What will fall out of the big Benefits

SHAKE UP? A radical shake up is happening in the world of Benefits, it will affect all Councils and all communities. It will affect the amount of money coming into Councils; it will affect the demands on the services you provide and the staff who run them; it will affect the lives of many people in your areas, often the most vulnerable; and it could mean some very tough and high profile decisions will have to be made. The big shake up will have implications for housing, planning, social services, children’s services, public health, the local economy and employment and skills services and of course your bottom line. It will also affect many charities and third sector organisations supporting people in your areas.

b January 2012 briefing

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How will the shake-up affect your Council? A lot’s happening in the world of Benefits with more to come. Even where the future is a little unclear, the Welfare Bill is of course still wending its way through Parliament, it does no harm to consider how the changes might play out in your area. The affects will vary from place to place, but the West Midlands as a whole suffered badly in the recession, yet even before the recession income levels had increased more slowly here than elsewhere in the country and the West Midlands alone during the boom years experienced an increase in poverty1. This briefing sets out the major changes and some of the potential impacts on Councils and their communities.

The changes will simplify a complex Benefits system, but there will be important transitional issues as the responsibility for specific Benefits shift between central and local government - changing the demands on staff and support systems such as IT.

As in any system there will be winners and loses arising from the new arrangements with a significant number of people likely to be worse off.

This will have implications for the levels of hardship, poverty and homelessness and the demands on Council services such as housing and social care as well as those more obviously affected in Revenues and Benefits and debt recovery.

Managing these changes will not be cost free and with the stringent spending limits there are likely to be some difficult decisions to be made.

Why Now? Many of the changes have their origins with the previous Government, but have been considerably revamped by the Coalition. The drive for the shake-up comes from three key directions:

The Benefits system is too complex for people to understand, too expensive to run and discourages too many people from working.

The Benefit system should be used to actively encourage people back into work as part of the employment system and tackle the culture of dependency.

Public spending, including on Welfare and Benefits needs to be significantly cut for the sake of the Country’s financial stability.

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What’s new?

Universal Credit is replacing or incorporating a host of

other Benefits, including Working Tax Credit, Housing Benefit, Income Support, Job Seekers Allowance, Employment and Support Allowance and Child Tax Credit - it will have different elements but essentially the claimant will get one payment covering more or less everything they are entitled to. Universal Credit is intended to make it more attractive for people on Benefits to get into work by gradually tapering the reduction in Benefits as earnings increase, thereby preventing the “cliff edge” loss of Benefit which makes people feel that “it’s not worth working”. It is anticipated that changes will start in October 2013 for new claims. Transitional arrangements will see all existing Housing Benefit claims, for example, move across by 2017. A major change is moving the responsibility for Universal Credit applications to the Department of Work and Pensions and Her Majesty’s Revenues and Customs with little clarity as yet on how it will work in practice. This briefing focuses on the major changes to some of the key Benefits that will make up Universal Credit namely, Local Housing Allowance (LHA), Job Seekers Allowance (JSA) and Employment and Support Allowance which is replacing Incapacity Benefit.

Council Tax Benefit will not be part of Universal Credit but is also proposed for major changes.

Council Tax Benefit is proposed to be localised, but in

return for Councils having more say over who gets it, the proposal is that from April 2013 there will be a 10% cut across the board on what is spent in each Council area. However, the economic situation over the last couple of years has seen the number of claimants increase by 11% nationally, increasing the value of the claims by 16%. As Government is committed to protecting certain vulnerable groups such as pensioners this will leave Councils with difficult decisions over deciding who else to protect and therefore who will absorb the bulk of that 10% cut. With the system intended to encourage people to move into work, it is probable that these cuts will fall most heavily on people on out of work Benefits - unless the Councils decide and are able to absorb the costs from cuts elsewhere.

And in total … from April 2013 the intention is that the

total amount of Benefit that a non working household can get will be capped at:

£500 a week for couples and lone parents

£350 a week for single adult households This could have far reaching impacts on larger families as it is expected that it will be Housing Benefit that will be limited where the Benefit cap is exceeded.

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Housing Benefit is being swept into Universal Credit, but will still form an important part of it:

Local Housing Allowance is how Housing Benefit for

people renting privately is calculated. Currently administered by Councils it will eventually move into Universal Credit to be run by central Government. The main changes are:

Benefit payments for those in private rented accommodation are now capped by the number of bedrooms the claimant and their family “need”:

o One bedroom £250 a week o Two bedrooms £290 a week o Three bedrooms £340 a week o Four bedrooms + £400 a week

Since April 2011 and over the following two years, deductions for non-dependents living at home will rise significantly. This may see non-dependents who are unable to make up the difference in rent moving out and could result in the remainder of the household falling into rent arrears. In extreme circumstances this could trigger under occupation deductions and/or end up with the family having to move home.

Over the coming months, Housing Benefit will be based on the rents of the lowest 30% of local private sector rents rather than the lowest 50%, effectively reducing the choice of housing available to those relying on Housing Benefit to pay all their rent.

o There will be a standard deduction from the Benefit for under occupation (ie being in too big a home)

o Children aged nine and under will be expected to share a room with another child, but between 9 and 15 only with a child of the same gender.

From January this year single people will only be able to claim the lower shared accommodation rate until the age of 35, rather than 25. This is a significant reduction, with many between 25-35 likely to have to move out of a place of their own and into shared accommodation.

From April 2013, working age claimants in Council or Housing Association accommodation with more bedrooms than they “need” will have their Benefit capped bringing them in line with the current approach to private sector tenants deemed to be “over accommodated”.

Also from April 2013 Benefits will be increased in line with the Consumer Price Index rather than the higher Retail Price Index (in November 2011 CPI was 4.8% while RPI was at 5.2%)

To help those in extreme hardship, the Government has allocated extra money to help support Councils’ Discretionary Housing Payments. Increasing from £20million to £30million in 2011-12 and rising to £60million for 2012-13.

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Job Seekers Allowance (JSA) will also be part of the Universal Credit JSA is the main out of work

Benefit and for those working under 16 hours a week. Those receiving JSA have to show they are actively searching for work, if not they can have their Benefit reduced or have to take part in compulsory work experience. One of the big changes is the introduction of the Work Programme, which more explicitly connects the Benefits and employment processes using external “providers” to support individuals into work through training, work experience and/or other support and advice. Those aged between 16-24 will go on the Work Programme after nine months of claiming JSA, while those over 25 will go on the Programme after a year. However, if the Job Centre, advisor and the claimant agree, individuals can go on the programme sooner.

Employment and Support Allowance (ESA) is replacing Incapacity Benefit and will be incorporated

into the Universal Credit when that is introduced. ESA is also being closely linked to the processes for getting people into work. The move from Incapacity Benefit to Employment and Support Allowance should be complete by March 2014 and is based on a new assessment process to identify what activities individuals are able to do. As well as assessing new claimants those already on Incapacity Benefit will be retested. Following assessment claimants will move into one of two new ESA Groups depending on their capabilities, otherwise they will be directed onto Job Seekers Allowance or off Benefits altogether if they are judged fit for work.

Those deemed not well enough to work or with disabilities preventing them from working at all will get unconditional support as part of the Support Group. Claimants whose health or disabilities shouldn’t prevent them from doing some work will form part of a Work Related Activities Group, with the Allowance dependent on being actively looking for work. Viewed as a temporary Benefit pending finding suitable work, this Group will have to attend regular work-focused interviews through the Work Programme and adhere to an action plan or potentially face Benefit sanctions. A further change to the system is that currently Incapacity Benefit is paid pretty much regardless of other household income. From April 2012, however, the Work Related Activities Allowance will be means tested after one year.

And there will be more there’s still a fair bit to be

worked out and agreed even after the Welfare Bill has made its way through Parliament. Government is still deciding, for example what happens to the so called “passported” entitlements such as free prescriptions and free travel which people receive by virtue of their existing Benefits. Another undecided area is whether Councils will administer things like the interest free Crisis Loans for emergency accommodation and living expenses from the Department of Work and Pensions’ Social Fund.

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READY OR NOT HERE IT COMES! The speed and

scale of the Benefits overhaul is unprecedented and comes on top of major changes to many local authority roles, the way Councils are financed and a climate of severe spending restraint. As with any new system there are likely to be a number of transitional problems and a few unintended consequences worth scoping out and assessing before they kick-in in earnest. Many of the changes are already happening or are in the pipeline but 1st April 2013 is the real “D Day” in the Benefits world as many of the most significant changes begin on that date or very soon thereafter.

Benefit Systems - With such dramatic changes Councils

will have challenges keeping their staff up to date and motivated to meet a testing timetable during this period of rapid change. With many Benefits being centralised under the Universal Credits system, all this will happen while they are under the threat of losing their jobs or being transferred into Central Government during the shake-up.

Local knowledge of communities, families and individuals built up over many years that can help support people but also detect fraud could well be lost. The new centralised systems needed to make the Universal Credit work are unproven and will demand a lot of the “as yet” unseen Information Technology - not least being able to recalculate the claims of those in work but on benefits as their earnings fluctuate, potentially week to week, as well as dealing with more long-term changes of circumstance.

Councils’ own IT systems too, will be tested. Existing systems may not be as cost effective when Housing Benefits are centralised yet at the same time new IT systems will need to be developed and supported should Council Tax Benefit, as expected, become the responsibility of Councils. As rents will, as a rule, no longer be paid straight to landlords including Councils where they have property, there’s a strong chance there’ll be more rents to collect, more chasing arrears and evictions as well as more requests for transfers. As recent news stories have shown the use of bailiffs to reclaim arrears can be high profile and requires sensitivity2.

Low income and poverty is a particular problem in

the West Midlands. While varying from place to place, existing levels of hardship will be a big factor in the extent the Benefit shake-up affects different places and particularly those in low paid work, the long term ill or disabled and the out of work. In-work poverty is a growing problem and according to the Institute of Fiscal Studies (IFS) the West Midlands had the lowest rate of income growth even during the boom years. Possibly more problematic, it also shares the highest levels of child poverty with London and, after adjusting for regional differences in the cost of living, the highest levels of relative poverty3. Joint work by the IFS and the Family and Parenting Institute predict the changes being introduced between January 2011 and April 2014 will have a major impact on low income families, with couples with children losing over 6% of their income compared to 4% for all households, while “non-working lone-parents lose more than 12% ... equivalent to £2,000 a year”4. As incomes in the West Midlands are relatively low and poverty rates already high it would be a surprise if the West Midlands were not disproportionately hit by the changes.

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Such losses in income are likely to affect the ability to pay for housing. Research by Shelter5 suggests that last year across the country almost a million people resorted to expensive pay day loans to help cover their housing costs and up to another 6 million have used other means such as unauthorised overdrafts, loans or credit cards to make up the difference. Financial education and wider financial inclusion issues are therefore likely to rise up the agenda in some areas and advice services such as Citizens Advice Bureaux will have important contributions to make, although many are themselves facing capacity issues and funding difficulties.

Housing - Advice services are already experiencing high

levels of demand. Collectively, West Midlands Citizens Advice Bureaux have reported a 20% rise in the number of housing problems. It’s not just big in percentage terms either, rising from 50,600 to 61,200 odd in 2011. These figures could increase further. Looking at the effect of the 2011-12 Housing Benefit reforms the Department of Work and Pensions’ impact assessment estimates that over 80,000 people in the West Midlands will be worse off by an average of £10 a week6. Changes to the way Local Housing Allowance is calculated will restrict those dependent on the Benefit for their rent to the cheapest third instead of the cheapest half of rented accommodation - effectively reducing the pool of “Benefits friendly” housing and potentially concentrating Benefit tenants in cheaper, poorer quality housing most likely in areas already suffering high levels of multiple-deprivation. Government intends that the Benefit caps will encourage private landlords to similarly reduce their rents, thereby increasing the pool of affordable properties. However, the

extent to which this happens and at what speed remains to be seen. The capping of the Allowance according to the number of bedrooms will leave a number of households at immediate risk of having to move, while some other households will be susceptible to people moving in and out of family homes creating problems of under occupation or overcrowding. With Universal Credit paid direct to the recipient to encourage independence and responsibility, critics say this might result in rent not being paid, in some cases to the Council.

With landlords as a rule no longer getting their rent direct from the Council in the future, there is no guarantee individuals will make paying rent their priority. It is possible this uncertainty will make more landlords reluctant to house people on Benefits. One upshot for Councils is that there are likely to be more requests to housing departments for transfers at a time when the pool of properties with the most popular “right” number of bedrooms within the cap limits is decreasing - particularly from claimants looking to downsize from accommodation deemed to be too big. This will include a number of those aged between 25-35 who will no longer be able to claim for their own place and will need shared accommodation. Waiting lists for affordable and social housing are long but like all kinds of housing, not much of it is being built these days, putting more pressure on the existing stock. But if there aren’t sufficient homes of the right kind, people will be marooned in homes they can no longer afford and concerns have been raised that there could be significant increases in homelessness7.

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These would be on top of the already high levels of homelessness in the West Midlands. Government figures for 2011 show the region has the highest proportion of households accepted by Councils as homeless in England with only London having a higher absolute number8.

At the sharp end this could all end up with more use of expensive bed and breakfast accommodation and more work for homelessness teams.

The labour market and the economy - Building

incentives into the Benefit system to encourage more people to get into work is one thing. Having the jobs locally that people on Benefits can move into is another. Needless to say some places will be better placed for this than others, but if the jobs don’t come or are inaccessible to the people on Benefits in your area, the stick used to encourage people into work could push them into hardship and poverty. Research by Sheffield Hallam University9 suggests the change to Employment Support Allowance from Incapacity Benefits will also add a lot of people who have a history of ill health and who haven’t had work experience for many years to the back of the job queue. They estimate that in the West Midlands this could increase the number of people involved in “compulsory labour market engagement” by 80,000 for example through the Work Programme and add 26,000 new JSA claimants. Already nationally there is something in the order of five people out of work for every job vacancy10 with many of the vacancies out there not new jobs but vacancies arising when someone gets another job or retires.

It’s unlikely then that any of the West Midlands’ local economies will be strong enough to absorb increases like these, not least because many of those newly back in the labour market will not have worked for quite some time. If there weren’t enough incentives already, this would be a good time to further strengthen the links between the employment services, skills providers and Benefits agencies working in your area. If a major employer scaled back, went bust or pulled-out this could mean further demands on Councils’ Benefits resources, not least because it looks like the Benefit shake-up will also pass some of the financial risk on to Councils, particularly if Council Tax Benefit is localised as planned from April 2013. However, there are up sides. If you can attract more jobs and get people off Benefits and into work, your Council could be better off through paying out less Council Tax Benefit. But any more people claiming Councils Tax Benefit will mean more strains on already stretched Council budgets. It’s probably also worth noting that people on Benefits pretty much spend all of their money. Reductions in Benefits could have implications for the amount of money going into the local economy and whether certain local shops or facilities stay open or shut. If you already have a high proportion of people in Benefits in some areas, the viability of some commercial local services could well be at risk.

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Other Council services - With more families and

individuals experiencing housing and financial pressures their stresses could manifest themselves in all sorts of ways increasing the likelihood of family breakdown, ill-health, criminal activity and performance and behavioural problems in schools. In turn these may well increase demands on services such as social care, child protection, youth services, educational support and the criminal justice system. Some impacts may be clearer and more predictable such as increased take up of free school meals and its effect on other personal entitlements and funding streams like the amount of money schools get from the Pupil Premium. With clear links between low incomes, deprivation, poor quality housing, overcrowding, fuel poverty and physical and mental ill health this could be a significant issue for local authorities as they ready themselves for their new statutory public health role through the emerging Health and Wellbeing Boards.

Where these complex issues centre on individuals and communities there may be opportunities to draw in resources from elsewhere for example through initiatives such as Community Budgets which aims to pool and better target funding from different agencies on collective outcomes.

What next? - It’s not possible to prepare unless you have

at least a broad idea of what’s coming. Hopefully, this briefing is a start in helping ask the right questions for your authority. A good start would be a broad risk and mitigation assessment. Some Councils are already scoping out which groups of people will be affected by each of the changes, what their financial losses or gains might be and how many people that adds up to.

Of course, some people and households will be affected in different ways and possibly multiple ways but knowing who, the circumstances and size of the different affected groups should make it easier to work out what the implications might be for the different services operating in your area.

Keeping in touch - Keep in touch with the issues

affecting local government in the West Midlands with Keeping in Touch the newsletter of West Midlands Councils - download from www.wmcouncils.gov.uk or to be put on the mailing list contact k.doogan@wmcouncils.gov.uk

References: 1 Institute of Fiscal Studies 2011- Poverty and Income in the UK 2011.

2 Birmingham Mail 3

rd November 2011. Birmingham City Council bailiffs

worse than loan sharks 3 Institute of Fiscal Studies May 2011 - Poverty and Inequality in the UK -

2011. 4 Family and Parenting Institute and Institute of Fiscal Studies January 2012

- the Impact of Austerity Measures on Households with Children 5Shelter website January 2012

http://england.shelter.org.uk/news/january_2012/millions_rely_on_credit_to_pay_for_home 6 Department of Work and Pensions July 2010 - Impacts of Housing Benefits

Proposals: Changes to the Local Housing Allowance to be introduced in 2011-2012 7 House of Commons Work and Pensions Committee December 2010 -

Changes to Housing Benefit Announced in the June 2010 Budget; Ch 5 Potential Risk of Evictions and Homelessness 8 Communities and Local Government 8

th December 2011- Housing

Statistical Release, Statutory Homelessness: July to September Quarter 2011, England. 9 Sheffield Hallam University CRESR 2011 Incapacity Benefit Reform, the

Local, Regional and National Impact 10

Office of National Statistics 16th

November 2011 - Summary of Labour Market Statistics Published on 16

th November 2011 (July - September 2011)

- 0.46 million vacancies and 2.6million unemployed January 2012