Welfare Reform Explained

Our welfare reform report has once again been in the headlines, below we clarify some of the main points.

What is welfare reform?

The term welfare reform is used to cover a wide range of changes being made to the social security (benefits) system. These reforms have been ongoing since 2010 when the Conservative-Liberal Democrat coalition government identified welfare spending as one of the main areas in which to make savings and reduce the deficit. These reforms have included a freeze on child benefit, an end to paying child benefit to higher earners, the so-called ‘bedroom tax’ as well as many other changes.

The 2010 Emergency Budget contained a number of changes to welfare and additional reforms were introduced in the UK Welfare Reform Act 2012. Both Labour and the Conservatives are committed to further reforms in the next Parliament.

What powers in relation to welfare reform does Stormont have?

In principle, social security is devolved to the Northern Ireland Assembly under the NI Act 1998. However in practice, if Northern Ireland does not implement Westminster policy, the Assembly has to pay for the additional spending from its block grant. This will therefore have an impact on other government services.  Also, Stormont does not have power over HMRC-administered Tax Credits.

Why did NICVA do the research?

Although Northern Ireland was affected by these reforms, the UK government had only stated what impact they would have in the UK as a whole. Given the high levels of social security spending in Northern Ireland it was important to produce estimates specifically for the region. NICVA commissioned Professors Fothergill and Beatty from Sheffield Hallam University to conduct the analysis as they had produced similar reports in Great Britain.

How much of welfare reform has already been implemented?

Some of the reforms are being implemented in stages over a number of years. Child Benefit, Tax Credits and changes to the Local Housing Allowance element of Housing Benefit have already taken place.

Based on the analysis contained in our report, around £500m of these changes have already been implemented.

Why include reforms that have already happened?

We are interested in the impact of welfare reform in its entirety. Changes that have already been implemented have had an impact on the income of people in Northern Ireland and it is important to know what this impact is, alongside any other proposed changes.

What is in the bill currently being argued about in Stormont?

Not all of the changes the coalition government want to make have been implemented in Northern Ireland; the remaining changes are contained in the Welfare Reform (NI) Bill 2012:

  • The housing benefit under-occupation charge (known as the “bedroom tax”);
  • Time-limiting of non-means tested entitlement to ESA for all but the most severely ill or disabled;
  • Replacement of Disability Living Allowance (DLA) by Personal Independence Payments (PIP) which will include more stringent and frequent medical tests, and a reduction in a number of payment categories;
  • The operation of a household benefits cap (of £26,000 per year in the first instance).

Universal Credit (a repacking of existing working-age benefits) is also contained within the 2012 Bill; however, the report did not include calculations of the effects of changes under Universal Credit as it is not expected to result in a net reduction in entitlement. Also, as it is being rolled-out in pilot areas the full effects, which are extremely difficult to model, will not be known in Northern Ireland until 2018.

These changes add up to around £250m. This table explains the break down.

Estimated Net loss £m/yr by 2014/15

  Already implimented by Westminister Welfare Reform Bill (NI Assembly)  
       
Incapacity Benefit (ESA)* 90 140  
Tax Credits 135    
1% uprating** 120    
DLA/PIP   105  
Child Benefit 80    
Housing Benefit:LHA *** 55    
Housing Benefit: underoccupation   20  
Non Dependent Deductions 10    
Household Benefit Cap   3 Total
Total 490 268 758

 

So which figure is right - £750m or 250m?

Both figures are right but they talk about two different, though related, things. The £750million figure refers to the entire programme of welfare reform and the £250million figure refers to the Bill currently stalled at Stormont, which makes up just one part of that programme.

If the level of cuts is so high why are some people saying that spending on social security is going up?

They are right. Total welfare spending will continue to rise and this is largely due to population growth and people living longer and so more people claiming pensions. Pensions, which make up about 47% of welfare expenditure, have not been targeted for cuts.

This does not contradict the findings in our report, which does not compare spending from one year to the next. Instead it estimates the ‘savings’ made by the Treasury or, in other  words, the spending foregone in Northern Ireland, as a result of the reforms. In simple terms, without welfare reform there would be an extra £750m on top of the welfare budget.

Why does the report include the 1% uplift which some people say “never existed”?

Traditionally working age benefits (things like tax credits) increased each year in line with inflation (as measured by the Consumer Price Index). Under the UK Welfare Benefits Up-rating Act 2013, these benefits instead rise by 1% each year. As inflation is generally higher than 1%, the real value of the benefits will fall over time. This reform therefore has a very real impact on people’s spending power, as well as producing a saving for the Treasury. As such it should be included in the analysis.

Is welfare reform the only cause of the current budget crisis?

The Treasury is deducting £87m from the 2014/15 block grant as a result of the Northern Ireland Assembly not passing the Welfare Reform Bill, but there are other pressures on the budget. The Assembly’s 2014/15 budget was already tight and there have been a number of additional unexpected pressures, particularly within the health service.

What does NICVA think should be done about welfare reform?

NICVA is opposed to welfare reform as it will result in more hardship for people who are already on low incomes. However we recognise that the Northern Ireland Assembly is unable to make up the shortfall, particularly over the long-term. In order to avoid the worst-case scenario of Direct Rule Ministers taking control and introducing the reforms in their entirety, we have argued for the local parties to seek to mitigate the cuts

 

*The time-limiting element of ESA (12 months non-means tested entitlement for those assessed as able to work in the future) is included within the 2012 Welfare Reform Bill, but the figures in the NICVA report do not separate this from the other elements of ESA reform that have already taken place (e.g. impact of work capability assessment). An assumption has therefore been made to split ESA changes between these two elements based on the same ratio of differences as in GB.

**The 1% uprating is contained within the UK Government’s Welfare Benefits Uprating Act 2013. It forms a part of Welfare Reform but it is not contained within the Welfare Reform Bill NI. Therefore, it has been included in this side of the reforms.

***Changes to LHA were implemented though The Housing Benefit (Executive Determinations and Local Housing Allowance) (Amendment) Regulations (Northern Ireland) 2013

 

 

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