The purpose of the various means tests used by my Department is to ensure that the limited resources available are directed at those most in need. In assessing means, account is taken of any cash income the person may have, for example, earnings from employment or self-employment, together with the value of any capital or property. In addition, in the case of the unemployment assistance and supplementary welfare allowance schemes, the value of any benefit or privilege enjoyed by an applicant, such as that of board and lodging in the family home, is assessed.
For the purposes of assessing cash income, account is normally taken of the income that the person may reasonably be expected to receive during the coming 12 months. Where this is not possible to determine, the income for the last 12 months is taken as a guide, with allowances being made for any known variations. In the case of a couple, the joint income is assessed. There is also a range of disregards which apply in the assessment of income. These different disregards are designed to reflect specific policies being pursued, for example, to maximise incentives to work.
For instance, under the unemployment assistance scheme, where a person works for up to three days a week, earnings are assessed at 60 per cent. In addition, persons without children are allowed a £10 disregard for each day worked, while the balance of earnings are assessed at 60 per cent. These measures are designed to ensure that claimants have an incentive to work at all levels of earnings, even where the level of pay is less than the rate of unemployment assistance. Likewise the disregard of the first £50 per week – which I was delighted to increase in our first budget from £35 – in earnings from rehabilitative employment for disability allowance and blind person's pension purposes provides an important support for people with disabilities in taking up available employment and training opportunities.
As a consequence, cash income is assessed on a favourable basis for means test purposes, with the amount of income assessed in many cases being considerably below the actual income which the claimant receives.
With regard to the assessment of capital, I have already indicated that it would not be feasible to assess such amounts on the basis of returns from investments, as this would necessitate frequent reviews of entitlements of a very significant number of recipients whenever interest rates fluctuated or the capital was moved into a different investment option. For this reason, a notional value is ascribed to the capital owned.
While the formula for the notional assessment of capital includes rates of 7.5 per cent and 15 per cent, I emphasise that the effective and real assessment rates are much lower. For example, a single pensioner can have capital of up to £6,160 and a couple can have capital of up to £12,320 and still qualify for the maximum rate of old age (non-contributory) pension. In addition, a couple with capital of £20,000 would only be assessed with means of £600, giving an effective assessment rate of just 3 per cent. As only 2 to 4 per cent of pensioners have capital in excess of £20,000, this means that the effective assessment rates for the vast majority of pensioners are very much lower than the 7.5 per cent and 15 per cent rates which are used in the notional assessment formula.
The current system is designed to ensure that those with modest amounts of capital receive the greater share of available support, while the small proportion of people with large amounts of capital should avail of it to contribute, at least partially, towards meeting their needs.
Nevertheless at my instigation my Department is reviewing the system in the light of the interest rates currently available on investments. However, it is important for me to point out that simply reducing the assessment rates of 7.5 per cent and 15 per cent to the current levels of interest available on bank deposit accounts would disproportionately benefit those who are well off. This was the rationale behind the decision by my predecessor, Deputy de Rossa, to set the assessment rates at their present levels.
For the purposes of the unemployment assistance and supplementary welfare allowance schemes, the value of any benefit or privilege enjoyed by an applicant, such as that of board and lodging in the family home, is also assessed. The purpose of this assessment is to target the available resources at those most in need, by taking account of different household circumstances.