What will the welfare state look like after the Coronavirus support schemes come to an end? What will it look like after the Coronavirus crisis? In this blog post, Claudia Varney, Policy and Data Analyst at Policy in Practice, examines the unprecedented measures currently supporting at least 1 in 4 British workers and analyses the impact of the benefit cap and older austerity measures. She looks at the stark differences in support between furloughed workers and workers on means-tested benefits. 

Welcome and necessary emergency welfare supports in response to Coronavirus

The Coronavirus income support schemes are an important safety net, preventing households from falling into poverty and debt. Millions of families now rely on new income replacement schemes, designed to be more generous than means-tested benefits.

With the COVID-19 schemes operating alongside means-tested benefits, paying different amounts and catering to different kinds of eligibility, the result is a wide yet inequitable net of support, especially for those who fall through the gaps. 

But what should happen to the welfare state after Coronavirus once the support schemes come to an end, and what does the way out of this crisis look like for the benefits system? In a world where full employment over the next year looks increasingly optimistic, are measures like the Benefit Cap, the two-child limit and the level of benefits causing unnecessary hardship for some?

In a recent webinar, Policy in Practice’s Head of Policy Zoe Charlesworth gave insight into the more unexpected impacts of the policy changes and shared her views on what a good welfare state after Coronavirus might look like. 

Coronavirus support schemes and policy changes

According to the ONS, 68% of people in Great Britain are facing a change in their finances over the past month. To respond to the nationwide shutdown prompted by Coronavirus, the government announced major changes to the benefits system along with schemes designed to protect the income of the employed and self-employed.

Alongside the support schemes, the government announced increases to the generosity of some existing means-tested benefits and has increased the cap on support for renters bringing it back in line with the 30th percentile of local rents. For further details on the Coronavirus benefits changes and income protection schemes, see our previous blog post.

In the six weeks leading up to April 12, the DWP reported receiving over 1.8 million declarations to Universal Credit, a figure five times higher than the number of declarations for the same period last year. The Job Retention Scheme has received applications for support representing over 7.5 million employees, or roughly a quarter of the British workforce.

Welcome increases in benefits are hitting a static Benefit Cap

The government has recently moved to support low income households by temporarily increasing the Universal Credit basic allowance and tax credits by £20 a week, as well as increasing support for private renters. These are welcome measures and result in higher household income for many. Our analysis found that more households receiving Universal Credit will be able to meet their bills (falling from 16% to 10%).

These increases, however, exist alongside an unchanged Benefit Cap. Private renters and households with children are the most likely to have their benefits capped. 

The charts below demonstrate the magnitude of these differences for families with children.

Two side by side charts showing the impact of the Benefit Cap on the gains in benefits following recent benefits increases on different types of households inside and outside of London.

In London, on average, the only private renters that will see significant increases in support are couples without children. Outside of London, private renters with children may not see the full increase.

The DWP and the Treasury have different views on how much money is needed to support a household.

For those in receipt of means-tested benefits, the Benefit Cap is significantly lower than the income cap for those eligible for the government’s new support schemes. The Benefit Cap remains at £1,917 per month for households in Greater London, and at £1,667 per month for houses outside of London for couples or single parents with children. This is considerably lower than the Treasury cap for furloughed workers, which stands at £2,500 per month, and which applies individually rather than to the whole household like the Benefit Cap.

As many households in the private rented sector will not benefit from the increase in rental support due to the impact of the Benefit Cap, they may look to their local council for Discretionary Housing Payments (DHPs). DHP’s have been used in the past to mitigate the impact of the Benefit Cap and the cap on rental support (the Local Housing Allowance). With such massive spikes in demand for support, local authorities may not be in a position to help everyone bridge the gap.

The full report on the impact of recent benefits increases can be found here.

A two-tier welfare system: stark differences between the furloughed and the unemployed

Both the Coronavirus Job Retention Scheme and the Self-Employed Income Support scheme are more generous than Universal Credit and are neither targeted nor means-tested.

This means that otherwise identical households can have vastly different outcomes depending if they were furloughed or made redundant. A lone parent with two children who earned £30,000 a year and who qualifies for the Job Retention Scheme could receive £33,936 a year after benefits (£2,828 per month), while a similar lone parent who was made redundant rather than furloughed would only qualify for Universal Credit, and would receive £20,652 (£1,721 per month) for the same period, a difference of £13,284 a year or £1,107 per month.

Graphic showing two houses side by side to illustrate the inequality of the existing benefits systems and what a good Image of an orange life buoy against a light grey wall to illustrate the importance of the welfare state after Coronavirus should tackle

A side by side comparison of two identical households showing the difference in the generosity of incomes between the Coronavirus schemes and Universal Credit

Screen shot of Policy in Practice's Better Off Calculator showing the difference in income of identical households affected by Coronavirus, one fuloughed and one made redundant, to illustrate what needs to change with the welfare state after Coronavirus

A household where a worker has been furloughed can be up to £1,107 per month better off than an identical household where the worker has been made redundant.

The new government schemes are critical to protecting small businesses and employment across the country, but the wide gaps in support that result between those who are furloughed and those who are made redundant require further attention. 

Furthermore, there is an element of unfairness in the scheme given that the decision to be furloughed is ultimately up to the employer, and employees cannot elect to be furloughed. As a result, due to circumstances outside of their control, households who have been made redundant or given unpaid leave, and households who have been furloughed, with otherwise identical circumstances, will find themselves with drastically different financial outcomes.

The impact of the Council Tax Hardship Fund will vary between councils

The government announced that they would provide £500 million of grant funding to local authorities in England to provide additional council tax support. It is expected that councils will use this funding to reduce the annual council tax liability of working-age people who are already receiving council tax support by £150 for the financial year of 2020/21. The additional support is welcome yet because council tax support schemes vary widely between councils, this broad approach to allocating the new support will leave individual local authorities with very different amounts of discretionary support. 

Remaining discretionary support will be determined by the generosity of the council’s existing council tax support scheme. Those with more generous support will have more discretionary funds available. 

For example, local authorities that provide council tax support based on 100% of council tax liability will only need to use a small proportion of their Hardship Fund to give an additional discount to people in receipt of council tax support. These councils will have more money left over from their Hardship Fund fund allocation than local authorities with schemes based on less than 100% of council tax liability. Because of these discrepancies, identical households that could receive extra discretionary support in one borough, may not get any support in another.

Policy in Practice is running analysis on the allocation of Hardship Funds based on each local authority’s Council Tax caseload and their Council Tax Support Scheme to identify the amount of funds each individual council across the country will be able to retain for their own discretionary allocation. Our initial findings show that some councils with large CTR caseloads will have over £3 million for discretionary support to distribute to low-income households in their area. Using advanced data analytics we can help councils to identify the most vulnerable households so they can directly target this additional support, and then track change over time.

Contact us to find out how much Hardship Fund your council is likely to have leftover

Will temporary measures become permanent reforms?

With 7.5 million workers currently supported by furlough pay under the Coronavirus Job Retention Scheme the government must decide how the schemes should end. The Chancellor has made it clear there will be no cliff edge to the phasing out of the furlough scheme as the economy begins to restart.

If unemployment levels grow in the near future, many of those moved onto means-tested benefits will find themselves facing austerity measures such as the Bedroom Tax, the Benefit Cap, and the two-child limit. These measures may no longer be fit for their intended purpose of encouraging people into work, and be unfairly punitive, especially for families with three or more children.

The existing schemes were originally scheduled to run for three months, until 30 June 2020, and were a simple way to support millions of workers quickly, and an effective means to share the burden between the DWP and the Treasury.

Today, the Chancellor announced that the Job Retention Scheme will be extended until the end of October. Welcome and necessary though this extension is, the schemes still retain the duality that promotes unfairness between the furloughed and the unemployed.

When grant schemes end there will be a question mark over the funding for local authorities who will need to plug the gap in support. To date, the government has provided additional funding of £3.2 billion to help local authorities deal with the loss of significant revenue streams like parking fees and business rates and additional costs incurred during the pandemic, such as the emergency housing of rough sleepers. Whether these funds will be enough to help councils meet the increased demand for support services from many more vulnerable households remains to be seen.

Benefit levels must be brought in line with the costs of living

The COVID-19 measures brought in by the government were a critical intervention to support households through this unprecedented crisis, yet the ways in which these measures impact and overlap with the existing benefits system requires further consideration.

This is a crisis that will force us to reconsider the role of pre-existing austerity measures implemented over the previous decade during full employment. Policy in Practice makes three recommendations to make the benefit system more supportive to claimants, and better able to support the country through this pandemic. We call for:

  1. The savings limit in Universal Credit to be suspended for the next twelve months, so people renting and/or with children that have saved over £16,000 are eligible for the same support as those without savings, and those on tax credits with no current income can be moved onto Universal Credit.
  2. The two-child benefit limit and the benefit cap to be suspended (or at least increased to £2,500 per month) for the duration of the pandemic, so people unable to work can access the similar levels of support to those on the furlough scheme.
  3. The increased generosity of the welfare system to be maintained after April 2021 to ensure we have a welfare safety net suitable for all.

Further reading

Join our next webinar

Join us in conversation with our guest speakers, Ellie Kershaw, LB Tower Hamlets, and Grant Baily, Cheltenham Borough Homes on Wednesday 20 May at 10:30 for our webinar, Coronavirus: stories from the frontline. Our speakers will tell us how they helped customers deal with the pandemic when it first hit, how that support has evolved to the present day, and what they think the future looks like for them and their customers.

More details and register here: Coronavirus: stories from the frontline

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Reducing barriers to work using data led campaigns In September 2023 the UK experienced an economic inactivity rate of 21.3% and an estimated unemployment rate of 4.3%, both of which have increased compared to previous data. Economic inactivity has surpassed pre-pandemic levels, prompting government efforts to integrate this group into the workforce.

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