Grant Thornton warns on impact of further welfare cuts

18 May 15

Government plans to cut welfare spending could increase the pressure on hardship schemes run by local authorities, potentially leading to more people living in poverty, a Grant Thornton report has warned.

In an analysis of the impact of welfare reforms made in the last parliament, including the imposition of a £26,000 household benefit cap and the so-called bedroom tax, which reduced Housing Benefit for under-occupied rooms, the auditors warned that a number of challenges had yet to be resolved.

Without flexibility from government, further cuts would risk rising levels of hardship, today’s Easing the burden report stated. The Conservative government has said it will cut welfare spending by £12bn in the next two financial years, including a reduction of the annual household benefit cap to £23,000. Housing Benefit is cut to ensure households stay within the limit, so this reduction could increase the number of people claiming discretionary housing payments.

Today’s research, based on a survey of 75 organisations in the local government and social housing sectors as well as Grant Thornton's work as an external auditor, found 95% of local authorities polled think recipients of these payments were either wholly or partly dependent on them to avoid homelessness.

Further reductions in Housing Benefit through a tighter cap was therefore likely to result in increases to rent arrears and homelessness, they warned.
The analysis also found the cumulative effect of various welfare reforms was putting a significant financial strain on people needing the support. A majority of local authorities and housing associations surveyed had seen a rise in average council tax and rent arrears since 2012/13, which was attributed in part to welfare reform.

Paul Dossett, Grant Thornton’s head of local government, highlighted that welfare reforms since 2010 had prompted an impressive response from both councils and housing associations and has been a key driver for innovation and improvement in local provision.

‘The question is can they continue to make efficient use of rapidly reducing resources? Our research suggests that without flexibility from Whitehall and further measures, such as devolution of welfare funding, this is unlikely.’

He said devolution of welfare administration to local authorities could allow for more efficient integration of spending.

‘We urge the new government to consider carefully the impact of the cuts to welfare reform that are put forward, not just in isolation, but collectively.  Whilst Whitehall fiscally sees only individual cuts to local authorities, the people affected and we, as auditors, see the cumulative impact.

‘A significant cohort of people – both working and unemployed – will remain in need of support, so local authorities and housing associations will need to focus any available money on them. Further devolution of powers to local government for welfare administration could be the key to a sustainable future, especially if different agencies work together.’

Responding to the report, a DWP spokesman said: ‘Our housing reforms have restored fairness to the system and increased work incentives. Already we have seen people take action to adapt to our reforms by moving into work, downsizing or off Housing Benefit entirely.’

‘With Universal Credit we are creating a system that makes sure work always pays and will save taxpayers £700m a year in lower running costs compared to the current system.’

 

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