Austerity and Welfare Reform: Should we separate the two?

Policy in Practice was invited to speak to the Social Security Advisory Committee (SSAC) on welfare reform, along with Steve Fothergill, from the Centre for Regional and Social Research at Sheffield Hallam. We were asked to give evidence on the cumulative impact of Welfare Reform in order to generate discussion with participants at the stakeholder event.

 The SSAC is an independent body, which looks to scrutinise, advise and inform social security legislation. It therefore has a key interest in engaging with other organisations on issues of Welfare Reform.

 Opening the debate was Steve Fothergill. Steve used treasury estimates of savings across a range of benefit reforms, and analysed how they will be felt across different regions of the UK. You can find Steve’s presentation here.

View the presentation here
View the presentation here

His approach argues that an accurate impact assessment requires an approach that takes into account all elements of welfare reform, and an examination of the regional impacts of reform, as some areas will be hit harder than others. His analysis focuses on austerity measures (for example: Changes to housing benefit, disability benefits, tax credits, child benefit).

Key findings:

  • Welfare reforms will almost exclusively impact on working age adults in the UK.
  • Across the range of benefits he identifies, £470 per working age adult in the UK is set to be removed from the system as a result of welfare cuts.
  • More specifically, changes to disability benefits (Incapacity Benefit and DLA) are set to have the most significant effect on individuals, removing an average of £150 per working age adult in the UK, but the cumulative impact being greater as Incapacity Benefit claimants are most likely to also claim DLA.
  • These changes are likely to hit Northern Industrial towns most significantly.
  • Some London local authorities are being hit hard, primarily because of housing benefit reforms and the implementation of the benefit cap.

In identifying the regions and local areas that are likely to be affected Prof. Fothergill painted a fairly bleak picture. His analysis suggested that it would be the most deprived places that are hit hardest (because these are the areas with the greatest levels of welfare dependency, and hidden unemployment), and result in widening gaps in prosperity.

He argued that to accurately understand the effects of welfare reform, a regional understanding, that takes into account all the various elements of welfare reform, is key as different localities and demographics will be impacted in very different ways.

The Policy in Practice perspective:

Deven Ghelani delivered Policy in Practice’s presentation. He drew a distinction between deficit reduction, which was the topic of Steve’s presentation, and welfare reform. He specifically examined Universal Credit and changes to how Welfare Support is delivered on the ground as a result of local pilots. While austerity will lower the incomes of many low-income households, changing the way the system works can still be positive story.

 

View the presentation here
View the presentation here


On
austerity, we acknowledge that people are struggling, but also that things have not been as bad as originally feared. The frontline advisors that Policy in Practice work with have been surprised by the level of resilience shown by households, the labour market has held up and many have found other ways to cope, as evidenced by underspend in local support schemes, and over-provisioning for bad debts by housing associations. Advisors have also been surprised by the high levels of need from people impacted by welfare reforms; these are people that are now getting support that previously weren’t. Finally, many local organisations are innovating, and finding outcome-focused and effective ways to engage with claimants.

On Universal Credit, our forthcoming review for the Joseph Rowntree Foundation finds that UC will have a broadly positive impact on poverty and on work incentives, in addition to creating a simpler system and easing the transition into work. However, this depends largely upon how Universal Credit is implemented and communicated.

On innovation, the Benefit Cap White Paper highlights new, and innovative methods of engagement with the welfare system, that most importantly are shown to be effective. Adopting a more personal tone had a significantly positive impact on the response rate to letters about the Benefit Cap. 85% of Lewisham residents were more likely to look for work following their revamped appointment, and employment outcomes improved as a result. A similar approach to helping people budget is currently being undertaken by Oxford City Council.

Deven’s core messages were firstly that Welfare Reform has different objectives, and ought to be assessed independently of Deficit Reduction, and secondly that the debate should focus not only on how much we spend, but also on how well we spend it. If Universal Credit is structured correctly and Welfare Support delivered effectively, the negative impacts of Deficit Reduction can be mitigated, but to achieve this we need to learn what works and scale up.

An independent perspective:

The importance of this approach was reflected in the comments by Maeve McGoldrick from Community Links and ERSA. Negative experiences of the current system have lessened the desire to engage with the welfare system, and an accurate and informed understanding of UC reforms is vital in changing this perception. Process in this instance is just as important as outcome.

Questions?

The audience had a number of the questions, some of which are answered below. We would be keen to hear your views on this debate. Can we separate the impact of austerity from changes to how the system works? Should the SSAC attempt to calculate the cumulative impact of welfare reform? What are your views on the subjects?

We look forward to your comments below. 

Questions:

What are the implications of a cap on Anuually Managed Expenditure (AME)?

AME is the biggest part of the welfare budget. AME expenditure is unrestricted as it varies according to economic conditions (e.g. the number of people out of work). Politicians have been discussing a cap on AME, which would restrict the maximum that could be spent on welfare over a parliament. The political ins-and-outs of the policy are covered well in this blog by the BBCs political editor.

We believe there are two potential outcomes of a cap on overall welfare spending, and they mirror the debate on austerity vs reform outlined above.

The first path, driven by accountants seeking to balance the books would be disastrous. This would involve salami-slicing budgets every which way to ensure that the limit set by the cap was not exceeded. We believe, perhaps naïvely, that this is unlikely. Politicians would struggle to stomach the social impacts of incoherent reductions in expenditure. The argument behind Universal Credit shows that this narrow, static approach fails to get to the root of the problem.

The second path is much more optimistic. Driven by policymakers and economists who understand that the root causes of rising welfare spending lie elsewhere, a cap on welfare spending would mean that the only way to contain welfare expenditure in a sustainable would be tackle the drivers of rising spend. For people of working age, this means tackling the UKs housing crisis and building more homes, providing truly effective support to make people work ready, and focusing on mobility and economic growth as drivers of employment growth.

 

What lies behind the large impact on sickness and disability benefits?

Professor Fothergill finds that those individuals that see the biggest falls in support are those on incapacity benefit. They see additional reductions because they are more likely to claim DLA, and be impacted by the move to ESA and PIP. They are more likely to live in social housing (and therefore see the impacts of the benefit cap).

However, the impact will depend upon the nature of their disability. Steve describes areas with high levels of IB claimants as being areas of ‘hidden unemployment’, a term which describes the policy failure whereby incapacity benefits were used to compensate for the fall in manufacturing employment from the mid 1970’s onwards.

What policy areas that lie on the outside of UC need to be streamlined?

  • Free school meals may pose a significant challenge to the positive work incentive impact of UC, as explained here.
  • Council tax support complicates the work incentive effect of Universal Credit, and adds cost to councils that are responsible for administration.
  • Calculating entitlement to housing support remains a complex part of the calculation, and could be streamlined.

Most importantly, we would argue that implementation is critical, and too often overlooked by policymakers. Making the effect of Universal Credit clear to households and to frontline staff, and ensuring that it is perceived as a positive break from the current process driven, rules based system to one that is focused on support will be critical to ensuring that it has a positive impact on employment.

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