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.