Guide to welfare reforms for local authority staff and their partners

A (long) plain language guide to welfare reforms for local authority staff and their partners

A wide reaching programme of welfare reform is underway that will have a significant impact on child poverty levels across local authorities. The scope of the welfare reform programme is broad, and a number of reforms will affect a variety of family types, and for many households, these effects will be cumulative.

Table two provides an overview of the reforms since 2010 that may affect family finances1. It includes an indication of the average financial loss each affected household will incur. Many of these losses are cumulative – for example, a household may lose out from changes to housing benefit and changes to working tax credit – however some are not. Case studies 1 and 2 indicate how such interactions may work.

1. The abolition of child trust funds

 The child trust fund was a long-term, tax-free savings account for children. Commencing in 2002, at birth, every eligible child was given a voucher worth £250 to open an account, with a further £250 being paid directly into the accounts of children who live in low income families. At age seven, the government made an additional £250 payment into each account, with a further £250 for children in low income families. By April 2011, 5.5 million accounts had been opened, with 35 per cent of young people being entitled to the extra payments2. While existing accounts continue, allowing children born between September 2002 and January 2011 to access funds at their 18th birthday, children born after 2 January 2011 are not eligible.

Averages losses have been calculated by factoring average family size and average payment rates, leaving each family on average £675 worse off going forward compared to if the scheme continued. This is a sum total, and this money would not have been accessible until children turn 18.

2. Support for mortgage interest payments reduced to Bank of England rates

Homeowners on certain income-related benefits may be entitled to assistance with the interest payments on their mortgage or loans taken out to make repairs to their properties. From 1 October 2010 the interest rate level was set at the Bank of England’s published monthly average mortgage interest rate, around 3.67 per cent. It had previously been temporarily set at 6.08 per cent.

 Around 115,000 households were affected by this change3. The average loss of £11.30 to claimants has been estimated by dividing Treasury’s expected £65m per annum saving across the number of households.

 3. Educational maintenance allowance abolished in England

 Educational maintenance allowance was a means-tested financial payment made to 16–19 year olds in full time education or unpaid work-based learning to meet educational costs. The scheme was abolished in England in 2010. Previously, students from households earning below £20,817 per annum were awarded £30 a week, students households earning between £20,818 and £25,521 were awarded £20 a week and students from households earning between £25,522 and £30,810 were awarded £10 a week.

 The indicative loss of £27 per claimant has been calculated by estimating the average payment from available data provided by the House of Commons Library4.

 4. Changes to working tax credit and child tax credit

 The 2010 Budget announced a raft of changes to the tax credits scheme.

  • The baby element was withdrawn. This had been worth £545 per year payable to families with a child under the age of one, in addition to the family element and the per child element. This was abolished for all claimants on April 2011, including those families who had received it for less than 12 months.
  • The family element to be withdrawn from families on more than £40,000, and the taper rate increased to 41 per cent. Previously, the family element (£545) was protected until household income reached at least £50,000 (the second income threshold). Once income reached the second income threshold it was tapered away at a rate of 6.67 per cent. From April 2011, the taper was increased from 6.67 per cent to 41 per cent. The second income threshold was also lowered so that family element was protected only below £40,000.
  • The in-year income disregard for overpayments reduced from £25,000 to £10,000. The income disregard changed from £25,000 to £10,000 from April 2011. From April 2013, it was decreased again from £10,000 to £5,000. This increases the chance of overpayments that need to be paid back being made.
  • Over 60s became eligible for working tax credit if they worked for 16 hours. Previously they needed to work at least 30 hours.
  • The 50+ element of tax credits was abolished from April 2012. Previously, people aged 50 or over who returned to work after a period claiming certain benefits, were eligible to claim working tax credits by working at least 16 hours a week. They received the 50+ element for one year from when they return to work.
  • Backdating was reduced from 93 days (or three months) to:

o initial claims – 31 days;

o changes of circumstances – one month;

o reporting qualifying benefit for the disability element – one month;

o reporting grant of refugee status – one month.

This means that families whose circumstances change might miss out unless they report changes quickly.

  • Child tax credit was increased above inflation by £150 in 2011/12, and with an additional increase of £60 scheduled for 2012/13. This offset some of the impact of other losses incurred by families with children, but the 2012/13 increase was never implemented.

 The Comprehensive Spending Review in 2010 also made a number of additional changes to the tax credits scheme.

  • Support for childcare was reduced from 80 per cent to 70 per cent. Couples or lone parents working at least 16 hours a week could previously claim up to 80 per cent of childcare costs. From April 2011, the most they could claim was reduced to 70 per cent, capped at £175 for one child or £300 for two or more children.
  • The basic and 30-hour elements of working tax credit were frozen for three years. This means they will not keep up with inflation.
  • Couples with children were required to work for at least 24 hours to qualify for working tax credit. Previously, they needed to work for only 16 hours.

Calculations for the indicative cost per households by deciles come from budget papers5.

5. Sure Start maternity grants restricted and Health in Pregnancy grants abolished

The Sure Start maternity grant is a £500 payment made to parents in receipt of certain means-tested benefits, on the birth or adoption of a child. From April 2011, it was restricted so that payments would only be made for the first child born, but not subsequent children.

In January 2011, the Health in Pregnancy grant was abolished. Previously, it was a one-off tax-free payment of £190 payable to almost all pregnant women after they reach the 25th week of pregnancy.

Calculations for the indicative costs of £500 and £380 per affected family were made on the basis of average family size and average payment size.

6. Age of youngest child reduced for lone parents to qualify for income support, to five-year-olds

Income support is the main income-replacement benefit for lone parents. The maximum age of the youngest child which entitles non-working lone parents to income support has been decreasing in stages from 16 years old in 2008 to five years old from January 2012. It is estimated that 75,000 lone parents per year will lose their entitlement to income support6. This will not affect the payments received. However, it will increase conditionality and the risk of sanctions for these parents.

 7. Changes to local housing allowance

‘Local housing allowance’ (LHA) is paid to people living in the private rented sector whose incomes are too low to meet the costs of their rent. A wide range of reforms to LHA were introduced in the June 2010 Budget, including:

  • removing the five bedroom rate;
  • removing, from April 2011, the £15 excess that claimants whose rents fell below local rates could keep. Affected claimants lose on average £10 a week7;
  • limiting LHA rates to the 30th percentile of rents rather than the median, from October 2011. Households lost an average of £12 a week from changes to the LHA rates and excess combined8;
  • uprating in line with the Consumer Price Index rather than in line with local rents
  • capping LHA from April 2011 for new claimants and for existing tenants on the anniversary of their claim (with up to nine months transitional protection in most cases). The cap depends on the size of the accommodation assessed as necessary for the household and are set at:
  • £250 for a one bedroom property;
  • £290 for a two bedroom property;
  • £340 for a three bedroom property;
  • £400 for a four bedroom property;
  • increasing the age at which the shared accommodation rate is paid from 25 to 35, from January 2012. This means that single claimants (without dependent children) can only receive LHA at the rate equal to someone renting a room in a shared house. The average affected claimant will lose £41 a week, and it is estimated that around 62,500 young people will be affected9.

 The impact of each of these reforms comes from Impact Assessment Statements.

 8. Changes to council tax

Council tax benefit was abolished on 1 April 2013 and replaced by localised schemes, with (in most areas) a 10 per cent cut in the budget. In England, there are 326 schemes each with their own criteria and entitlement. It has been suggested that some working age claimants who were previously exempt from paying council tax will now pay, on average, £138 per year10.

 9. Changes to child benefit

Child benefit was previously a universal payment made to primary carers to meet the costs of raising children. There have been two core changes to child benefit that will affect families. Firstly, child benefit payments have decreased over time. They were frozen for three years between 2010/11 and 2013/14, meaning they decreased in real terms by around 3 to 4 per cent each year. On top of this, child benefit will not be uprated in line with inflation between 2013/14 and 2016/17, and will only increase by 1 per cent. If inflation remains at around 3 per cent, this means it will decrease in real terms by another 2 or so per cent per year.

Secondly, changes to eligibility mean that families with one earner who earns over £60,000 per annum will have any child benefit payments made to their family deducted in their tax bill, and families with one earner making between £50,000 and £60,000 per annum will have the amount of payments gradually added to their tax bill.

The impact of each of these reforms comes from impact assessment statements.

10. Changes to employment support allowance

Employment and support allowance is a benefit for people who are unable to work because of illness or disability. Two key changes were introduced in April 2012.

Firstly, access to contribution-based employment and support allowance is limited to one year, at which point claimants are moved on. The impact of this reform comes from impact assessment statements11, and will see an average loss of £52 a week for affected claimants.

Secondly, the special contribution conditions that allowed some young people to qualify for contribution-based employment and support allowance without paying National Insurance contributions was abolished for new claims from 1 May 2012. The impact of this reform comes from impact assessment statements12, and will see an average loss of £25 a week for affected claimants.

11. Changes to uprating

Most benefits will be uprated by only 1 per cent in 2014/15 and 2015/16 rather than inflation. This means that over these years, the real value of benefits will decrease at around 2 per cent if inflation remains at around 3 per cent.

Families will lose on average of £3 a week13, as calculated by the impact assessment study.

After 2015/16, benefits will only be increase in line with the Consumer Price Index, a lower measure of inflation, where they were previously uprated with Retail Price Index, meaning they continue to lose value over time.

12. Under-occupation penalty (the ‘bedroom tax’)

In April 2013 a new size criteria was introduced for working-age housing benefit claimants living in social housing. The size criteria restricts housing benefit to one bedroom for each couple or lone adult living as part of a household, with the following exceptions:

  • children aged under 16 of same gender must share a bedroom;
  • children aged under 10 must share, regardless of gender;
  • disabled tenants who have a non-resident overnight carer can have an extra bedroom.

 Anyone deemed to have at least one spare bedroom is affected, including the following:

  • separated parents sharing the care of their children and who may have been allocated an extra bedroom to reflect this;
  • parents whose children visit but are not part of the household;
  • foster carers, as foster children are not part of the household for benefit purposes;
  • some families with disabled children;
  • disabled people including people living in adapted or specially designed properties.

The reduction is a fixed percentage of the eligible rent for housing benefit. Currently, this is 14 per cent for one extra bedroom and 25 per cent for two or more spare bedrooms. The government’s impact assessment estimates a loss on an average of £14 a week, although housing association tenants may lose £16 a week on average.

 The indicative losses per claimant come from Impact Assessment statements14.

13. The benefit cap

From October 2013, the total weekly benefits that a household can receive is limited to £350 a week for single people or £500 a week for single parents and couples. This overall limit incorporates all payments of:

  • bereavement benefits;
  • carer’s allowance;
  • child benefit;
  • child tax credit;
  • employment and support allowance (contribution-based and income-related) except where the support component has been awarded;
  • guardian’s allowance;
  • housing benefit;
  • incapacity benefit;
  • income support;
  • jobseeker’s allowance (contribution-based and income-based);
  • maternity allowance;
  • severe disablement allowance;
  • widow’s pension.

If a claimant or their partner is entitled to working tax credit, they are exempt from the cap. This exemption also applies if someone in the household is on certain disability-related benefits such as disability living allowance, personal independence payment or war pensions.

Initially the cap is applied by reducing housing benefit to the level set by the cap, although a 50p entitlement will always be maintained. Local authorities are responsible for implementing this reduction. Once universal credit has been introduced, the cap will be applied through reduction of this payment for those on working age benefits. Some families who may have continued to receive over £500 from October, due to their benefits being worth over this amount even after HB has been reduced, may thus see a further reduction in their income when they are transferred onto universal credit. Official DWP guidance says that other benefit income should be used to make up any shortfalls in rent arising as a result of reductions in housing benefit15.

The indicative loss per claimant comes from Impact Assessment statements.

14. Changes to disability payments

Disability living allowance (DLA) is a benefit intended to contribute towards the extra costs arising from disability or ill health. It is non-means-tested and payable regardless of employment status. From June 2013, the DLA is being replaced with personal independent payments (PIP) for new claims throughout the UK.

There will be a face to face assessment for all DLA claimants as they are migrated on to PIP. It is expected that by 2015/16 500,000 fewer claimants will be in receipt of PIP than would have been if the DLA scheme had continued (see table one). There are also different rates of payment under the PIP scheme than the DLA scheme.

 

2015/16 16-64 DLA rate combinations

Caseload

‘000s

2015/16 16-64 PIP rate combinations

Caseload

‘000s

Higher mobility, higher care

350

Enhanced mobility, enhanced daily living

340

Higher mobility, middle care

290

Enhanced mobility, standard daily living

190

Higher mobility, lowest care

270

Enhanced mobility, no daily living

230

Higher mobility, no care

130

 

 

Lower mobility, higher care

170

Standard mobility, enhanced daily living

110

Lower mobility, middle care

450

Standard mobility, standard daily living

250

Lower mobility, lowest care

230

Standard mobility, no daily living

190

Lower mobility, no care

50

 

 

No mobility, higher care

10

No mobility, enhanced daily living

90

No mobility, middle care

40

No mobility, standard daily living

250

No mobility, lowest care

190

 

 

Total

2,200

Total

1,700

Table one: predicted PIP and DLA caseload16

The average loss per claimant has been calculated by multiplying out these expected caseloads with the predicted payment made for each type of claim, and averaging out the total difference in payouts between schemes.

15. Universal credit

Universal credit will replace working age means-tested benefits and tax credits from October 2013, be they in or out of work payments. It will gradually replace:

  • income-based jobseeker’s allowance;
  • income-related employment and support allowance;
  • income support;
  • child tax credit;
  • working tax credit;
  • housing benefit.

 It will be paid directly the claimants monthly, and is expected to be paid to one claimant in the household.

 Unlike other reforms, there is not expected to be a net reduction in benefit entitlement associated with this reform – and while there will be individual winners and losers – the average impact of the introduction will see households better off by £16 a week on average17.

Universal credit is being rolled out in four pilot boroughs from October 2013, and, according to ministers, is expected to be largely rolled out across the UK by 2017. However, there remains a high risk that the official timetable is again revised given the IT and policy issues experienced so far by the project.