THE IMPACT OF WELFARE REFORM ON SCOTLAND Christina Beatty and Steve Fothergill CRESR, Sheffield Hallam University
Four reports The Impact of Welfare Reform on Scotland (April 2013) The Local Impact of Welfare Reform (June 2014) The Cumulative Impact of Welfare Reform on Households in Scotland (March 2015) The Impact of Welfare Reform on the Scottish Labour Market (September 2015)* * with Donald Houston, University of Glasgow
The pre-2015 reforms Housing Benefit: Local Housing Allowance Non-dependant deductions Household benefit cap Disability Living Allowance Incapacity benefits Child Benefit Tax Credits 1 per cent up-rating
The pre-2015 reforms (1) Housing Benefit: Local Housing Allowance 50 th to 30 th percentile for setting rents in private sector Cap on rents based on property size Abolition of 15 excess payments Age limit for shared accommodation up from 25 to 35 CPI indexation Non-dependant deductions Higher deductions from HB to reflect contribution that non-dependant household members are expected to make to housing costs
The pre-2015 reforms (2) Household benefit cap Cap on total payments to working-age claimants, set initially at 26,000 a year Disability Living Allowance Replacement of DLA by Personal Independence Payments More stringent and regular medical test Reduction in number of payment categories
The pre-2015 reforms (3) Incapacity benefits Employment and Support Allowance (ESA) replacing previous benefits Tougher medical test Work Capability Assessment Re-testing of existing claimants New conditionality in Work-Related Activity Group Time limiting of non-means tested benefit for ESA claimants in Work-Related Activity Group Child Benefit Three year freeze Withdrawal from households with higher earner
The pre-2015 reforms (4) Tax credits Adjustments to thresholds, withdrawal rates, supplements, income disregards and backdating Changes to indexation and up-rating Reduction in childcare element of WFTC Increase in working hours requirement for WFTC 1 per cent up-rating Up-rating by 1 per cent rather than CPI for three years for main working age benefits and LHA element of Housing Benefit
Not included Housing Benefit: under-occupation ( Bedroom Tax ) Arrangements to avert impact on claimants in Scotland Council Tax Benefit A hit for Scottish Government and local authorities, not claimants Universal Credit Essentially a re-packaging of existing benefits Not expected to result in net reduction in benefit entitlement Most of impact will be felt well beyond 2015 Income Support for lone parents Transfer to JSA at same rates RPI to CPI up-rating Wider public sector accounting reform
Not included July 2015 Budget announcements Reductions in tax credits Lower Household benefit cap Lower ESA payments for claimants in work-related activity group Four-year freeze in most working age benefits National Living Wage Increased personal tax allowances..but will add some comments later
Measuring the impacts Treasury estimates of the overall financial saving arising from each element of the pre-2015 reforms Government Impact Assessments Benefit claimant numbers and expenditure, by local authority Additional official statistics DWP evidence from pilot schemes
1. The overall financial loss
Overall financial loss, GB (updated) Per working age adult m p.a. ( p.a.) Tax Credits 4,210 105 Child Benefit 3,030 75 Disability Living Allowance 2,870 70 1 per cent uprating 2,700 70 Incapacity benefits 2,480 60 Housing Benefit: LHA 1,670 40 Housing Benefit: bedroom tax 350 10 Council Tax Benefit 340 10 Non-dependant deductions 210 5 Household benefit cap 130 5 TOTAL 17,980 450 Source: Sheffield Hallam estimates based on official data
Overall financial loss, Scotland (updated) Financial loss from pre-2015 reforms ( m per year) Tax Credits 350 Disability Living Allowance 320 Incapacity benefits 280 Child Benefit 240 1 per cent uprating 230 Housing Benefit: LHA 80 Non-dependent deductions 20 Household benefit cap 4 TOTAL 1,520 Source: Sheffield Hallam estimates based on official data
Overall financial loss by region (updated) Loss ( m p.a,) Per working age adult ( p.a.) North West 2,410 530 North East 890 525 Wales 1,010 520 London 2,750 490 Yorkshire and the Humber 1,610 475 West Midlands 1,670 470 Scotland 1,520 440 East Midlands 1,260 435 South West 1,390 420 East 1,440 385 South East 2,020 365 Great Britain 17,980 450 Source: Sheffield Hallam estimates based on official data
Overall financial loss by district (updated) Source: Sheffield Hallam estimates based on official data
Scottish local authorities (updated) Financial loss from pre-2015 reforms per working age adult p.a. Glasgow 580 W Lothian 460 Perth & Kinross 365 Inverclyde 570 Dumfries & G 450 Stirling 350 W Dunbarton 550 Midlothian 450 Eilean Siar 350 Dundee 540 Fife 440 Orkney 340 N Ayrshire 540 Falkirk 430 E Renfrewshire 340 N Lanarks 510 Argyll & Bute 410 Moray 340 Clackmannan 500 E Lothian 400 E Dunbarton 320 E Ayrshire 500 Angus 390 Aberdeen 300 Renfrewshire 480 Highland 385 Aberdeenshire 290 S Lanarks 470 Borders 380 Shetland 270 S Ayrshire 470 Edinburgh 370 Source: Sheffield Hallam estimates based on official data
Scottish local authorities (updated) Overall estimated loss m p.a. Glasgow 239 Aberdeen 46 Midlothian 24 Edinburgh 124 Falkirk 44 Argyll & Bute 22 N Lanarks 113 Dumfries & G 42 E Dunbarton 21 Fife 103 E Ayrshire 40 Stirling 21 S Lanarks 96 Perth & Kinross 34 Moray 20 Highland 56 S Ayrshire 33 E Renfrewshire 19 Renfrewshire 55 W Dunbarton 33 Clackmannan 17 W Lothian 53 Inverclyde 30 Eilean Siar 6 Dundee 52 Angus 28 Orkney 5 Aberdeenshire 47 Borders 27 Shetland 4 N Ayrshire 47 E Lothian 25 Source: Sheffield Hallam estimates based on official data
Relationship to deprivation (updated) Less deprived More deprived Sources: Sheffield Hallam estimates; 2012 Scottish Index of Multiple Deprivation
Tax Credits Source: Sheffield Hallam estimates based on official data
1% uprating Source: Sheffield Hallam estimates based on official data
DLA Source: Sheffield Hallam estimates based on official data
Incapacity benefits Source: Sheffield Hallam estimates based on official data
Council Tax Benefit Greater London per working age adult p.a. 20 + 10 to 20 0 to 10 0 Source: Sheffield Hallam estimates based on official data
Housing Benefit: Bedroom Tax Source: Sheffield Hallam estimates based on official data
Housing Benefit: LHA Source: Sheffield Hallam estimates based on official data
Housing Benefit: Non-dependent deductions Source: Sheffield Hallam estimates based on official data
Benefit Cap Source: Sheffield Hallam estimates based on official data
Child Benefit Source: Sheffield Hallam estimates based on official data
2. The impact by ward
Impact by ward worst hit 20 Overall financial loss per adult of working age, per year Calton (Glasgow) 880 Garscadden (Glasgow) 690 Springburn (Glasgow) 780 Govan (Glasgow) 690 North East (Glasgow) 750 Baillieston (Glasgow) 680 Drumchapel (Glasgow) 740 East Centre (Glasgow) 680 Southside C (Glasgow) 730 North East (Dundee) 680 East End (Dundee) 730 The Lochs (Fife) 670 Shettleston (Glasgow) 720 Linn (Glasgow) 670 Buckhaven (Fife) 700 Paisley NW (Renfrew) 660 Canal (Glasgow) 700 Inverclyde N (Inverclyde) 660 East Central (Inverclyde) 690 Clydebank C (W Dunbarton) 660 Source: Sheffield Hallam estimates based on official data
Impact by ward least hit 10 Overall financial loss per adult of working age, per year Meadows/M side (Edinburgh) 220 Dunblane (Stirling) 210 Banchory (Aberdeenshire) 220 E Garioch (Aberdeenshire) 210 Bridge of Don (Aberdeen) 220 Westhill (Aberdeenshire) 210 Netherlee (E Renfrew) 220 Hazlehead (Aberdeen) 200 Newton M S (E Renfrew) 220 St Andrews (Fife) 180 Source: Sheffield Hallam estimates based on official data
Relationship to deprivation Sources: Sheffield Hallam estimates and Scottish Indices of Deprivation 2012
Glasgow
Edinburgh
Aberdeen
Fife
3. The impact by household type
The groups typically most affected (1) Housing Benefit: LHA (private rented sector) Low-income households, mostly working age Under-35s, mainly men Large families Non-dependant deductions Low-income households with grown-up children living at home Household benefit cap Large out-of-work families in high rent areas Disability Living Allowance Less severely disabled of working age, mostly older, mostly out-of-work New claimants initially, existing claimants from 2015 onwards
The groups typically most affected (2) Incapacity benefits Out-of-work, mainly older adults with less severe health problems who are found fit for work ESA claimants in the WRAG group mainly older, ex-manual workers who lose through means testing Child Benefit All households with children (a little) Households with higher earners (a lot) Tax Credits Low-to-middle income families with children, including working households Part-time workers on less than 24hrs a week 1 per cent up-rating Everyone on the main working age benefits
Estimating cumulative impact on households 2011 Census the number of households in 15 household types districts and wards Family Resources Survey proportion of each household type receiving specific benefits DWP Housing Benefit Data (SHBE) Stat-Xplore available by household sub-groups Sheffield Hallam impacts of welfare reform numbers affected and financial loss districts and wards
Financial loss by household type Average financial loss p.a. Pensioner couple 30 Single pensioner 40 Couple no children 380 Couple one dependent child 1,430 Couple two or more dependent children 1,480 Couple- all children non-dependent 490 Lone parent one dependent child 1,770 Lone parent two or more dependent children 1,850 Lone parent all children non-dependent 530 Single person household 490 Other with one dependent child 1,410 Other with two or more dependent children 1,500 Other all full-time students 0 Other all aged 65+ 30 Other 490 Source: Sheffield Hallam estimates based on official data
Financial loss Glasgow & Edinburgh Glasgow p.a. Edinburgh p.a. Pensioner couple 30 30 Single pensioner 50 60 Couple no children 520 300 Couple one dependent child 1,830 1,380 Couple two or more dependent children 1,900 1,420 Couple- all children non-dependent 540 320 Lone parent one dependent child 2,280 1,720 Lone parent two or more dependent children 2,360 1,880 Lone parent all children non-dependent 720 450 Single person household 680 440 Other with one dependent child 1,840 1,300 Other with two or more dependent children 1,950 1,380 Other all full-time students 0 0 Other all aged 65+ 30 30 Other 660 440 Source: Sheffield Hallam estimates based on official data
Impact on sub-groups Approaching two-thirds ( 960m a year) of the total financial loss falls on households with dependent children Around 40 per cent ( 600m a year) falls on the sick or disabled via DLA and incapacity benefit reform and they lose from other reform too Almost half (c. 730m a year) falls on in-work households (NB. There is some overlap between these groups)
4. The impact on the labour market
Key question Has welfare reform resulted in higher employment and lower unemployment? Overall impact on Scottish labour market Cumulative impact of all the pre-2015 reforms First assessment anywhere in UK
Why this matters The Westminster Government uses two main arguments to justify welfare reform: It saves the Treasury money, and reduces the budget deficit It encourages out-of-work claimants to find work, and claimants in-work to seek more hours or find higher paid work If there s no discernible positive impact on the labour market, the second argument falls
Assessing the impacts Welfare reform is one of several things happening simultaneously economic upturn since 2012 Approach is based on big variation from place to place in financial losses: If the welfare reforms are having an important impact on labour market outcomes it should be possible to observe a much greater impact in the places where the reforms hit hardest
Practical complications Not all the pre-2015 reforms have come to full fruition yet 90% of loss from changeover from DLA to PIP 30% of loss from incapacity benefit reform Not all the pre-2015 reforms likely to affect work incentives Exclude removal of Child Benefit from higher earners
Out-of-work benefit claimant rate Feb 2011 - Nov 2014 Sources: DWP and Sheffield Hallam estimates
JSA and ESA claimant rates Feb 2011 - Nov 2014 JSA ESA Sources: DWP and Sheffield Hallam estimates
Grouping of authorities Ayrshire: East Ayrshire, North Ayrshire, South Ayrshire Fife and Central: Clackmannanshire, Falkirk, Fife, Stirling Greater Aberdeen: Aberdeen, Aberdeenshire Greater Dundee: Dundee, Angus, Perth & Kinross Greater Edinburgh: Edinburgh, East Lothian, Midlothian, West Lothian Greater Glasgow: Glasgow, East Dunbartonshire, East Renfrewshire, Inverclyde, Renfrewshire, West Dunbartonshire Highlands & Islands: Argyll & Bute, Eilean Siar, Highland, Moray, Orkney, Shetland Lanarkshire: North Lanarkshire, South Lanarkshire Southern Scotland: Borders, Dumfries & Galloway
Wider labour market variables 2011-2014 Economic activity rate Employment rate ILO unemployment rate Sources: LFS and Sheffield Hallam estimates
Jobs in each area late 2010 - late 2013 (1) Local authorities (2) Groups of local authorities Sources: BRES and Sheffield Hallam estimates
So. Bigger losses from welfare reform are associated with bigger falls in the overall out-of-work claimant rate But this relationship only applies to JSA, not ESA No observable relationship with labour market participation or employment rates No relationship with employment growth
Comparisons between upturns Feb 2011 Nov 2014 Feb 1998 Nov 2004 Aug 1993 Aug 1996 Sources: DWP and Sheffield Hallam estimates
Which all means.. Bigger than average reductions in JSA numbers in areas of high unemployment are a normal feature of economic upturns So the big reductions in JSA unemployment since 2011 in a number of Scottish local authorities cannot be attributed to welfare reform
Comparison of recessions and recoveries GDP Employment Sources: ONS, LFS
The labour market impact On balance, the evidence provides little support for the view that welfare reform is having important and positive impacts on the labour market in Scotland
Final comments
The new cuts in welfare Reductions in tax credits Lower household benefit cap Lower ESA payments for claimants in work-related activity group Four-year freeze in most working-age benefits In all, 12bn a year of new welfare benefit cuts Further big financial losses to claimants in Scotland ( 1bn+ p.a.) But why should these new cuts have any greater positive impact on the labour market?
Key conclusions for Scotland The financial losses arising from welfare reform are very large indeed The largest losses fall on the poorest places Some types of households are hit much harder than others Little evidence to date of a positive labour market impact All pain, for not very much gain?