THE IMPACT OF WELFARE REFORM ON SCOTLAND · Housing Benefit: Local Housing Allowance Non-dependant deductions Household benefit cap Disability Living Allowance Incapacity benefits

THE IMPACT OF WELFARE REFORM

ON SCOTLAND

Christina Beatty and Steve Fothergill

CRESR, Sheffield Hallam University

The Impact of Welfare Reform on Scotland (April 2013)

The Local Impact of Welfare Reform (June 2014)

The Cumulative Impact of Welfare Reform on Households in

Scotland (March 2015)

The Impact of Welfare Reform on the Scottish Labour Market (September 2015)*

* with Donald Houston, University of Glasgow

Four reports

Housing Benefit: Local Housing Allowance

Non-dependant deductions

Household benefit cap

Disability Living Allowance

Incapacity benefits

Child Benefit

Tax Credits

1 per cent up-rating

The pre-2015 reforms

Housing Benefit: Local Housing Allowance

50th to 30th percentile for setting rents in private sector

Cap on rents based on property size

Abolition of £15 ‘excess’ payments

Age limit for shared accommodation up from 25 to 35

CPI indexation


Higher deductions from HB to reflect contribution that non-dependant

household members are expected to make to housing costs

The pre-2015 reforms (1)


Cap on total payments to working-age claimants, set initially at £26,000 a year


Replacement of DLA by Personal Independence Payments

More stringent and regular medical test

Reduction in number of payment categories


Incapacity benefits

Employment and Support Allowance (ESA) replacing previous benefits

Tougher medical test – Work Capability Assessment

Re-testing of existing claimants

New conditionality in Work-Related Activity Group

Time limiting of non-means tested benefit for ESA claimants in Work-Related

Activity Group

Child Benefit

Three year freeze

Withdrawal from households with higher earner


Tax credits

Adjustments to thresholds, withdrawal rates, supplements, income disregards

and backdating

Changes to indexation and up-rating

Reduction in childcare element of WFTC

Increase in working hours requirement for WFTC


Up-rating by 1 per cent rather than CPI for three years for main working age

benefits and LHA element of Housing Benefit


Housing Benefit: under-occupation (‘Bedroom Tax’) Arrangements to avert impact on claimants in Scotland

Council Tax Benefit A hit for Scottish Government and local authorities, not claimants

Universal Credit Essentially a re-packaging of existing benefits

Not expected to result in net reduction in benefit entitlement

Most of impact will be felt well beyond 2015

Income Support for lone parents Transfer to JSA at same rates

RPI to CPI up-rating Wider public sector accounting reform

Not included……

July 2015 Budget announcements

Reductions in tax credits

Lower Household benefit cap

Lower ESA payments for claimants in work-related activity group

Four-year freeze in most working age benefits

National Living Wage

Increased personal tax allowances

……..but will add some comments later

Not included……

Treasury estimates of the overall financial saving arising from

each element of the pre-2015 reforms

Government Impact Assessments

Benefit claimant numbers and expenditure, by local authority

Additional official statistics

DWP evidence from pilot schemes

Measuring the impacts

1. The overall financial loss

Overall financial loss, GB (updated)

Per working age adult £m p.a. (£ p.a.)

Tax Credits 4,210 105

Child Benefit 3,030 75

Disability Living Allowance 2,870 70

1 per cent uprating 2,700 70

Incapacity benefits 2,480 60

Housing Benefit: LHA 1,670 40

Housing Benefit: ‘bedroom tax’ 350 10

Council Tax Benefit 340 10

Non-dependant deductions 210 5

Household benefit cap 130 5

TOTAL 17,980 450

Source: Sheffield Hallam estimates based on official data

Financial loss from pre-2015 reforms

(£m per year)

Tax Credits 350

Disability Living Allowance 320

Incapacity benefits 280

Child Benefit 240

1 per cent uprating 230

Housing Benefit: LHA 80

Non-dependent deductions 20

Household benefit cap 4

TOTAL 1,520


Overall financial loss, Scotland (updated)

Loss

(£m p.a,)

Per working age

adult (£ p.a.)

North West 2,410 530

North East 890 525

Wales 1,010 520

London 2,750 490

Yorkshire and the Humber 1,610 475

West Midlands 1,670 470

Scotland 1,520 440

East Midlands 1,260 435

South West 1,390 420

East 1,440 385

South East 2,020 365

Great Britain 17,980 450

Overall financial loss by region (updated)


Overall financial loss by district (updated)


Scottish local authorities (updated)

Financial loss from pre-2015 reforms

per working age adult £ p.a.

Glasgow 580 W Lothian 460 Perth & Kinross 365

Inverclyde 570 Dumfries & G 450 Stirling 350

W Dunbarton 550 Midlothian 450 Eilean Siar 350

Dundee 540 Fife 440 Orkney 340

N Ayrshire 540 Falkirk 430 E Renfrewshire 340

N Lanarks 510 Argyll & Bute 410 Moray 340

Clackmannan 500 E Lothian 400 E Dunbarton 320

E Ayrshire 500 Angus 390 Aberdeen 300

Renfrewshire 480 Highland 385 Aberdeenshire 290

S Lanarks 470 Borders 380 Shetland 270

S Ayrshire 470 Edinburgh 370


Overall estimated loss £m p.a.

Glasgow 239 Aberdeen 46 Midlothian 24

Edinburgh 124 Falkirk 44 Argyll & Bute 22

N Lanarks 113 Dumfries & G 42 E Dunbarton 21

Fife 103 E Ayrshire 40 Stirling 21

S Lanarks 96 Perth & Kinross 34 Moray 20

Highland 56 S Ayrshire 33 E Renfrewshire 19

Renfrewshire 55 W Dunbarton 33 Clackmannan 17

W Lothian 53 Inverclyde 30 Eilean Siar 6

Dundee 52 Angus 28 Orkney 5

Aberdeenshire 47 Borders 27 Shetland 4

N Ayrshire 47 E Lothian 25


Scottish local authorities (updated)

Less deprived More deprived

Relationship to deprivation (updated)

Sources: Sheffield Hallam estimates; 2012 Scottish Index of Multiple Deprivation

Tax Credits


1% uprating


DLA



Incapacity benefits

Council Tax Benefit


20 +

10 to 20

0 to 10

0

£ per working age adult p.a.

Greater London

Housing Benefit: Bedroom Tax


Housing Benefit: LHA


Housing Benefit: Non-dependent deductions


Benefit Cap


Child Benefit


2. The impact by ward

Overall financial loss per adult of working age, £ per year

Calton (Glasgow) 880 Garscadden (Glasgow) 690

Springburn (Glasgow) 780 Govan (Glasgow) 690

North East (Glasgow) 750 Baillieston (Glasgow) 680

Drumchapel (Glasgow) 740 East Centre (Glasgow) 680

Southside C (Glasgow) 730 North East (Dundee) 680

East End (Dundee) 730 The Lochs (Fife) 670

Shettleston (Glasgow) 720 Linn (Glasgow) 670

Buckhaven (Fife) 700 Paisley NW (Renfrew) 660

Canal (Glasgow) 700 Inverclyde N (Inverclyde) 660

East Central (Inverclyde) 690 Clydebank C (W Dunbarton) 660


Impact by ward – worst hit 20

Overall financial loss per adult of working age, £ per year

Meadows/M’side (Edinburgh) 220 Dunblane (Stirling) 210

Banchory (Aberdeenshire) 220 E Garioch (Aberdeenshire) 210

Bridge of Don (Aberdeen) 220 Westhill (Aberdeenshire) 210

Netherlee (E Renfrew) 220 Hazlehead (Aberdeen) 200

Newton M S (E Renfrew) 220 St Andrews (Fife) 180


Impact by ward – least hit 10

Relationship to deprivation

Sources: Sheffield Hallam estimates and Scottish Indices of Deprivation 2012

Glasgow

Edinburgh

Aberdeen

Fife

3. The impact by household type

Housing Benefit: LHA (private rented sector)

Low-income households, mostly working age

Under-35s, mainly men

Large families


Low-income households with grown-up children living at home


Large out-of-work families in high rent areas


Less severely disabled of working age, mostly older, mostly out-of-work

New claimants initially, existing claimants from 2015 onwards

The groups typically most affected (1)

Incapacity benefits

Out-of-work, mainly older adults with less severe health problems who are found ‘fit for work’

ESA claimants in the WRAG group – mainly older, ex-manual workers – who lose through means testing

Child Benefit

All households with children (a little)

Households with higher earners (a lot)

Tax Credits

Low-to-middle income families with children, including working households

Part-time workers on less than 24hrs a week


Everyone on the main working age benefits

The groups typically most affected (2)

2011 Census

the number of households in 15 household types

districts and wards

Family Resources Survey

proportion of each household type receiving specific benefits

DWP Housing Benefit Data (SHBE)

Stat-Xplore

available by household sub-groups

Sheffield Hallam impacts of welfare reform

numbers affected and financial loss

districts and wards

Estimating cumulative impact on households

Average financial loss £ p.a.

Pensioner couple 30

Single pensioner 40

Couple – no children 380

Couple – one dependent child 1,430

Couple – two or more dependent children 1,480

Couple- all children non-dependent 490

Lone parent – one dependent child 1,770

Lone parent – two or more dependent children 1,850

Lone parent – all children non-dependent 530

Single person household 490

Other – with one dependent child 1,410

Other – with two or more dependent children 1,500

Other – all full-time students 0

Other – all aged 65+ 30

Other 490


Financial loss by household type

Glasgow £ p.a. Edinburgh £ p.a.

Pensioner couple 30 30

Single pensioner 50 60

Couple – no children 520 300

Couple – one dependent child 1,830 1,380

Couple – two or more dependent children 1,900 1,420

Couple- all children non-dependent 540 320

Lone parent – one dependent child 2,280 1,720

Lone parent – two or more dependent children 2,360 1,880

Lone parent – all children non-dependent 720 450

Single person household 680 440

Other – with one dependent child 1,840 1,300

Other – with two or more dependent children 1,950 1,380

Other – all full-time students 0 0

Other – all aged 65+ 30 30

Other 660 440


Financial loss – Glasgow & Edinburgh

Approaching two-thirds (£960m a year) of the total financial loss

falls on households with dependent children

Around 40 per cent (£600m a year) falls on the sick or disabled

via DLA and incapacity benefit reform – and they lose from other

reform too

Almost half (c. £730m a year) falls on in-work households

(NB. There is some overlap between these groups)

Impact on sub-groups

4. The impact on the labour market

Has welfare reform resulted in higher employment and

lower unemployment?

Overall impact on Scottish labour market

Cumulative impact of all the pre-2015 reforms

First assessment anywhere in UK

Key question

The Westminster Government uses two main arguments to justify

welfare reform:

It saves the Treasury money, and reduces the budget deficit

It encourages out-of-work claimants to find work, and claimants

in-work to seek more hours or find higher paid work

If there’s no discernible positive impact on the labour market, the

second argument falls

Why this matters

Welfare reform is one of several things happening simultaneously

– economic upturn since 2012

Approach is based on big variation from place to place in financial

losses:

If the welfare reforms are having an important impact on labour

market outcomes it should be possible to observe a much

greater impact in the places where the reforms hit hardest

Assessing the impacts

Not all the pre-2015 reforms have come to full fruition yet

90% of loss from changeover from DLA to PIP

30% of loss from incapacity benefit reform

Not all the pre-2015 reforms likely to affect work incentives

Exclude removal of Child Benefit from higher earners

Practical complications

Sources: DWP and Sheffield Hallam estimates

Out-of-work benefit claimant rate

Feb 2011 - Nov 2014

JSA

ESA

JSA and ESA claimant rates

Feb 2011 - Nov 2014


Grouping of authorities

Ayrshire: East Ayrshire, North Ayrshire, South Ayrshire

Fife and Central: Clackmannanshire, Falkirk, Fife, Stirling

Greater Aberdeen: Aberdeen, Aberdeenshire

Greater Dundee: Dundee, Angus, Perth & Kinross

Greater Edinburgh: Edinburgh, East Lothian, Midlothian, West Lothian

Greater Glasgow: Glasgow, East Dunbartonshire, East Renfrewshire, Inverclyde,

Renfrewshire, West Dunbartonshire

Highlands & Islands: Argyll & Bute, Eilean Siar, Highland, Moray, Orkney, Shetland

Lanarkshire: North Lanarkshire, South Lanarkshire

Southern Scotland: Borders, Dumfries & Galloway

Economic activity rate

Employment rate

ILO unemployment rate

Wider labour market variables

2011 - 2014

Sources: LFS and Sheffield Hallam estimates

Jobs in each area

late 2010 - late 2013 (1) Local authorities

(2) Groups of local authorities

Sources: BRES and Sheffield Hallam estimates

Bigger losses from welfare reform are associated with bigger falls

in the overall out-of-work claimant rate

But this relationship only applies to JSA, not ESA

No observable relationship with labour market participation or

employment rates

No relationship with employment growth

So…….

Feb 2011 – Nov 2014

Feb 1998 – Nov 2004

Aug 1993 – Aug 1996

Comparisons between upturns


Bigger than average reductions in JSA numbers in areas of high

unemployment are a normal feature of economic upturns

So the big reductions in JSA unemployment since 2011 in a

number of Scottish local authorities cannot be attributed to

welfare reform

Which all means…..

GDP

Employment

Comparison of recessions and recoveries

Sources: ONS, LFS

On balance, the evidence provides little support for the

view that welfare reform is having important and positive

impacts on the labour market in Scotland

The labour market impact

Final comments

Reductions in tax credits

Lower household benefit cap

Lower ESA payments for claimants in work-related activity group

Four-year freeze in most working-age benefits

In all, £12bn a year of new welfare benefit cuts

Further big financial losses to claimants in Scotland (£1bn+ p.a.)

But why should these new cuts have any greater positive impact on

the labour market?

The new cuts in welfare

The financial losses arising from welfare reform are very large

indeed

The largest losses fall on the poorest places

Some types of households are hit much harder than others

Little evidence to date of a positive labour market impact

All pain, for not very much gain?

Key conclusions for Scotland

Documents

THE IMPACT OF WELFARE REFORM ON SCOTLAND · Housing Benefit: Local Housing Allowance Non-dependant deductions Household benefit cap Disability Living Allowance Incapacity benefits