the welfare state: past, present and future the welfar… · robert joyce ucl, 14th november 2019...

Robert Joyce

UCL, 14th November 2019

The welfare state: past, present and future

£96 billion spent on them in 2017-18

More than education, or defence and policing combined

1.8 million households get 80%+ of their income from them

1 in 3 working-age households will get universal credit

Most people will receive a working-age benefit at some point

© Institute for Fiscal Studies The future of benefits

Working-age benefits

Benefits have become major part of welfare state Real-terms spending on working-age benefits

Sources: Benefit expenditure and caseload tables 2018, GDP at Market Prices and Money GDP (BKTL series), Budget 2001 Notes: 1948-1954 GDP based on calendar years. Includes cost of Children’s Tax Credit in 2001/02-2002/03, based on forecasts in Budget 2001

© Institute for Fiscal Studies The welfare state: past, present and future

0

20

40

60

80

100

120 19

78/7

9

1980

/81

1982

/83

1984

/85

1986

/87

1988

/89

1990

/91

1992

/93

1994

/95

1996

/97

1998

/99

2000

/01

2002

/03

2004

/05

2006

/07

2008

/09

2010

/11

2012

/13

2014

/15

2016

/17

2018

/19

2020

/21

2022

/23

£ bn

(201

8-19

pri

ces)

More than trebled

Benefits have become major part of welfare state Spending on working-age benefits

Sources: Benefit expenditure and caseload tables 2018, GDP at Market Prices and Money GDP (BKTL series), Budget 2001 Notes: 1948-1954 GDP based on calendar years. Includes cost of Children’s Tax Credit in 2001/02-2002/03, based on forecasts in Budget 2001


0%

1%

2%

3%

4%

5%

6%

7%

8%

0

20

40

60

80

100

120 19

78/7

9

1980

/81

1982

/83

1984

/85

1986

/87

1988

/89

1990

/91

1992

/93

1994

/95

1996

/97

1998

/99

2000

/01

2002

/03

2004

/05

2006

/07

2008

/09

2010

/11

2012

/13

2014

/15

2016

/17

2018

/19

2020

/21

2022

/23

% o

f GD

P

£ bn

(201

8-19

pri

ces)

Real terms (left axis)

% of GDP (right axis)

Almost doubled

What are the UK’s benefits for? Working-age benefits spending, by type


Sources: Benefit expenditure and caseload tables 2018, Budget 2001 Notes: Tax credits include cost of Children’s Tax Credit in 2001/02-2002/03, based on forecasts in Budget 2001. “Other” benefits include Council Tax Benefit and other minor housing-related benefits

-

20

40

60

80

100

120

Out-of-work benefits

Tax credits

Housing benefit

Disability, sickness and incapacity

Other

76%

The rise and rise of means-testing Working-age benefits spending, by type


0

20

40

60

80

100

120

1978/79 1983/84 1988/89 1993/94 1998/99 2003/04 2008/09 2013/14 2018/19 2023/24

£ bn

(201

8-19

pri

ces)

Sources: Benefit expenditure and caseload tables 2018, Budget 2001 Notes: Tax credits included in means-tested benefits. Includes cost of Children’s Tax Credit in 2001/02-2002/03, based on forecasts in Budget 2001. “Other” benefits include Child Benefit, DLA/PIP and other non-means-tested, non-contributory benefits.

Contributory

Means-tested

Other

60%

How do means-tested benefits work? Example: single parent with 2 children


Note: Assumes two children aged under 5, no childcare costs, no unearned income, rent of £100 per week area and paid the National Living Wage. Ignores child benefit and council tax support.

£0

£50

£100

£150

£200

£250

£300

0 5 10 15 20 25 30 35 40 45 50

Wee

kly

bene

fit

enti

tlem

ent

Hours worked at National Living Wage

Jobseeker’s Allowance

Child Tax Credit

Working tax credit

Housing benefit

How do means-tested benefits work? Example: single parent with 2 children


Note: Assumes two children aged under 5, no childcare costs, no unearned income, rent of £100 per week area and paid the National Living Wage. Ignores child benefit and council tax support.

£0

£50

£100

£150

£200

£250

£300

0 5 10 15 20 25 30 35 40 45 50

Wee

kly

bene

fit

enti

tlem

ent

Hours worked at National Living Wage

Jobseeker’s Allowance

Child Tax Credit

Working tax credit

Housing benefit

Universal Credit

Some things don’t change: the means-testing trilemma


Benefit entitlement

Other income

Contains cost Support focused on neediest Protects work incentives



Benefit entitlement

Other income


“Universal Basic Income”



Benefit entitlement

Other income


“Universal Basic Income”

Very

Can’t x

3 big challenges


What should benefits system do about people...

...in work but not earning much

...needing support for housing costs

...with an incapacity or disability


Challenge 1: people in work but not earning much % of working-age benefits going to households with adult(s) in paid work

Source: Family Resources Survey


0%

10%

20%

30%

40%

50%

60%

1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

40%

58%

Challenge 1: people in work but not earning much Population who are in poverty and in a working-age household


Note: Chart shows the composition of the population in relative after-housing-costs poverty. Source: Family Resources Survey, 1994-95 and 2016-17.

1994/95

56% 44%

In a workless household At least one adult in household in paid work

Challenge 1: people in work but not earning much Population who are in poverty and in a working-age household


Note: Chart shows the composition of the population in relative after-housing-costs poverty. Source: Family Resources Survey, 1994-95 and 2016-17.

In a workless household At least one adult in household in paid work

1994/95

56% 44%

2016/17

68%

32%

Notes: Sample is individuals in households that do not contain any member over the state pension age. Percentiles are the percentiles of the respective distributions.

Source: FRS 1994-95 to 2017-18.


0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 Percentile

...excluding benefits paid to working households

Total net household income

Challenge 1: people in work but not earning much Growth in household incomes across the distribution since 1994/95

Challenge 2: support for housing costs

Source: DWP benefit expenditure and caseload tables 2018


0

5

10

15

20

25

30 19

90/9

1 19

91/9

2 19

92/9

3 19

93/9

4 19

94/9

5 19

95/9

6 19

96/9

7 19

97/9

8 19

98/9

9 19

99/0

0 20

00/0

1 20

01/0

2 20

02/0

3 20

03/0

4 20

04/0

5 20

05/0

6 20

06/0

7 20

07/0

8 20

08/0

9 20

09/1

0 20

10/1

1 20

11/1

2 20

12/1

3 20

13/1

4 20

14/1

5 20

15/1

6 20

16/1

7 20

17/1

8

Hou

sing

Ben

efit

(£ b

n, 2

018/

19 p

rices

) Real spending on housing benefit

Challenge 2: support for housing costs Growth of higher-rent sectors driving much of the increase

Source: DWP benefit expenditure and caseload tables 2018. Breakdown by housing sector only available since 1994/95.


0

5

10

15

20

25

30 19

94/9

5

1995

/96

1996

/97

1997

/98

1998

/99

1999

/00

2000

/01

2001

/02

2002

/03

2003

/04

2004

/05

2005

/06

2006

/07

2007

/08

2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

2013

/14

2014

/15

2015

/16

2016

/17

2017

/18

Hou

sing

Ben

efit

spen

d (£

bn,

201

8/19

pric

es)

Council housing Housing association Private renters



£50

£100

£150

£200

£250

£300

£350

£400

£450

£500

£50 £100 £150 £200 £250 £300 £350 £400 £450 £500

Loca

l hou

sing

ben

efit

cap

30th percentile of local rents

2012/13

Housing benefit caps in private rented sector for 3-bed properties



£50

£100

£150

£200

£250

£300

£350

£400

£450

£500

£50 £100 £150 £200 £250 £300 £350 £400 £450 £500

Loca

l hou

sing

ben

efit

cap


2012/13

Notes: “Caps” are the Local Housing Allowance rates in £ per week. Each data point represents a Broad Rental Market Area.

Housing benefit caps in private rented sector for 3-bed properties

Greater Liverpool

Reading

Challenge 2: support for housing costs Housing benefit caps in private rented sector for 3-bed properties


£50

£100

£150

£200

£250

£300

£350

£400

£450

£500

£50 £100 £150 £200 £250 £300 £350 £400 £450 £500

Loca

l hou

sing

ben

efit

cap


2016/17

Notes: “Caps” are the Local Housing Allowance rates in £ per week. Each data point represents a Broad Rental Market Area. England only. Source: https://www.gov.uk/government/publications/local-housing-allowance-lha-rates-applicable-from-april-2016-march-2017

Challenge 2: support for housing costs Housing benefit caps in private rented sector for 3-bed properties


£50

£100

£150

£200

£250

£300

£350

£400

£450

£500

£50 £100 £150 £200 £250 £300 £350 £400 £450 £500

Loca

l hou

sing

ben

efit

cap


2019/20

Notes: “Caps” are the Local Housing Allowance rates in £ per week. Each data point represents a Broad Rental Market Area. England only. Source: https://www.gov.uk/government/publications/local-housing-allowance-lha-rates-applicable-from-april-2019-to-march-2020

Cherwell Valley HB cap: £194 p/w 30th percentile rent: £206 p/w

Cambridge HB cap: £179 p/w 30th percentile rent: £229 p/w

Challenge 3: incapacity and disability

Note: ‘Incapacity benefits’ include ESA, IB, SDA, invalidity benefit, sickness benefit, and income support on grounds of disability. ‘Disability benefits’ include DLA, PIP, attendance allowance and mobility allowance.

Source: Authors’ calculations using DWP expenditure tables Autumn 2018 and Autumn 2012.


Real working-age spending, 2010–11 to 2017–18

-27%

-5%

+5%

+49%

-40% -30% -20% -10%

0% 10% 20% 30% 40% 50% 60%

Incapacity benefits Disability benefits

Forecasts at Autumn Statement 2012

Outturns

Challenge 3: incapacity and disability The nature of incapacity has changed radically

0%

1%

2%

3%

4%

5%

6%

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

% o

n in

capa

city

ben

efits

Age 25-34, low-educated Age 55-59/64, high-educated

Note: Data run to 2018Q3. ‘Low education’ means leaving education at or before the compulsory school-leaving age; ‘high education’ corresponds to leaving education after age 18. For the yellow series, the upper age limit is 59 for women and 64 for men.

Source: Labour Force Survey


Challenge 3: incapacity and disability % of incapacity benefits claimants whose main health condition is mental or behavioural (ages 25-59)

Source: Banks, Blundell and Emmerson (2015), ‘Disability Benefit Receipt and Reform: Reconciling Trends in the United Kingdom’, Journal of Economic Perspectives 29(2), and ONS Nomis data for 2018. Includes claimants of incapacity benefit, which was phased out for new claimants from 2008, and Employment and Support Allowance. February and May 2018 data points are ESA claimants only.


0%

10%

20%

30%

40%

50%

60%

What should benefits system do about people...

...in work but not earning much

...needing support for housing costs

...with an incapacity or disability


Robert Joyce

UCL, 14th November 2019

The welfare state: past, present and future

the welfare state: past, present and future the welfar… · robert joyce ucl, 14th november 2019...

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