upon such expiration. (c) An Appeals Officer may apply to the Chief Appeals Officer for an extension of time to consider the appeal in exceptional circumstances but the Appeals Officer must demonstrate the reasons for the delay and the appellant shall be informed of the reasons for the delay in writing.
7 FIANNA FÁIL DISCUSSION PAPER ON ELIMINATING SOCIAL WELFARE POVERTY TRAPS
WILLIE O’DEA TD
SPOKESPERSON ON SPOKESPERSON ON SOCIAL PROTECTION AND SOCIAL EQUALITY
0612
Dáil Éireann, Leinster House, Kildare Street, Dublin 2.