The Spending Review, unveiled by George Osborne on 20th October 2010, has announced reforms which will tackle the fundamental drivers of welfare dependency by delivering a simplified system in which work always pays. The working age welfare budget in 2009/2010 was £87 billion and the Spending Review aims to make fundamental changes to the system.
Notable to the welfare to work industry is the phased introduction, from 2013, of an integrated payment that will sharpen work incentives and reduce fraud and error of a Universal Credit that will simplify the benefits system and make work pay for the poorest. And second, the introduction of a new Work Programme, which will see expert personalised support for those with the greatest barriers to employment, alongside a major incapacity benefit reassessment with £7 billion further welfare savings, over and above the measures in the Emergency Budget in June, saving £17.5 billion per annum by 2014-15.
Of note:
By 2014-15, welfare spending will be falling in real terms over the next four years, in contrast to the 45 per cent real increase over the last decade. DWP will reduce its corporate overheads by 40% in real terms, through centralisation of support services and rationalisation of strategy and policy functions and following on from the June Budget there are planned net savings of £11 billion a year.
Over the next two Parliaments, the Universal Credit will replace the current complex system of means-tested working age benefits and tax credits with a single tapered payment to ensure work always pays, improving work incentives and to reduce the scope for fraud and error. £2 billion has been set aside in DWP’s DEL settlement over the next four years to fund the implementation of the Universal Credit and further details will be outlined in a forthcoming White Paper from the DWP later this Autumn and put to Parliament in a Welfare Reform Bill next year.
Reforms will be made to the existing welfare system, with the aim of delivering net AME savings of £7 billion a year by 2014-15, including:
- Personalised back-to-work support through the Work Programme for the long term unemployed and disabled people, delivered by private, voluntary and third sector specialists who will be paid on the basis of the additional benefit savings they secure. Support for the short term unemployed will continue to be provided through Jobcentre Plus.
- The introduction of a new Enterprise Allowance, which will offer people who are out of work and entering self-employment a weekly payment linked to the value of their benefit for a period of up to six months.
- Capping household benefit payments from 2013 at around £500 per week for couple and lone parent households and around £350 per week for single adult households. All Disability Living Allowance claimants, War Widows, and working families claiming the working tax credits will be exempt from the cap.
- From January 2013, child benefits will be withdrawn from higher rate taxpayer families so that people on lower incomes are not subsidising those who are better off. The Government’s longer-term strategy for tackling child poverty will be set out by the end of March 2011, and will take into account the conclusions of the Frank Field review.
- From April 2011, the percentage costs that parents can claim through the childcare element of the Working Tax Credit (WTC) will be reduced by 10 per cent to 70 per cent.
- From April 2012, to be eligible for Working Tax Credit couples with children must work at least 24 hours a week between them, with one partner working at least 16 hours a week in order to qualify for WTC.
- Freezing the basic and 30 hour elements of the WTC for three years from 2011-12 and increasing the child element above indexation by a further £30 in 2011-12 and £50 in 2012-13. The 30 hour element is currently worth £790 per annum and the basic element is currently worth £1,920 per annum.
- Time limiting contributory Employment and Support Allowance for those in the Work Related Activity Group to one year. Around 1 million claimants will be affected.
- Increasing the age threshold for the Shared Room Rate of Housing Benefit from 25 to 35. Around 88,000 claimants will be affected, all of whom will be single, aged 25-34, living in private rented accommodation, and not in receipt of severe disability premium in Housing Benefit.
- Reducing spending on Council Tax Benefits by 10 per cent and localising it. In addition, the Government will provide greater flexibilities to local authorities to manage pressures on council tax from the 2013-14. LAs will be given flexibility to tailor the scheme to meet local priorities and to manage spending within lower limits.
- Removing the mobility component of Disability Living Allowance for people in residential care from 2012-13. Those who fully self-fund their own care would be unaffected by the change. It will affect the estimated 58,000 DLA claimants in care homes who are in receipt of the mobility component. These customers receive on average £33.40 per week
- Freezing the maximum Savings Credit award in Pension Credit for four years from 2011-12. This measure will freeze the maximum award paid to those aged over 65 on modest incomes who have some retirement savings in addition to their State Pension until 2015. The maximum award is £20.52 for a single pensioner and £27.09 for pensioner couples. Around 1.8m households will be affected.
- Extending the temporary change to the Support for Mortgage Interest scheme for another year from January 2011, to reduce the waiting period for new working age claimants to 13 weeks and increase the limit on eligible mortgage capital to £200,000. 85,000 claimants will benefit from the waiting period remaining at 13 weeks, and about 14,000 will benefit from the increased capital limit.
- Cold Weather Payments are to be made permanent; so that eligible households will receive £25 for each seven day cold spell recorded or forecast where they live. Around 4.2 million households are currently eligible for payments.
- The basic State Pension will be uprated by a triple guarantee of earnings, prices, or 2.5%, whichever is highest.
- Speeding up the pace of State Pension Age equalisation for women from April 2016 so that Women’s State Pension Age reaches 65 in November 2018. The State Pension Age will then increase to 66 for both men and women from December 2018 to April 2020.
