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Understanding the compliance costs of benefits and tax credits

Bennett, F.; Brewer, M.; Shaw, J.; (2009) Understanding the compliance costs of benefits and tax credits. (IFS Reports R70 ). Institute for Fiscal Studies: London, UK. Green open access

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This report describes a scoping study to understand more about the nature of the 'costs of compliance' that claimants of social security benefits and (personal) tax credits incur, and discusses possible ways of measuring such costs. 'Costs of compliance' refers to the costs - time, money and psychological costs - that are imposed on applicants for, and recipients of, benefits and tax credits and on others by meeting all the various requirements placed on them by social security and tax credit law and statutory authorities. Our main purpose in this report is to make the case for taking compliance costs into account in considering the impact of, and changes to, benefits and tax credits. The study aimed to investigate the extent to which the principles underlying methods of establishing 'costs of compliance' in other areas can be applied to applicants for, and recipients of, benefits and tax credits. These existing methods include valuing individuals' and companies' administrative costs of complying with the tax authorities; valuing companies' costs in complying with government regulations; and estimating the time spent by individuals in complying with government regulations of various kinds. But we also think it is important for governments to consider claimants' own perceptions and priorities in terms of the 'costs of compliance'. Currently, the government recommends that cost-benefit analysis should be used when assessing the impact of potential policy changes and it produces guidance for departments on how to put this into practice. New impact assessments have been introduced recently, which, in principle, should take into account the monetary value of all the effects of changes, including allocating a value to non-market items such as people's time. This kind of assessment should therefore include analysis of the 'costs of compliance' for benefits and tax credits claimants. In practice, however, impact assessments do not usually include such exercises. It is important to know about the scale and distribution of the compliance costs of benefits and tax credits, as well as taxes, for several reasons. Time spent by recipients fulfilling their obligations cannot be spent engaged in other activities; a more rounded measure of the productivity of the benefits and tax credits system would include such costs; and we could understand more about the reasons behind non-take-up of entitlements. There could be advantages, too, in terms of improving citizens' relationship with government. A concern about the 'burdens on citizens' imposed by their interactions with government is now moving quickly up the policy agenda in the UK, and a few attempts to measure claimants' compliance costs were initiated whilst this scoping study was being undertaken. Within the European Union, member states have also begun to exchange information and experiences about reducing burdens on citizens more generally. The Netherlands has developed both its policies and its measurement methods further than many other countries. This is a scoping study and does not set out to measure the costs of compliance incurred by benefits and tax credits claimants. Instead, it explores the nature of the costs of compliance for claimants of benefits and tax credits; assesses whether such costs can be measured and, if so, to what extent; and discusses whether impact assessments of policy changes could include such measurements. We also hope that this report will act as a catalyst for the further development of these techniques to improve policy assessment in the benefits and tax credits systems.

Type: Report
Title: Understanding the compliance costs of benefits and tax credits
Open access status: An open access version is available from UCL Discovery
Publisher version: http://dx.doi.org/10.1920/re.ifs.2009.0070
Language: English
UCL classification: UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS > Dept of Economics
URI: https://discovery.ucl.ac.uk/id/eprint/18309
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