The benefit cuts bombshell
– a report commissioned by NCAN
1
DR CHRIS EDWARDS, 27 NOVEMBER 2012
A 60 PAGE REPORT SUMMARISED
IN 33 SLIDES
The context of the cuts
2
 The financial crisis of 2007-08; caused by the
incompetent regulation of the banks;
 …. followed by….
 The General Election of May 2010 and the
emergence of the Coalition Government
 Coalition Agreement; “deficit reduction is the most
urgent issue facing Britain”
The Austerity Package
3
 The Budget and Spending Review of 2010 announce
cuts in government spending and increases in taxes
amounting to £79 billion by 2014-15, consisting of…
1. £10 billion from savings in interest on debt;
2. £3 billion from increases in taxes;
3. £18 billion from cuts in benefits; and,
4. £48 billion from cuts in other government
spending
What this report looks at
4
 The cuts in benefits administered by the tax office
(child benefit and tax credits) and by the DWP
 The base year of the study is 2010-11 when these
benefits totalled £191 billion or just over half of all
social expenditure (£353 billion) in the UK
 Most of the difference of £162 billion consists of
expenditure on health (£121 billion) and personal
social services (£32 billion)
 £191 billion is 13% of GDP
The cuts in benefits
5
 The cuts in benefits looked at here total £15.6 billion
after taking off the cuts in public service pensions
(which are excluded)
 The cut of £15.6 billion in 2014-15 is 8% of the total
benefits in 2010-11
 Over the four years, the cuts amount to £36.3 billion
or 19% of the £191 billion
Timeline of main changes
Migration fro IB to ESA
Migration from DLA to PIP
Housing Benefit Changes
Social Fund
to County
Council
Universal Credit Implementation
Total
Benefit Cap
Local Council Tax Rebate
… 2012
2013
2014
2015
2016
…
The timing of the benefit cuts
7
Timing of the cuts in benefits - 2011-12 to 2014-15
Year
2011-12
2012-13
2013-14
2014-15
Total over the
four years
----------------Cuts ---------------------(£ billion)
% of 4 % of benefits
year total
in 2010-11
1.8
5
0.9
6.4
18
3.4
12.5
34
6.5
15.6
43
8.2
36.3
100
19.0
The composition of the benefit cuts
8
Cuts in benefits in 2014-15 - composition
Benefits
Disabled people
Pensions, pension credits
and winter fuel allowance
Council tax benefits
Housing benefit
Child benefit
Tax credits
Others
Total
Total in Cuts in 2014-15-------2010-11
% of the
(£ billion)
(£ billion)
total
32
4.4
14
81
5
21
12
28
12
191
-0.5
0.4
2.3
3.5
3.6
1.9
15.6
-1
8
11
29
13
16
8
The major cuts – disabled people
9
 Total in 2010-11 = £32 billion
 Cut in 2014-15 as a percentage of 2010-11 = 14%
 How?
Switch to CPI from RPI for uprating benefits
2. A reassessment of IB and switch to ESA using the
WCA
3. A new PIP to replace the current DLA from April
2013 for people of working age
1.
No cuts – the elderly
10
 Total in 2010-11 = £81 billion
 Increase in benefits in 2014-15 of 0.6%
 How?
Uprating of pensions by best of CPI, RPI and
earnings (the triple guarantee) - gain to pensioners
of £500 million in 2014-15
2. No net change in pension credit and winter fuel
payments combined (changes but they cancel each
other out)
1.
Council tax benefits (1 of 2).…
11
 Total in 2010-11 of £5 billion
 Cut in 2014-15 of 8%
 How?
In April 2013, Local Authorities will have to
implement their own schemes of Council Tax
Support (CTS) to replace Council Tax Benefit (CTB)
2. In doing so, the LAs will face a cut of 10% (very
recently changed to 8%) of the unreformed CTB.
1.
… but little localism (2 of 2)
12
 LAs cannot reduce pensioners’ benefits so the whole
adjustment falls on those of working age or other
Council expenditure;
 Council tax has been frozen for 2010-11 and will be
frozen through 2013-14 (for the fourth year)
 Post-code lottery; possibly back to something like a
poll tax (with small CT charges) and a resulting rise
in administrative costs for Councils.
Housing Benefit
13
 Total of £21 billion in 2010-11
 Cut in benefits in 2014-15 of £2.3 billion (11%)
 How? (8 major changes)
Child Benefit
14
 Total in 2010-11 = £12 billion
 Cut of 29% or £3.5 billion in 2014-15
 How?
Freezing of child benefit for 3 years from 2011-12
(£1.0 billion)
2. Taxing away of child benefits for higher rate
taxpayers from January 2013 (£2.5 billion)
1.
Tax credits
15
 Total of £28 billion in 2010-11
 Cut of 14% or £3.6 billion
 How?
£2.2 billion net cuts announced in June Budget of
2010, plus …
2. .. further net cuts announced in the Spending
Review of 2010 of £1.1 billion plus ….
3. ..a further cut of £0.3 billion announced in the
Autumn Statement of 2011
1.
Other benefits
16
 Total in 2010-11 = £12 billion (including Income
Support for lone parents and carers (£2.9 bn), JSA
(£4.5 bn), Maternity Pay (£2.4 bn) and others £2.2
bn.
 Cut, including a halving of the Social Fund (to be
decentralised to the County Council but not ringfenced), averages 16% in 2014-15
The Universal Credit (1 of 3)
17
 First claims under the Universal Credit in October
2013 leading to all claimants being included by the
end of 2017
 What is the UC?
1. A radical reform integrating six core benefits
(income-related JSA, income-related ESA, income
support child tax credit, working tax credit and
housing benefit) into one monthly payment paid to
a single recipient
2. Child benefit and Council Tax Benefit (Support)
will remain separate.
The Universal Credit (2 of 3)
18
 Claimed advantages
Improvement of work incentives – “yes for single
earners, but not for working couples and even for
single earners, the picture is confused by CTB
being outside” (IFS); and are the jobs available?
2. Simplification and reduced administrative costs –
but will the IT system work? Probably not, says
Frank Field (and many other doubters); call for
delay (Work and Pensions Select Committee, 22
November 2012)
1.
Universal Credit (3 or 3)
19
 Other advantages of UC?
Will reduce the total of unclaimed benefits (IFS) –
but doubtful if the Treasury sees it this way since
unclaimed benefits total between £15 bn and £21
bn. compared to losses from fraud and official
errors of about £2 bn;
2. Some gains, some losses to different groups
according to the IFS but net effect ignored here
because net gains unlikely to be realised by 201415.
1.
The equalising role of benefits
20
 Source; ONS (ETB) for 2010-11
Households
Disposable Percentage of disposable income in …
income (£000)
… benefits
… taxes
Poorest fifth
10.8
65
-43
Richest fifth
63.9
3
-44
All households
30.3
18
-41
The distribution of benefits and cuts in benefits
21
The distribution of benefits and cuts in benefits
Quintile
1 (poorest)
2
3
4
5 (richest)
All
Percentage of Cuts in benefits
benefits in
in 2014-15
2010-11
(£ billion)
26
4.1
30
4.1
23
3.3
14
2.4
7
1.7
100
15.6
The poorest lose out
22
 The poorest 40% of UK households have an average
disposable income of £14,250 a year
 In 2014-15 their loss from the cuts in benefits will
be £8.2 billion. This is £780 per household or about
£15 per week.
 Over the four years, the loss for this same 10.5
million households will average £8.65 per week
The situation in Norfolk?
23
 Norfolk is a County with a lower average income –
about 10-15% lower - than for the UK as a whole ….
 … but it is not a County of great deprivation. In
England there are a little over 3,000 LSOAs (Lower
Super Output Areas or LSOAs) which are the 10%
most deprived in England. Of Norfolk’s 530 LSOAs,
29 are among these most deprived.
 All except one of these are in three of the seven
Districts of Norfolk (Great Yarmouth, KLWN and
Norwich)
24
Norfolk – the benefit cuts? In total
25
 Total benefits to Norfolk in 2010-11 = £2.7 billion
(1.4% of the total for about 1.4% of the UK
population)
 The cuts in benefits for Norfolk in 2014-15 = £181
million or about 7% of total benefits. Loss of £9.36
per household per week
 The cuts in benefits over the four years will total
about £421 million or £1,132 per household
Norfolk – the benefit cuts? By Local Authority
26
Cuts in benefits in the seven LAs in Norfolk in 2014-15
Total benefits
in 2010-11
Cut in
Number of
Cut in
benefits in households
benefits in
2014-15
2014-15
(£m)
(£m)
(000)
(£ phpw)
Breckland
397
26
55
9.09
Broadland
349
21
53
7.62
Great Yarmouth
354
27
42
12.36
KLWN
484
32
63
9.77
North Norfolk
358
19
46
7.94
Norwich
411
35
60
11.22
South Norfolk
344
22
53
7.98
Norfolk
2696
182
372
9.41
Note; the last column is the cuts in benefits per household per week
Norfolk – the benefit cuts? By income?
27
 Unfortunately there is no reliable income
distribution data for Norfolk
 But we do know that 19% of households in Norfolk
live in poverty – that is below 60% of the median
income – which means below £10,000 per year
 19% = 70,000 of the 372,000 households in Norfolk
Norfolk – the benefit cuts? For households in
poverty
28
 In 2014-15, these 70,000 poverty-stricken
households will lose £15 per week or about 8.7%
of their income in the base year (2010-11)
 Over the four years, these 70,000 povertystricken households will lose an average of £8.65
per week – yes, over the four years.
The cuts are clearly not fair… are they efficient?
29
 The answer is no. The government is not achieving
its objective of cutting the deficit
 In the first 7 months of this tax year (2012-13), net
borrowing by the public sector was £5.0 billion up
on the same period of last year (ONS, November
2012).
 At a time when households are cutting expenditure
to cut their personal debt - when the USA and the
Eurozone is growing slowly, if at all - this is when the
UK government chooses to cut its expenditure.
Implications for advice agencies?
30
 Stark prospects
1. Poverty increasing; increase in demand for Norwich
Foodbank; homelessness up by 9% (Shelter); a rise in
demand for high interest credit; vulnerable not
protected (a NEF November report); rise in number of
children going without food (Action for Children);
2. Demand for advice services already up (CAB in
Haringey – increase of 200% in demand for advice in
two years).
3. And yet the cuts in benefits have hardly started - more
madness is yet to come with 77% of the cuts in benefits
due in the next two tax years - that is, April 2013 to
April 2015
Need for more equality not less
31
 A prize for the first person to guess who said the
following;
 “Research by Richard Wilkinson and Katie Pickett has
shown that among the richest countries, it’s the more
unequal ones that do worse according to almost every
quality indicator. In ‘The Spirit Level’ they show that
per capita GDP is much less significant for a country’s
life expectancy, crime levels, literacy and health than
the size of the gap between the richest and poorest in the
population. So the best indicator of a country’s rank on
these measures is not the difference in wealth between
them, but the difference in wealth within them”
 So the more equal a country is, the better off it is. By this
criterion, the cuts are bound to be counter-productive.