Sharp end of the cuts

The Sharpest End Of The Cuts

G A R E T H M O R G A N

F E R R E T I N F O R M A T I O N S Y S T E M S

© Ferret Information Systems 20/03/11

06/11/2010© Ferret Information Systems

£18

Billion

a year

Future Changes to the Benefits System

The government made three sets of announcements about changes to the benefits system.

The Emergency Budget of June 22nd introduced net cuts to the welfare system of £11bn a year by 2015.

The Comprehensive Spending Review of October 20th added another £7bn to that.

The Welfare Reform Bill based on the White Paper Universal Credit: welfare that works published in November introduces a system which will replace the current mix of benefits for those of working age.

Other announcements about ESA and replacing DLA

Main Benefits Related Budget Measures - 1

Benefits and tax credits to be up-rated by the consumer price index (CPI)

From 2012 pensioner benefits will rise in line with earnings. – Triple Guarantee

An annual Child Element Tax Credit increase of £150 above CPI in 2011-12 and £60 above CPI in 2012-13

Child benefit frozen for the next three years

Withdrawal of Child Tax Credit for higher income families

20/03/11Ferret Information Systems


Baby element of Child Tax Credit abolished from 2011

Tax Credits taper rises from 39% to 41%

Introducing a £2,500 disregard for households with a drop in income

Reducing the income disregard for increased income

Over-fifties returning to work element abolished

Local Housing Allowance (LHA) caps and restriction to 4 bedroom rate



LHA to be set at the 30th percentile

CPI linking of LHA

Non-dependant deductions to be increased

Social rented sector limiting rents

HB reduced to 90 per cent of assessed entitlement after 12 months of receiving JSA

A medical assessment for Disability Living Allowance from 2013 for new and existing claimants.


Main Benefits Related CSR Measures - 1

Capping benefits at median earnings where no DLA or WTC

Child Benefit withdrawn from higher rate taxpayers

Tax Credits childcare costs reduced from 80 per cent to 70 per cent

Working Tax Credit hours change for couples

Basic and 30 hour elements of the WTC are being frozen for three years

Child element being increased by a further £30 in 2011-12 and £50 in 2012-13



Time limiting contributory ESA for those in the Work Related Activity Group to 1 year

Increasing the age threshold for the Shared Room Rate in Housing Benefit from 25 to 35

Council Tax Benefit cut by 10 per cent and localising it

Removing the mobility component of Disability Living Allowance from people in residential care, except for those who are self-funding (?)



Freezing the maximum Savings Credit award in Pension Credit for four years

Extending for a further year the temporary change to the Support for Mortgage Interest scheme

No announcement has been made about extending the two year limit of SMI for JSA claimants which first affected people in January 2011.

Making permanent the temporary increases to Cold Weather Payments



Reiterated their promise to uprate the basic State Pension by a triple guarantee of earnings, prices, or 2.5 per cent, whichever is highest

Speed up the pace of State Pension Age equalisation for women from April 2016 so that Women‟s State Pension Age reaches 65 in November 2018.

The State Pension Age will then increase to 66 for both men and women from December 2018 to April 2020.



Educational Maintenance Allowance is to be “replaced” by “locally managed discretionary funds” to target support

Social Housing Landlords will be able to set rents between social and market levels for new tenants. They will also be able to offer fixed-term tenancies rather than agreements for life.


Combined Budget & CSR Savings


Welfare Reform Bill

The NEW SIMPLE SYSTEM which will start, in parallel, from 2013 (subject to HMRC getting their IT to work)

The needs and income rules will be very much like today’s benefits BUT the calculation & taper will be very different

No clear division between unemployment and employment.

The amount of earnings which people are allowed to keep before it affects their benefits – will be abolished for single people but made much larger for some other groups. It will however be reduced sharply for those who need help with their housing costs

Welfare Reform Bill- 2

Help with mortgage interest for home owners will be available to all instead of, with the current system, being limited to those ‘not in full-time work’. (But Govt. trying to do a deal with lenders)

Total amounts of benefit, for those not in receipt of DLA, war widows or receiving Working Tax Credit, will be limited to the median level of earnings of working families – about £500 for families, £350 for single people.

Self-employed people will be assumed to have a minimum level of earnings.

Welfare Reform Bill- 3

Transitional protection will make sure that nobody getting benefits will move onto a lower amount when transferring to Universal Credit

The old and new systems will run in parallel for some years from 2013

One standard deduction rate of 65%

Housing support for tenants and Council Tax Benefit will become much more localised and variable from place to place. Councils will be able to operate their own CTB rules, with constraints (?)

Sanctions and penalties

There will be more „conditionality‟ – benefit penalties for people who do not meet job-seeking conditions. The groups which must meet these conditions will be extended. The Bill introduces a „claimant commitment‟ which will be a formal statement of requirements and penalties.

Administrative and Civil Penalties

From £50 to £300 „fines‟ for „preventable‟ errors

Civil Penalties

Failure to disclose information, report changes or negligence may result in financial penalties.

Administrative Penalties

These are intended to penalise fraud and are linked to the amount of benefit gained.

Stronger „three strikes‟ measures.


On-Line benefit claims and automatic operation

Claiming Universal Credit will normally be done over the internet, be much more automated, and there will be a single place for contacting the benefits system.

Universal Credit will automatically, month by month, reflect changes in earnings from employment using a new, yet to be introduced, HMRC PAYE computer system.


Contributory benefits time limited and means-tested

“Under the new system, contributory benefits would retain an insurance element, but in most circumstances would only be paid for a fixed period, only to facilitate a transition back to work”.

Contributory Employment and Support Allowance will be limited to one year.

“Contributory Jobseeker‟s Allowance will continue in its current form but with the same earnings rules (such as disregards and tapered withdrawal) as Universal Credit”. How this means-testing will operate is unclear. The explanatory notes to the Bill refer only to an earnings taper.


Social Tenants

The Bill provides that the dwelling size limits for social tenants will be implemented by imposing a percentage cut, linked to the number of additional bedrooms, rather than by the equivalent of a Local Housing Allowance.

There is a new term to describe Housing Benefit limits - appropriate maximum housing benefit (“AMHB”)


Youngest qualifying age for Pension Credit

There will be a younger age limit for Pension Credit. The benefit will not be available to couples until the youngest partner reaches the qualifying age instead of, as now, the oldest. The weekly difference between the JSA and the Guaranteed Pension

Credit couples allowance is £103.75. The total loss, over the 2.6 years average age difference for married couples, is £14,027.

Additionally this will mean that the capital limit will still apply to the household so that, for example, an older partner retiring with a small pension pot which might be better taken as capital will be disadvantaged.

There may be a „pensioner premium‟ (my guess) but how much?


Youth condition in ESA abolished.

This seems a petty and damaging change, especially as contributory ESA in work related activity group is only going to be available for a year now. Young people have been able to claim contributory Employment and Support Allowance without having to made National Insurance contributions. This will be abolished under a provision in the Bill.


Capital Cut-Off In Universal Credit

The intention is that the treatment of capital will be similar to that under Income Support and other means tested benefits currently.

In Tax Credits today there is no such concept as a cut-off or notional interest. Real income from capital is used in the same way as for tax.

When those getting tax credits, with more than £16,000 in capital, claim Universal Credit they‟ll find that they‟re not entitled. That‟s estimated by the Social Market Foundation to be 400,000 families with a further 200,000 hit by the notional interest rules.


Housing Credit in Pension Credit

The abolition of Housing Benefit, following the introduction of universal credit, means that the elderly will need a replacement which will be introduced as a Housing Credit as part of Pension Credit. The intention is that claimants will be entitled to broadly the same amount of support under the housing credit as they would have been entitled to by way of housing benefit.

A person may be eligible for the housing credit without being entitled to either of the other elements of state pension credit, or may receive more than one element if they meet the relevant conditions. There may be a de minimis rule applying to this credit. There will be a Capital Cut-Off for the new Housing Credit in Pension Credit.


More …

Lone parent increased conditionality

Lone parents whose youngest child is over 5 will move from Income Support to JSA with all the requirements for that benefit.

Legal „entitlement to work’ will become a condition of entitlement for contribution-based JSA, contributory ESA, maternity allowance and all statutory payments.


PIP

Personal Independence Payment to replace DLA in 2013 / 2014

Consultation closed on 14 February 2011.

Working age only but considering pensioners and children

PIP - 2

For Personal Independence Payment there are no automatic entitlements, other than the special rules for people who are terminally ill. Instead, each case will be looked at individually, considering the impact of the impairment or health condition, rather than basing the decision on the health condition or impairment itself.

The new assessment will focus on an individual‟s ability to carry out a range of key activities necessary to everyday life. Information will be collected from the individual, as well as healthcare and other professionals who work with and support them.

PIP - 3

Personal Independence Payment should take greater account of aids and adaptations. Mobility, for example, may be assessed using a wheelchair.

Periodically review all awards. Individuals will still be responsible for reporting changes that occur between reviews and there will be penalties if an individual knowingly fails to report a change that would have resulted in a reduction in benefit.

PIP - 4

Government will consider how the benefit interacts with other forms of support, for example adult social care, and explore whether it is possible to share information at the assessment stage and eliminate areas of overlap.

Basis of examples - 1

Assessments start with the April 2011 values, rules and rates and progress from those.

Values used are based on starting figures and then adjusted in 3 ways:

Earnings, other incomes, tax bands etc. use current values.

Benefits which are to be up-rated by CPI in future have their current values reduced by the cumulative year by year difference between RPI and CPI

Benefits, and elements of benefits, which have been frozen have their current values reduced by the cumulative RPI.


Basis of examples - 2

This, crudely, allows comparison of the real future values of income with starting values.

The CPI and RPI forecast figures used are those produced by the Office for Budget Responsibility.

Universal Credit assessment has been modelled by using the figures in the White Paper with current values for items not mentioned


Steady State Employment - Tenant 2 children

The examples mainly use a couple with two children

They are both aged 45 and have 2 children aged 8 and 10. They do not have any childcare costs and make no pension contributions.

They pay rent of £86.54 per week which is exactly the Local Housing Allowance (LHA) for their home (the figure is chosen to match the mortgage interest payable in the examples for home owners)

They pay council tax of £1250 per annum

In example 1, we look at a „steady-state‟ situation where one member of a couple works 35 hours a week for annual earnings of £10,000, £20,000, £30,000, £40,000 and £50,000.


Example 1 – Couple 2 Kids Rent


Gross Earnings

Net Weekly

Income Current UC Current UC

2011 2012 2013 2014 2014 2015 2015

£10,000.00 £430.01 £420.97 £414.58 £409.27 £406.24 £402.88 £400.46

£20,000.00 £438.45 £432.22 £427.62 £422.96 £443.64 £417.34 £437.79

£30,000.00 £483.88 £484.14 £479.54 £474.88 £489.41 £469.27 £483.56

£40,000.00 £612.69 £601.06 £599.98 £598.87 £598.87 £597.61 £597.61

£50,000.00 £718.49 £717.34 £684.79 £684.79 £684.79 £684.79 £684.79

Example 1 – Couple 4 Kids Rent


Note the larger effect of the loss of Child Benefit for

the highest earner.

Gross Earnings

Net Weekly

Income Current UC Current UC

2011 2012 2013 2014 2014 2015 2015

£10,000.00 £577.51 £567.42 £558.17 £550.51 £536.78 £541.19 £528.29

£20,000.00 £585.30 £575.21 £566.99 £559.33 £573.21 £550.01 £564.72

£30,000.00 £608.95 £611.77 £605.10 £598.31 £616.09 £590.05 £607.59

£40,000.00 £660.88 £663.69 £657.02 £650.23 £661.86 £641.97 £653.36

£50,000.00 £745.29 £743.23 £684.79 £684.79 £684.79 £684.79 £684.79

Steady State Unemployment - Owner 2 children


2011 2012 2013 2014 2014 2015 2015

Unemployed £342.25 £343.85 £337.62 £333.86 £333.86 £329.09 £329.09

Steady State Unemployment - Tenant 2 Children


2011 2012 2013 2014 2014 2015 2015

Unemployed £358.98 £353.79 £346.45 £341.59 £341.59 £335.74 £335.74

Children Unemployed - Owner


Children Unemployed

Net Weekly Income Current UC Current UC

2011 2012 2013 2014 2014 2015 2015

0 £199.80 £199.13 £195.35 £194.07 £194.07 £192.37 £192.37

1 £279.71 £280.03 £274.85 £272.15 £272.15 £268.70 £268.70

2 £342.25 £343.85 £337.62 £333.86 £333.86 £329.09 £329.09

3 £404.78 £407.66 £400.40 £395.57 £395.57 £389.48 £389.48

4 £467.32 £471.48 £463.18 £457.28 £457.28 £449.87 £449.87

5 £529.85 £535.29 £500.00 £500.00 £500.00 £500.00 £500.00

6 £592.38 £599.11 £500.00 £500.00 £500.00 £500.00 £500.00

7 £654.92 £662.92 £500.00 £500.00 £500.00 £500.00 £500.00

8 £717.45 £726.74 £500.00 £500.00 £500.00 £500.00 £500.00

9 £779.99 £790.55 £500.00 £500.00 £500.00 £500.00 £500.00

10 £842.52 £854.37 £500.00 £500.00 £500.00 £500.00 £500.00

Children – Unemployed Owner


Poverty Traps


Better off on

£10,000 a year

than £25,000

Earnings Disregard in Universal Credit


Maximum Floor

Housing Cost at Which Floor

Reached

Couple £57.69 £10.00 £31.79

+1 child £109.62 £20.00 £59.74

+2 children £109.62 £25.00 £56.41

+3 Children £109.62 £30.00 £53.08

Lone Parent

+1 child £148.08 £40.00 £72.05

+2 children £148.08 £45.00 £68.72

+3 Children £148.08 £50.00 £65.38

LA Cuts


Local Authority Change in

estimated

'Revenue

Spending

Power'

2011-12

£m

Westminster -21.0

Hillingdon -7.1

Newham -38.5

Sedgemoor -1.1

The Local Effect


Local Authority Change in

estimated

'Revenue

Spending

Power'

2011-12

Annual Loss of

Benefits to

Residents

£m £m

Westminster -21.0 -73

Hillingdon -7.1 -76

Newham -38.5 -70

Sedgemoor -1.1 -33

Income and Job Losses


Authority Hillingdon

Mid Year Population 2009 (ONS) 262,500

Total Lost Benefit Income annually - 2014 £76,806,059

Jobs Lost 2011 - 2014 1,782

Lost Benefit Income 2011 £9,898,126

Jobs Lost 2011 230

Additional Lost Benefit Income 2012 £20,964,486

Jobs Lost 2012 486


Jobs Lost 2013 678


Jobs Lost 2014 388

Unclaimed Means-Tested Benefits £41,695,325

potential Jobs saved through MTB take-up 967

Unclaimed Working Tax Credit £16,100,385

potential Jobs saved through WTC take-up 374

Authority Sedgemoor

Mid Year Population 2009 (ONS) 112,100

Total Lost Benefit Income annually - 2014 £32,799,845

Jobs Lost 2011 - 2014 761

Lost Benefit Income 2011 £4,226,971

Jobs Lost 2011 98


Jobs Lost 2012 208


Jobs Lost 2013 289


Jobs Lost 2014 166

Unclaimed Means-Tested Benefits £17,805,889

potential Jobs saved through MTB take-up 413

Unclaimed Working Tax Credit £6,875,631

potential Jobs saved through WTC take-up 160

More advice needed but advice is being cut


Interesting Times

The old system

5 years of confusion

Universal Credit


Ferret

Y O U ’ L L Q U I C K L Y S E E T H E B E N E F I T

Ferret Information Systems 20/03/11

News & Politics

Sharp end of the cuts