welfare reform –the impactdoc.housing.org.uk.s3.amazonaws.com/presentations/(p3) gareth...

Welfare Reform – The Impact

G A R E T H M O R G A N

F E R R E T I N F O R M A T I O N S Y S T E M S

© Ferret Information Systems

06/04/2011© Ferret Information Systems

Future Changes to the Benefits System

ó The government made three sets of announcements about changes to the benefits system.

ó The Emergency Budget of June 22nd introduced net cuts to the welfare system of £11bn a year by 2015.

ó The Comprehensive Spending Review of October 20th added another £7bn to that.

ó 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.

ó … and now, 13 slides of cuts and changes!

Main Benefits Related Budget Measures - 1

ó Benefits and tax credits to be up-rated by the consumer price index (CPI)

ó From 2012 pensioner benefits will rise in line with earnings. – Triple Guarantee

ó An annual Child Element Tax Credit increase of £150 above CPI in 2011-12 and £60 above CPI in 2012-13

ó Child benefit frozen for the next three years

ó Withdrawal of Child Tax Credit for higher income families

06/04/2011Ferret Information Systems


ó Baby element of Child Tax Credit abolished from 2011

ó Tax Credits taper rises from 39% to 41%

ó Introducing a £2,500 disregard for households with a drop in income

ó Reducing the income disregard for increased income

ó Over-fifties returning to work element abolished

ó Local Housing Allowance (LHA) caps and restriction to 4 bedroom rate



ó LHA to be set at the 30th percentile

ó CPI linking of LHA

ó Non-dependant deductions to be increased

ó Social rented sector limiting rents

ó HB reduced to 90 per cent of assessed entitlement after 12 months of receiving JSA

ó A medical assessment for Disability Living Allowance from 2013 for new and existing claimants.


Main Benefits Related CSR Measures - 1

ó Capping benefits at median earnings where no DLA or WTC

ó Child Benefit withdrawn from higher rate taxpayers

ó Tax Credits childcare costs reduced from 80 per cent to 70 per cent

ó Working Tax Credit hours change for couples

ó Basic and 30 hour elements of the WTC are being frozen for three years

ó Child element being increased by a further £30 in 2011-12 and £50 in 2012-13



ó Time limiting contributory ESA for those in the Work Related Activity Group to 1 year

ó Increasing the age threshold for the Shared Room Rate in Housing Benefit from 25 to 35

ó Council Tax Benefit cut by 10 per cent and localising it

ó Removing the mobility component of Disability Living Allowance from people in residential care, except for those who are self-funding (?)¡ (In the Bill, in the Budget figures but … ‘under consideration’)



ó Freezing the maximum Savings Credit award in Pension Credit for four years

ó Extending for a further year the temporary change to the Support for Mortgage Interest scheme

ó No announcement has been made about extending the two year limit of SMI for JSA claimants which first affected people in January 2011.

ó Making permanent the temporary increases to Cold Weather Payments



ó Reiterated their promise to uprate the basic State Pension by a triple guarantee of earnings, prices, or 2.5 per cent, whichever is highest

ó 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.

ó The State Pension Age will then increase to 66 for both men and women from December 2018 to April 2020.



ó Educational Maintenance Allowance is to be “replaced” by “locally managed discretionary funds” to target support

ó 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

ó The NEW SIMPLE SYSTEM which will start, in parallel, from 2013 (subject to HMRC getting their IT to work)

ó The needs and income rules will be very much like today’s benefits BUT the calculation & taper will be very different

ó No clear division between unemployment and employment.

ó 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

ó 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)

ó 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.

ó Self-employed people will be assumed to have a minimum level of earnings.

Welfare Reform Bill- 3

ó Transitional protection will make sure that nobody getting benefits will move onto a lower amount when transferring to Universal Credit

ó The old and new systems will run in parallel for some years from 2013

ó One standard deduction rate of 65%

ó 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 (?)

Some Points

CONDITIONALITY

© Ferret Information Systems 06/04/2011

Conditionality - Four broad groups

ó Full conditionality – jobseekers;

ó Work preparation – people with a disability or those with a health condition

ó Keeping in touch with the labour market – lone parent or lead carer in a couple with a child over age one but below age five

ó No conditionality – people with a disability or health condition which prevents them from working, carers, lone parents or lead carers with a child under the age of one.


More people becoming covered

ó “Conditionality under Universal Credit will apply up to a threshold. Initially this threshold will be set at broadly the same point at which people lose entitlement to out-of-work benefits. In the future, however, it will be possible to raise the threshold to apply conditionality to greater numbers of recipients”¡ White Paper

ó The Bill introduces a ‘claimant commitment’ which will be a formal statement of requirements and penalties.


Sanctions and penalties

ó 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.

ó Stronger ‘three strikes’ measures.¡ Up to 3 years maximum disqualification from benefit

ó Hardship Payments still available¡ …but may become loans


Some More Points

IMPACTS


Social Tenants

ó 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.

ó There is a new term to describe Housing Benefit limits - appropriate maximum housing benefit (“AMHB”)


Youngest qualifying age for Pension Credit

ó 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.

ó 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.

ó There may be a ‘pensioner premium’ (my guess) but how much?


Capital Cut-Off In Universal Credit

ó The intention is that the treatment of capital will be similar to that under Income Support and other means tested benefits currently.

ó 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.

ó 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

ó 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.

ó 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.

ó There may be a de minimis rule applying to this credit.

ó There will be a Capital Cut-Off for the new Housing Credit in Pension Credit.


PIP

PERSONA L INDEPENDENCE PAYMENT


PIP

ó Personal Independence Payment to replace DLA in 2013 / 2014

ó Consultation closed on 14 February 2011.

ó Working age only but considering pensioners and children

PIP - 2

ó 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.

ó 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

ó Personal Independence Payment should take greater account of aids and adaptations. Mobility, for example, may be assessed while using a wheelchair.

ó 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

ó 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.

Examples


Universal Credit

ó A simpler benefits system

ó The same way of working out how much someone needs as today (more or less)

ó The same way of working out how much someone already has as today (more or less)

ó A simpler way of working out how much to give them (more or less)


Basis of examples - 1

ó Assessments start with the April 2011 values, rules and rates and progress from those.

ó Values used are based on starting figures and then adjusted in 3 ways:

ó Earnings, other incomes, tax bands etc. use current values.

ó 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

ó Benefits, and elements of benefits, which have been frozen have their current values reduced by the cumulative RPI.


Basis of examples - 2

ó This, crudely, allows comparison of the real future values of income with starting values.

ó The CPI and RPI forecast figures used are those produced by the Office for Budget Responsibility.

ó 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

ó The examples mainly use a couple with two children

ó 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.

ó 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)

ó They pay council tax of £1250 per annum

ó 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


Gross EarningsNet Weekly 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


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

Gross EarningsNet Weekly 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

Steady State Unemployment - Owner 2 children


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

Children - Unemployed Tenant


Children Unemployed

Net Weekly Income Current UC Current UC

2011 2012 2013 2014 2014 2015 2015 0 £216.53 £209.08 £204.18 £201.80 £201.80 £199.01 £199.01 1 £296.44 £289.98 £283.68 £279.88 £279.88 £275.35 £275.35 2 £358.98 £353.79 £346.45 £341.59 £341.59 £335.74 £335.74 3 £421.51 £417.61 £409.23 £403.30 £403.30 £396.13 £396.13 4 £484.05 £481.42 £472.01 £465.01 £465.01 £456.52 £456.52 5 £546.58 £545.24 £500.00 £500.00 £500.00 £500.00 £500.00 6 £609.12 £609.05 £500.00 £500.00 £500.00 £500.00 £500.00 7 £671.65 £672.87 £500.00 £500.00 £500.00 £500.00 £500.00 8 £734.19 £736.69 £500.00 £500.00 £500.00 £500.00 £500.00 9 £796.72 £800.50 £500.00 £500.00 £500.00 £500.00 £500.00

10 £859.26 £864.32 £500.00 £500.00 £500.00 £500.00 £500.00

Children – Unemployed Tenant


£0.00

£100.00

£200.00

£300.00

£400.00

£500.00

£600.00

£700.00

£800.00

£900.00

£1,000.00

2011 2012 2013 2014 2014

Net

Inco

me

Net Income by Number of Children - Unemployed

0

1

2

3

4

5

6

7

8

9

10

Current Rules then Universal Credit

4 Bedroom Homes

ó The lowest LHA figure for a 4 bedroom house in England is in the BRMA of Bradford and South Vales and is (for February 2011) £137.31 while the 30th percentile ‘shadow’ figure (from April 2011) is £109.62.

ó Council Tax in Bradford, for the cheapest Band A property, without any parish precept, is £851.49 (£16.37 a week).

ó If it were possible to find a Band A, four bedroom house, at the LHA level in Bradford, the total cost of rent and council tax would be £153.68. At the 30th percentile ‘shadow’ level it would be £125.99.


4 Bedroom Affordability

ó On current rates of benefit, a single parent with 5 children living in the cheapest LHA level house in England on the lowest council tax band would have its Housing Benefit capped by exactly £25.00 a week. If the cap were to use the current median income figure the HB would be capped by £46.

ó A couple with 6 children, in the same house, would find a shortfall of £120 a week or £141 on the current median earnings figure.

ó It’s not just London.


Poverty Traps


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

Work Incentives


Work incentives

ó Government says the two drivers for reform are simplifying the system and improving work incentives

ó The White Paper says “poor financial incentives to work are key factors in trapping people on out-of-work benefits “

ó The 2012 Income tax personal allowance increase will be worth £2.42 a week to those earning £115,000 a year but £0.48p to the poorest workers as the increase in net pay reduces their Housing Benefit and Council Tax Benefit.


Earnings Disregard in Universal Credit


Maximum FloorHousing Cost at Which 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

Summary

ó It could be simpler and better – but it would have to be more generous

ó The constraints and cuts are making it complex

ó There will be some small winners

ó There will be some big, big losers

ó Most people will be nibbled downwards gradually

ó People will need help


More advice needed but advice is being cut


Interesting Times

The old system

5 years of confusion

Universal Credit


Resources

ó http://blog.cix.co.uk/gmorgan

ó http://bit.ly/fdPVDY¡ Future of Benefits Modelling


http://blog.cix.co.uk/gmorgan

http://bit.ly/fdPVDY

Ferret

Y O U ’ L L Q U I C K L Y S E E T H E B E N E F I T

Ferret Information Systems 06/04/2011

welfare reform –the impactdoc.housing.org.uk.s3.amazonaws.com/presentations/(p3) gareth...

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