Britain’s unclaimed benefits: four million families miss out on £12.4 billion

Why aren’t people entitled to benefits claiming them? via shutterstock.com

Up to £12.4 billion of means-tested benefits – including pension credit, housing benefit and jobseekers and employment support allowance – were left unclaimed in 2015-16, according to new data released by the UK’s Department for Work and Pensions.

Means-tested benefits are designed to ensure a minimum standard of living for Britain’s poorest families. But not all those people eligible are claiming them – in comparison to the near universal take-up rate of the basic state pension and widespread take-up of child benefit (which is taxable only for high earners).

Annual average amounts unclaimed by eligible families vary from an estimated £5,000 per year for those eligible for employment support allowance (for those with a disability or long-term illness), to £2,000 per year for those eligible for pension credit. In a parallel data series HM Revenue & Customs estimates take-up rates for tax credits – which are paid directly to qualifying low paid workers.

The latest data for 2014-15 adds further to the scale of unclaimed entitlements. The central estimate is that £2.3 billion of child tax credit and £3 billion of working tax credit went unclaimed by 640,000 families and 1.2m families respectively.

Improving take-up rates of means-tested benefits directly reduces poverty. Research also suggests that families who top up their income with benefits also have higher levels of health, family well-being, and employment participation and retention.

Why people don’t claim

The failure to claim benefits stems from a mix of social and economic circumstances, administrative structures, and complex eligibility rules. It may, for example, reflect a lack of awareness about the availability of the benefit or a potential claimant’s expectation that the costs involved in applying for the benefit outweigh the value of any payment.

But there is much evidence that a key factor undermining take-up is the poor design and delivery of the benefits system. Take-up has also been implicitly discouraged by policy changes targeted at some working age groups, especially the short-term unemployed. An increase in conditions and related sanctions are designed to get people into work as quickly as possible and, as a result, make their claims to benefits relatively short-lived.

Plus, the tenor of contemporary media narratives on welfare dependency has increased the stigma attached to claimants, especially people of working age. Research suggests this stigmatisation is linked to reductions in take-up and a reluctance to claim among potential beneficiaries, notably among pensioners.

The British government is unique in Europe in publishing robust annual estimates of benefit and tax credit take-up. The data for 2015-16 gives an insight into which families are at risk of poverty and claim the help from the state that they are entitled to, as the graph below shows.

Take-up rates vary depending on the type of household. For example, while the overall take-up of housing benefit was 77%, it ranged from over 90% for singles with children to only 64% for those eligible in private rented accommodation. And while the main estimate for working tax credit was 65%, only 33% of eligible households without children were claiming it.

The data implies that those with greater entitlements are more likely to claim. A significant change since 2012-13 was a decrease of 11% in means-tested jobseekers allowance caseload take-up – people who are entitled to a benefit but who do not claim it. This may have been due to high employment rates, more stringent conditions attached to claiming unemployment benefit and the early impact of the new universal credit, which for working age people rolls most means-tested benefit entitlements into a single monthly payment.

Universal credit take-up must be measured

There are no estimates or commitment yet given to publish take-up data for universal credit, even though it is now claimed by 1.5m people and will, it is estimated, be claimed by nearly 6m households in 2021. One of the supposed principal benefits of universal credit is that it will improve take-up rates by making the system less complicated and easier to deliver.

The evidence on take-up suggests these assumptions are over optimistic. It will take time for awareness to develop about the new rules and regulations involved.

It is unlikely that public and voluntary sector organisations will be able to invest in the additional effort needed to inform potential claimants, front line delivery staff, and related intermediary organisations that assist more disadvantaged groups and communities. There is also a risk that the “default digital delivery” (which means that most universal credit claimants must apply and self-manage their claims online) may reduce and deter take-up among people without access to computers or the skills to navigate digital channels.

Means-tested entitlements will likely remain at the centre of the British welfare system, including for many pensioners. And measures to improve take-up will remain central to national and local poverty-reduction strategies. It’s therefore vital to continue publishing take-up data to gauge the future impact of universal credit and related welfare and pension reforms.

If universal credit take-up rates do not improve as anticipated, the government should establish and state what percentage of eligible people eligible it expects to take it up. Measuring take-up rates would provide an important way to assess the impact of universal credit and help establish a transparent benchmark to measure whether the new system is achieving its objectives of reducing poverty and incentivising work. The government might also consider investing some of the £12.4 billion unspent means-tested benefits to develop new ways to increase take-up.