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IMA presentation 2011 Alan Markey

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  • Welcome Asked to speak about a future welfare benefits regime. Successive governments have attempted to reform welfare, ever since the modern welfare state was introduced after WWII Previous labour government aimed to reform system significantly and this has been developed by current coalition government Coalition say their proposals are biggest changes in social security for 60 years So why reform? And what is going to change?
  • Quote from ’21 st century welfare’.
  • Simplification – complex system Incentives – idea that the benefit system is a disincentive to work. Partly about benefit rates, partly about the ‘cliff edges’ when people start work. Poverty traps. Fairness – protecting people paying tax and NI. UC – more about this later Uprating changes – RPI to CPI Support and conditionality – increase use of personal advisers, payment by results, ‘work for your benefit’ (now called Mandatory Work Activity Scheme), tougher sanctions Range of other changes…
  • Quotes on release of Welfare Reform Bill 2011. Welfare reform is motivated by an argument of a growth in welfare dependency which is out of control
  • Net savings of £17.6 bn by 2014, including those listed. All figures relate to savings p.a. by 2014 - figures combine the emergency budget last June and the CSR last October. Indexation by CPI as opposed to current (and more generous) RPI – note also VAT rise which further impacts… Changes to Tax Credits eligibility: couples must work at least 24 hours between them with one working at least 16 hours (previously just 16 hours was OK) so where a couple work between 16-254 hours they won't get WTC and won ’t get JSA either reduction of eligible childcare costs from 80% to 70% from April 2011 removal of CTC from higher incomes (over £40,000 rather than £50,000 as previously) no baby element (£545 per year) and removal of 50+ credit Change to tax credit taper (up from 39% to 41%) income drops lower than £2500 p.a. are ignored (i.e. lower wages don't mean higher tax credits) Housing Benefit reform caps on levels from April 2011 (4 bed rate, largely affecting clients in London boroughs) move to 30th percentile from median (so lowest 30% of rents in an area) Caps on Housing Benefit (LHA) save £65m; but changes to non-dependent deductions save £390m - these will be stepped up to the level they would have been at had they increased each year since 2001 (the last time they were increased) Note concession that proposal to reduce by 10% if JSA for 12months+ was scrapped. Freeze on Child Benefit (£1bn) and remove from families with a higher rate taxpayer from Jan 2013. ESA time limit – contributory restricted to one year then move to means tested benefits (so if a working partner would get nothing) and also plan to abolish ESA in youth
  • DLA new medical tests from 2013 similar to ESA, and removal of Mob component for claimants in residential care (although this now being reviewed) – plus further reform off which more later… CTB budget reduced by 10% from 2013 and system localised – proposal to give grants to Las who can choose how to rebate council tax bills locally Benefits cap – at level of median earnings (around £500 per week from 2013 for couples/lone parents and £350 per week for single person households) – some exempt, such as those on DLA and war widows An end to ‘asset-based welfare’ (CTF £560m, Savings Gateway £115m) the abolition of community care grants and crisis loans (other than 'alignment loans' currently available to applicants pending payment of benefit), to be replaced by 'locally-administered assistance', the replacement of budgeting loans and alignment loans with payments on account, and the abolition of the Social Fund Commissioner and the Independent Review Service; Proposed changes, including use of a changed internal reconsideration process before a case can go to appeal amendment of the Limitation Act , that imposes a time limit of six years on any 'action' to recover a sum recoverable, to make clear that references in that Act to 'action' do not include recovery under social security and tax credits legislation by means other than proceedings in a court of law;
  • Relatively favourable treatment of pensioners, triple lock (uprated by highest of earnings, prices or 2.5%) and higher Pension Credit - Although freeze of savings credit which rewards pensioners with savings. Also proposal to have a flat-rate state pension above current level of pension credit – around £140 per week at current rates. Child Tax Credit increases above CPI over next 2 years HB cuts – as mentioned previously
  • Integrated benefit in place of Income Support, income-based Jobseeker ’s Allowance, income-related Employment and Support Allowance, Housing Benefit, Child Tax Credit and Working Tax Credit ‘ Real time’ PAYE system does not currently exist but is planned – the idea is there would be no need to notify changes in earnings Possibility of monthly payments rather than fortnightly From October 2013, alll new claims for working-age benefits will be for UC. (claims will be made online) April 2014 – Oct 2017 all claimants will be migrated (transitional protection initially) Quote from Ian Duncaqn Smith ‘ Universal Credit: welfare that works ’
  • Universal Credit will combine adult benefits (JSA etc) with HB and tax credits into one means tested benefit with single withdrawal rate
  • Capital rules – £16,000 limit, as with means-tested benefits currently, but no limit for Tax Credits currently. Also no concept of notional interest from capital in Tax Credits – so how will this all work together? Childcare costs - Impact on effective marginal deduction rates, and work disincentives, if childcare costs remain at 70%. Childcare costs are major barrier to work. Not yet resolved. Carers - Unclear what will happen to carers allowance but assume there will be a carers premium as in the present system. Housing costs - The Government plans to carry forward the current provisions for help with housing costs into Universal Credit, but the longer term ambition is to move towards a more flat rate approach for assessing housing costs in order to make things simpler). However, rents vary significantly depending on the type of landlord (private, housing association or council) and on geographical location. Housing costs also form a very significant part of most claimants' overall benefit. As a result, claimants will face major budgeting problems if the housing element of their UC does not accurately reflect their housing costs. There is also the issue of ensuring that the housing element in UC is up-rated in line with real increases in claimants' housing costs, not a nationally based formula. Also, CPI uprating is inadequate - in the ten years to 2007/8, median private rents increased by almost 70%, while CPI increased by less than 20%. In the social sector, benefit is currently calculated on the basis of the rent paid. To move away from this approach would risk significant financial instability for social landlords and a negative effect on lender confidence in the market. Will CTB be separate from Universal Credit? If it is (as proposed) marginal deduction rates will be higher and complexity will be added. For someone paying tax and national insurance their marginal deduction rate will be 76%. If the £24 gain in income for every £100 is then subject to a further tariff of for example 20%, (20% of £24 = £5) meaning a £5 reduction in help with council tax for every extra £100 earned, then the total marginal deduction rate will be 81% What will count as earnings? Some benefits, such as contractual sick pay, statutory sick pay, maternity, paternity and adoption pay, are treated as earnings in some parts of the present system and as unearned income in other parts. Under the present system, if people are in work when they become ill, they remain entitled to WTC for the first six months of their illness. This support is vital in helping people who face a sudden unexpected drop in income. Tougher sanctions regime – each adult must sign a ‘claimant commitment’ and there will be four conditionality groups depending on how ‘job ready’ the claimant is. Each group will have varying levels of obligations and potential sanctions. Proposal is that benefit could be reduced of up to 3 years for repeated failure to comply with direction. Contributory benefits – contrib JSA will continue but be subject to same earnings rules as UC. With ESA restricted to a year, seems to make contributory JSA ripe for abolition. Simplicity – UC will be very complex once childcare, passported benefits, variable housing costs, unearned income rules, effects of CTB, permitted work rules etc are taken into account.
  • Minister for Disabled People, response to consultation on DLA reform.
  • Simpler? – Benefits are complex because peoples needs are complex – difficult to address complexity due to interaction of tax and benefits plus need to provide support for a range of individual circumstances Fairer? – There will always be winners and losers when social security changes. Lower expenditure helps public purse but unclear whether system is genuinely fairer Helping those in need? – Many questions unanswered and particular concern about DLA reform. The devil, as always, is in the detail – time will tell….
  • Transcript

    • 1. Welfare Benefits – a new regime Alan Markey Head of Welfare Benefits Citizens Advice Specialist Support
    • 2. Why reform welfare?
      • “ The benefits system has shaped the decisions of the poorest in a way that has trapped generation after generation in a spiral of dependency and poverty…We are going to end the culture of worklessness and dependency that has done so much harm to individuals, families and whole communities. ”
      • Iain Duncan-Smith MP, July 2010
    • 3. Welfare Reform
      • Key aims:
        • Simplify the social security system
        • Improve incentives to work
        • Fairness
      • Achieved by:
        • Universal Credit
        • Benefit uprating changes
        • Increasing support (and conditionality)
        • A range of other benefit changes…
    • 4. Welfare Reform
      • “ Never again will work be the wrong financial choice... We are finally going to make work pay for some of the poorest people in our society. ”
      • David Cameron MP, Feb 2011
      • “ The publication of the Welfare Reform Bill will put work, rather than hand-outs, at the heart of the welfare system. ”
      • Iain Duncan-Smith MP, Feb 2011
    • 5. Key changes (1)
      • CPI indexation (£5.8 bn)
      • Tax Credit changes (£4.51 bn)
      • Housing Benefit reform (£2.02 bn)
      • Child Benefit (£2.42 bn)
      • Contributory ESA time-limit (£2bn)
    • 6. Key changes (2)
      • DLA reform (£1.2 bn)
      • Council tax Benefit (£0.49 bn)
      • Benefits cap (£0.27 bn)
      • End to ‘asset-based welfare’ (£0.6 bn)
      • Social Fund reforms
      • Changes to dispute procedures
      • Amending the Limitation Act
    • 7. Some ‘winners’
      • Older people (+ £1bn)
      • Child Tax Credit (+ £2 bn)
      • HB cuts for unemployed abandoned
    • 8. Universal Credit
      • A single working-age benefit
      • Administered via ‘ real-time ’ PAYE system
      • Oct 13 – new claims
      • Apr 14 to Oct 17 – existing claimants
      • Universal Credit “ …will finally make it easier for people to see they will be consistently and transparently better off for each hour they work and every pound they earn. ” ( Ian Duncan Smith, Nov 2010)
    • 9. The current system
    • 10. Universal Credit
    • 11. Some issues and concerns
      • Capital rules
      • Childcare costs
      • Carers
      • Assessment of housing costs
      • Council Tax benefit
      • What will count as earnings?
      • Tougher sanctions regime
      • Future of contributory benefits
      • Is it any simpler?
    • 12. DLA reform
      • “ Disabled people are at the heart of our welfare reform plans and severely disabled people who need extra help and support will always get it. That ’ s why we have spent the last few months working closely with disabled people and disability organisations to make sure we are making the right changes to DLA. ”
      • Maria Miller MP, April 2011
    • 13. Personal Independence Payment
      • Daily living component:
        • planning and buying food and drink
        • preparing and cooking a simple meal
        • taking nutrition
        • managing medication and monitoring health conditions
        • managing prescribed therapies other than medication
        • washing, bathing and grooming
        • managing toilet needs and incontinence
        • dressing and undressing
        • communicating with others
      • Mobility component:
        • planning and following a journey
        • moving around
    • 14. Government plans for PIP
      • introduced from 2013
      • non means-tested and non-taxable
      • paid to people in and out of work
      • retain ‘special rules’ for terminally ill
      • have a 6-month qualifying period (3 months currently)
      • assessed based on activities (like ESA)
      • assessed by health care professional (like ESA)
      • awarded for fixed periods
    • 15. A new regime
      • Simpler?
      • Fairer?
      • Helping those in need?

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