That shrinking feeling

2 Apr 13
The controversial ‘bedroom tax’ is the latest in a tsunami of benefit cuts. And with Housing Benefit caps and cuts to disability payments, claimants are feeling the squeeze. Claudia Wood investigates

By Claudia Wood | 1 April 2013

The controversial ‘bedroom tax’ is the latest in a tsunami of benefit cuts. And with Housing Benefit caps and cuts to disability payments, claimants are feeling the squeeze

Depressed Man, Photo: Alamy

In the run-up to this June’s Spending Review, a range of big-hitters have been weighing in on the welfare reform debate. Defence Secretary Philip Hammond, Education Secretary Michael Gove and Home ­Secretary Theresa May have all suggested that more could be squeezed from the welfare bill in order to reduce the cuts to their respective budgets.

In this display of interdepartmental squabbling over where the axe should fall, welfare has been singled out as an easy and politically populist target. But perhaps the ministers gunning for cuts to Work & Pensions Secretary Iain Duncan Smith’s budget should consider the frenzy of reforms and cutbacks already under way.

From this April, a range of measures by the ­Department for Work & Pensions come into effect, aiming to cut the overall benefits bill by £18bn. One of the most controversial, high-profile schemes is the ‘bedroom tax’. In an effort to reduce the Housing Benefit bill by more than £500,000 in 2013, this will affect 670,000 households in social housing – many of whom cannot easily be dismissed as scroungers. They will have their benefit reduced by an average of £14–£16 a week for having a ‘spare’ bedroom, which often isn’t spare at all.

While politicians might downplay the impact of the bedroom tax, the fact is that someone who is working 16 hours a week on the minimum wage would have to work an extra 32 hours a week to make up the shortfall, once housing and council tax deductions are taken into account for working increased hours.

Even so, the government expects the 30% of people who will be affected to do this rather than downsize their accommodation. Given the shaky state of the economy, it is clearly over-optimistic to assume that more than 200,000 families will be able to increase their incomes significantly in this way. It is also likely that the 35% of households predicted to fall into rent arrears as a result of this policy is an underestimate.

The fact that Duncan Smith had to make a partial U-turn on this policy ahead of the March Budget (by excluding foster carers, parents of military personnel and some other categories of claimants from its provisions) indicates just how explosive such welfare reforms can be.

But it’s hardly the only item in IDS’s in-tray this month. Private renters will also feel the pain as Local Housing Allowances, the level of Housing Benefit for people in private accommodation, will be set at the bottom 30% of local market prices. They will be uprated each year in line with rises in the Consumer Prices Index (and then by 1%), rather than by actual market increases. Since 1991, rents have outstripped the CPI by an average of 2.57% annually, so the number of properties private renters will be able to afford will gradually shrink.

April will also see the abolition of discretionary payments from the Social Fund, to be replaced by local schemes. These emergency payments are used by low-income families after a boiler breakdown or a flood, or by women fleeing domestic violence, and so on. But as local authorities are not obliged to provide a replacement to this scheme, and can now spend the available cash on other things, such provision is likely to become scant and patchy.

Council Tax Benefit will be cut by 10% and ­localised. As a result, two-thirds of local authorities will start charging households currently paying either a small amount or no council tax at all (those on the lowest incomes have been exempt until now). The new charge will be 6%–30% of a full council tax bill.

On top of these national changes, a flurry of ­piloting is also under way: the benefits cap will be tested before being rolled out in the autumn. The cap – which means parents can receive only up to £500 a week in benefits (regardless of the number of children they have) – was condemned recently by the archbishops of Canterbury and York as ‘not moral or fair’, backing an open letter in the Sunday Telegraph signed by 43 bishops expressing similar views. But the policy had already been cast into disarray by a leaked letter from Communities Secretary Eric Pickles’ office to the prime minister airing concerns over its impact.

Pickles asserts that the policy will cost more than it saves through projected increases in homelessness and administrative costs associated with means testing. He urges the government to exclude Child Benefit from the cap so that very large families aren’t left destitute. If Pickles – not often known for his progressive sympathies – can spot the flaw, it’s hardly surprising the Department for Work & Pensions is testing this policy before a national roll-out.

Universal Credit is also being piloted this month. It will mean a big change in how benefits are distributed.Several will be wrapped into one monthly payment, with an improved tapering system so that major cliff edges – large drops when working income increases – are removed.

But Universal Credit  is also a vehicle for the ­aforementioned benefits cap, stricter penalty regimes for out-of-work claimants and – perhaps most significantly – the end of the child disability element of tax credits and Severe Disablement Allowance. This means 230,000 disabled people (including 100,000 children) will lose between £28 and £58 per week, with those in the pilot areas the first to feel the pinch.

The replacement for Disability Living ­Allowance – the Personal Independence Payment – is also being piloted for new claims. The PIP assessment is designed to reduce spending by 20%. Among other things, disabled people will find that if they can walk unaided for more than 20 metres (that’s about two bus lengths), they won’t be eligible for the Motability Scheme, which allows disabled people to lease an adapted car, scooter or powered wheelchair.

In short, there is a tsunami of changes to benefits heading people’s way this month. But bear in mind that while April 2013 is the peak of activity for welfare reform, it follows three years of other changes that have eroded the value of people’s entitlements. These include changes to uprating and time limitation on contributory Employment Support Allowance. It also precedes another two years of planned activity – including the national roll-out of the pilots.

An obvious question is what happens to families who are affected by several of these cuts simultaneously? The answer is that no one really knows. But regardless of whether one supports these changes or not, this must be of concern to us all.

Currently, the government’s Impact Assessment gives us an estimate of how people will be affected by each reform individually. We might also know a little about them – for example, their gender or how many are disabled. But what we don’t know is how many are claiming other benefits further scheduled for cuts or changes. This means we know only about each reform in isolation, not the cumulative impact of several reforms on different households. And yet, the nature of our welfare system – that people usually claim benefits in combinations – means the likelihood of individuals and families being affected by changes in a multi-pronged reform agenda is very high.

Think-tank Demos and disability charity Scope recently attempted to map this cumulative impact on disabled people. Piecing together different datasets and analysis, we were able to make some initial estimates on the combined impact of a range of disability benefit-related reforms, but we were thwarted by inconsistent data. Although we were able to estimate how many people might lose their ESA and DLA entirely, and also have their Housing Benefit and Council Tax Benefit cut, pinning this down with any accuracy – let alone identifying who and where they are – is simply beyond the statistical reach of the DWP.

But it shouldn’t be. We are witnessing the most ambitious reform of the welfare state since it was created – the government ought to have a way of assessing the impact that is fit for purpose. Individual Impact Assessments are all well and good when making a change here and there, but when dozens of changes are under way – 18 Impact Assessments were issued for the Welfare Reform Bill alone – it’s clear this piecemeal approach isn’t working.

Hardening attitudes to welfare – a trend currently under investigation by Demos – might be encouraged by this drip-feeding of facts to the public. As each assessment identifies a relatively small amount of money being taken from each person affected, one might conclude the cuts are being widely and fairly spread.

But if one were to pile three, four or more losses onto one family and examine the impact, would we still say the same?

Claudia Wood is deputy director of Demos. This article first appeared in the April issue of Public Finance


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