Sharp end of the cuts

The Sharpest End Of The Cuts

GARETH MORGAN
FERRET INFORMATION SYSTEMS

© Ferret Information Systems 20/03/11

£18
Billion
a year

Future Changes to the Benefits System

 The government made three sets of announcements about
changes to the benefits system.
 The Emergency Budget of June 22nd introduced net cuts to
the welfare system of £11bn a year by 2015.
 The Comprehensive Spending Review of October 20th
added another £7bn to that.
 The Welfare Reform Bill based on the White Paper
Universal Credit: welfare that works published in
November introduces a system which will replace the
current mix of benefits for those of working age.
 Other announcements about ESA and replacing DLA

Main Benefits Related Budget Measures - 1

 Benefits and tax credits to be up-rated by the
consumer price index (CPI)
 From 2012 pensioner benefits will rise in line with
earnings. – Triple Guarantee
 An annual Child Element Tax Credit increase of
£150 above CPI in 2011-12 and £60 above CPI in
2012-13
 Child benefit frozen for the next three years
 Withdrawal of Child Tax Credit for higher income
families
Ferret Information Systems 20/03/11


 Baby element of Child Tax Credit abolished from
2011
 Tax Credits taper rises from 39% to 41%
 Introducing a £2,500 disregard for households with
a drop in income
 Reducing the income disregard for increased income
 Over-fifties returning to work element abolished
 Local Housing Allowance (LHA) caps and
restriction to 4 bedroom rate



 LHA to be set at the 30th percentile
 CPI linking of LHA
 Non-dependant deductions to be increased
 Social rented sector limiting rents
 HB reduced to 90 per cent of assessed entitlement
after 12 months of receiving JSA
 A medical assessment for Disability Living Allowance
from 2013 for new and existing claimants.


Main Benefits Related CSR Measures - 1

 Capping benefits at median earnings where no DLA
or WTC
 Child Benefit withdrawn from higher rate taxpayers
 Tax Credits childcare costs reduced from 80 per cent to 70
per cent
 Working Tax Credit hours change for couples
 Basic and 30 hour elements of the WTC are being frozen for
three years
 Child element being increased by a further £30 in 2011-12
and £50 in 2012-13



 Time limiting contributory ESA for those in the Work
Related Activity Group to 1 year
 Increasing the age threshold for the Shared Room Rate in
Housing Benefit from 25 to 35
 Council Tax Benefit cut by 10 per cent and
localising it
 Removing the mobility component of Disability Living
Allowance from people in residential care, except for those
who are self-funding (?)



 Freezing the maximum Savings Credit award in Pension
Credit for four years
 Extending for a further year the temporary change to the
Support for Mortgage Interest scheme
 No announcement has been made about extending
the two year limit of SMI for JSA claimants which
first affected people in January 2011.
 Making permanent the temporary increases to Cold
Weather Payments



 Reiterated their promise to uprate the basic State Pension
by a triple guarantee of earnings, prices, or 2.5 per cent,
whichever is highest
 Speed up the pace of State Pension Age equalisation for
women from April 2016 so that Women‟s State Pension Age
reaches 65 in November 2018.
 The State Pension Age will then increase to 66 for both
men and women from December 2018 to April 2020.



 Educational Maintenance Allowance is to be “replaced” by
“locally managed discretionary funds” to target support
 Social Housing Landlords will be able to set rents between
social and market levels for new tenants. They will also be
able to offer fixed-term tenancies rather than agreements
for life.


Combined Budget & CSR Savings


Welfare Reform Bill

 The NEW SIMPLE SYSTEM which will start, in parallel,
from 2013 (subject to HMRC getting their IT to work)
 The needs and income rules will be very much like
today’s benefits BUT the calculation & taper will be
very different
 No clear division between unemployment and
employment.
 The amount of earnings which people are allowed to keep
before it affects their benefits – will be abolished for single
people but made much larger for some other groups. It will
however be reduced sharply for those who need help with
their housing costs

Welfare Reform Bill- 2

 Help with mortgage interest for home owners will
be available to all instead of, with the current
system, being limited to those ‘not in full-time
work’. (But Govt. trying to do a deal with lenders)
 Total amounts of benefit, for those not in receipt of DLA,
war widows or receiving Working Tax Credit, will be
limited to the median level of earnings of working families
– about £500 for families, £350 for single people.
 Self-employed people will be assumed to have a minimum
level of earnings.

Welfare Reform Bill- 3

 Transitional protection will make sure that nobody
getting benefits will move onto a lower amount when
transferring to Universal Credit
 The old and new systems will run in parallel for some
years from 2013
 One standard deduction rate of 65%
 Housing support for tenants and Council Tax Benefit
will become much more localised and variable from
place to place. Councils will be able to operate their
own CTB rules, with constraints (?)

Sanctions and penalties

 There will be more „conditionality‟ – benefit penalties for people who
do not meet job-seeking conditions. The groups which must meet these
conditions will be extended. The Bill introduces a „claimant
commitment‟ which will be a formal statement of requirements and
penalties.
 Administrative and Civil Penalties
 From £50 to £300 „fines‟ for „preventable‟ errors
 Civil Penalties
 Failure to disclose information, report changes or negligence may result in
financial penalties.
 Administrative Penalties
 These are intended to penalise fraud and are linked to the amount of benefit
gained.

 Stronger „three strikes‟ measures.


On-Line benefit claims and automatic operation

 Claiming Universal Credit will normally be done over
the internet, be much more automated, and there
will be a single place for contacting the benefits
system.
 Universal Credit will automatically, month by
month, reflect changes in earnings from employment
using a new, yet to be introduced, HMRC PAYE
computer system.


Contributory benefits time limited and means-tested

 “Under the new system, contributory benefits would retain
an insurance element, but in most circumstances would
only be paid for a fixed period, only to facilitate a transition
back to work”.
 Contributory Employment and Support Allowance will be
limited to one year.
 “Contributory Jobseeker‟s Allowance will continue in its
current form but with the same earnings rules (such as
disregards and tapered withdrawal) as Universal Credit”.
How this means-testing will operate is unclear. The
explanatory notes to the Bill refer only to an earnings taper.


Social Tenants

 The Bill provides that the dwelling size limits for
social tenants will be implemented by imposing a
percentage cut, linked to the number of additional
bedrooms, rather than by the equivalent of a Local
Housing Allowance.
 There is a new term to describe Housing Benefit
limits - appropriate maximum housing benefit
(“AMHB”)


Youngest qualifying age for Pension Credit

 There will be a younger age limit for Pension Credit. The
benefit will not be available to couples until the youngest
partner reaches the qualifying age instead of, as now, the
oldest.
 The weekly difference between the JSA and the Guaranteed Pension
Credit couples allowance is £103.75. The total loss, over the 2.6 years
average age difference for married couples, is £14,027.
 Additionally this will mean that the capital limit will still
apply to the household so that, for example, an older
partner retiring with a small pension pot which might be
better taken as capital will be disadvantaged.
 There may be a „pensioner premium‟ (my guess) but how
much?

Youth condition in ESA abolished.

 This seems a petty and damaging change, especially
as contributory ESA in work related activity group is
only going to be available for a year now. Young
people have been able to claim contributory
Employment and Support Allowance without having
to made National Insurance contributions. This will
be abolished under a provision in the Bill.


Capital Cut-Off In Universal Credit

 The intention is that the treatment of capital will be similar
to that under Income Support and other means tested
benefits currently.
 In Tax Credits today there is no such concept as a cut-off or
notional interest. Real income from capital is used in the
same way as for tax.
 When those getting tax credits, with more than £16,000 in
capital, claim Universal Credit they‟ll find that they‟re not
entitled. That‟s estimated by the Social Market Foundation
to be 400,000 families with a further 200,000 hit by the
notional interest rules.


Housing Credit in Pension Credit

 The abolition of Housing Benefit, following the
introduction of universal credit, means that the elderly will
need a replacement which will be introduced as a Housing
Credit as part of Pension Credit. The intention is that
claimants will be entitled to broadly the same amount of
support under the housing credit as they would have been
entitled to by way of housing benefit.
 A person may be eligible for the housing credit without
being entitled to either of the other elements of state
pension credit, or may receive more than one element if
they meet the relevant conditions. There may be a de
minimis rule applying to this credit. There will be a Capital
Cut-Off for the new Housing Credit in Pension Credit.

More …

 Lone parent increased conditionality
 Lone parents whose youngest child is over 5 will move from
Income Support to JSA with all the requirements for that
benefit.
 Legal „entitlement to work’ will become a
condition of entitlement for contribution-based JSA,
contributory ESA, maternity allowance and all
statutory payments.


PIP

 Personal Independence Payment to replace DLA in
2013 / 2014
 Consultation closed on 14 February 2011.
 Working age only but considering pensioners and
children

PIP - 2

 For Personal Independence Payment there are no
automatic entitlements, other than the special rules for
people who are terminally ill. Instead, each case will be
looked at individually, considering the impact of the
impairment or health condition, rather than basing the
decision on the health condition or impairment itself.
 The new assessment will focus on an individual‟s ability to
carry out a range of key activities necessary to everyday life.
Information will be collected from the individual, as well as
healthcare and other professionals who work with and
support them.

PIP - 3

 Personal Independence Payment should take greater
account of aids and adaptations. Mobility, for
example, may be assessed using a wheelchair.
 Periodically review all awards. Individuals will still
be responsible for reporting changes that occur
between reviews and there will be penalties if an
individual knowingly fails to report a change that
would have resulted in a reduction in benefit.

PIP - 4

 Government will consider how the benefit interacts
with other forms of support, for example adult social
care, and explore whether it is possible to share
information at the assessment stage and eliminate
areas of overlap.

Basis of examples - 1

 Assessments start with the April 2011 values, rules and
rates and progress from those.
 Values used are based on starting figures and then adjusted
in 3 ways:
 Earnings, other incomes, tax bands etc. use current values.
 Benefits which are to be up-rated by CPI in future have
their current values reduced by the cumulative year by year
difference between RPI and CPI
 Benefits, and elements of benefits, which have been frozen
have their current values reduced by the cumulative RPI.


Basis of examples - 2

 This, crudely, allows comparison of the real future values of
income with starting values.
 The CPI and RPI forecast figures used are those produced
by the Office for Budget Responsibility.
 Universal Credit assessment has been modelled by using
the figures in the White Paper with current values for items
not mentioned


Steady State Employment - Tenant 2 children

 The examples mainly use a couple with two children
 They are both aged 45 and have 2 children aged 8 and 10. They do not
have any childcare costs and make no pension contributions.
 They pay rent of £86.54 per week which is exactly the Local Housing
Allowance (LHA) for their home (the figure is chosen to match the
mortgage interest payable in the examples for home owners)
 They pay council tax of £1250 per annum
 In example 1, we look at a „steady-state‟ situation where one member of
a couple works 35 hours a week for annual earnings of £10,000,
£20,000, £30,000, £40,000 and £50,000.


Example 1 – Couple 2 Kids Rent

Net Weekly
Gross Earnings Income Current UC Current UC
2011 2012 2013 2014 2014 2015 2015
£10,000.00 £430.01 £420.97 £414.58 £409.27 £406.24 £402.88 £400.46
£20,000.00 £438.45 £432.22 £427.62 £422.96 £443.64 £417.34 £437.79
£30,000.00 £483.88 £484.14 £479.54 £474.88 £489.41 £469.27 £483.56
£40,000.00 £612.69 £601.06 £599.98 £598.87 £598.87 £597.61 £597.61
£50,000.00 £718.49 £717.34 £684.79 £684.79 £684.79 £684.79 £684.79


Example 1 – Couple 4 Kids Rent

Net Weekly
Gross Earnings Income Current UC Current UC
2011 2012 2013 2014 2014 2015 2015
£10,000.00 £577.51 £567.42 £558.17 £550.51 £536.78 £541.19 £528.29
£20,000.00 £585.30 £575.21 £566.99 £559.33 £573.21 £550.01 £564.72
£30,000.00 £608.95 £611.77 £605.10 £598.31 £616.09 £590.05 £607.59
£40,000.00 £660.88 £663.69 £657.02 £650.23 £661.86 £641.97 £653.36
£50,000.00 £745.29 £743.23 £684.79 £684.79 £684.79 £684.79 £684.79

Note the larger effect of the loss of Child Benefit for
the highest earner.

Steady State Unemployment - Owner 2 children

2011 2012 2013 2014 2014 2015 2015
Unemployed £342.25 £343.85 £337.62 £333.86 £333.86 £329.09 £329.09


Steady State Unemployment - Tenant 2 Children

2011 2012 2013 2014 2014 2015 2015
Unemployed £358.98 £353.79 £346.45 £341.59 £341.59 £335.74 £335.74


Children Unemployed - Owner

Net
Children W eekly
Unemployed Income Current UC Current UC
2011 2012 2013 2014 2014 2015 2015
0 £199.80 £199.13 £195.35 £194.07 £194.07 £192.37 £192.37
1 £279.71 £280.03 £274.85 £272.15 £272.15 £268.70 £268.70
2 £342.25 £343.85 £337.62 £333.86 £333.86 £329.09 £329.09
3 £404.78 £407.66 £400.40 £395.57 £395.57 £389.48 £389.48
4 £467.32 £471.48 £463.18 £457.28 £457.28 £449.87 £449.87
5 £529.85 £535.29 £500.00 £500.00 £500.00 £500.00 £500.00
6 £592.38 £599.11 £500.00 £500.00 £500.00 £500.00 £500.00
7 £654.92 £662.92 £500.00 £500.00 £500.00 £500.00 £500.00
8 £717.45 £726.74 £500.00 £500.00 £500.00 £500.00 £500.00
9 £779.99 £790.55 £500.00 £500.00 £500.00 £500.00 £500.00
10 £842.52 £854.37 £500.00 £500.00 £500.00 £500.00 £500.00


Children – Unemployed Owner


Poverty Traps

Better off on
£10,000 a year
than £25,000

Earnings Disregard in Universal Credit

Housing Cost at Which Floor
Maximum Floor Reached

Couple £57.69 £10.00 £31.79

+1 child £109.62 £20.00 £59.74

+2 children £109.62 £25.00 £56.41

+3 Children £109.62 £30.00 £53.08

Lone Parent

+1 child £148.08 £40.00 £72.05

+2 children £148.08 £45.00 £68.72

+3 Children £148.08 £50.00 £65.38


LA Cuts

Local Authority Change in
estimated
'Revenue
Spending
Power'
2011-12

£m

Westminster -21.0
Hillingdon -7.1
Newham -38.5
Sedgemoor -1.1

The Local Effect

Local Authority Change in Annual Loss of
estimated Benefits to
'Revenue Residents
Spending
Power'
2011-12

£m £m

Westminster -21.0 -73
Hillingdon -7.1 -76
Newham -38.5 -70
Sedgemoor -1.1 -33


Income and Job Losses

Authority Hillingdon
Mid Year Population 2009 (ONS) 262,500
Authority Sedgemoor
Total Lost Benefit Income annually - 2014 £76,806,059 Mid Year Population 2009 (ONS) 112,100
Jobs Lost 2011 - 2014 1,782
Total Lost Benefit Income annually - 2014 £32,799,845
Jobs Lost 2011 - 2014 761
Lost Benefit Income 2011 £9,898,126
Jobs Lost 2011 230
Lost Benefit Income 2011 £4,226,971
Additional Lost Benefit Income 2012 £20,964,486 Jobs Lost 2011 98
Jobs Lost 2012 486
Additional Lost Benefit Income 2012 £8,952,834
Jobs Lost 2013 678
Jobs Lost 2014 388
Jobs Lost 2014 166
Unclaimed Means-Tested Benefits £41,695,325
potential Jobs saved through MTB take-up 967
Unclaimed Working Tax Credit £16,100,385 Unclaimed Means-Tested Benefits £17,805,889
potential Jobs saved through WTC take-up 374 potential Jobs saved through MTB take-up 413
Unclaimed Working Tax Credit £6,875,631
potential Jobs saved through WTC take-up 160


More advice needed but advice is being cut


Interesting Times

Universal
Credit
5 years of
confusion

The old
system


Ferret

YOU’LL QUICKLY SEE THE BENEFIT


Sharp end of the cuts

More Related Content

What's hot

Viewers also liked

Similar to Sharp end of the cuts

More from Socialist Health Association

Recently uploaded

Sharp end of the cuts