Implications of the Welfare Reform Act 2012

Background/Purpose

Many of the policy changes resulting from the Welfare Reform Act are coming into force during 2013. This paper provides an update on the key changes which present both opportunities and risks for county councils.

Introduction

1. The key changes within the Welfare Reform Act include:

From April 2013 - a. A benefit cap of £350 per week for single claimants, and £500 per week for couples and families has been introduced in four London Boroughs – Bromley, Croydon, Enfield and Haringey – and will be rolled out nationally from the 15 July. The cap is to be administered via changes in Housing Benefit payments until claimants move to Universal Credit (UC). Exemptions include pensioners, anyone in receipt of Disability Living Allowance (DLA), and anyone working over 16 hours per week. DWP has written to all affected households to inform them of the changes.

b. Size eligibility criteria extend to social housing. One bedroom is allowed per couple, adult or young person (16yrs old+), two children of the same gender, or two children of a different gender if under 10yrs old, and per resident carer. The rent reduction impact is 14% if under-occupying by one bedroom and 25% if under-occupying by two bedrooms or more.

Pensioners are exempt from this policy, as are approved foster carers (so long as they have fostered a child, or become an approved foster carer in the last 12 months) and Armed Forces personnel who continue to live with parents but are deployed on operations. There are currently three legal challenges going through the courts with the aim to also exempt a disabled child from sharing a bedroom, on medical grounds.

A related change, not part of the Welfare Reform Act, means that since April 2012 the age range to which the ‘Shared Room Rate’ (SRR)1 applies has increased from 24 years to 34 years. As a result, single people between the ages of 25 and 34 years who are in receipt of Housing Benefit and living in a standalone residence face shortfalls in their rent, unless they move into a shared property.

c. Local Housing Allowance (LHA)2 rate rises are capped at 1% until 2015. This policy was announced in the Autumn Statement 2012 and overrides the planned Welfare Reform Act change of uprating LHA

1 The SRR means claimants will only be entitled to enough local housing allowance to cover the average cost of a single room in a shared house in their area. 2 LHA is paid to tenants of private landlords. 1

annually in line with CPI inflation. The impact is predicted to be a loss of £3 to £5 per week.

This is in the context that since April 2011, the way LHA rates are calculated has changed – they are now set at the 30th percentile, rather than the median average cost. There are also caps according to property size, with the maximum rate pegged at four-bedrooms (the previous maximum was five bedrooms). The full effect of these changes is still to be felt, as many existing claimants were protected from the change for up to 12 months.

More broadly, the 1% cap on rises also applies to other key working-age benefits, such as Employment Support Allowance, Income Support, Child Tax Credits and Working Tax Credits. (However, disability benefits and Carers Allowance will continue to be uprated in line with inflation.)

d. Parts of the discretionary Social Fund are abolished and replaced by Local Welfare Assistance (LWA). The responsibility for LWA moves from DWP to upper-tier local authorities who have been encouraged to devise schemes responding to local need. This will result in different levels and types of support, as well as eligibility criteria, between counties.

e. Council Tax Benefit (CTB) is replaced by local reduction schemes to be devised at the discretion of billing authorities. Funding for the new reduction schemes in 2013/14 is around 10% lower than current CTB funding and as a result around 80% of LAs are reducing the level of support they offer3. Pensioners are exempt from any changes in support. 60% of councils have received transitional funding for their new schemes, however, from 2014/15 onwards, funding will be amalgamated into the wider grant allocation so will be subject to future spending review cuts.

f. Disability Living Allowance (DLA) is replaced by the Personal Independence Payment (PIP) for new working-age claimants in Merseyside, North West England, Cumbria, Cheshire and North East England. This will be extended to new claimants across the rest of the country from June. From October 2013, people whose DLA award is due to end, people who report a change in their condition, and young people who reach the age of 16 will also be invited to be reassessed and moved to PIP.

In the future, all remaining DLA recipients (including those who had been given ‘lifetime’ awards) will be expected to move over to PIP but there is no automatic transfer - they will be invited to make a fresh claim and will be reassessed under the revised criteria. The date for starting this reassessment has recently been pushed back to October 2015 to allow for an independent review of PIP assessment in late 2014.

3 http://counciltaxsupport.org/the-story-so-far/ 2

The budget for PIP will be 20% less than DLA. Government impact assessments with regard to current claimants of DLA estimate that 30% of these will not receive an award, 28% will receive a reduced award and 41% will remain either unaffected or will receive an increased award. Pensioners and children are to retain their DLA at existing rates.

Carers lose their Carers Allowance if DLA is not granted to the individual for whom they care.

Changes to contribution-based Employment Support Allowance4 as a result of the Welfare Reform Act have already been implemented. These were: to limit the period for which people in the Work Related Activity Group (WRAG)5 can receive contribution-based ESA to 365 days; and to prevent any new claims for ESA on the grounds of youth.

From October 2013 - g. A number of benefits for working-age claimants will be replaced with a single streamlined benefit called Universal Credit (UC)6. UC is payable on a monthly basis, in arrears, directly to people both in and out of work. It will be paid to just one person in a household. UC is to be ‘digital by design’ with the government aiming for 80% of applications to be made online. However, phone and face-to-face services will be available to those who need them.

UC is to be phased in over three stages: Phase 1 refers to the Pathfinder in Ashton-Under-Lyne which started in April 2013 (with three further Pathfinders in Greater Manchester due to begin in July 2013) and applies to ‘simple’ claims; Phase 2, from October 2013, will see the service gradually extended across the country to include jobseekers with children, couples and owner-occupiers by the end of March 2014; Phase 3, from April 2014, will see all households transferred to UC by the end of 2017. Until UC is fully rolled out there will in effect be two welfare systems running concurrently.

DWP estimate that 3 million families will be better off under UC by around £168 a month and that it will lead to a substantial increase in the take-up of currently unclaimed benefits. However analysis by the Institute for Fiscal Studies shows that the bottom three deciles will have lost 4% or more of their income between 2010 and 2015 (only the top decile will see a larger decrease).

UC, which is designed to improve work incentives, will work in tandem with the Work Programme – a payment-for-results welfare-to-work programme

4 People receive contribution-based ESA if they have limited capability for work and have paid enough National Insurance contributions 5 If someone is in the WRAG, it has been decided that work may not be appropriate for them now, but with support they can prepare for work in the future 6 UC replaces Income Support, income-based Job Seekers Allowance, income-related Employment and Support Allowance, Housing Benefit, Child Tax Credit and Working Tax Credit for working-age claimants. 3

– which launched in June 2011. Benefit recipients will be expected actively to look for work and, where this is not possible, to prepare for work.

Two related pilots/projects are currently in train: a direct payments demonstration project hosted by six LAs, which started in summer 2012 and is being led by DWP; and a Universal Credit delivery project, led by 12 LAs in partnership with DWP and JobCentrePlus, which began at the end of 2012.

Impacts

It is envisaged that the largest impact of the changes will be felt by the following groups:

 working-age single unemployed people  working-age single people on low wages (‘working poor’)  large families  disabled people  carers  care leavers  ‘vulnerable’ people

Previously, concerns were also raised with regard to people in supported housing and foster carers. The Government has since announced that funding for those living in supported accommodation is to be provided outside of Universal Credit and existing foster carers are now exempt from size eligibility criteria.

The risks around these groups include the potential for:

 Increases in rent arrears/personal debt as benefits are squeezed and future uprating is pegged lower than inflation generally and, more specifically, to lower than actual rent rises in the private sector. The concern is that substantial damage will be done to personal finances which may take a long time to rectify – including an increase in the use of loan sharks/payday lenders.  This is exacerbated in many areas by an acute lack of appropriately sized, cheap accommodation, so claimants will find themselves with an income/outgoings gap that cannot be remedied by moving house. This is particularly true of people who currently live in adapted housing. Even where moving house is possible, the associated costs may prove prohibitive. Advice providers in Oxfordshire are already reporting increases in homelessness enquiries and growing numbers using credit cards to pay their housing costs.  This risk is potentially increased by the policy of paying people direct and monthly, as opposed to rent being paid to a landlord, with the majority of the remaining benefits paid to the claimant of a fortnightly basis. Six Direct Payment Demonstration Projects have resulted in 92% rent collection rates – which is lower than normal - and reports of increasing rent arrears7. As the projects have

7 http://www.bbc.co.uk/news/uk-21756567 4

been generously funded, concerns around the wider roll out of the policy remain high.

To address some of these concerns, DWP is planning to allow for alternative payment arrangements8 - i.e. paying rent direct to landlords, making more frequent payments and splitting payment between partners - where there is a risk of financial harm to the claimant or their family. These would be introduced on an individual case basis and DWP have established ‘factors’, such as addiction problems, learning difficulties, and severe debt problems, which indicate that these alternative arrangements might be considered. They are also aiming to establish ‘triggers’ for returning to direct payments to landlords. DWP are indicating that these alternative payment arrangements would be considered if concerns are raised, not only by the claimant or by UC advisers, but also by landlords and caseworkers. However, the ultimate decision will be DWP’s to make. This will demand good channels of communication between all parties, and good lobbying and advocacy skills on behalf of vulnerable claimants if they are to be prevented from slipping through the net.

To further mitigate risks in relation to changes to housing benefits, the Government has announced that funding for Discretionary Housing Payments (DHPs) will be increased and budgeted until 2015. Draft revised guidance9 emphasises that DHPs should be used for priority groups affected by the benefit cap, size criteria and LHA changes, such as disabled people who have their home adapted and those with long-term medical conditions that have difficulties sharing a bedroom. However, this extra funding will not plug the full gap left by other income reductions. DHPs are paid according to locally devised criteria – in two-tier areas they are devised by district councils – and administered on a yearly basis, so DHPs do not offer a long-term solution. In addition, any potential disparity between eligibility policies for DHPs is an area of concern. There is a need for policies to be shared across, and between, tiers to ensure the context of the wider place need and fit, as well as the impacts of wider welfare reform, has been considered.

In March 2013, the Office for Fair Trading gave the leading 50 payday lenders, accounting for 90 per cent of the payday market, 12 weeks to change their business practices or risk losing their licences. Payday lending is a top enforcement priority for the OFT, however, even when closely regulated they remain a relatively easy source of credit for clients with low credit ratings. Their use can lead to a debt ‘spiral’, as initial loans are paid off by accessing further loans.

 A shifting population as families and individuals attempt to find affordable rents. Any movement will mean that, for example: some families/individuals will be further away from their local support network; children may have longer school journeys; and people will have to travel further to get to work. This movement will also potentially prove challenging to services, such as school admissions, and services that work direct with clients with already chaotic lives who may be

8 http://www.dwp.gov.uk/docs/personal-budgeting-support-guidance.pdf 9 http://www.dwp.gov.uk/docs/discretionary-housing-payments-guide-draft.pdf 5

difficult to track. It will also potentially see a concentration of low earners/benefits claimants in what are already relatively deprived areas, with high unemployment and few job opportunities.

 A lack of accessibility or capability. Anecdotal evidence suggests that those affected are yet to fully comprehend the changes. A concern also remains over the ‘digital by design’ approach and the risk that vulnerable claimants may not be given or be able to access the support they need.

DWP and the LGA have jointly published a ‘Local Support Services Framework’10 which outlines the role that Local Authorities (primarily district councils in two-tier areas) may play to support claimants as part of UC’s roll-out. This includes: a proposal to establish local-level Delivery Partnerships Agreements (DPAs) between DWP and LAs; an outline of the type of support that councils might provide or commission; and an indication of how these services might be paid for and managed. This Framework, plus the learning from the pilots and demonstration projects and Phase 1 of the roll-out, will inform what support will be offered. There are doubts as to whether such formal arrangements can be implemented in time for the start of the wider UC roll-out in October. Question marks also remain as to the role upper-tier authorities will play in this new framework (as it focuses almost exclusively on the work of Housing Benefits teams with little recognition of the impact of UC on Adult Social Care and Children's Services) and, more broadly, how it will fit with existing services and policies, including those in the VCS, that will cross-over with what is proposed.

In addition, to mitigate risks in relation to a lack of capability, DWP has invited organisations to apply to a £145 million fund to develop and subsidise financial inclusion schemes (i.e. financial products with budgeting tools available to Universal Credit claimants). Discussions with interested parties to supply these are on-going. DWP has also established a £38 million fund to help credit unions modernise and expand.

 All of the above risks may see a cohort of currently resilient people tipping into crisis – this could be an immediate and potentially extreme impact once the reforms come into force.

Implications relevant to county councils

Knock-on effects of these risks may include:

1) An increase in pressure on skills/adult learning services, as the key driver of all of these reforms is to encourage people back into work. This activity is supplemented by that of the Troubled Families project, as one strand on which its payment by results will be measured is via numbers of families who are deemed ‘work ready’ as a result of intervention. ‘Back to work’-type activity is carried out by numerous agencies – including both tiers in two-tier areas - and is funded via multiple revenue streams, including the European

10 http://www.dwp.gov.uk/docs/uc-local-service-support-framework.pdf 6

Social Fund and grants from various central government departments. County councils are both a recipient of these funds and commissioners in their own right, using their own budgets. This results in a complex policy environment which may be further complicated by the potential introduction of the Local Support Services Framework for UC, as it includes work-related support.

2) An increased pressure on housing teams as incidences of families that are classed as ‘intentionally homeless’ (IH)11 increase. Larger families are particularly affected as the benefits cap does not take household size into account. These families become the responsibility of county councils due to their statutory duties in relation to ensuring children are not homeless.

Related matters: Gypsy and Traveller services will be on the frontline in terms of collecting rent and dealing with associated issues with arrears.

3) Increased pressure on leaving care teams as care leavers in receipt of benefits aged 18 and over will be subject to these reforms. There are serious concerns around a range of issues, including: that 18 year olds with limited personal budgeting experience will now be receiving a large monthly lump sum of money; that they will potentially face a large drop in income once they stop being care leavers (see the Shared Room Rate restriction, for example), meaning they will likely have to immediately look for new, shared, accommodation which may not be suitable, particularly for individuals with complex needs; that finding accommodation in the private sector is already difficult for this client group and will become even more difficult – putting further pressure on already oversubscribed social housing; that increased numbers will become ‘intentionally homeless’; and that the vast majority are unlikely to easily find employment in order to increase their incomes as they are not ‘work ready’.

4) Increased demand on Local Welfare Assistance. The majority of claimants for crisis payments in particular are already unemployed, single, working-age, males – a key group amongst those hit by the reforms. Localised schemes will likely be shaped to anticipate this increased demand.

5) More funding pressure on care services for disabled adults where individuals either do not qualify for PIP or do qualify but see a reduction in income. In addition, DLA/PIP passports entitlement for claimants to income- related and other "fringe" benefits, and also protects people from the benefit cap, so the financial impact for the claimant of failing to qualify for PIP is greater than just the loss of that benefit. There are concerns that claimants with learning disabilities will be particularly vulnerable to inaccurate assessment as at interview they may struggle to explain their needs to the assessor and that the vulnerable may even fail to apply when invited. Where individuals do not qualify for or claim PIP they will be expected to be actively seeking employment in order to receive alternative out-of-work benefits.

11 Where families have deliberately done (or not done) something that causes them to leave accommodation. 7

Related matter: Financial Assessment teams will be working in a complex environment where individuals may be subject to two different welfare systems and, under UC, will potentially see their income vary month to month.

6) Increased pressure to provide greater support to carers. As well as potentially losing their Carers Allowance, carers may also be squeezed by the wider reforms. For example, carers of adult disabled children or other older disabled relatives may be subject to the benefit cap because the DLA/PIP of the people they care for is not considered to be in the same ‘household’ as the carers – even if they are living together. Clearly the demand for care in these circumstances is unlikely to disappear.

7) A shortage of new foster carers in receipt of Housing Benefit, as protection from the size eligibility criteria is only provided for established foster carers. The outcome could be that, going forward, LAs need to draw upon more expensive placements which can lead to less positive outcomes.

8) Increased pressure on safer community teams as incidences of, for example, domestic violence, drug and alcohol misuse, hate crime, acquisitive crime, etc. are known to be related to problems such as personal debt. Any increase in the numbers of rough sleepers or beggars could also lead to more anti-social behaviour or, at the very least, an increased fear of crime.

Related matters: 1) Finding appropriate accommodation for offenders will grow increasingly difficult in light of reduced benefit incomes, the Shared Room Rate extension, and the risks around monthly payments direct to clients, putting pressure on the work of youth offending services; 2) Trading Standards teams may face increased demand in their role enforcing consumer credit legislation, including in relation to high-risk lending such as payday loan companies and unlicensed lending such as loan sharks.

9) Challenges to the ‘prevention’ agenda e.g. Troubled Families/early intervention services. For example: a large proportion of Troubled Families will be in receipt of housing benefits, and underlying problems such as mental health issues are common. There are concerns that policies such as ‘digital by design’ and payment direct to one household member will make the vulnerable even more vulnerable and make prevention work more challenging. Again, there is the risk that currently resilient families tip into dependency on other public services making early intervention difficult.

Related matters: the detrimental health impacts – particularly levels of mental health – of problems such as personal debt are also well documented.

10) Increased demand on libraries in their role providing ‘digital assistance’ to the public. With the reforms intending to be ‘digital by design’ libraries will become, for many, the gateway for accessing the necessary IT for making and managing their UC account. There will be a pressure on frontline staff to understand the reforms and provide targeted signposting. Questions may be raised around charging policies for internet usage.

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11) Increased pressure on advice services. This will likely be experienced when the impact of the first swathe of reforms are felt and then from October as UC is phased in. Pressure will be on-going as personal debts and arrears build, assuming that not all claimants will be able to find employment easily. This is in a context where: legal aid is no longer available for certain civil cases, including some debt, housing and benefit issues; and the voluntary sector is reporting severe funding reductions.

12) Pressure on Members. There is a tension for Members between potentially supporting the ‘make work pay’ agenda, and their response to the local impact of the reforms, particularly in relation to specific groups, and the long and staggered transitional phase between systems.

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