The ‘costs of compliance’ of benefits and tax credits

1. The ‘costs of compliance’ of benefits and tax credits Fran Bennett (University of Oxford) Mike Brewer (IFS) 13 June 2008

2. Outline • Overview of project and methods • Our motivation • There is a cost to receiving entitlement to benefits and TCs • Cost benefit analysis should reflect this • Methods exist for • valuing individuals’ and companies’ costs of complying with tax authority • valuing companies’ costs of complying with other government regulations • estimating time spent by individuals in complying with government regulations • Current policy context • Our goals for today/what we want from you

3. Overview of project • To investigate the ‘costs of compliance’ for claimants of benefits and tax credits • “Costs of compliance”: time, money, psychological costs in finding out about, claiming, maintaining, coming off benefits & TCs. • Sometimes called “administrative burden” or “compliance burden” • NOT about whether people are “compliant” (ie not committing fraud) • Team: • Fran Bennett, Robert Walker (DSPSW, University of Oxford) • Mike Brewer, Jonathan Shaw (IFS)

4. Overview of project • NOT trying to estimate these costs. Instead: • what is the nature of the costs that people incur/face when starting/maintaining/stopping a claim for benefits or TCs ? • review methods used to estimate compliance costs in other areas • review literature on non-take-up of benefits and tax credits • recommendations on how to estimate costs of compliance’ for claimants of benefits and tax credits given policy context • will consult with advisors, hold seminars with interested parties

5. Applying ‘costs of compliance’ to benefits and tax credits • For example: • time: telephone call/form-filling/office visit • money: telephone calls, transport to office, fees/interest payments when delays • psychological costs: worry, stigma, intrusion, disrespect… • But: • what about “conditionality”? • what about administrative problems?

6. Cost benefit analysis and benefit design • All other things equal, it would be better to have lower compliance costs • CBAs of hypothetical policies: • “reduce number of offices with face-to-face contact, increase contact by telephone & internet”: • Trade off rise or fall in government’s administrative costs with distribution of rises and falls in individuals’ compliance costs (and other measures of quality of service received) • “ask fewer questions about income sources on IS claim form” • Trade off reduction in targeting against fall in government’s administrative costs and distribution of falls in individuals’ compliance costs

7. Existing methods • Case studies • Burdens on businesses • Random surveys • Burdens on businesses, esp of taxes • Distribution of costs and their covariates but not necessarily their causes • Standard Cost Model • UK: burdens on businesses; The Netherlands: burdens on citizens • Bottom-up tool to estimate total costs and impact of changes, and identify what causes costs • Non-take-up studies • Rational/optimal take-up: claim benefit iff value of extra money exceeds “costs”

8. Current policy direction • Impact assessments and reducing burdens on businesses • Benefit simplification • DWP now actively investigating ‘burden on citizens’ • Efficiency savings (Gershon review) • Transformational Government: customer insight/relations management (including Tell Us Once, about contact) • Welfare reform (growing conditionality)

9. What we would like from you • Comments on: • The nature of the costs that people incur/face when starting/maintaining/stopping a claim for MTBs/TCs ? • The methods used to estimate compliance costs in other areas and their applicability to MTBs/TCs ? • Links with other research or policy initiatives • Suggestions on how to get government to take this seriously • Any other observations…

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