The Cumulative Impact of Welfare Reform in Hounslow
THE CUMULATIVE IMPACT OF WELFARE REFORM IN HOUNSLOW
Contents
Executive Summary ...... 4 The cumulative impact of welfare reform ...... 4 The impact of individual welfare reforms ...... 4 The impact of Universal Credit ...... 5 Summary of recommendations ...... 6 1. Introduction ...... 7 2. Methodology and Limitations ...... 8 3. The Hounslow Cohort ...... 9 4. The Impact of Previous Welfare Reforms ...... 10 4.1 Under-occupation charge ...... 10 4.2 Local Housing Allowance ...... 11 4.3 Council tax support ...... 12 4.4 The benefit cap (at £26,000) ...... 12 4.5 Universal Infant Free School Meals Programme (UIFSM) ...... 13 5. The impact of the 2015 Summer Budget and Autumn Statement ...... 14 5.1 Reducing the benefit cap to £23,000 ...... 14 Who will be capped, and by how much? ...... 14 What is the profile of households that will be capped? ...... 15 5.1 Changes to benefits for young people ...... 16 5.2 Removal of the WRAG Premium ...... 16 5.3 The National Living Wage ...... 17 5.4 ‘Pay to Stay’ ...... 17 5.5 Housing benefit capped at LHA rates for social rents ...... 17 5.6 The LHA freeze ...... 17 6. The Impact of Universal Credit ...... 19 6.1 Universal Credit is rolled out in 2016 ...... 20 A reduced work allowance in Universal Credit ...... 20 The impact of Universal Credit on different households ...... 21 In-work conditionality ...... 23 The minimum income floor...... 23 Transitional Protection ...... 24 Earnings required to move off of UC ...... 25 7. The Cumulative Impact of Welfare Reform in Hounslow ...... 26 7.1 The impact of reforms already in place ...... 26 www.policyinpractice.co.uk 2
THE CUMULATIVE IMPACT OF WELFARE REFORM IN HOUNSLOW
7.2 The impact of the reduced benefit cap ...... 26 7.3 Households with a high impact in 2016 ...... 26 7.4 Targeting employment support ...... 28 7.5 Households affected by multiple reforms ...... 29 7.6 The 2020 scenario ...... 30 8. Recommendations ...... 31 Annex 1: Data limitations ...... 32 Annex 2: Drivers for a change in entitlement between the current system and Universal Credit ...... 34 Drivers for why a household may be better off under Universal Credit ...... 34 Drivers for why a household may need transitional protection ...... 34 Annex 3: Household data documentation ...... 36
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THE CUMULATIVE IMPACT OF WELFARE REFORM IN HOUNSLOW
Executive Summary
This report contains the findings of the analysis commissioned to help Hounslow London Borough Council understand the impact of welfare reform. This includes reforms that have already taken place and some of those yet to be implemented. The detailed household level analysis that underpins this report can help the council to target its support resources more effectively.
The cohort for this analysis is comprised of all households in Hounslow that are receiving either Housing Benefit or council tax support. There are 24,814 households in the cohort, which represents approximately 26% of the population of Hounslow. 70% of the cohort are of working age and subject to welfare reforms. The cumulative impact of welfare reform
Low-income working-age households in Hounslow have seen their incomes fall by an average of £13.27 per week due to deficit-reducing welfare reforms (under-occupation charge, benefit cap, LHA cap, cuts to council tax support).
A lower benefit cap will result in a rise in the average income loss to £17.22 per week in 2016.
The new reforms will also increase the number of households in Hounslow that will have a ‘high’ financial impact due to welfare reform, defined as a fall in income of over £30 per week. In 2016, our analysis estimates there will be 2,846 households with a ‘high’ impact. Families with children, households in the private rented sector, and people in work are most likely to have a ‘high’ impact due to welfare reform. The impact of individual welfare reforms
A number of different reforms have already been introduced in an attempt to bring down the welfare budget:
the under-occupation charge (also known as the ‘Removal of the Spare Room Subsidy’ or the ‘Bedroom Tax’) reduces Housing Benefit for households living in the social rented sector who are deemed to have a ‘spare’ room
the Local Housing Allowance limits the amount of Housing Benefit tenants in the private rented sector can receive
the benefit cap limits the total amount of benefits working-age households can receive
localised council tax support has passed on cuts to central government funding to working-age households who are not in a protected group
Further reforms targeted at working-age households were announced in the Summer Budget in order to save £12 billion from the system. The benefit cap will be reduced to £23,000 per year www.policyinpractice.co.uk 4
THE CUMULATIVE IMPACT OF WELFARE REFORM IN HOUNSLOW for couples and families with children, and to £15,410 for single people without children. Work allowances under Universal Credit will be reduced, to £0 for non-disabled households without children, and substantial reductions for families with children. Table 1 provides a summary of the impact of each of these welfare reforms.
Table 1: The impact of individual welfare reforms
Average Number of weekly Household type Tenure most Households Postcode areas most affected income most affected affected Affected reduction
The impact of current welfare reforms
Under-occupation 1,057 £20.78 Single Council tenant TW13, TW14, TW7, TW8, W4
Couple with LHA Cap 3,865 £46.10 Private Rent TW3, TW7, TW5,TW14, TW4 children
Benefit cap (£26k) 231 £60.85 Lone parent Private Rent TW13, TW14, TW3, TW5, TW8
Council tax support 6,687 £4.64 Single Council tenant TW13, TW3, TW7, TW14, TW5
The impact of the Summer Budget
Benefit cap (£23k) 1,161 £68.97 Lone parent Council tenant TW13, TW8, TW3, TW7, TW5
Reduced UC work allowance 13,810 £10.96 Lone parent Private Rent TW13, TW3, TW7, TW14, TW8
The impact of Universal Credit
Universal Credit (UC) will replace six existing means-tested benefits and is intended to simplify the system and improve work incentives. The rollout of Universal Credit in Hounslow began in April 2015 for single people making a new claim for what would be income-based Jobseeker’s Allowance under the current system. Numbers in receipt of UC remain low, but this analysis estimates that at least 17,966 households in Hounslow will receive UC when it is fully rolled out.
This analysis finds that if the roll out of Universal Credit were to be completed by the end of 2016, 38% of households in Hounslow will see no change in income compared to the current system if their circumstances remain the same. 43% will need transitional protection to avoid a lower entitlement and 19% will have a higher income under Universal Credit than they do under the current system.
The transition to Universal Credit is expected to extend over the course of the next five years. With the same cohort in 2020, the percentage of households in need of transisitional protection will fall to 33%. 28% of households will see their entitlment increase under Universal Credit, and the remaining 39% will face no change in income. The more favourable outlook for the 2020 scenario is the result of the mitigating measures introduced in the Summer Budget, namely the rise in the National Living Wage to £9 per hour and the increase in the personal tax allowance to £12,500. www.policyinpractice.co.uk 5
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Summary of recommendations
Policy in Practice recommends that this information and the accompanying dataset is used by Hounslow to target support to households who are hardest hit by welfare reform. In particular, we recommend the following actions:
Qualify future benefit cap cases by identifying those in the ESA Support Group, or in receipt of Carer’s allowance, then target front-line support to those most severely affected.
Support households in work affected by the benefit cap to increase (when possibly) their weekly hours worked in order to reach the qualifying threshold for exemption.
Target employment support to the ‘quick wins’ – those who are highly impacted by welfare reform but have low barriers to work.
Share this analysis and the accompanying household level dataset within the Council to prioritise and co-ordinate support. Consider sharing this with partner organisations to better co-ordinate and commission support.
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1. Introduction
Welfare reform presents a complex picture HLBC can use this information to: for both Hounslow London Borough Council (HLBC) and its residents. better target support to the residents that need it most, and A range of reforms were introduced in the where possible take preventative last parliament to lower welfare spending, action to stop households from most notably the under-occupation being affected by welfare changes charge (also known as the ‘bedroom tax’ or the ‘removal of the spare room subsidy’) help the council to understand the and the benefit cap. Further measures impact of welfare reform on their aiming to save £12bn from the welfare personal finances budget were announced in the Summer Budget in July 2015. use council resources in a cost- effective way At the same time, Universal Credit is being introduced to simplify the benefit system To help HLBC achieve these objectives, this and improve work incentives. In Hounslow, report is accompanied by a household- Universal Credit was introduced in April level data set that includes flags and filters 2015 for new single JSA claimants. showing who is impacted by each welfare reforms and by how much. It also shows the HLBC wants to be proactive in its response cumulative impact of welfare reform, and to Universal Credit and other welfare identifies barriers to employment. reforms. By enabling the council to identify at a The primary objective of this project is to household level which residents in help HLBC use its own data intelligently, by Hounslow are most likely to be impacted by identifying those residents most likely to be welfare reform, and how much they stand impacted by recent and upcoming to lose out, the council will be able to direct changes to the welfare system. better targeted and more effective support to those who need it most. The project sets out to: The analysis is carried out on all households Understand the impact of recent in Hounslow currently (October 2015) reforms to the welfare system receiving either Housing Benefit or council tax support. There are 24,814 households in Project the impact of reforms the cohort, representing approximately announced in the 2015 Summer 26% of the population of Hounslow. 70% of Budget and Autumn Statement the cohort are of working age and subject to welfare reforms. Information about this Assess the impact of Universal data set can be found in Annex 3. Credit
The data on Housing Benefit and Council Understand the cumulative impact Tax Reduction claims is run through Policy in that these reforms will have across Practice’s Universal Benefit Calculator. This the city software models the current and future benefit system, and is available as an online tool to help frontline advisors discuss the impacts with customers www.policyinpractice.co.uk 7
THE CUMULATIVE IMPACT OF WELFARE REFORM IN HOUNSLOW
. likely to report further increases in 2. Methodology and their rent, as this has no impact on their Housing Benefit. Limitations 2. The data is a snapshot of low income households. It does not take This analysis is based on Hounslow London into account changes in circumstances that may have Borough Council Single Housing Benefit occurred since the data was Extract (SHBE) and Council Tax Reduction extracted from the system in Scheme (CTRS) as at October 2015, October 2015, or that will occur SHBE is a dataset that local authorities use after the analysis has been to report information on Housing Benefit conducted. claims on a monthly basis to the DWP. It has 3. The report presents a ‘static’ individual-level data, and thus is a rich analysis of the impact of welfare resource for analysing the impact of reforms. It does not take into welfare reform at both an individual and an account the behavioural impact aggregate level. It represents low-income that reforms may have. This means households, defined as those in receipt of that ‘dynamic’ effects including the Housing Benefit. The CTRS dataset holds policy intent behind reforms such as information similar to that in the SHBE on all Universal Credit and the benefit households in receipt of council tax cap (e.g. to encourage households support. to move into work), is not taken into account in this paper. It also does Hounslow London Borough Council signed not take into account preventative a secure data sharing agreement with front-line support provided by Policy in Practice in order to share data, Hounslow London Borough Council. with personally identifiable information In addition to these general considerations, redacted. there are some limitations to the Policy in Practice converted the data into information held within the SHBE and CTRS a format consistent with the Universal datasets that require assumptions to be Benefit Calculator engine, and then ran the made in order to complete calculations. data through the engine on a secure Annex 1 provides a complete list of these server. The results were analysed to limitations, the assumptions made, our measure the individual and aggregate rationale, and the implications for the impact of welfare reform. analysis. There are three general limitations to this methodology that readers should bear in mind when interpreting this report:
1. The analysis is based on the data provided. In some cases, the data itself may not be accurate. Some residents have little incentive to provide the council with updated information. For example, households in the private rented sector that pay rent above the local housing allowance are less www.policyinpractice.co.uk 8
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3. The Hounslow Cohort
The Hounslow cohort for this analysis is comprised of all households receiving either Housing Benefit or Council Tax Reduction. There are 24,814 households in the cohort, comprised of 39,154 adults (including non-dependants) and 22,194 children. This cohort represents approximately 26% of the population of Hounslow London Borough Council, based on the most recent census data from 2011.
30% of this cohort is of pension age and protected from the vast majority of welfare reforms. The remaining 70% of the cohort composed of working-age households will be the focus of the analysis in this report. Figure 1 below describes the characteristics of these households.
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4. The Impact of Previous Welfare Reforms
4.1 Under-occupation charge
The under-occupation charge (also known as the Removal of the Spare Room Subsidy or the Bedroom Tax) was introduced in April 2013. It applies to households living in the social rented sector who are deemed to have a ‘spare’ room. The household’s Housing Benefit is reduced by 14% if their home has one spare room and 25% if they have two or more spare rooms.
A total of 1,057 households - 12% of the 8,964 working-age households living in the social rented sector – have a reduction to their Housing Benefit due to an under-occupation charge. The average Housing Benefit reduction is £14.41 per week.
631 (60%) of these households live in Council properties. The majority of affected households (78%) have one spare bedroom and 22% have two or more spare bedrooms.
Figure 2 below provides a breakdown of these affected households by household type and by economic status. The majority of households affected are single people without children (69%) and those who are not in work and receiving a disability-related benefit (59%).
28% of households affected by the under-occupation charge have children, with a total of 324 children affected in Hounslow.
Our analysis identified 40 households that are currently affected by the under-occupation charge but will be entitled to an additional room within the next year due to a child turning 16 or 10. Further 45 households are affected by the charge at present, but are likely to be exempt within the year when the claimant reaches pension credit age. These households can be identified in the accompanying dataset.
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4.2 Local Housing Allowance
The Local Housing Allowance (LHA) was introduced in April 2008 and significantly changed Housing Benefit levels for people living in the private rented sector. It places a cap on the maximum amount of Housing Benefit a household can receive, based on how many bedrooms they are entitled to, and the area in which they live.
There are 8,237 households living in the private rented sector in Hounslow. The data shows that 47% of these households are paying rent above the LHA rate applied to their Housing Benefit, though this may be an under-estimate since people have little incentive to notify the council of rent increases if it does not affect their Housing Benefit entitlement.
Households paying rent higher than the LHA rate applied to their Housing Benefit have an average reported shortfall of £ 46.10 per week.
This welfare reform applies to both working age and pension age families. In Hounslow the vast majority of households affect by the LHA cap (88%) are of working-age and 12% are of pension age.
Figure 3 below shows a breakdown of households paying rent above the LHA rate by household type and economic status.
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4.3 Council tax support
In April 2013, the national Council Tax Benefit was replaced by a localised council tax support system devised and delivered by local authorities along with a 10% cut in central support for these schemes.
The majority of local authorities in England have had to pass the cut in funding, at least in part, to their residents by requiring a minimum payment toward their council tax unless they belong to a protected group.
Figure 4 provides an overview of the Council tax protection status of households in Hounslow. 19,576 households are in receipt of council tax support.
The majority (66%) are in a protected group, receiving 100% of their council tax liability in support. 34% of council tax support recipients are not protected and must pay a minimum of 20% of their council tax liability. For those who
are not protected, the average shortfall in council tax support is £ 4.63 per week.
Our analysis has identified 34 cases of households classified as “Not protected” by the HLBC data in which at least one individual is entitled to pension credit. We suggest HLBC verify these cases to clarify whether they can qualify for an exemption to a reduction in their Council Tax support or whether the CTR data needs to be updated.
4.4 The benefit cap (at £26,000)
Introduced in April 2013, the benefit cap limits the total amount of support a household can receive. At present, the cap is set at £500 per week for couples and households with children and £350 per week for single people without children. This is based on the median income in the UK, £26,000 per year.
People who qualify for Working Tax Credit (i.e. in remunerative work) or are in receipt of a qualifying disability- related benefit are exempt from the benefit cap.
There are 231 households in Hounslow that are affected by the benefit cap, with an average Housing Benefit reduction of £ 60.85 per week. Figure 5 shows the number of households www.policyinpractice.co.uk 12
THE CUMULATIVE IMPACT OF WELFARE REFORM IN HOUNSLOW affected by the benefit cap by the weekly Housing Benefit reduction.
98% of the households affected have children, on average five children per household. 68% of households affected are lone parent families. 30% are couples with children. A total of 701 children are currently affected.
71% of households affected live in the private rented sector, 13% are tenants living in Council properties, and 16% live in social rented properties.
35 households identified in the Hounslow data as affected by the benefit cap (around 15% of those affected) are in work. 25 of these households appears to be working enough hours to qualify for Working Tax Credit and could be exempt from the benefit cap. 41 households affected are in receipt of a disability-related benefit. 4.5 Universal Infant Free School Meals Programme (UIFSM)
Introduced in September 2014, the UIFSM programme guarantees that all pupils in reception, year 1 and year 2 in state-funded schools in England are offered a free school meal (FSM).
This analysis identifies households with children eligible for free school meals, and who can still claim means tested FSM. This could be used to increase the take up of free school meals within Hounslow.
While this has no effect on the income of families already eligible for UIFSM, the take up rates of the means tested benefit heavily affect schools’ finances. For every unclaimed means tested FSM, schools lose the possibility to receive the pupil premium, worth £1,320 per year for each child between reception and year 6.
The analysis identified 1,623 households with children between 5 and 7 years old eligible for means tested FSM, and currently in receipt of UIFSM.
Other local authorities have recorded a drop of 50% in the take up rate of means tested FSM for households with children eligible to UIFSM. A similar drop in take up rates applied among across Hounslow would result in a total of £1.01 million pound of unclaimed benefits.
We recommend that the council use this analysis to investigate and increase the FSM take-up rates of these households.
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5. The impact of the 2015 Summer Budget and Autumn Statement
In July 2015, Chancellor George Osborne announced further welfare changes in the Summer Budget in order to save £12 billion from the system, all targeted at working-age households. This included a reduction of the benefit cap, reductions to the work allowance of Universal Credit and changes to benefits for young people.
In addition, further measures aimed at reducing the welfare bill were announced in the Autumn Statement on 25 November 2015. 5.1 Reducing the benefit cap to £23,000
In 2016, the benefit cap which limits the total benefits a household can receive will be lowered to £23,000 per year (£442 per week) for couples and households with children, and £15,410 per year (£296 per week) for single people with no children. DWP’s impact assessment on the benefit cap suggests that there will be a phased rollout of the lower benefit cap beginning in April 2016, to be completed by the end of the year.
Who will be capped, and by how much?
Policy in Practice’s analysis estimates that 1,161 households will be affected by a lower benefit cap. This is five times the number of households that are currently capped.
The method employed to identify households affected by the cap relies on the Universal Benefit Calculator to calculate tax credits and Housing Benefit, assuming that tax credits are dependent on households’ current income.
Given that tax credits are calculated based on the previous years’ income and we are calculating tax credits for 2016, this is a reasonable assumption.
Our analysis finds that the average Housing Benefit reduction will rise from £60.85 per week under the current benefit cap to £68.97 per week under the lower benefit cap, though the largest caseload increase is in households affected by a small amount, as shown in Figure 6.
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The 231 households that are already capped will see their incomes fall by substantially more, with an average Housing Benefit reduction of £110.47per week.
19% of households identified as being capped (187) are in receipt of ESA, and are therefore impacted by the assumption made to assign them to work capability group. They could be exempt from the benefit cap if they are actually in the ESA Support Group.
14% of the households identified as being capped appear to be in work. If these households were to increase their hours worked they could qualify for an exemption from the cap.
What is the profile of households that will be capped?
The lower benefit cap will change the types of families that are affected:
Smaller families will be affected. The average number of children in households affected will fall to 2.7, compared to an average of 3.4 children currently. The number of children affected by the reduced benefit cap will rise from 768 to 3,136, a four-fold increase.
Currently almost exclusively households with children are capped, whereas under a lower benefit cap single people without children will also be affected.
The proportion of affected households living in the private rented sector will fall from 78% to 65%. A greater proportion of households living in the social rented sector will be affected, rising from 11% to 19% and the proportion of affected council tenants will rise from 11% to 16%.
See Figure 7.
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5.1 Changes to benefits for young people
Two changes to benefits for young people were announced in the Summer Budget.
First, 18 to 21 year olds will no longer have an automatic entitlement to the Housing Element of Universal Credit if they are out of work. In Hounslow, there are 223 such households at risk of losing their housing support under Universal Credit.
Second, young people aged 18-21 will be expected to ‘earn or learn’ and will have to participate in an intensive regime of support under Universal Credit. There are 638 young people in the Hounslow cohort that could be affected if they make a claim for Universal Credit, including non-dependents. 5.2 Removal of the WRAG Premium
People in receipt of Employment and Support Allowance currently receive a higher amount than those in receipt of Jobseeker’s Allowance. But the Summer Budget announced that new claims in the Work Related Activity Group (WRAG) will no longer receive the WRAG premium, worth £29.05 per week. There are 2,332 households in the ESA WRAG group in the cohort at risk www.policyinpractice.co.uk 16
THE CUMULATIVE IMPACT OF WELFARE REFORM IN HOUNSLOW of losing this premium if they were to make a new claim, though assignment to ESA group is based on an assumption for this analysis, so actual numbers will likely vary. 5.3 The National Living Wage
The Summer Budget 2015 announced the new ‘National Living Wage’ which will apply to people 25 and over. It will be set at £7.20 per hour in April 2016 (compared to £6.50 today) and will rise to £9.00 per hour by 2020.
Our analysis finds that the National Living Wage will increase the earnings of low income families in Hounslow. 79% of households in receipt of Housing Benefit and council tax support aged 25 or over, in work, who are not self-employed earn below £9 per hour. 5.4 ‘Pay to Stay’
Social housing tenants with household incomes of £40,000 and above in London will be required to ‘pay to stay’ in social housing by paying a market rent for their home. This policy is expected to be introduced in 2017/18.
Local authorities will be required to pass on this increased income on to the Exchequer. Housing Associations will be able to use this extra income to invest in new housing.
The cohort examined in this analysis is composed by households in receipt of means-tested benefits, and are therefore on relatively low incomes. However, the analysis has identified 12 households that may be affect by this reform. 5.5 Housing benefit capped at LHA rates for social rents
In November 2015, the Chancellor announced the extension of the LHA cap to the social rented sector. This measure will be effective from April 2018 for new tenancies from April 2016.
In Hounslow there are 582 households in the social rented sector paying rent above the applicable LHA rate. 85% of these tenants live in a 1 bedroom property and the average age is 31.5 years old. 41% (240) of these households are council tenants, the remaining 59% live in other social rented sector. The average difference between their monthly rent and their applicable LHA rate is £192 per month. 5.6 The LHA freeze
The Chancellor of the Exchequer has also announced his intention to freeze LHA rates in the United Kingdom for the next four years. The Government has stated that this will provide a cap on rental increases. However, this did not occur in most areas with the introduction of LHA rates and therefore the freeze in LHA rates is unlikely to have any significant impact on rent levels.
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We assume that private rents in London will continue to rise at the current rate of 4.1% p.a. for the next four years1 while LHA rates remain stable. Rents for social tenants are assumed to fall by 1% per year as instructed by the Government in the Summer Budget.
The table below shows average rents according to our model in the social and private sectors, in 2015 and in 2020:
Table 2: rent uprating in the social and private sectors, from 2015 to 2020 Social Rent Private Rent
Current average 2020 average Current average 2020 average
Shared room £ 141.46 £ 139.99 - £ - 1 bedroom £ 171.47 £ 200.66 £ 119.28 £ 114.58 2 bedrooms £ 244.93 £ 255.40 £ 128.93 £ 123.85 3 bedrooms £ 285.48 £ 297.69 £ 139.19 £ 133.71
4 bedrooms £ 309.02 £ 322.23 £ 155.46 £ 149.33
Our analysis suggests that an additional 390 private tenants would be affected by the LHA cap if rents in Hounslow continue to increase at current rates.
This would bring the total number of households affected by the LHA cap to 4,763, and the average weekly shortfall between the rent and the Housing Benefit for these households to £ 46.10.
For social sector tenants, 881 properties could fall back below the LHA cap, once the LHA rate is applied to social tenancies in 2018.
1 This is equal to 4.1% according to the latest ONS index, found here: http://data.london.gov.uk/housingmarket/ www.policyinpractice.co.uk 18
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6. The Impact of Universal Credit
Universal Credit (UC) is the Government’s flagship welfare reform. It will replace six existing means-tested benefits: Income-based Jobseeker’s Allowance, Income-related Employment and Support Allowance, Income Support, Housing Benefit, Child Tax Credit, and Working Tax Credit.
The initial rationale for the new system was to:
simplify the system, making it easier for people to understand and making administration more efficient
encourage recipients to start paid work or increase their earnings by making sure that work pays
smooth the transitions into and out of work
reduce poverty
reduce fraud and error
The work allowances in UC – the amount households are able to earn without any UC being withdrawn – were a key feature that ensured people will be better off in work under the new system. But these work allowances were drastically reduced in the Summer Budget.
Table 3 provides a summary of the reduction of work allowances by household type.
Universal Credit is live in Hounslow for single Job Seekers Allowance claimants since April 2015. Numbers in receipt of UC remain low, but this analysis estimates that at least 17,966 households in Hounslow will receive UC when it is fully rolled out.
The following section is based on the assumption that Universal Credit is fully rolled out in Hounslow over the course of 2016, to give an indication of the effects that the roll-out will have on the Council’s residents during the first year of implementation. This allows for a like-for-like comparison between the current tax credit system and Universal Credit, assuming no changes in caseload or rent levels. www.policyinpractice.co.uk 19
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6.1 Universal Credit is rolled out in 2016
This analysis compared each household’s take home income (including all benefits, tax credits and net earnings) under the current benefit system and Universal Credit.
We compared the two systems under 2016 conditions, including changes to the benefit cap and the reduction of work allowances in Universal Credit. Differences in entitlement are identified as those that are greater than £5 per month.
Figure 8 shows the impact of Universal Credit on household income in 2013.
Under Universal Credit 23% of households will face a higher income than under the current system.
47% will need transitional protection to avoid a lower entitlement and 30% will see no change in income if their circumstances remained the same.
This analysis doesn’t take into account any changes in behaviour (e.g. moving into or out of work) as a result of Universal Credit.
A reduced work allowance in Universal Credit 59% of households in Hounslow that will be entitled to Universal Credit when it is rolled out across the borough will now have a lower work allowance as a result of the changes introduced in the Budget.
Based on current monthly earnings, Table 4 provides a breakdown of households in work who will face a lower work allowance under Universal Credit. The highest number of individuals affected are lone parents (2,431). Single people will face the greater reduction in their work allowance, with an average shortfall of £71.02 per month.
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The impact of Universal Credit on different households Figure 9 below shows the impact Universal Credit will have on different household types. It shows that there are ‘winners’ and ‘losers’ within each household type, but that single people are most likely to see no change in their entitlements, while lone parents and couples with and without children are most likely to need transitional protection to avoid a lower entitlement. The highest number of households that will see higher income under Universal Credit are couples with children.
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The impact of Universal Credit is more evenly spread across different tenures, with the exception of owner occupiers, as Figure 10 shows. With the roll out of UC, this group of people is more likely to see no change in their income than other tenure type. Social and council tenants show similar distribution patterns. Private rented tenants are the most likely to need transitional protection.
The biggest difference in the impact of Universal Credit is between different economic groups. Figure 11 below shows that the majority of households that will need transitional protection are in work. This is due to the loss of tax credits, where cuts in support were reversed. Households in receipt of a disability related benefit will also see their entitlements fall under the new system. This may be influenced by our assumptions on ESA work capability group. We have assigned fewer people to the Support Group than the national average, this is a group more likely to be better off under UC. The majority of households that will have no change in their entitlements are not in work and likely to be in receipt of Jobseeker’s Allowance.
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In-work conditionality For the first time, Universal Credit will introduce conditionality for recipients who are in work but have earnings below a certain level. This conditionality threshold will be set at the number of hours the household is expected to work (similar to the current hours requirement in tax credits) multiplied by the National Minimum Wage. Certain groups, such as disabled people and lone parents with children under five, will still not be subject to full conditionality under Universal Credit.
46% of working-age households in the cohort will be subject to conditionality under Universal Credit. Of these, 5,582 households are in work and will be subject to conditionality because their earnings are below the required threshold. These households are not under any conditionality in the current system, and could be subject to sanctions for not fulfilling their conditionality requirements under Universal Credit.
The minimum income floor Universal Credit will introduce a ‘minimum income floor’ that will apply to self-employed people. Similar to the in-work conditionality threshold, this will be set at the number of hours the individual is expected to work multiplied by the National Minimum Wage.
For self-employed households earning below this threshold, Universal Credit will be awarded based on an assumed level of income rather than their actual earnings. These households will see a fall in their Universal Credit entitlement as a result.
In Hounslow, there are 2,196 households with at least one partner who is self-employed. 79% of these households are earning below their applicable ‘minimum income floor’ and are at risk of seeing their income fall under Universal Credit.
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THE CUMULATIVE IMPACT OF WELFARE REFORM IN HOUNSLOW
Transitional Protection Transitional Protection is calculated by comparing the total household monthly income at the point of migration with Universal Credit entitlement. Where the Universal Credit entitlement is lower, Transitional Protection will be awarded as a cash amount to make up the difference.
Significant changes in circumstances will lead to the end of protection. The DWP describes the following occurrences as significant changes in circumstances:
“• a partner leaving/joining the household;
• a sustained (3 month) earnings drop beneath the level of work that is expected of them according to their claimant commitment;
• the Universal Credit award ending; and/or
• one (or both) members of the household stopping work.” 2
For self-employed claimants, transitional protection will be calculated against their Universal Credit entitlement before the Minimum Income Floor is applied. For households with at least one self-employed individual earning below the living wage, the amount of protection received will be lower than the actual difference between their entitlements under the current system and Universal Credit.
Figure 12 illustrates how transitional protection is calculated for this group of claimants.
2 Department of Work and Pension, 2012. “Universal Credit Policy Briefing Note: Transitional Protection and Universal Credit” www.policyinpractice.co.uk 24
THE CUMULATIVE IMPACT OF WELFARE REFORM IN HOUNSLOW
The analysis identifies 1,051 households in Hounslow in need of transitional protection with at least a self-employed individual earning less than the Minimum Income Floor.
Overall, our analysis finds that a total of £ 30.7 million worth of transitional protection will be paid to 8,554 households in Hounslow would otherwise see their entitlements fall in the migration to Universal Credit.
Earnings required to move off of UC On average, households in Hounslow will have to earn £26,911per year to move off of Universal Credit entirely, seeing their entitlements fall to zero. However, this varies by household type and tenure, as shown in Table 5 below.
Table 5: Earnings required to move off of Universal Credit By Household Type Single £17,656 Couple without children £20,450 Lone parent £29,074 Couple with children £36,491 By Tenure Private rent £32,313 Council tenant £23,727 Social rent £26,099 Owner occupier £14,963
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7. The Cumulative Impact of Welfare Reform in Hounslow
7.1 The impact of reforms already in place
A range of reforms were introduced in the last parliament to reduce welfare spending:
The under-occupation charge (also known as the ‘removal of the spare room subsidy’ or the ‘bedroom tax’) reduces Housing Benefit for households living in the social-rented sector who are deemed to have a ‘spare’ room.
The Local Housing Allowance limits the amount of Housing Benefit tenants in the private-rented sector can receive.
The benefit cap limits the total benefit income most working-age households can receive.
Localised council tax support has passed cuts in central government funding to working-age households who are not in a protected group.
Based on the data provided to us for October 2015, the combined impact of these welfare reforms, implemented prior to April 2016, mean that working-age households in Hounslow have seen household incomes fall by an average of £13.27 per week.
7.2 The impact of the reduced benefit cap
In July 2015, the Government announced a number of further changes. These included a reduction in the benefit cap to £23,000 per year (in London) for couples and families with children and £15,410 for single people without children in London. This is to be introduced in April 2016.
Taking just this change into account, our analysis finds that the average household income loss will increase to £17.05 per week, or £886 per year.
7.3 Households with a high impact in 2016
Our analysis has categorised each household by the cumulative impact of welfare reform on that household: none, low, medium, high. Whilst the thresholds for each of the categories are largely arbitrary, they have been agreed with the client and help to prioritise households that need support.
A weekly reduction in income between £1 and £15 is classed as ‘low’ impact, a weekly reduction between £15 and £30 is classed as ‘medium’ impact and a reduction above £30 per week is classed as ‘high’ impact.
The analysis suggests that as a result of the reduced benefit cap, there will be more than 500 further households for which welfare reform will have a high impact. www.policyinpractice.co.uk 26
THE CUMULATIVE IMPACT OF WELFARE REFORM IN HOUNSLOW
In 2016, there will be 2.846 households in Hounslow for whom the impact of welfare reform is categorised as ‘high’, see Figure 14. These households will face an income reduction of over £30 each week compared to their household income in October 2015. 92% of these households are of working age.
Figure 15 provides a breakdown of these families by household type, tenure and economic status.
We find that families with children, tenants living in private rented properties, and people in work are the most likely households to face a ‘high’ financial loss after the April 2016 changes have been applied.
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7.4 Targeting employment support
In addition to the assessment of the impact of welfare reform, households have also been categorised by barriers to work. The analysis took account of disabilities, caring and parenting responsibilities. Households were then categorised as having low, medium, or high barriers to work. More information on the methodology employed to classify households into these categories can be found in Annex 3.
This analysis identifies 188 households that are unemployed, have low barriers to work and are highly affected by welfare reform in 2016.
It may be possible to support some of these households into work, thereby reducing financial hardship.
It should be noted that these households may face other barriers to work not identified through this analysis and an individual assessment of each household identified should be considered in order to offer the most suitable advice and support and target council resources.
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7.5 Households affected by multiple reforms
Table 6 provides a breakdown of the number of households affected by multiple reforms. The analysis takes into account the under-occupation charge; reduction in council tax support; the LHA; benefit caps and the reduction in the work allowance under Universal Credit.
Only 11% of the working-age cohort are not affected by any welfare reforms. These are mostly households containing a person with a disability.
Over half of the cohort are impacted by multiple reforms.
Table 6: The cumulative impact of welfare reforms % of the Number of Number of working- Number of Disabled Households age Children Households cohort Not 1,854 11% 1,829 23 impacted
1 reform 7,040 40% 2,411 9,536
2 reforms 6,742 39% 871 9,337 3 reforms 1,643 9% 129 2,354 4 reforms 196 1% 40 468 5 reforms 14 0% 5 33
A group of particular concern will be the 210 households that will be affected by four or five welfare reforms in 2016. These include the reform of council tax support, the LHA cap, the benefit cap, the reduction of UC work allowances, and pay to stay.
The combination of reforms that will affect most households is the reform of council tax support and the cuts to UC work allowances.
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7.6 The 2020 scenario
To take into account the full set of reforms that is expected to be implemented by the end of the Parliament, we have modelled a 2020 scenario. This includes a complete roll-out of Universal Credit, a lower benefit cap, and increases in the income tax threshold and National Living Wage.
However, we don’t make assumptions about any changes to households’ circumstances, so reforms that only affect new or updated claims (such as limiting Child Tax Credit for third and subsequent children) are not included. Likewise, this does not model future rent or inflation increases.
The 2020 scenario provides a more favourable outlook for Hounslow’s residents.
As Figure 16 shows, 34% of households will see their income increase under Universal Credit compared to current benefits (up to April 2016) and the percentage of households in need of tranisitional protection will fall from 47% (the result if Universal Credit was rolled out in 2016) to 34%. The remaining 32% of households will face no change in income.
This analysis has taken into consideration the rise in the minimum wage to £9 per hour and the higher personal allowance of £12,500.
These findings indicate how the measures announced in the July 2015 Summer Budget may partially mitigate the transition to Universal Credit if employers increase wages accordingly.
In addition, the analyisis has identified 195 households with children aged between 3 and 4 years old that are likely to receive higher childcare support in 2020. While the number is likely to vary in the coming years, this figure provides an indicative sample of the proportion of households who will benefit from this measure.
The situation by 2020 is likely to have improved compared to 2016: more people will benefit from some of the positive measures introduced, leaving a more positive picture than in many other local authorities.
However, LBH will still have to support many people who will be very negatively affected by a combination of reforms. A well-targeted proactive approach following the recommendations of this report can help to make this transition less difficult than it otherwsie would be.
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8. Recommendations
Policy in Practice recommends that this information and the accompanying dataset is used by Hounslow London Borough Council to target support to households who are hardest hit by welfare reform. In particular, we recommend the following actions:
Qualify future benefit cap cases, then target front-line support. The benefit cap will have a significant impact across Hounslow. Our analysis has identified 1,161 households that will likely be affected by the benefit cap and will experience a fall in income.
i. Limitations in the data on ESA work capability group mean that we recommend all 174 new benefit cap cases in receipt of ESA should be further investigated, to identify whether or not they are exempt by being in the Support Group. ATLAS data or DHP applications made by these households can provide useful sources of information in order to establish which ESA group they are in.
ii. In addition, the analysis identified 12 households affected by the benefit cap at £26,000 in receipt of carer allowance. This number will increases to 162 once the lower cap at £23,000 will become effective. Following a recent high court judgment, these households are now exempt from the cap if the DWP will decide not to appeal. We recommend Hounslow London Borough Council to notify these households about the change in their status.
iii. Support households in work affected by the benefit cap to increase (when possibly) their weekly hours worked in order to reach the qualifying threshold for exemption.
With a qualified list of households that will be affected by the benefit cap in 2016, we recommend targeting front-line support to these households. Frontline support should make them aware of the changes and work proactively with them to help them avoid being capped.
Target employment support to the ‘quick wins’. Our scoring methods have identified around 205 households that have a high welfare reform impact, but have low barriers to work. Supporting these households into work could help to alleviate financial hardship for those families and for the council.
Share this analysis and the accompanying household level dataset within the Council and possibly with other partner organisations. This will allow to develop a common view of the scale of the impacts, and build consensus around how to deliver appropriate support.
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Annex 1: Data limitations
Limitation 1: Passported Housing Benefit cases receiving Employment and Support Allowance (ESA) do not give information on work capability group
Assumption: Rationale: Records Affected: Implications: We use DLA data to If the data are There are 3,865 Since only 53% of determine ESA sufficient, the rate at passported ESA ESA cases report Group, where which Disability cases in the SHBE DLA income, there available. People Living Allowance is records. 4,239 (83%) may be cases where receiving the higher paid reflects the of the passported the claimant is rate of either the level of disability of cases do not receiving DLA but it care or mobility the individual. This provide information is not recorded. We component of DLA will give the best on ESA income, may then be over- will be put in the approximation of group or disability estimating the Support Group. which ESA group premiums. number of people in People receiving the they would be put 1,820 (47%) of the WRAG group. middle rate or lower into. passported ESA This may over- rate or those without cases do not report estimate the number information on DLA DLA income. of people affected will be put in the by the benefit cap Work Related and the number of Activity Group. people at risk of losing the WRAG premium in ESA
Limitation 2: No information on previous year’s earnings to calculate tax credits
Assumption: Rationale: Records affected: Implications: Assumed income Will disregard any All working-age May over- or under- last year was the tax credit households with estimate tax credit same as in the overpayments, so children or working awards in the short current year for gives a truer the hours required to term, but will be future tax credit comparison to qualify for tax credits accurate in the long calculations. Universal Credit. – 11,253 (47% of term working-age records)
Limitation 3: Passported Housing Benefit cases do not provide information on earnings
Assumption: Rationale: Records Affected: Implications: Passported cases No information on 57% of SHBE records Analysis will not are out of work. which to base are passported. capture the impact assumptions of low hours work otherwise. which may underestimate the number of cases that are better off under Universal Credit
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Limitation 4: No information on child disability benefits. Only information on whether the household receives the child disability premium in SHBE records
Assumption: Rationale: Records Affected: Implications: Where the This is a conservative 254 (1% of total) Missing data on household receives estimate. We have SHBE records include child disability may the child disability no other information the child disability overestimate the premium, we have to base assumptions premium. number of assumed the lowest on the level of households affected rate care disability. by the benefit cap, component of DLA since child DLA for one child. exempts households from the benefit cap
Limitation 5: Limited information on childcare. We only have information on the childcare disregard in the Housing Benefit claim, not childcare support claimed through tax credits in SHBE records. CTRS records contain no information on childcare
Assumption: Rationale: Records affected: Implications: Childcare support No other information Childcare disregard Under-estimating the added for records on which to base used in 359 cases, take up of childcare with a childcare assumption. 8% of households support. Since disregard only. that have children childcare support is and are in work. higher under UC, this also under-estimates the number of households that would be better off under UC
Limitation 6: No information on housing costs for households only receiving council tax support, as they do not claim Housing Benefit. They may however receive Support for Mortgage Interest
Assumption: Rationale: Records affected: Implications: CTRS-only cases are No other information 5,294 records (14.5%) We may under- owner-occupiers on which to base are CTRS-only. estimate the number with no housing assumption. of people who are costs. worse off under UC. This is because owner-occupiers are not entitled to mortgage support in work, so those working low hours will be worse off
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Annex 2: Drivers for a change in entitlement between the current system and Universal Credit
Drivers for why a household may be better off under Universal Credit
Young people under 25 without children or a disability are not entitled to Working Tax Credit, but will qualify for in-work support under UC.
The base entitlement for people in the ESA Support Group has risen from £226 per month to £316 per month.
Though work allowances in Universal Credit have been reduced, families with children will still have a higher work allowance than they do today.
People working a low number of hours face a 100% withdrawal rate of JSA/IS/ESA under the current system, but will only see a 65% withdrawal of Universal Credit.
Households in work and receiving Housing Benefit and tax credits will see their benefits withdrawn at a lower rate under Universal Credit.
Parents working under 16 hours who need formal childcare are not entitled to childcare support through tax credits, but they will be eligible for help with childcare costs under UC. Drivers for why a household may need transitional protection
Lone parents between 18 and 25 will no longer be entitled to the over-25 rate of the personal allowance under Universal Credit.
Under the current system, households see a large jump in income (i.e. cliff edge) when they begin working enough hours to qualify for Working Tax Credit (16, 24 or 30 hours depending on the household type). There is no distinction between out-of-work and in-work support or an hours threshold within Universal Credit, to smoothen work incentives. Households working at the tax credit threshold will generally see a lower entitlement under UC.
The child disability element of Universal Credit, for those not entitled to the highest rate care component of DLA, is worth around half of the disability element of Child Tax Credit.
The benefit cap under the current system only reduces a household’s Housing Benefit. Under Universal Credit, the benefit cap can reduce all elements of the households UC award, meaning that capped households may see an even greater reduction under UC and households not in receipt of Housing Benefit under the current system may also be capped under UC.
People in work and in receipt of only tax credits (i.e. not in receipt of Housing Benefit) will see an increase in their withdrawal rate from 41% to 65%. www.policyinpractice.co.uk 34
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Households with savings over £16,000 will not be entitled to Universal Credit, but are eligible for tax credits under the current system.
Universal Credit has a single flat rate for non-dependant deductions, meaning some households with non-dependents will see a higher reduction to their housing support under Universal Credit than the current system.
Under Universal Credit, owner-occupiers will not be eligible for help with their mortgage when in work. Under the current system, they are eligible for mortgage support as long as they are not in ‘remunerative work’ (usually 16 or 24 hours depending on household type).
Couples with one partner above and one partner below the state pension age. Under the current system, the couple would claim Pension Credit (a higher amount) but under Universal Credit, their entitlements are determined by the youngest partner and therefor will claim UC (a lower amount).
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Annex 3: Household data documentation
Variable Explanation reference Housing Benefit and/or Council Tax Reduction claim number
postcode Postcode
householdtype Simplified household type. Options are: single, lone parent, couple without children, couple with children
agegroup Working age Pension age (if one or more partners are of Pension Credit qualifying age) tenure Simplified tenure type. Options are: Council tenant, Social Rent, Private Rent, and Owner-Occupier (used for CTRS-only cases)
economicstatus In work (if there are earnings in the household) Not in work, disabled (if no earnings in the household and someone is in receipt of a disability-related benefit) Not in work, carer (if no earnings and in receipt of the Carer’s Premium) Not in work, lone parent (if no earnings and a single person with children) Not in work, other (if no earnings and does not fit in the categories above)
earnings Total gross weekly earnings for the both the claimant and partner (if applicable)
savings Household savings, using bands
underoccupation Y = affected by the under-occupation charge N = not affected by the under-occupation charge underoccupation_amount Weekly reduction to Housing Benefit due to the under-occupation charge
LHAcap Y = affected by the LHA cap (rent is higher than the applicable LHA rate, for private sector tenants) N = not affected by the LHA cap
LHAcap_amount Weekly shortfall between eligible rent and the maximum applicable LHA rate
ctrs_notprotected Y = not in a protected group under CTRS, subject to a minimum payment
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N = in a protected group under CTRS, eligible for full council tax support
ctrs_notprotected_amount Weekly shortfall between council tax liability and council tax support
ctrs_notprotected_pensionage Y = households with at least one individual of pension age that are not protected under CTRS
benefitcap_26k Y = affected by the benefit cap as currently set N = not affected by the benefit cap
benefitcap_26k_amount Weekly reduction to Housing Benefit due to the benefit cap
benefitcap26k_couldgetWTC Y = household identified as affected by the benefit cap in BCC data, but working enough hours to qualify for Working Tax Credit (a potential exemption) N = not affected by the benefit cap and eligible for Working Tax Credit
benefitcap26k_carer Y = household identified as affected by the benefit cap in HLBC data, but in receipt of carer’s allowance N = not affected by the benefit cap and receiving carer’s allowance
benefitcap_23k Y = identified as affected by the lower benefit cap N = not identified as affected by the lower benefit cap
benefitcap_23k_amount Weekly reduction to Housing Benefit due to the lower benefit cap
benefitcap_23k_receivingESA Y = affected by the lower benefit cap and in receipt of ESA (could potentially be exempt if in Support Group) N = not affected by the lower benefit cap
benefitcap23k_carer Y = household identified as affected by the lower benefit cap, but in receipt of carer’s allowance N = not affected by the benefit cap and receiving carer’s allowance
eligibletoFSM_underUIFM Y = household’s with receiving UIFSM and eligible to means tested FSM N = not affected receiving UIFSM and eligible to means tested FSM
earningbelowNMW Y = not self-employed, with one adult earning below the National Minimum Wage N = not earning below National Minimum Wage www.policyinpractice.co.uk 37
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paytostay Y = living in social housing with household earnings above £30,000 per year N = not affected by ‘pay to stay’
uc_needsprotection Y = needs transitional protection to avoid a lower entitlement under Universal Credit N = will receive the same or more income under Universal Credit
uc_needsprotection_amount Weekly amount of transitional protection needed under Universal Credit
uc_inworkconditionality Y = subject to in-work conditionality under Universal Credit N = not subject to in-work conditionality
uc_minimumincomefloor Y = self-employed and earning below the National Minimum Wage, likely to be affected by the Minimum Income Floor under Universal Credit N = not affected by the Minimum Income Floor
incomereduction_2015 Total weekly income reduction in 2015 due to the under-occupation charge, the benefit cap, the LHA cap, and localised council tax support
impact_2015 Score for the cumulative impact of welfare reform in 2015. No impact = not affected by welfare reform Low = fall in income is below £15 per week Medium = fall in income is between £15 and £30 per week High = fall in income is above £30 per week
incomereduction_2016 Total weekly income reduction in 2016 due to the under-occupation charge, the lower benefit cap, the LHA cap, localised council tax support, the increase in the withdrawal rate of Working Tax Credits, and the reduction of the income threshold for tax credits
impact_2016 Score for the cumulative impact of welfare reform in 2016. No impact = not affected by welfare reform Low = fall in income is below £15 per week Medium = fall in income is between £15 and £30 per week High = fall in income is above £30 per week
barrierscore_disability 1 = if in receipt of a disability-related benefit at the lower or middle rate 2 = if in receipt of a disability-related benefit at the highest rate
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barrierscore_carer 2 = if in receipt of the Carer Premium
barrierscore_loneparentor2earner 1 = if a lone parent or second earner, more likely to need childcare
barrierscore_youngchildren 1 = if there is a child under 5 in the household, more likely need childcare
barriers_to_work Score for barriers to work, summing the preceding three variables. Low = a total score of 0 Medium = a total score of 1 High = a total score of 2 or more
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About Policy in Practice
Our mission is to reduce poverty. We do this by simplifying delivery of the welfare system. We believe that change happens on the frontline.
Deven Ghelani was a member of the team at Centre for Social Justice who developed Universal Credit and, when the policy was adopted by government, he left to set up Policy in Practice. He was keen to ensure that the policy intent was actually put into practice.
Policy in Practice has facilitated conversations between leading local authorities and the Prime Minister's office to ensure frontline feedback about welfare reform policy has been heard.
We also help local organisations to understand the aggregate and cumulative impact of welfare reform changes on their customers so that they can accurately target support programmes.
And finally, to close the loop, the software that Policy in Practice has developed simplifies the conversations that frontline advisors can have with customers by clearly showing what benefits they can get under the current system and when they move to Universal Credit, comparing the two side-by-side using data visualisation.
Contact us
Call +44 (0) 330 088 9242
Email [email protected]
Visit www.policyinpractice.co.uk
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