Welfare reform – early impacts

01 December 2012
Issue 231 (December 2012)

Kate Bell looks gives an overview of what early research has uncovered about the future impact of welfare reform.

The 2012 Welfare Reform Act ushered in a wide range of changes to the social security system that will undoubtedly have a detrimental effect on many benefit claimants. While the sheer scale of change makes precise assessment very difficult, one thing that became very clear during the parliamentary debates during the passage of the Act was that the cuts would have a disproportionate impact on London. For example, the impact assessment for the benefit cap found that 49 per cent of those affected would be in the capital.1">www.dwp.gov.uk/docs/benefit-cap-wr2011-ia.pdf

London has the highest child poverty rates of any UK region, and CPAG runs a specific London campaign. We wanted to investigate what the likely impact of the changes was on families, and what local authorities and advice agencies could do to mitigate these. Our report, published jointly with Lasa, Between a Rock and a Hard Place: the early impacts of welfare reform in London, came out in November and is based on interviews with 11 London local authorities and 10 advice agencies.

The report focuses on the changes affecting housing support, as it is those that we felt would have the biggest (initial) impact on families. In previous research (reported in Bulletin 229), we’ve looked at the localisation of the social fund, and our ongoing national work is examining the impact of universal credit. But the focus of this report was as follows.

  • Caps to local housing allowance (LHA) restrict the level of support that families can receive with their rents to the 30th percentile of rents within a local area, and set absolute limits depending on the number of bedrooms the claimant is allowed under the size criteria. These began to take effect in April 2011, although many families will not have seen their level of support reduced straight away.
  • The benefit cap will restrict the total amount of support received by any one household to £500 a week for families with children and £350 for single people. The initial impact assessment found that 27,440 households in London are expected to be affected by the cap, but the DWP has now written to over 100,000 people in London who could possibly be affected.
  • Underoccupation penalties will reduce the level of support for families in social rented housing if they are deemed to have an extra bedroom. The impact assessment published as part of the Bill found that this will affect 80,000 households in London. We wanted to assess the impact of the reforms against the government’s own aims, gleaned from statements throughout the passage of the Welfare Reform Bill and statements within impact assessments.

We found four possible objectives of the changes:

  • reduce expenditure on housing benefit (as part of the overall plan for deficit reduction);
  • improve work incentives;
  • tackle overcrowding; and
  • increase ‘fairness’.

Will the plans reduce housing benefit expenditure? One fairly obvious response to this is that if government cuts the amount of support available, the cost of that support will be less. But we found that the changes would do nothing to address the underlying causes of rising housing benefit expenditure over the last decade: increases in unemployment, an upward trend in people living in the private rented sector, and significant rises in rents. While the government has stated that it expects the reforms to bring rents down, we found no sign of that in London, with rents rising by 7 per cent last year, and most local authorities thinking it extremely unlikely that we would see a fall in the following year.

What’s more, the changes are likely to have significant knock-on costs for local authorities in terms of homelessness. The benefit cap, restricting families’ benefits to £500 a week, has no exemption for temporary accommodation, leaving families and local authorities in a trap. London councils predict that 63,000 families in London may be unable to afford their rent as a result of the caps.2 If these families present to their local authority as homeless, the dilemma of finding affordable accommodation below the cap rates is passed on. Many local authorities we spoke to were seeing their only option as procuring accommodation outside London, and research by The Guardian following our report found them looking as far afield as Manchester, Hull, Derby, Nottingham, Birmingham and Merthyr Tydfil in south Wales.3 The social costs for these families are likely to be significant. The government has suggested that discretionary housing payments (DHPs) will fill the gaps in ‘tough cases’ but their scale is highly unlikely to be able to meet the level of need: the additional funding put into DHPs is just 9 per cent of that taken out of housing benefits.

What about work incentives? Again, there’s a response that argues that if you reduce the support people have to live on, the gains to employment will be greater. But while we found many local authorities engaged in innovative and intensive work to help families find employment, including within their own services, the reality is that many parents will either be unready for work, or unable to afford the cost of childcare, which is 24 per cent higher than in the rest of the country. Parents’ employment rates are already significantly lower in London than those for UK families.4

Will the underoccupation penalties tackle overcrowding? Authorities predict that they may encourage some families to down-size, if there is property available, but the statistics show that there are 126,000 overcrowded households in London’s social rented sector, well over the number that look set to be hit by the ‘underoccupying’ penalties. What’s more, many authorities predict that families hit by the benefit cap may choose to move into smaller, overcrowded accommodation, in order to be able to stay near to families and social networks.

What of fairness? CPAG believes that the polices do not treat families fairly. For example, while the benefit cap includes child benefit as income for out-of-work families, it was not included as income for families in work when determining what the level of the cap should be. Children are nine times as likely to be affected by the benefit cap as adults.

How can advice agencies respond to these challenges? We found that many were feeling slightly overwhelmed by the scale and pace of reform, with several still mired in the ongoing debacle of employment and support allowance reassessments. Looking ahead to April 2013 when many of the changes will kick in, advisers are also likely to be seeing claimants affected by the change from disability living allowance to the new personal independence payment. But we found many advice agencies with good practice to recommend. Most important perhaps was building strong links with the local authority to understand how it would be implementing the changes, and to help communicate the changes to residents. Local advice partnerships, where these existed, were playing an important role in helping to share out expertise across a range of agencies. Some agencies were investing now in training for their staff, and in developing clear and concise materials for clients.

Dealing with the impact of welfare reform is going to be extremely difficult for advisers, for local authorities, and most of all for the individuals who will have their income and homes taken away. Perhaps the most important message from the report is the need to monitor the impact of these changes, so that a clear story can be given to policy makers about how benefit cuts affect families.

Please be aware that welfare rights law and guidance change frequently. Therefore older Bulletin articles may be out of date. Use keywords or the search function to find more recent material on this topic.