Chapter 5 Delivery of a reformed system
A 21st century welfare system requires a 21st century delivery solution.
More work would be needed to decide the most cost-effective approach to delivery, including how best to define the relationship between the Department for Work and Pensions’ delivery agencies, HM Revenue & Customs and Local Authorities.
We envisage an integrated IT system to manage all claims, and a single payment system to apply a withdrawal rate and pay the correct entitlement. These would not be entirely new systems and could be built on our existing IT and capabilities.
HM Revenue & Customs is consulting employers and payroll providers on mechanisms that could support more frequent or real-time collection of Pay As You Earn data. Such a system could also enable the use of real-time earnings data to calculate net entitlement, removing the need for claimants to notify different agencies when their earnings change.
1. As described in chapter 2, the process of claiming benefits can be complex and confusing, with large numbers of different benefits available for similar or overlapping needs. Customers often have to deal with at least three different layers of national and local government, providing the same information multiple times. A simpler, fairer and less costly system which reduces these difficulties would be welcomed by customers, staff businesses and taxpayers alike. 
2. A new delivery system could lessen bureaucracy and reduce the risk for people moving from benefits to work by making the system more responsive to fluctuations in earnings. People would be able to access support without endless form-filling and waiting.
3. Our ideas for structural reform have significant implications for the way support is delivered and for how individuals interact with the system. We will ensure that our approach to delivery maximises the opportunity to increase efficiency, improve customer service and reduce the cost of administration. The goal is a delivery system fit for the 21st Century.
4. The ideas in this paper raise a number of choices about delivery routes. More work will be needed to identify the most cost-effective approach to delivery. Knowledge of our customers will be essential in ensuring that any new system is genuinely simpler and easier to use.
5. We envisage that customers would be able to make a single application for all major entitlements, ending the excessive form-filling of the current system. Within a household, one person would make the claim and receive the payment. The claims process would be as simple as possible and would build on existing plans within the Department for Work and Pensions to develop full online services.
6. We would also need to consider carefully the current organisation of work between the Department for Work and Pensions, HM Revenue & Customs and Local Authorities. We will work with all delivery agencies to establish how delivery can best be integrated and what this might mean in practice not only for all individuals but also for all types of business.
Assessing entitlement and making payments
7. The IT changes that would be necessary to deliver a more integrated system would not constitute a major IT project, but two developments building on existing technologies.
8. A system to manage contact with customers, gather evidence and assess a household’s entitlement to support could be built using existing technology in everyday use in both the public and private sector.
9. A second system would be required to bring together a household’s total entitlement and information on their earnings. It would then use these pieces of information to apply the withdrawal rates and make the correct payment. This payment system could be built around the BACS system which is already used to pay benefits to 96 per cent of Department for Work and Pensions customers. Payments for self-employed people and others not covered by the PAYE system would need to be delivered differently but would be part of the system.
10. Alongside this paper, HM Revenue & Customs is seeking views from employers and payroll providers on mechanisms that could support more frequent or real-time collection of Pay As You Earn data. Under a new system that used real-time data, employers would report their employees’ earnings to HM Revenue & Customs at the time those earnings are paid, rather than only at the end of the financial year.
11. Such a system could also present opportunities to use real-time earnings data in the calculation of entitlement. Access to real-time earnings data would remove the need for customers to notify changes of income, and make the system more responsive to fluctuating earnings and movements into or out of work. This could largely resolve the issue of overpayments and subsequent repayments, which hit the poorest hardest.
12. However, welfare reform could still be delivered if HM Revenue & Customs does not take forward changes to Pay As You Earn. This could entail a series of fixed period awards with customers required to notify any changes of income; a similar system to this was previously used in Australia.
13. More work will be needed over the coming months to decide on a preferred approach.
Tackling error, overpayments and fraud
14. The causes of error, overpayments and fraud in the current system fall into three categories.
- The complex and fragmented nature of the system. This causes staff and customer errors and enables customers to represent themselves differently to different parts of the system.
- Means-testing rules. We rely on customers letting us know about their earnings, savings and other sources of income, which introduces opportunities for error, overpayments and fraud.
- Rules on non-financial circumstances. We similarly rely on customers letting us know accurately about personal circumstances such as where they live, whether they have a partner and whether they have children.
15. Significantly reducing complexity would allow a customer’s details to be seen as a whole. Reducing system complexity should translate into less error and fewer overpayments through fewer mistakes made by staff and customers while navigating the system. Overpayments and subsequent recoveries often lead to hardship amongst those who can least afford those recoveries.
16. Having one main gateway for customers to access the system should make it impossible for customers to represent themselves differently to different parts of an organisation and so would further drive down levels of error, overpayments and fraud.
17. Access to real-time earnings data would allow for a significant reduction in the current levels of error and fraud due to unreported or inaccurately reported earnings, as well as the current high levels of overpayment. A single gateway would also enhance our ability to pick up on error and fraud associated with non-financial customer circumstances. By making intelligent use of data, it could be possible to obtain information on a number of customers who are illegitimately claiming while living with a partner or fraudulently claiming in more than one area.
Transition to a new system
18. A new delivery system would be more straightforward for customers to understand, remove the need for the same information to be collected and held several times over and speed up key parts of the process. This should be considerably more efficient to deliver than the existing system both for Government and for businesses. However, we would need to plan carefully to ensure that we can move customers smoothly and efficiently from the old system to the new. This would be a substantial project, potentially affecting millions of customers and businesses.
19. The introduction of a new system would also need to align with existing plans to better target support and simplify the system by closing previous incapacity benefits and moving people to more active and work-focused regimes (Employment and Support Allowance or Jobseeker’s Allowance, depending on their circumstances). We are aiming to re-assess over 1.5 million people on incapacity benefits over a three-year period. We envisage that most people will have migrated onto their new benefit before a new system could be introduced.
20. In planning the transition to the new system, we would be guided by our principles of simplicity, fairness and affordability.
21. To deliver welfare reform we would need to work with all delivery agencies to consider carefully the most cost-effective and efficient delivery structure.
22. A new delivery system would not require a major IT project but two smaller developments to existing infrastructure. If HM Revenue & Customs takes forward reforms to the Pay As You Earn system, real-time earnings data could offer significant opportunities to streamline the payment process and respond more quickly to fluctuations in income.
23. The reduced complexity of the system and access to real-time earnings data could lead to reductions in error, overpayments and fraud.
What would be the best way to organise delivery of a reformed system to achieve improvements in outcomes, customer service and efficiency?
This consultation is now closed.