The real impact of the coalition benefit cuts

Treasury cuts to benefits will hurt

Much of the analysis of the Comprehensive Spending Review has concentrated on the effects on the Ministry of Defence and the expected numbers of jobs to be lost by civil servants and local government employees.

The cuts to Social Security have however been subject to poor or no proper analysis, supposedly because it was all “too technical”. Although “experts” have argued about how progressive the measures are. The worst aspect of the coverage has been the focus on the £400 cap to Housing Benefit which, while difficult for those in Central London will only affect a tiny percentage of those claiming Housing Benefit – it is simply a knee jerk reaction to tabloid scare stories about poor people in expensive houses. It will save at most £65 million. Much less now that these Inner London Councils are being given £10 million for discretionary housing payments to keep these families in those very same homes. Who stays and who leaves Inner London will be dependant on the decision of a local council worker deciding on not just your income but whether your spending plans are “reasonable”.

As is often the case, the media is not doing its job.

Iain Duncan Smith may have won his “war” with the Chancellor to introduce the Universal Credit but the price of that introduction will be paid for by the poorest.

There may be technical measures to show that the “poorest” are not the hardest hit, but those measures neglect to point out that any hit on the poor is a hit on those who already have very little in the first place. It is entirely irrelevant to judge the overall package of measures on who introduced what bits first. Labour may have introduced the 50% top rate tax rate element, which therefore means the overall “package” is progressive, but the poorest are not “all in this together” because they were never in the bubble in the first place.

Labour does not escape the blame for this. They left the rate of jobseekers allowance at a pitiful level. It now represents 20% of the median wage. Before Labour it was nearer 40%. That figure will not improve any time soon, if ever.

Despite this, there is a general misconception that those on benefits are workshy and are lapping it up. The reality is life is shit on benefits and it will get worse.

To pay for the Universal Credit, the Chancellor aims to cut  £7 billion a year from the

Boy George - really will hurt you

Social Security budget by 2014-15.

The sick will be hit hard. It is proposed that after a year Employment Support Allowance becomes a means tested benefit. It is not clear whether they will retain the long-term additions that are awarded after the assessment period has ended or whether it will resort back to being the standard income based level of £65 per week. If it simply resorts back to the Income Based Level of ESA, those who are seriously ill and unavailable for work could find their incomes drop by one-third.

The coalition also wants to cap the maximum benefit that can be paid to a family. While the Universal income is being phased in, Local Councils will be expected to implement the cap. The cap is effectively a restriction on the numbers of children a family in receipt of benefits can have.

The proposal is that from 2013 the total benefit paid will not exceed £500 per week for families (including lone parents) and £350 per week for a single adult households. It is supposed to ensure that no family can receive more in benefit payments than the median after tax earnings for working households. It exempts claimants in receipt of Disability Living Allowance, War Widows benefits and families claiming working tax credits.

Local Councils will be expected to implement the cap when claimants apply for Housing and Council Tax Benefits.

The applicable amount (the minimum amount that the government expects someone to live on) is £350.43 for a couple with 3 children, calculated using 2010/11 figures. That means that their maximum Housing Benefit would be £149.57 per week. Have another child, the benefit you get to pay your rent falls.

The solution appears obvious – if you can not get a full-time job get a part-time job and claim tax credits. That option is however also facing the axe. As of now, Working Tax Credits are currently paid to those working 16 hours or more. From 2014/15 Working Tax Credits will only be paid to those working 24 hours a week (total savings £390 million per year). If you are in a couple those 24 hours can be split but one of the couple must work at least 16 hours and the level of child care subsidy will be reduced from its current 80% to 70% (saving £385 million per year).

So families with 3 children will need to move to an area with rents below £150 per week. The problem, there are very few areas with rents for 3 bedroom houses available at or below £150 per week – even using the new maximum levels of Housing Benefit that the Government wants to set.

As well as restricting those who claim Housing Benefit to the bottom 30% of the property market, instead of the bottom half of the market, the maximum payable will no longer be linked to the housing market. the maximum levels set will only be increased by the consumer prices index. Areas that have a bounce in the property market will simply become unavailable. The Government is also removing the only downward pressure on Housing Benefit rents. They are removing the £15 shopping incentive, which gave Housing Benefit claimants an incentive to find cheaper properties or negotiate lower rents. The removal of the LHA “shopping incentive” means that the minimum charged to a tenant on HB will be the maximum payable by Housing Benefit.

Labour also messed up the implementation of the Local Housing Allowance because they overly complicated a simple proposal, to publicise the local reference figures and let tenants keep the difference. The “Broad Market Rental Arears” were too big. Rents in the areas surrounding the shires, were forced up but those in the main town were left facing rent restrictions. This also happened in London, with lower rent areas such as Brent being paired with Hammersmith, forcing rents up in Brent but not sufficiently covering rent levels in Hammersmith. The proposed changes are not the solution. The poorest are being expected to pay for the errors of the previous administration.

The future of housing - ultra high density

When implemented, these changes to Housing Benefit are estimated to cut benefits to 936,960 of the 939,220 local housing allowance claimants. Families will be hit with the highest cuts, with an average reduction of £600 per year. To top of all of those cuts, those who are unable to find a job within a year face a further cut in their Housing Benefit of 10%. Again this will hit families the hardest.

Meanwhile for the first time since 1945, there will be no direct funding of social housing in England.

Claimants will also have to face changes to their Council Tax Benefit. The budget for Council Tax Benefits, already a poorly claimed benefit has been cut by 10% from £12billion to £10.8 billion. It will also no longer be a nationally legislated benefit, the Chancellor said “it will be localised”.

Despite a strict legislative framework and a great deal of DWP guidance on the workings of Housing and Council Tax Benefits, how these benefits are implemented locally already varies Borough to Borough, due to different interpretations of regulations and highly varied levels of understanding about the law arising from different training priorities.

Now that Council Tax Benefits are going to be localised expect some Councils to demand not just breakdowns of income before granting rebates but also some assessors making value judgements about your expenditure. This already happens with Discretionary Housing Payments, at almost every local authority, despite advice from the DWP not to do this.

At the moment those on very low incomes or on a “passported benefit” (income support, income based Employment Support Allowance /Jobseekers Allowance or the Guarantee element of Pension Credit) do not pay Council Tax. Once localised, some Councils to spread their funding could unless Parliament says otherwise expect them to make a minimum contribution. It is the 20% minimum contribution that broke the Community Charge.

After all of this ignominy, benefit claimants will also be subject to potentially unlawful credit referencing. Some of this is already being done. An FOI check with your Council will be able to confirm this. Much of it is unlawful but carried out anyway. Most of it produces false positives that wastes the time of Local Authority and DWP Investigators and causes undue stress to many claimants.

This is going to be intensified. Credit Reference Agencies wil be given a “bounty” if they identify fraudulent claims. The Information Commissioner has already voiced serious concerns as has the Child Poverty Action Group. The political parties seem to have forgotten that the Council Tax was never supposed to be a “poll tax (it was supposed to replace it) and – even more so as a result of the housing benefit changes  – benefit claimants are often going to find themselves in properties that have discrepancies with the credit reference agencies. Benefit claimants are also likely to have defaulted on bills and will not want the added pressure of debt collectors chasing them as  a result of information obtained because they simply claimed benefits that they were entitled to.

Fraud investigators are exempt from the Data Protection Act if they are conducting an investigation into a named individual about whom there is a ‘reasonable suspicion’ that an offence has been committed. Now everyone who claims a benefit will be subject to a data trawl with Credit Reference Agencies expecting a bounty “if they find anything”.

In deciding whether that error was caused by fraud or by error, the claimant will have the right to appeal the decisions of the Council to Appeal Tribunals. The fact that a ‘bounty hunter’ has made the accusation will be a factor that the Tribunal judge will have to take into account.

The appellant is likely to argue that the accusation of fraud has been brought because of the need to maximise their ‘bounty payments’ an the integrity of investigators and the investigation will be questioned.

So much for the coalition wanting to get rid of the “database state”.

The Government is also looking at “streamlining” fraud investigations. With a possibility that investigators will move to the HMRC. The problem is that Local Authority Investigators are far better than their DWP counterparts at finding and prosecuting fraud and the DWP are much better than their counterparts at HMRC. So this change does not even make sense as is the case with the benefit changes as a whole.

It is quite apparent that the Department of Work and Pensions and the Treasury gave Ministers a series of options, some left over from the Labour administration, about which benefits to cut. The Coalition in all of their newness ticked the lot, without any consideration of the wider impacts for homelessness or incentives to return to work.

The opposition to these cuts has been weak at best or appears badly informed. Too much publicity has gone to the whining wealthy as a result of the decision to restrict child benefit to basic rate taxpayers.

These cuts are a knee jerk reaction to tabloid scare stories that will have a much greater impact on society than the few £billion saved and the reality is these savings are unlikely to be achieved. Welfare needs to be reformed but this is not a reform, it is an attack on those who are not “in it together” because they were never “in it” in the first place.

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