Spending Review 2010: welfare to
work cheat sheet
The Chancellor, George Osborne, has presented the government’s Spending
Review, one of the most important for decades, which fixes spending budgets
for each government department up to 2014-15. But what do the
announcements mean in real terms for the welfare to work industry – and
who is likely to win and lose as a result?
The big picture?
Overall, the Treasury is taking an additional £7.3 billion off the total welfare
bill over the next four years.
In total, a massive £18 billion per annum by 2014-15 is being cut - this
includes the £11 billion announced in the June Budget. Pensioners have been
relatively protected in terms of the value of universal entitlements, so almost
all of the savings will come from the pockets of working age people.
The finances in detail
DWP benefit spending (AME) including pensions
Spending Review
OBR estimate 20 Oct 2010
170
£ billion
165
160
155
150
145
140
2010-11
2011-12
2012-13
2013-2014
2014-2015
DWP benefit spending (AME) is forecast to rise with the Spending Review.
This includes the pledge to raise state pensions in line with earnings or prices.
The Office for Budget Responsibility (OBR) issued a forecast before the
Spending Review as a background document. The Spending Review cuts £7.3
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billion over the period to 2014-2015 compared with the OBR forecasts. The
Spending Review statement claims to deliver net AME savings of £7 billion a
year.
Which benefits will be affected?
 Working Tax Credit: In total, the gross savings from the annual
Working Tax Credit (WTC) bill are estimated to be £1.4 billion each year.
However, the child element of WTC is being increased, which will reduce
the level of overall savings.
Specific measures include:
 Reducing the percentage of childcare costs that parents can claim
through the childcare element of the WTC from 80 per cent to its
previous 70 per cent level in April 2011.
 This measure is likely to have a disproportionate impact on families with
high childcare costs, especially those who live in areas where childcare
costs more, such as London.
 Changing the eligibility rules so that couples with children must work
24 hours a week between them, with one partner working at least 16
hours a week in order to qualify for the WTC.
 This measure could incentivise people to work longer hours and also put
pressure on a non-working partners to find part-time employment.
Potential losers will also include part-time workers who are caring for
disabled relatives.
 Freezing the basic and 30 hour elements of the WTC for three years
from 2011- 12.
 This is a straight-forward method of reducing the overall value of Tax
Credits. It will reduce the value each year by the rate of inflation.
However, this may reduce the role of Tax Credits in making work pay,
because claimants moving into work will now be receiving less WTC than
in previous years.
 Increasing the child element above indexation by a further £30 in 201112 and £50 in 2012-13, in addition to the £150 and £60 increases
provided at the June Budget.
 This measure is intended to underline the coalition government’s
commitment to eradicating child poverty.
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 Employment and Support Allowance – Work Related Activity
Group: those in the Work Related Activity Group (WRAG) who are
entitled to claim Employment and Support Allowance (ESA) because they
have paid enough national insurance contributions (known as ‘contributory
ESA’) will now only be entitled to receive contributory ESA for up to one
year, taking effect from April 2012. Beyond one year, ESA claimants will be
means-tested for income-based ESA. Those who have savings or a partner’s
income will have their benefit cut or eliminated.
 Council Tax Benefit: spending will be reduced by 10% and localised.
This will save £490 million per year from 2013/14.
 Education Maintenance Allowance: Education Maintenance
Allowance (EMA) has been abolished, which is likely to disadvantage young
people seeking employment via training.
And what about the Work Programme?
Very little further detail on the Work Programme was announced in the
Spending Review, however, it was confirmed that the programme will support
people claiming ESA. This assertion translates into a considerable expansion
of employment support to many people who have not previously received help
to find work.
The Spending Review also restated that the Work Programme will be funded
by additional savings secured through getting claimants into work sooner than
they would have been without the support of the private and third sector
contractors.
Many potential contractors have already raised concerns that it may not be
possible to fund the Work Programme (on the scale the government wishes)
through a solely payment by results approach. A number have asserted that
DEL money is still likely to be needed to kick-start the programme. However,
the DEL settlement for DWP apparently reveals a reduced capacity to support
this approach, once the £2bn for the introduction of the Universal Credit has
been deducted.
Previous announcements
What did we already know about spending cuts and welfare reform before the
Spending Review?
 Clamping down on fraud: a new Fraud and Error Strategy has been
implemented to clean up benefit and tax fraud.
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 Reassessment: long-term Incapacity Benefit claimants in the pilot areas
of Burnley and Aberdeen are the first across the country to be reassessed
for their ability to work.
 Universal Credit: Iain Duncan Smith announced the roll out of Universal
Credit, a single streamlined payment that will replace the current benefit
structure. Current benefit and tax credit claimants will begin to migrate
over to the Universal Credit system in 2013.
 Workless households capped: plans to implement a new £500 a week
cap on welfare benefits so that workless households no longer receive more
money in benefits than the average working family receives in pay.
 Child Benefit withdrawn: Child Tax Benefit to be taken away from
higher rate taxpayers from 2013.
Further reading
Download the Spending Review documents: http://www.hmtreasury.gov.uk/spend_sr2010_documents.htm
Download the Treasury’s Spending Review 2010 policy costings:
http://cdn.hm-treasury.gov.uk/sr2010_policycostings.pdf
Read the Chancellor’s speech in full: http://www.hmtreasury.gov.uk/spend_sr2010_speech.htm
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