Joint Committee on Social Protection, Community and Rural Development and the Islands debate -
Thursday, 26 Sep 2024

We have received apologies from the Leas-Chathaoirleach of the committee, Deputy Marc Ó Cathasaigh. I remind members who are participating in the meeting remotely that they must do so from within the Leinster House precincts only. I remind all those in attendance to make sure their mobile phones are switched off or in silent mode.

I welcome the witness, Dr. Roantree, to the meeting. Witnesses are protected by absolute privilege in respect of the presentations they make to the committee. This means they have an absolute defence against any defamation action in respect of anything they say at the meeting. However, they are expected not to abuse this privilege. It is my duty as Cathaoirleach to ensure this privilege is not abused. Therefore, if their statements are potentially defamatory in relation to an identifiable person or entity, they will be directed to discontinue their remarks. It is imperative they comply with any such direction. Witnesses are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against any person or entity either by name or in such a way as to make him, her or it identifiable, or otherwise engage in speech that might be regarded as damaging to the good name of the person or entity. Members are also reminded of the long-standing parliamentary practice that they should not comment on, criticise or make charges against a person or entity outside the Houses or an official either by name or in such a way as to make him, her or it identifiable.

The committee will now consider the Economic and Social Research Institute's recently published report entitled Poverty, Income Inequality and Living Standards in Ireland: Fourth Annual Report. This report was published in partnership with Community Foundation Ireland using the latest data on household incomes from the Central Statistics Office. The research, which was published last month, found that recent rises in prices have left the average disposable income lower than it was two years earlier across the population as a whole. Due to inflation, incomes have stayed the same for most people, with little or no growth. The committee welcomes the opportunity to discuss these real and impactful issues for citizens with independent researchers and academics and hopes to foster a greater interaction between parliamentarians and academia in the hope of creating an evidence-informed policymaking approach particularly in advance of budget 2025. This has been a consistent recommendation of this committee to the Government. In that context, I welcome before the meeting today, one of the authors of the report, Dr. Barra Roantree, department of economics at Trinity College Dublin. Dr. Roantree is very welcome and I now invite him to make his opening statement.

I thank the committee for its invitation to discuss this report, which is the fourth of an annual series looking at poverty, income inequality and living standards in Ireland published by the Economic and Social Research Institute in partnership with Community Foundation Ireland. As the Cathaoirleach said at the outset, the report uses data from the Central Statistics Office and we are very grateful to that office for allowing access to that.

I am one of the authors of the report alongside Helen Russell and Bertrand Maître of the ESRI who unfortunately cannot be here today. While I am a research affiliate of the ESRI, where I worked between 2018 and 2023, my primary affiliation is now with the department of economics at Trinity College Dublin, where I am assistant professor and director of the MSc in economic policy. In this opening statement, I wish to give an overview of the main findings of the research published earlier this month.

Foremost among them is that the rate of material deprivation, that is, the share of individuals in households unable to afford two or more items from a list of ten essentials, rose from 17.7% in 2022 to 20.1% in 2023 for those aged under 18. This means 230,000 children are currently estimated to experience material deprivation. That is an increase of almost 30,000 since 2022.

Similarly, rates of income poverty, which capture the share of individuals living in a household with less than 60% of median income adjusted for household size, have increased for children in recent years when housing costs are accounted for. They are up from 20% in 2020 to 22% in 2023. Those rates of income poverty that account for housing costs are higher still where the youngest child is aged from zero to five, at almost a quarter.

The rise in these rates of material deprivation and income poverty come amidst a 3% real, that is, inflation adjusted, decline in the average disposable income of households with children and that is part of a broader stagnation in real household incomes that has followed almost a decade of uninterrupted real growth in income since 2012. Indeed, our research showed that the recent rise in prices has left average disposable income lower than it was two years earlier across the population as a whole, with post-tax and transfer incomes - that is what we mean by "disposable" - adjusted for household size falling in real terms at both the mean and median, by 2.2% and 5.4%, respectively. Therefore, there were reasonably large declines in real income.

In addition to falling on average, real incomes have stagnated across the rest of the distribution, with negative or negligible growth from the fifth to the 95th percentile. This is reflected in measures of income inequality, which have increased slightly after many years of trending downwards. That downwards trend in measures of income inequality is really an underappreciated aspect of the strongly progressive growth we experienced between 2012 and 2021.

The sharp rise in prices that followed the Covid-19 pandemic and the Russian invasion of Ukraine appears to be the most important factor in explaining this stagnation in incomes. Given that, there is reason to think that the stagnation in incomes that we have seen recently will not persist in the years ahead, given that inflation is now coming down and individual earnings are forecast to grow in real terms.

However, this may be counteracted, particularly at the bottom of the income distribution, by the withdrawal of temporary cost-of-living-related payments such as household energy credits, double payments of certain welfare payments, etc. Those temporary payments have been a core part of the Government’s strategy in addressing the rise in the cost of living. Those payments have been particularly important for lower-income households given that core rates of social welfare payments have not kept pace with inflation. If we were to look at them today and by the end of this year, we would say they are currently 6% and 8%, depending on the particular payment, lower than their 2020 levels in real terms. They have not, over the course of this Parliament, kept pace with inflation. They are lower in real terms.

This poses a real challenge for the Government in the upcoming budget. Given the limited resources allocated to tax and welfare measures in the summer economic statement, it is very unlikely increases to core payments will be sufficient to offset the eventual and, ultimately, necessary withdrawal of those temporary payments. That means the incomes of those at the bottom of the distribution are likely to lag behind those of the rest of the population, which will have consequences for poverty, inequality and material deprivation.

A notable and perhaps surprising exception to these patterns of growth is for those aged 65 plus. This group have seen their real incomes grow by 3% on average, boosted by a rise in income from employment, self-employment and the rental of property or land. Indeed, adjusted for both household size and housing costs, average disposable incomes are now higher for those aged 65 plus than those aged under 65.

That is a remarkable turnaround from the position in 2007 when such incomes for those aged 65 plus were a quarter lower than those of working-age adults, or, indeed, the late 1990s when rates of income poverty for those age 65 plus stood at over 40% - almost twice the rate of those aged under 65. That remarkable turnaround was primarily achieved through sustained increases in the State pension, which grew by 50% in real terms over the 2000s and was also largely protected during the period of fiscal consolidation that followed the financial crisis. That is what has helped narrow the gap in incomes to the point that they have converged. Once again, one accounts for housing costs and adjusts for household size.

That improvement in the material living standards of older adults should be celebrated as a triumph of social policy but it also highlights the centrality of tax and welfare policy for determining living standards, particularly for those at the lower end of the income distribution. It also illustrates the potential for sustained political prioritisation to reduce rates of child poverty, which is something we have highlighted in our report.

In previous ESRI research carried out in partnership with Community Foundation Ireland, Dr. Karina Doorley and I showed that a means-tested second tier of child benefit would enable policymakers to far more effectively target resources towards reductions in child poverty. We estimated, in that report last year, that such a payment has the potential to reduce child poverty by a quarter, which is equivalent to taking more than 40,000 children out of poverty. From that point of view, it was welcome to see today some reports in the Irish Independent that the Taoiseach has committed to looking at this if he is in the next Government. Hopefully, that is something for which cross-party support can be built around because it has real potential to make an impact on child poverty.

Reducing child poverty will require spending money. Our proposal, which is much more effective than other approaches, would still cost just under €700 million. Ultimately, it is a question of political priorities. That cost of €700 million is similar to what we currently raise in capital acquisitions tax, often called inheritance tax, or what we would forgo by cutting the VAT rate on hospitality to 9%. Given the substantial body of evidence which shows the negative causal impacts child poverty has on child and later life outcomes, there is a strong argument it would be money well spent. I thank the committee for its time, and look forward to discussing the issues with members.

I thank Dr. Roantree for the piece of work that he carried out here, and Community Foundation Ireland, which has assisted him with it. At a broader level, I thank the ESRI for its engagement, particularly with this committee over the past four years in the term of this committee.

One of the significant issues that has arisen is touched on in Dr. Roantree's last recommendation. Of course, Dr. Roantree has made the argument to us previously on a second rate of child benefit that would be specifically targeted.

In the course of its hearings in considering its pre-budget submissions, the committee has had a lot of engagement with the Parliamentary Budget Office. One thing that consistently comes across is the levels of poverty within one-parent families in particular and the committee has been trying to grapple with that. The evidence that we have received from the Parliamentary Budget Office is that these one-off payments, particularly in relation to the social welfare payments, have been very effective in targeting the lower quartile in terms of poverty.

Dr. Roantree raised here in his evidence this morning that one of the big concerns is what happens if those one-off payments are not repeated. The committee has flagged in its pre-budget submission the effective social welfare rates have been undermined because of the cost-of-living increases. I did a number of media interviews on foot of that and people were aghast that the committee was looking for a €25 increase in the basic social welfare payments. Some of the commentators who were on the media with me were asking how could I justify this. I was trying to explain that incomes have been eroded because of the inflation rate and while incomes as a whole have increased, incomes in terms of the basic core social welfare rates have not increased. Will Dr. Roantree comment on these one-off payments, because this is a measure that the Parliamentary Budget Office has stated has been very effective? The difficult is more the uncertainty of those payments and that is why the committee made the recommendation regarding core social welfare rates.

Associated with that, would this commitment in relation to these one-off payments be a more effective way of dealing with the issues of poverty that Dr. Roantree has raised rather than introducing a new rate of social welfare? The reason I say that is it is much easier to maintain a line in a Vote than to introduce a new line, which is what Dr. Roantree is proposing in his evidence here this morning.

I am sorry for the long-winded question but if Dr. Roantree could address it, I would appreciate it.

The issues the Cathaoirleach highlights are very important.

Maybe I will start off with the core rates. As the Cathaoirleach noted, people tend to look at things in cash terms. In a way, that is a bit unfortunate because while we have not had high inflation for many years, now we have and people then tend to fixate on, as the Cathaoirleach says, numbers such as a €20 increase.

If we were to look at the core rates of welfare payments at the start of this Oireachtas term and where they will be by the end of this year, they will be down by between 6% and 8% in real terms. This means that what would be needed in this budget, simply to keep place with inflation since 2020, would be an increase of approximately €14 in the core rates of payment for those of working age, and of €23 for older individuals. This is based on where we think the rate of inflation will end up by the end of this year. Again, that is only to keep pace with inflation and that is worth unpacking a little bit. Just to keep pace with inflation over five years means no real growth in living standards for those whose sole source of income is this payment. Incomes might change otherwise because employment income might go up and many people who work get social welfare payments. It is incredible that at the end of five years, we are looking at a situation where welfare payments will be lower in real terms than they were at the start.

Again, this is being driven by the big spike in inflation, which feeds into the issue of once-off payments. Those once-off payments made sense when there was a big jump in energy bills, given that energy bills come at a particular point in time. If you have a once-off payment that is coming in the spring or whenever energy bills are landing in the doors, there is a degree of sense in doing that. It means there is a lump sum of cash landing into people's accounts or in the post office and they can use that to pay off those bills. However, electricity and gas prices have come back down and will feed into lower household bills. There is then a longer-running issue of those core rates and that is where the focus really needs to move towards.

It is not sustainable to have these once-off payments repeatedly. The hint is in the name. They are a once-off and we are now in the third year of discussing them. Ultimately, we need certainty for people's incomes and once-off payments cannot provide that. By their nature, they are once-off and are subject to political whim. Those core rates of welfare payment are really important and we need to look at how we at least keep pace with inflation.

The second aspect of the Chair's question related to the once-off payment versus the second tier. In ways, the once-off payments have been politically easy to get through, not least because they are often put through as a Supplementary Vote at the end of the year, rather than put into the next year's budget. What we highlighted in our report last year and why we think a second means-tested tier of child benefit is needed is that the existing welfare system is outdated. There are groups it does not reach. It is based on an idea of work where you are either out of work and get jobseeker's payment or if you are in work, you might get the working family payment if you work a sufficient number of hours. There is a bit of a disconnect there. There is a group not covered by either of those payments, particularly if they are working a few hours a day but more than three days a week. They do not have any residual entitlement to jobseeker's benefit. The whole system of benefits that we currently operate is linked to a very outdated way of looking at how people's lives operate.

The second-tier child benefit would introduce a degree of consistency, particularly for those people with children, in how the welfare system treats them. The way we modelled this would mean that increases for qualified children would be subsumed into this second means-tested tier child benefit, as would the working family payment. There are a lot of different design issues surrounding this that I am very happy to discuss. Essentially, what we were modelling and what we showed is that if we combined these increases for qualified children payments, IQCs, with the working family payment in this new second tier of child benefit, it would enable us to target resources to those children in the lowest-income households, while also getting the group we are missing between working family payment and jobseeker's in a way that raises fewer concerns about financial work incentives. This is fundamentally the issue. Whenever it comes to it, we might want to increase the IQCs but will then worry about whether that creates disincentives to enter employment. The cost then gets very big because suddenly we are doing the working family payment and the IQCs.

That is really how we are coming at it. We need a redesign of the welfare system, at least as it operates in respect of children, to make this easier to do. It is the direction the system is going in anyway. The recent proposals, which I know have come through this committee, regarding an earnings-related jobseeker's benefit payment move away from the idea of having IQCs associated with the payment and will be based on previous earnings. We need to think about what we are doing with kids and how are we supporting those with kids. Jobseeker's allowance might not go that way but does having IQCs left on jobseeker's allowance and not jobseeker's benefit make sense? Again, we are thinking about these groups that miss out.

In many of ways, what we are proposing is very similar to what Gordon Brown did in the UK back in the early 2000s. That had a phenomenal impact on child poverty. What they were able to do with those reforms in the early 2000s was leave child poverty a third lower than it otherwise would have been. This type of reform is more politically difficult and I completely accept that, but at the same time, it enables the system to better adapt and address the issues that come around each budget cycle when people are looking for increases in IQCs or working family payment and the lost group in between, but also the interaction of those payments.

Coming back to the lump sums, which Dr. Roantree touched on it in his response, the Parliamentary Budget Office felt that these came at an opportune time. The ones for electricity were slightly different because they were universal payments. I am sure Deputy Ó Cuív will have a comment on the upcoming payments for Christmas and the traditional Christmas bonus because he has very strong views that it should be embedded in the system and not be seen as a once-off payment each year. However, would there be more merit to having a targeted top-up payment at particular times in the year, for example, at the beginning of the school year, rather than an additional incremental payment throughout the year? That is my first question.

Second, based on the argument Dr. Roantree has made this morning, does it an increased child benefit that is then taxed not merit consideration, rather than introducing a second tier? Would it not have the same effect without having the additional administration cost? The difficulty is once you introduce a means-tested payment, you have a number of problems, one of which is the cost of administering that. The systems are within the Department of Social Protection but there is a cost to administer it. There is also a reluctance by some people, who should be entitled to it, to apply for those payments. There is also an element of fear in that people are afraid if they leave welfare and go into work, this payment could be under threat. This may not be immediate but it could be down the road. That creates a chilling effect. Would it not be better to meet the objectives that we all want to see, of addressing child poverty, while not creating barriers to employment, particularly part-time flexible employment?

I do not mean this at the lower end of the pay scale. I have made the argument here before. There is a very effective model being used by Microsoft in the Nordic countries where they are training women in particular, who might have childcare commitments but could work during the day, to do cybersecurity work. We are talking about highly paid but flexible work, in terms of the hours that they can commit to it. Our economy needs to be moving there anyway. An element of the economy that we have ignored up to now is high-paid flexible part-time work. As a service economy, it is something that we could exploit to a far greater extent to benefit women in particular, in bringing additional income into the household. A second-tiered payment could have, as I have said, a chilling effect in relation to that potential. Would it be better to go for a significantly increased rate of child benefit and taxing that? The income earner would be taxed, whomsoever that will be, rather than going down the route of a second-tier payment.

There are three issues and I will work backwards on them. The first relates to part-time work. The Chair is right in that there are really interesting opportunities, particularly in respect of the higher-skilled element of flexible working and how this is combined with childcare arrangements and the rest.

A lot of research has been done recently on the extent to which, at the low-pay end of distribution, lower-paid part-time jobs do not lead to career progression. It is important for the system to try to grapple with that. Currently, through the working family payment, we strongly encourage and incentivise low-income earners, in particular women, to work part-time jobs. The implicit idea seems to be that if they work a little bit, it will build to something larger and move them out of poverty. Actually there is no strong evidence to support that in an Irish context or looking at it in other European countries. Part of the reason seems to be that people do not get career advancement if they are working part time. There is potential at the higher end for flexible working. However, at the lower-paid end we need to reassess how we structure our welfare system and whether we think that encouraging part-time work alone is likely to lead to advancement for individuals or is there a way to structure it, such as combining part-time work with part-time training, that might build up the skills of individuals and allow them to move. Part-time work is the first issue the Deputy touched on. At the moment, the system has an outdated view of how this works and of the world of work. That is one thing we will need to address.

Second, on child benefit, and taxation being an easier way to do it than creating a second tier, there will be administrative costs wherever there are means tests. Then we have the question of whether we want the means test to be done through the income tax system or the social protection system. When we think about income adequacy, we think about household income. We have in part a jointly assessed system for income tax, but for the most part it is individual for USC, PRSI and, for many people, income tax. There will be some administrative costs when we have means-testing. I see means-testing for an additional payment as analogous to taxation. If we tax child benefit, we would bring a lot of people who do not have complicated tax affairs into the income tax system and make them have to do some kind of tax return or make their income tax affairs more complicated. It can lead to strong disincentives, as we have seen in the UK where child benefit is means-tested. They ended up with some very high effective marginal rates, albeit at relatively high levels of earnings, but they seem to have an impact, especially on women as second earners deciding whether to work. There is potential for those unintended consequences around work the Deputy mentioned and there is more of a chance of those happening if it is done under the income tax system by taxing child benefit.

I think the second tier is a better way to go. The Deputy is right that we have a situation where part of what leads to low levels of take-up of such things as the working family payment is that people move between different payments when they are out of work, and move into work and they have to know what they are entitled to. It can be convoluted. Integrating that, especially for people at the lower end of income distribution where we want to target the support, gives us the potential to consolidate the system, make it easier and address some of those issues at the same time. There is also potential to raise take-up of an integrated payment that would combine things. I am not talking about introducing a new layer of complexity but, rather, combining the increase for a qualified child, IQC, with the working family payment. Through that approach, there is potential to make the system a lot more straightforward and reduce some of the administrative costs, which I agree are a big issue.

The last issue related to timing. It is interesting but it is almost separate from the question of how to structure the payments. We had a debate on whether to tax child benefit or introduce a more targeted second tier of child benefit. However, timing is an important issue and that should be recognised, especially for people with lower levels of income who might not be able to save as much and also might not have the capacity to borrow when they need to. Expenses fluctuate during the year. That is the idea behind the Christmas bonus, which, as the Deputy mentioned, some people are strongly of the view should be part of the system. I share that view. In effect it is, yet it is reannounced every year as though it were something new. That creates needless uncertainty for individuals and for the Government finances. We know it will happen each year, other than in very bad times of crisis. Let us just be serious and say it is part of the system. Also, why do we just do it at Christmas? That is just one time at which there are high expenses, but an argument could be made for other times, such as when the school year starts and there is a bunch of expenses. There are other schemes to try to deal with that, but there is incomplete take-up of those schemes. The question is whether we want to have additional payments at certain times of the year. That can be done under the current system or under a redesigned system. It is an important question, but it is a different one.

This is interesting and challenging.

All of us on this committee would like to do better by children. There is no doubt about that. We have been struggling with the complexities of the various schemes and means-testing, which in my view has huge negative consequences. I have argued that again and again. Before I jump in and say what Dr. Roantree proposes is a great idea, however, I would need more information, but now is certainly the time to look at it. The number of children being born in this country is dropping dramatically so there will potentially be money in the system in the long term, even spending the same amount. People speak a lot about the ageing problem and if there is an insufficient number of children growing up and getting education, we will run into the problem of having an even bigger imbalance. We will have a growing older population and smaller younger population, which would not be healthy. Let us presume that tomorrow we have abolished child benefit, people get an extra top-up, we have abolished the working family payment and put the means-tested child benefit in its place. First, we will have to means-test everyone who gets child benefit and everyone will apply. People will not do the sums themselves. In this means test, will we take into account childcare costs, mortgage costs up to a reasonable limit and rental costs? What will we do about the cliff face? Will the situation be that people either get it or do not? If they are €1 above the threshold, will they lose it? That creates a disincentive. We have enough of that with people being afraid of losing the medical card. The mechanics of this are quite difficult. We could have a system that covers all the people who get child dependant payments, working family payment and so on and then picks up the people in the squeezed middle who have high mortgage costs, high rental costs or high childcare costs and factor all of that in and then factor in that there will be more children in society as we make it more affordable for everyone to have children if they choose to have them. If affordability is the reason people are not having children - you often hear that; I do not know whether it is anecdotal - then making it affordable is for the good of society in the long term. In that case, is it really worthwhile means-testing? How many people will be caught in the means test? There are a lot of other ways of taxing people. Since I do not have any children of schoolgoing age, I am more than happy to pay a little more tax so that those who have children and are securing all our futures can afford to live with it.

People who have what appear to be quite good incomes but who also have high mortgages do not have that much disposable income, particularly compared with their peers who do not have children. As I have said, it is a brave jump but I would look very carefully before jumping into this pool because there are an awful lot of questions. This has always been the argument about child benefit. If you have capital, how is that to be assessed? It would be vastly complicated. There is then the problem of a farmer on 100 acres in County Meath who has a very low income from the farm because farming is not that profitable, although the value of the asset is very substantial. Do you ignore the asset, as is done with social welfare schemes, or do you take it into account? When you take all the factors into account, taking universality away would cut out a very small number of parents and their children. I am still doubtful of the benefit. That is not to say we should not do a lot more about child poverty but I am not sure this is the way to go. The more I think about it, the more I wonder about the mechanics of it.

The Deputy raises some very good points and I am happy to engage with them. I will start with the issue he mentioned as regards the number of children, demographics and the issues these raise in respect of sustainability. He is absolutely right that one of the ways we can address the costs created by the great thing that we are living longer - it is a very good thing but it does come with costs - is by increasing the birth rate. The one thing I will say is that it seems to be harder to increase the birth rate than we might like. The evidence from other countries is that the timing of births is more responsive to the design of the welfare system and increases in flexibility. The number of kids is not necessarily as responsive. It is a worthy and laudable aim to make childcare more affordable and all of these things but it is more likely to shift births forward. You might get a few additional births but it is not going to substantially alter the birth rate. We are looking at the total fertility rate, if you want to put it like that.

On the many issues the Deputy raised in respect of means-testing, there are lots of issues to think about here. The current system is not a good one. It does not work well. As the Deputy mentioned, we have all of these cliff edges. We have different means tests that apply to different benefits. Different incomes are taken into account for jobseeker's allowance versus the working family payment. What counts as income? These are precisely the types of issues the Deputy has spoken about. He talked about the difference between different types of benefits. Again, we have cliff edges in respect of the jobseeker's allowance. If you work more than three days, you suddenly fall off it. There are other cliff edges in the system in respect of SUSI grants. There is a wide range of these issues in the system that we have not done enough to address.

Part of what I am proposing is an attempt to address those issues. In looking at this work, part of what we are proposing involves consolidating those nastier aspects of the means test at the bottom so that they do not create these issues. As it is such a tricky problem, we have let it slide for several decades now. If you look at the structure of our system, you will see that it is not that dissimilar from how it looked in the nineties. There are changes here and there but, fundamentally, we have not revised the system at all. While I am not saying that Britain should be our example in any of this, it has had two fundamental reforms of its welfare system over that same time. Our welfare system looks like the British one 30 or 40 years ago. It came from a very similar place. We have ducked these issues. There are challenges in addressing them and I will chat a bit more about some of them now but fundamentally we need to recognise that there are issues at the moment and we have not been addressing them. We should probably think carefully about how we do so, given the changing nature of work.

With particular regard to child benefit and universality, we have not proposed to get rid of child benefit. That core bit of child benefit would be kept. What I am really talking about is integrating IQCs and the working family payment, which would then be the second tier. On whether new people would apply for the benefit, that could be dealt with relatively easily. Whatever means test you ultimately come up with, you can say that this is the upper income limit and that you are not going to get anything if you are above it. That could be relatively easy. You might get a few more claims but we want to get some more claims because there are issues with take-up at the moment, particularly in respect of the working family payment.

As to the costs that are taken into account, that is a really good question. Again, it differs between different benefits. I will give an example of why I believe what we modelled is worthwhile. What we modelled is effectively just taking the working family payment means test as it exists, getting rid of IQCs and making families who would have got IQCs eligible for that payment, removing the hours condition. That is effectively the system we modelled. What we showed was that, at a cost of a little under €700 million, this would reduce child poverty by a quarter. As to why it is worthwhile to look at that given all the complexities the Deputy mentioned, you would spend not far off the same amount in increasing child benefit to reduce the child poverty rate by a fraction of that. The issue we are trying to deal with is that a percentage point reduction in child poverty by means of child benefit costs over €500 million. That is because it is universal. Universality has many good elements but, if you want to reduce child poverty through child benefit, you spend a lot of money and it will ultimately be very difficult to ever do. I do not believe we will ever see those types of increases. That is the fundamental issue between targeting and universality. You can do a bit of both, however. Gordon Brown described it as progressive universalism. You have an element of universality by way of child benefit but then an additional tier that is mean-tested and targeted. Again, we already have a means-tested system. What I am talking about would ultimately reduce complexity by bringing it together.

Dr. Roantree seems to be arguing in favour of something. Let us leave child benefit. We will just park it. It would be better to look at a supplementary payment for a child, separate from child benefit, which would be a means-tested payment that replaces the two payments. It might sound fairly similar when put that way but I believe it will sound totally different to the people out there who we talk to. You might then be able to design it. It still raises issues as regards the squeezed middle, people who are on a relatively low income when you consider that they pay for things that other people get for free. I think particularly of housing and childcare. I take it that Dr. Roantree would favour a sliding off rather than a cliff edge.

These are good and important questions but they are questions we essentially implicitly answer at the moment, although I am not sure we do it in a good way. We have a way of dealing with what goes in the means test and what income is looked at. Again, it differs between the different benefits. The system has lain as it is for a long time. As I said to Deputy Naughten earlier on, in a way it is very outdated. It conceptualises work as something you either do or do not do. It does not really think about people working four days a week or a few hours a week for flexibility. We currently need to grapple with all of these nasty and tricky issues the Deputy mentioned but we just do not do so. We just take as a given what the system currently does. We need to look at actively making decisions. For example, do we want to encourage low-paid individuals, particularly low-paid women, to work just over 20 hours? That is what we see in the data. We see the working family payment strongly encourages low-paid women to work 20 or 21 hours just so they will qualify for the payment. We know that does not lead to career progression and so keeps them in low-paid work. We are implicitly making a bunch of decisions in this area that we might want to revisit given the changing nature of work. We are doing that in some aspects. On the actual design of the system, we should absolutely stay away from cliff edges. Cliff edges are an appalling aspect of the system and have no place in a modern welfare system. We should not need them. They also have no place in a modern PRSI system. There are cliff edges in our PRSI and USC systems that we gloss over each year.

Each year we have an increase in the employer PRSI threshold so that the Minister can say that a full-time worker working for 38 hours on the minimum wage will not face an increase in the payment, but someone working for 42 hours on the minimum wage will. There are all these cliff edges built into the system. We need to look at SUSI grants and deal with them. The Deputy has raised some very tricky issues regarding the means test and how it operates. We are making decisions on them at the moment. We are essentially making the decision we made 30 or 40 years ago and we are not reassessing it enough.

I have spoken out against the cliff edge time and time again. Whenever we walk out of here, we meet real people who have to make real-life choices when they hit the cliff edge. With some social welfare payments it is 100% of whatever extra they get. I point out that nobody pays tax like that. In some cases it is 60%, such as for spousal income and, for example, somebody on jobseeker's payment and so on. Would Dr. Roantree agree that one of the universal decisions we need to make right across the system, it is not only to do with children, is that the starting point should be that nobody should be cut by more than 50% on any income? Instead of being vertical, I am saying we can get more activity and that it will not cost an absolute fortune if it were at, for example, 50% maximum. I would love if it was much lower and then when people get there, level it off in order that the slide off is much more gradual. Would Dr. Roantree agree that until we tackle that, we are only tackling one element of a bigger problem of the cliff edge?

I agree with the Deputy 100%. We want cliff edges gone and they should be replaced with gradual slopes that taper. Regarding the rate of that taper, it should not be any higher than 50% or 60%. Once it goes beyond there, it will have a detrimental impact on how people choose whether to increase their hours and their earnings. We also need to consider the system as a whole. Increasingly means tests are being introduced by different Departments with no consideration for, in particular, social welfare schemes. For example, there is a means test on the national childcare scheme. The means test for that is effectively set by how generous the payment is and two-income thresholds which are not revised year after year. That can actually end up with some effective marginal tax rates of over 100% for many individuals. Increases in the generosity of the national childcare scheme increased the marginal tax rate.

The other bit related to this is differential rents. The Deputy will be very familiar with these. Most people, other than those who pay them, probably are not. Research that I did when I was with the ESRI found that over 300 households pay differential rents. Those schemes differ. There are more differential rent schemes than there are local authorities because Wicklow kept two, with a separate one for Bray. Those rates differ drastically across local authorities and that is not taken into account by anyone in central government. Central government devolves that and says local government looks after those schemes. We did some work in the ESRI and I can supply the Deputy and the committee with that. It means that financial work incentives at the bottom of the income distribution for people in receipt of a means-tested benefit who pay differential rents to a local authority can look much worse than they are. It is much more than the 50% the Deputy mentioned once those payments are accounted for.

We need somebody to look at this. It has been stretched across different Departments. The Department of housing introduced HAP and then said people pay differential rents for that. The NCS was introduced by the Department of children and it decided to have a means test for that. Nobody centrally is keeping an eye on these means tests. The only body that can do so is the Department of Social Protection. Other Departments need to be conscious of it, however, such that the Department of Social Protection would ask them if they have thought it through and how it interacts with other schemes. That does not happen at the moment and leads to the types of issues the Deputy mentioned.

Fundamentally, it comes back to the problem that we have had decades without reform and without a systematic review of our welfare system and how it is designed. I am referring to those design elements like the means test and cliff edges. Some absurdities are now entering the system and we fundamentally need to grapple with them at some stage. There will be difficult choices in that, but at the moment we do not have a well-designed system in many respects.

I have been following the debate from my office and it is a fascinating discussion. I have so many questions to ask that I might invite Dr. Roantree to have a cup of tea or something because it could take a while. I will try to be as concise as I can be. It is a really beneficial discussion. I have two general observations. We are having a discussion very much focused on policy. The policy objective is to ensure that as many people as possible are lifted out of poverty. The politics is not relevant. Sometimes politics gets a bad name. One thing we need to be mindful of is consent for the welfare system as a whole. That is important. While I know this is not what Dr. Roantree is advocating, if we had a system of welfare that is only for the poor, we would end up with a poor welfare system. If we have a system of properly progressive taxation, it is quite reasonable that people on middle incomes would be in a position to benefit. That is always something I try to take into consideration.

Regarding means-testing, poverty and disincentives to work, I think that the system of means-testing for the housing list is one of the most underappreciated policy obstacles to work and to people progressing out of poverty. Every week I meet people who are trying to figure out if working more hours will result in them losing out. Time on the list is money in the bank for people. It is a huge issue. They are making very rational and correct decisions in their own interest as to whether to work more if it means that the seven years they have spent on the housing list could be completely gone. It is a really underappreciated issue; it is absolutely massive. Reform of that area is needed; that is obviously beyond the remit of the Department of Social Protection. It would make a big difference if when people go over the threshold for a few years, their application could be put on ice or something like that and they could return to it in two years if they come back under the income threshold. People can have a good year or two but it might not be like that in a few years. Those are some general observations and I would welcome Dr. Roantree's thoughts on them.

I think he is right in saying there is a reticence to reform. To some extent politicians are conscious of the law of unintended consequences. This highly intricate welfare system has been built up over well over 100 years, building on the Poor Law system. There have been add-ons and bolt-ons and there is concern that transforming it would have knock-on consequences. It is a really interesting proposal. I think I understand the point about how qualified child increases would fit in with this. However, I do not fully understand how the working family payment might be integrated into such an approach.

On the working family payment, the biggest cliff edge in the social welfare system at the minute is people who are on working family payment and one-parent family payment, and the child turns seven. I have come across cases of people losing over €200 a week. These are low-income families losing over €200 a week. It is a massive cliff edge. It is very much under-appreciated that about 16% of people on the working family payment are one-parent families. It is not a small category of people, comprising about 5,000 or 6,000 people, primarily women. Most of them are down over €100 and some are down over €200 depending on their earnings.

There is a debate about whether the current system should be adjusted or whether we should have total reform. I am of the view that the threshold needs to be brought back up to where it was at 12 or 13 in terms of the one-parent family. In any event, how would a second rate of child benefit that also includes the working family payment work in practice? It is probably a case of tapering it or something like that. I have one or two more questions, but that is enough to start with.

Very, very slowly. That illustrates why we need to think at the same time of how we treat children. There is legitimate reason to think about extending the working family payment or something like that to those without children. We know there are many single adults or couples without kids on low incomes who cannot go into full-time work. There is a reasonable discussion to be had about extending something like the working family payment to them, probably with a higher hours limit. We are probably not talking about 20 hours being the limit but about topping it up for those who work full time. That makes sense and allows the possibility of looking at the integration of IQCs and the existing working family payment for those with kids, so there would be a second tier of child benefit. That would address some issues the Deputy raised about cliff edges by allowing a payment to be designed for those with kids moving into work, so that payment would be means-tested and tapered above a certain level. We could think how we wanted to do that in terms of age limits. That could be separated from the discussion around the working family payment as it stands. We can have in addition to that a payment to top up the income of low-paid workers with or without kids, if that is something we want to do. The issues the Deputy raised around the working family payment could be addressed in redesigning the system of payments for those with kids and having a relatively seamless transition into work whereby we have the same payment, people's means are taken into account and the payment might be tapered, just as the working family payment is. It is tapered at a rate of 60% of eligible earnings above that threshold. There is a way of doing that and addressing those issues.

On the unintended consequences, a strong force around welfare reform is the fear we might break something or do something that has unintended consequences. That is absolutely right and is why we have to work through things, do lots of modelling and work out the winners and losers. There are two things we should think about alongside that. One is that the current system creates lots of losers and difficulties. I am unsure why we treat it as a sunk cost. When thinking about reform, we tend not to weight so heavily people whose lives might be improved or who are currently facing issues; we place more weight on a small number of cases where something might happen. That can be addressed. Means, in particular, can be addressed through transitional protection. Something often in place in other welfare systems going through a period of big reform is a scheme that changes the system and might reduce a small number of people's entitlements - maybe high-income people - but that puts in place a transitional protection so that no one sees their income fall in cash terms. It is done over time to ensure there are no immediate losers. No people see their income fall in nominal terms as the reform is implemented slowly over time. That has been done when other countries engage in these changes because there are inevitably losers and one can try to make it as small as possible and address those issues but it is almost impossible to change a system without leaving some people worse off. There is a question of what to do with them. One thing is to protect them as the system transitions. That is one way to deal with the fear around unintended consequences. There are many issues with the current system that need to be addressed and it is great we are having that discussion.

On social housing limits, the Deputy is right. Highlighted in previous ESRI work I have done is how income thresholds are fixed in cash terms and are very low in income distribution now. People can go over them and be reassessed and how they are reassessed differs across local authorities. Some HAP applicants are reassessed while others are left on the list unaffected as long as the applicant writes back to the authority within a few months. That is an important issue and highlights a broader issue across the system, which is that we have thresholds in place that are fixed in cash terms and that we do not address. They are left there for years.

We have this in the rent limits for HAP. The discretionary amounts have been increased slightly but the rent limits for HAP have been frozen for years. It is not announced each budget time like a €5 increase in the welfare payment but we should think of it as the exact same as part of the welfare system. It is not treated like that; it is set in cash terms and left to wither away. That happens in many areas. Another example is the student support grant. Some former colleagues in the ESRI showed that back in the 1970s and 1980s it was at the same level as the jobseeker's payment; it is nowhere near it now. It has withered away over time. There are many aspects of the system whereby things are set in cash terms and forgotten about. That creates real problems. They should be treated as part of the welfare system but are not.

The most blatant one that has not been addressed is the medical card. Anyone in receipt of social welfare at the moment is technically ineligible for a medical card because everyone is over the income limit. If people are in the unfortunate situation of getting €1 that puts them over the income threshold for the medical card, they lose the medical card for €1.

It brings me to one of the proposals we have been working on, which is the idea of a social welfare adequacy commission similar to the Low Pay Commission. I am not expecting an endorsement of that idea but does the ESRI have ideas for avoiding the relatively arbitrary increases in thresholds and rates that happen in budgets?

Dr. Roantree spoke of Gordon Brown's reforms, which I presume means the working tax credit and so on. I imagine that would not necessarily work as a tax credit. That was political. There was a feeling people did not want to talk anymore about welfare increases. It came from Clinton originally. That was not terribly dissimilar to the working family payment. It was very much targeted at families in work and on low incomes. Is that an example of targeting or is it subsumed in what Dr. Roantree spoke about regarding folding qualified child increases in the working family payment into a second rate of child benefits? What does that look like for the recipient? It all arrives as one payment but has been added to and deducted from according to particular considerations: single mother, working 25 hours in a mid-income job but not full-time, two children; they round the numbers and arrive at a figure for the payment. Is that how it would work? I take it Dr. Roantree is not taking about the minus tax approach Gordon Brown was talking about.

I will start on tax credits, Gordon Brown and that whole debate. They were called tax credits in part because, initially, they were done through revenue. It proved difficult, which goes back to the discussion we had earlier about whether it is better to tax child benefit. The welfare system can do means testing quite well and with sophistication, whereas it is not something Revenue or, in Britain, HMRC, have done a lot of. It led to many difficulties. That is why it was called a tax credit, as well as the political, Clintonite justification. They moved away from that system and did it more as a welfare payment, in part because of the issues that had created.

In terms of what the payment might look like, what the Deputy described, as I understood it, is more or less what I am talking about. I did some calculations. Lone parents with two kids would get about €40 more per kid if they had no employment income. As they move into work, there is an income disregard and it starts to get tapered at 60%.

That was how we modelled it but it does not have to be how it needs to be done. IQC is received alongside jobseeker's payment and is tapered at 100%, with the recipients losing eligibility when they go over three days. At some point they become eligible for the working family payment if they work more than 19 hours a week. We modelled it to move away from this system to have a working family payment without an hours condition to replace the IQC. This is how we modelled it but it is a first stab at this.

It would in the sense that it is an assessment of income. This is something we might want to think about moving our system away from so we link things more to earnings or income than hours. The notion of having these fixed-hour conditions is a little bit archaic in today's changing world of work. It contributes to the situation I mentioned whereby we really encourage in particular women on low incomes to work only 20 hours a week, which does not result in career progression. If there is a concern about hours, whereby we do not want people who get an income top-up to work a small number of hours but to engage, we should think about it as activity. We might want to think about retraining or training schemes in addition to work. We might want to think of the ideas of people working and being involved in training as somewhat interchangeable. This is why we want to move away from thinking about things as been conditional on hours or being in work or not, and instead having a means test based on income. Then we can speak about the details, and it would be very important to think about the details of the means test.

The Deputy asked a question about adequacy. I was previously at the ESRI. I am still a research affiliate but I am now full time at Trinity College Dublin. A lot of attention has been paid to indexation in ESRI research. We are not a complete outlier but we are relatively rare in this country in having the Minister stand up to announce €5 or €10 a week increases in various payments, as if it is a matter of whim or discretion. In many countries it is automatic, unless the Minister decides otherwise, that it is increased related to prices. This type of indexation would allow us to not have the situation we do now, whereby we have had a big spike in inflation and suddenly we are rushing to try to keep payments constant in real terms. There is something quite interesting in this. If we were to look at the Conservative Government in Britain which has just left office, for all its talk about hostility to welfare it still increased welfare payments in line with inflation. The language and rhetoric there was very different to the policy action that happens by default. Here the discussion about welfare and social protection is much nicer. The rhetoric is a lot less hostile. At the same time, the effect of action is sometimes to cut payments substantially in real terms. It would be great if more of the debate could be about this.

One way to remove the inadvertent cuts to welfare payments would be to bring them in line with indexation. It would not tie the Government's hands. If it decided it were too much, it could make an active decision not to do so. It would stop the €5, €10 or €20 a week increase. It is easier to announce €5 or €10 week increases but we get different welfare payments being increased by different amounts. In recent years we have had a situation where some payments are above inflationary increases and others are below inflationary increases just because an increase of €5 or €10 in the payment has been announced. An increase of €10 to a payment of €200 is different to an increase of €10 to a payment of €300. We have ended up in the bizarre situation whereby we cut some payments in real terms but increase others by announcing the somewhat arbitrary figure of €5 a week.

We can see that moving towards an indexation-type system would be separate from the adequacy issue. With adequacy we think about the level it should be at but indexation is about how it changes year to year. Indexation would take away power from the Departments of Public Expenditure, National Development Plan Delivery and Reform, and Finance but, at the same time, it would give a lot more certainty to people. It would help to shift the political debate to more fundamental issues regarding welfare rather than every year having an increase in payments of €5, €10 or €20. This really should not be the core of our discussions, debate or consideration of the welfare system. Rather, we should be thinking about whether the system is working in the way we want it to and achieving the outcomes we want it to. Perhaps we could spend more time addressing these issues if we did not have the annual bunfight about the euro per week increases.

I have several more questions. Deputy Ó Cuív is correct that increasingly there will be a political focus on demographics and the fact we have an ageing population. This will be not only in terms of making sure we have adequate resources to provide for people of advancing age but also to ensure there are enough young people in society and in the labour market. It is brutal to think of it in such instrumental terms but it is still a strategic consideration. Politically this will become more and more of a discussion. From what I have read, income incentives have a very modest effect. Has Dr. Roantree given this thought? To the extent they have any impact, what are the income incentives that have any marginal impact? From what I have read it is very modest if it exists. There are structural and cultural issues as much as anything else. Nonetheless, it is something that Governments need to grapple with. It is an important debate.

To be more devil's advocate than anything else, there are people who would say that payments such as the working family payment subsidise low-paid workers and take away responsibility from employers to ensure workers are paid a decent living wage. Perhaps Dr. Roantree's model would resolve some of these issues. It is a complicated and competitive world. There is part-time work and all types of considerations in there. I am interested in his take on this. Perhaps the new model he is proposing would deal with it.

Perhaps my next question is a bit left-field and does not fit. The biggest categories of people we speak about at the committee with regard to being at risk of poverty or in poverty are single parents, carers and people with disabilities. The discussion on the Green Paper has gone into abeyance but there is still the outstanding issue of the cost of disability and how we address this. To my knowledge no obvious model has been brought forward. Disability payments such as exist at present need to be set at a rate that to some extent meets the costs of disability. It is a bit more complicated than this because everyone's cost of disability is different. It is not only dependent on the disability but also dependent on whether the person lives in a rural area or has children. There is a variety of considerations. Does Dr. Roantree have thoughts on how the cost of disability might be addressed?

I will go backwards because the issue of cost of disability is significant. In the research programme what we really highlight is that there are many individuals who appear to be experiencing material deprivation in terms of the measure of very low living standards who are just above the poverty line in terms of the more income-related measure but have someone in the household who has a disability. At present in the way we do poverty rate calculations and in how the welfare system deals with it, we do not recognise the costs of disability. It is a very important issue.

The Government sets its official targets related to what it calls a consistent poverty, which is being materially deprived and below the poverty line. There is a bunch of people who are materially deprived who are just above the poverty line but would be below it if we allowed for any type of real cost of disability. This demonstrates what a big issue this is. In one way it is tricky to solve, in that fundamentally, exactly as the Deputy said, the costs associated with disability vary among individuals and among parts of the country. If we want to have something that recognises that the costs vary, we are immediately into some type of assessment, be it medical or otherwise. I completely understand why disability groups find this so problematic and difficult. I am not saying that what was proposed in the Green Paper was necessarily the right way forward. If we want to recognise the cost of disability, and it is somewhat mad that we do not do so in the system whereby people get the same personal rate in disability allowances as they do in jobseeker's payments, it will be tricky without some form of distinguishing.

The Deputy is right that ultimately there needs to be some assessment. People can have different views on how that can be done and that is what makes it tricky but we should definitely move towards recognising the costs of disability because they are substantial and real. We also do not recognise them in any other welfare system or in the poverty statistics and that makes a big difference. The ESRI, and one of my former colleagues there, is doing some work coming up with some updated calculations on costs of disability. I am sure that may be of interest to the committee and the ESRI will be sure to let members know of that.

The second question raised by the Deputy was a really good one regarding the working family payment at the moment or a reformed working-age payment that gave something to low-paid individuals who are in paid work but which may not be particularly well-paid. That does give rise to fears that we are essentially subsidising some kind of employer tax. There is research to show, at least in the UK, that some employers were able to capture some of the gains from this. That is more likely to happen if it is paid through Revenue because then the employer sees what people are getting and so on. In one sense, not having a system where they can see on their payslip that they are getting this payment can mitigate against it a little bit. However, there is another way we may want to think about how to deal with that. It is a real concern whether it is that employers are able to capture 10% or 30% of the gains; we are not talking about the employers capturing the entire gain from these sort of payments. In looking at that, this is where thinking about the welfare system and minimum wage in combination comes in. In work we have done before we have highlighted that the minimum wage is not a good anti-poverty measure in that there is actually a small number of those below the poverty line who get the minimum wage. Flipping it around the other way, a lot of people in relatively high-income families are on the minimum wage. From that point of view, the minimum wage is not a very good anti-poverty device. However, it is a very useful complementary tool to anti-poverty strategies such as the working family payment or a single working-aged payment in that in designing this payment we are simultaneously increasing the minium wage and restricting the ability of employers to capture that gain. Therefore, we are restricting the ability of employers to subsidise that low-paid work. There are very good reasons to think about the minimum wage and the level it is at. It is less good in the poverty dimension but where it comes into play is in that interaction and using the minimum wage as a complement with the welfare system, where the action really is in respect of anti-poverty measures.

Going backwards again, on the very first issue the Deputy mentioned, his reading is right on the modest or minimal impact of pronatalist policies on the number of kids. Where it can make a difference is to timing. A somewhat related issue is that we know these payments can have really important impacts for the kids who are born. We know that having very little income, particularly in those early years, has impacts on both child outcomes but also on the later life outcomes of those children. Even if we are not getting big impacts in terms of thinking about reductions in child poverty, boosting fertility rates, it is still very much worthwhile doing just because of how large that impact is on children over their entire lives. That is why this is an area where we want to try to do as much as we can because the benefits of these measures can be reaped for an entire lifetime. From that point of view, one thing that comes to mind is the discussion about having a child benefit bonus when the child is born. There is a degree of sense to that. Other countries such as Portugal do this. They start paying child benefit a few months before the kid is born in recognition that-----

Exactly. However, not only that. A lot of women who are pregnant have to stop working early and this is a really formative stage of life as regards in utero development. Having that child benefit kick in a few months early, in terms of eating or being able to put food on the table, can be really effective as well. I agree with the Deputy. It is attractive to think about some of these policies in respect of their pronatalist impact. It is probably unlikely they will have that much impact on the overall numbers. It may have a little bit of an effect on timing and we may get some people having kids earlier. However, there are huge impacts, particularly in those early years, around what even cash transfers can do before birth as well as in those early years.

I thank Dr. Roantree for his evidence to the committee this morning. I thank him again for the work he has done on this particular report but also for the assistance the ESRI has given this committee over the past four years. This concludes the committee's business in public session. I now propose the committee go into private session to consider other items of business. Is that agreed? Agreed.