Sharp end of the cuts

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Sharp end of the cuts

  1. 1. The Sharpest End Of The Cuts GARETH MORGAN FERRET INFORMATION SYSTEMS© Ferret Information Systems 20/03/11
  2. 2. £18 Billion a year© Ferret Information Systems 06/11/2010
  3. 3. Future Changes to the Benefits System The government made three sets of announcements about changes to the benefits system. The Emergency Budget of June 22nd introduced net cuts to the welfare system of £11bn a year by 2015. The Comprehensive Spending Review of October 20th added another £7bn to that. The Welfare Reform Bill based on the White Paper Universal Credit: welfare that works published in November introduces a system which will replace the current mix of benefits for those of working age. Other announcements about ESA and replacing DLA
  4. 4. Main Benefits Related Budget Measures - 1 Benefits and tax credits to be up-rated by the consumer price index (CPI) From 2012 pensioner benefits will rise in line with earnings. – Triple Guarantee An annual Child Element Tax Credit increase of £150 above CPI in 2011-12 and £60 above CPI in 2012-13 Child benefit frozen for the next three years Withdrawal of Child Tax Credit for higher income familiesFerret Information Systems 20/03/11
  5. 5. Main Benefits Related Budget Measures - 2 Baby element of Child Tax Credit abolished from 2011 Tax Credits taper rises from 39% to 41% Introducing a £2,500 disregard for households with a drop in income Reducing the income disregard for increased income Over-fifties returning to work element abolished Local Housing Allowance (LHA) caps and restriction to 4 bedroom rateFerret Information Systems 20/03/11
  6. 6. Main Benefits Related Budget Measures - 3 LHA to be set at the 30th percentile CPI linking of LHA Non-dependant deductions to be increased Social rented sector limiting rents HB reduced to 90 per cent of assessed entitlement after 12 months of receiving JSA A medical assessment for Disability Living Allowance from 2013 for new and existing claimants.Ferret Information Systems 20/03/11
  7. 7. Main Benefits Related CSR Measures - 1 Capping benefits at median earnings where no DLA or WTC Child Benefit withdrawn from higher rate taxpayers Tax Credits childcare costs reduced from 80 per cent to 70 per cent Working Tax Credit hours change for couples Basic and 30 hour elements of the WTC are being frozen for three years Child element being increased by a further £30 in 2011-12 and £50 in 2012-13Ferret Information Systems 20/03/11
  8. 8. Main Benefits Related CSR Measures - 2 Time limiting contributory ESA for those in the Work Related Activity Group to 1 year Increasing the age threshold for the Shared Room Rate in Housing Benefit from 25 to 35 Council Tax Benefit cut by 10 per cent and localising it Removing the mobility component of Disability Living Allowance from people in residential care, except for those who are self-funding (?)Ferret Information Systems 20/03/11
  9. 9. Main Benefits Related CSR Measures - 3 Freezing the maximum Savings Credit award in Pension Credit for four years Extending for a further year the temporary change to the Support for Mortgage Interest scheme No announcement has been made about extending the two year limit of SMI for JSA claimants which first affected people in January 2011. Making permanent the temporary increases to Cold Weather PaymentsFerret Information Systems 20/03/11
  10. 10. Main Benefits Related CSR Measures - 4 Reiterated their promise to uprate the basic State Pension by a triple guarantee of earnings, prices, or 2.5 per cent, whichever is highest Speed 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.Ferret Information Systems 20/03/11
  11. 11. Main Benefits Related CSR Measures - 5 Educational Maintenance Allowance is to be “replaced” by “locally managed discretionary funds” to target support Social Housing Landlords will be able to set rents between social and market levels for new tenants. They will also be able to offer fixed-term tenancies rather than agreements for life.Ferret Information Systems 20/03/11
  12. 12. Combined Budget & CSR SavingsFerret Information Systems 20/03/11
  13. 13. Welfare Reform Bill The NEW SIMPLE SYSTEM which will start, in parallel, from 2013 (subject to HMRC getting their IT to work) The needs and income rules will be very much like today’s benefits BUT the calculation & taper will be very different No clear division between unemployment and employment. The amount of earnings which people are allowed to keep before it affects their benefits – will be abolished for single people but made much larger for some other groups. It will however be reduced sharply for those who need help with their housing costs
  14. 14. Welfare Reform Bill- 2 Help with mortgage interest for home owners will be available to all instead of, with the current system, being limited to those ‘not in full-time work’. (But Govt. trying to do a deal with lenders) Total amounts of benefit, for those not in receipt of DLA, war widows or receiving Working Tax Credit, will be limited to the median level of earnings of working families – about £500 for families, £350 for single people. Self-employed people will be assumed to have a minimum level of earnings.
  15. 15. Welfare Reform Bill- 3 Transitional protection will make sure that nobody getting benefits will move onto a lower amount when transferring to Universal Credit The old and new systems will run in parallel for some years from 2013 One standard deduction rate of 65% Housing support for tenants and Council Tax Benefit will become much more localised and variable from place to place. Councils will be able to operate their own CTB rules, with constraints (?)
  16. 16. Sanctions and penalties There will be more „conditionality‟ – benefit penalties for people who do not meet job-seeking conditions. The groups which must meet these conditions will be extended. The Bill introduces a „claimant commitment‟ which will be a formal statement of requirements and penalties. Administrative and Civil Penalties  From £50 to £300 „fines‟ for „preventable‟ errors  Civil Penalties  Failure to disclose information, report changes or negligence may result in financial penalties.  Administrative Penalties  These are intended to penalise fraud and are linked to the amount of benefit gained. Stronger „three strikes‟ measures.© Ferret Information Systems 06/11/2010
  17. 17. On-Line benefit claims and automatic operation Claiming Universal Credit will normally be done over the internet, be much more automated, and there will be a single place for contacting the benefits system. Universal Credit will automatically, month by month, reflect changes in earnings from employment using a new, yet to be introduced, HMRC PAYE computer system.© Ferret Information Systems 06/11/2010
  18. 18. Contributory benefits time limited and means-tested “Under the new system, contributory benefits would retain an insurance element, but in most circumstances would only be paid for a fixed period, only to facilitate a transition back to work”. Contributory Employment and Support Allowance will be limited to one year. “Contributory Jobseeker‟s Allowance will continue in its current form but with the same earnings rules (such as disregards and tapered withdrawal) as Universal Credit”. How this means-testing will operate is unclear. The explanatory notes to the Bill refer only to an earnings taper.© Ferret Information Systems 06/11/2010
  19. 19. Social Tenants The Bill provides that the dwelling size limits for social tenants will be implemented by imposing a percentage cut, linked to the number of additional bedrooms, rather than by the equivalent of a Local Housing Allowance. There is a new term to describe Housing Benefit limits - appropriate maximum housing benefit (“AMHB”)© Ferret Information Systems 06/11/2010
  20. 20. Youngest qualifying age for Pension Credit There will be a younger age limit for Pension Credit. The benefit will not be available to couples until the youngest partner reaches the qualifying age instead of, as now, the oldest.  The weekly difference between the JSA and the Guaranteed Pension Credit couples allowance is £103.75. The total loss, over the 2.6 years average age difference for married couples, is £14,027. Additionally this will mean that the capital limit will still apply to the household so that, for example, an older partner retiring with a small pension pot which might be better taken as capital will be disadvantaged. There may be a „pensioner premium‟ (my guess) but how much?© Ferret Information Systems 06/11/2010
  21. 21. Youth condition in ESA abolished. This seems a petty and damaging change, especially as contributory ESA in work related activity group is only going to be available for a year now. Young people have been able to claim contributory Employment and Support Allowance without having to made National Insurance contributions. This will be abolished under a provision in the Bill.© Ferret Information Systems 06/11/2010
  22. 22. Capital Cut-Off In Universal Credit The intention is that the treatment of capital will be similar to that under Income Support and other means tested benefits currently. In Tax Credits today there is no such concept as a cut-off or notional interest. Real income from capital is used in the same way as for tax. When those getting tax credits, with more than £16,000 in capital, claim Universal Credit they‟ll find that they‟re not entitled. That‟s estimated by the Social Market Foundation to be 400,000 families with a further 200,000 hit by the notional interest rules.© Ferret Information Systems 06/11/2010
  23. 23. Housing Credit in Pension Credit The abolition of Housing Benefit, following the introduction of universal credit, means that the elderly will need a replacement which will be introduced as a Housing Credit as part of Pension Credit. The intention is that claimants will be entitled to broadly the same amount of support under the housing credit as they would have been entitled to by way of housing benefit. A person may be eligible for the housing credit without being entitled to either of the other elements of state pension credit, or may receive more than one element if they meet the relevant conditions. There may be a de minimis rule applying to this credit. There will be a Capital Cut-Off for the new Housing Credit in Pension Credit.© Ferret Information Systems 06/11/2010
  24. 24. More … Lone parent increased conditionality  Lone parents whose youngest child is over 5 will move from Income Support to JSA with all the requirements for that benefit. Legal „entitlement to work’ will become a condition of entitlement for contribution-based JSA, contributory ESA, maternity allowance and all statutory payments.© Ferret Information Systems 06/11/2010
  25. 25. PIP Personal Independence Payment to replace DLA in 2013 / 2014 Consultation closed on 14 February 2011. Working age only but considering pensioners and children
  26. 26. PIP - 2 For Personal Independence Payment there are no automatic entitlements, other than the special rules for people who are terminally ill. Instead, each case will be looked at individually, considering the impact of the impairment or health condition, rather than basing the decision on the health condition or impairment itself. The new assessment will focus on an individual‟s ability to carry out a range of key activities necessary to everyday life. Information will be collected from the individual, as well as healthcare and other professionals who work with and support them.
  27. 27. PIP - 3 Personal Independence Payment should take greater account of aids and adaptations. Mobility, for example, may be assessed using a wheelchair. Periodically review all awards. Individuals will still be responsible for reporting changes that occur between reviews and there will be penalties if an individual knowingly fails to report a change that would have resulted in a reduction in benefit.
  28. 28. PIP - 4 Government will consider how the benefit interacts with other forms of support, for example adult social care, and explore whether it is possible to share information at the assessment stage and eliminate areas of overlap.
  29. 29. Basis of examples - 1 Assessments start with the April 2011 values, rules and rates and progress from those. Values used are based on starting figures and then adjusted in 3 ways: Earnings, other incomes, tax bands etc. use current values. Benefits which are to be up-rated by CPI in future have their current values reduced by the cumulative year by year difference between RPI and CPI Benefits, and elements of benefits, which have been frozen have their current values reduced by the cumulative RPI.Ferret Information Systems 20/03/11
  30. 30. Basis of examples - 2 This, crudely, allows comparison of the real future values of income with starting values. The CPI and RPI forecast figures used are those produced by the Office for Budget Responsibility. Universal Credit assessment has been modelled by using the figures in the White Paper with current values for items not mentionedFerret Information Systems 20/03/11
  31. 31. Steady State Employment - Tenant 2 children The examples mainly use a couple with two children They are both aged 45 and have 2 children aged 8 and 10. They do not have any childcare costs and make no pension contributions. They pay rent of £86.54 per week which is exactly the Local Housing Allowance (LHA) for their home (the figure is chosen to match the mortgage interest payable in the examples for home owners) They pay council tax of £1250 per annum In example 1, we look at a „steady-state‟ situation where one member of a couple works 35 hours a week for annual earnings of £10,000, £20,000, £30,000, £40,000 and £50,000.Ferret Information Systems 20/03/11
  32. 32. Example 1 – Couple 2 Kids Rent Net WeeklyGross Earnings Income Current UC Current UC 2011 2012 2013 2014 2014 2015 2015 £10,000.00 £430.01 £420.97 £414.58 £409.27 £406.24 £402.88 £400.46 £20,000.00 £438.45 £432.22 £427.62 £422.96 £443.64 £417.34 £437.79 £30,000.00 £483.88 £484.14 £479.54 £474.88 £489.41 £469.27 £483.56 £40,000.00 £612.69 £601.06 £599.98 £598.87 £598.87 £597.61 £597.61 £50,000.00 £718.49 £717.34 £684.79 £684.79 £684.79 £684.79 £684.79Ferret Information Systems 20/03/11
  33. 33. Example 1 – Couple 4 Kids Rent Net WeeklyGross Earnings Income Current UC Current UC 2011 2012 2013 2014 2014 2015 2015 £10,000.00 £577.51 £567.42 £558.17 £550.51 £536.78 £541.19 £528.29 £20,000.00 £585.30 £575.21 £566.99 £559.33 £573.21 £550.01 £564.72 £30,000.00 £608.95 £611.77 £605.10 £598.31 £616.09 £590.05 £607.59 £40,000.00 £660.88 £663.69 £657.02 £650.23 £661.86 £641.97 £653.36 £50,000.00 £745.29 £743.23 £684.79 £684.79 £684.79 £684.79 £684.79 Note the larger effect of the loss of Child Benefit for the highest earner.Ferret Information Systems 20/03/11
  34. 34. Steady State Unemployment - Owner 2 children 2011 2012 2013 2014 2014 2015 2015Unemployed £342.25 £343.85 £337.62 £333.86 £333.86 £329.09 £329.09Ferret Information Systems 20/03/11
  35. 35. Steady State Unemployment - Tenant 2 Children 2011 2012 2013 2014 2014 2015 2015Unemployed £358.98 £353.79 £346.45 £341.59 £341.59 £335.74 £335.74Ferret Information Systems 20/03/11
  36. 36. Children Unemployed - Owner Net Children W eekly Unemployed Income Current UC Current UC 2011 2012 2013 2014 2014 2015 2015 0 £199.80 £199.13 £195.35 £194.07 £194.07 £192.37 £192.37 1 £279.71 £280.03 £274.85 £272.15 £272.15 £268.70 £268.70 2 £342.25 £343.85 £337.62 £333.86 £333.86 £329.09 £329.09 3 £404.78 £407.66 £400.40 £395.57 £395.57 £389.48 £389.48 4 £467.32 £471.48 £463.18 £457.28 £457.28 £449.87 £449.87 5 £529.85 £535.29 £500.00 £500.00 £500.00 £500.00 £500.00 6 £592.38 £599.11 £500.00 £500.00 £500.00 £500.00 £500.00 7 £654.92 £662.92 £500.00 £500.00 £500.00 £500.00 £500.00 8 £717.45 £726.74 £500.00 £500.00 £500.00 £500.00 £500.00 9 £779.99 £790.55 £500.00 £500.00 £500.00 £500.00 £500.00 10 £842.52 £854.37 £500.00 £500.00 £500.00 £500.00 £500.00Ferret Information Systems 20/03/11
  37. 37. Children – Unemployed OwnerFerret Information Systems 20/03/11
  38. 38. Poverty Traps Better off on £10,000 a year than £25,000© Ferret Information Systems 06/11/2010
  39. 39. Earnings Disregard in Universal Credit Housing Cost at Which Floor Maximum Floor ReachedCouple £57.69 £10.00 £31.79+1 child £109.62 £20.00 £59.74+2 children £109.62 £25.00 £56.41+3 Children £109.62 £30.00 £53.08Lone Parent+1 child £148.08 £40.00 £72.05+2 children £148.08 £45.00 £68.72+3 Children £148.08 £50.00 £65.38 © Ferret Information Systems 06/11/2010
  40. 40. LA Cuts Local Authority Change in estimated Revenue Spending Power 2011-12 £m Westminster -21.0 Hillingdon -7.1 Newham -38.5 Sedgemoor -1.1© Ferret Information Systems 20/03/11
  41. 41. The Local EffectLocal Authority Change in Annual Loss of estimated Benefits to Revenue Residents Spending Power 2011-12 £m £mWestminster -21.0 -73Hillingdon -7.1 -76Newham -38.5 -70Sedgemoor -1.1 -33© Ferret Information Systems 20/03/11
  42. 42. Income and Job LossesAuthority HillingdonMid Year Population 2009 (ONS) 262,500 Authority SedgemoorTotal Lost Benefit Income annually - 2014 £76,806,059 Mid Year Population 2009 (ONS) 112,100Jobs Lost 2011 - 2014 1,782 Total Lost Benefit Income annually - 2014 £32,799,845 Jobs Lost 2011 - 2014 761Lost Benefit Income 2011 £9,898,126Jobs Lost 2011 230 Lost Benefit Income 2011 £4,226,971Additional Lost Benefit Income 2012 £20,964,486 Jobs Lost 2011 98Jobs Lost 2012 486 Additional Lost Benefit Income 2012 £8,952,834Additional Lost Benefit Income 2013 £29,205,844 Jobs Lost 2012 208Jobs Lost 2013 678 Additional Lost Benefit Income 2013 £12,472,286Additional Lost Benefit Income 2014 £16,737,604 Jobs Lost 2013 289Jobs Lost 2014 388 Additional Lost Benefit Income 2014 £7,147,754 Jobs Lost 2014 166Unclaimed Means-Tested Benefits £41,695,325potential Jobs saved through MTB take-up 967Unclaimed Working Tax Credit £16,100,385 Unclaimed Means-Tested Benefits £17,805,889potential Jobs saved through WTC take-up 374 potential Jobs saved through MTB take-up 413 Unclaimed Working Tax Credit £6,875,631 potential Jobs saved through WTC take-up 160 © Ferret Information Systems 20/03/11
  43. 43. More advice needed but advice is being cut© Ferret Information Systems 20/03/11
  44. 44. Interesting Times Universal Credit 5 years of confusion The old systemFerret Information Systems 20/03/11
  45. 45. Ferret YOU’LL QUICKLY SEE THE BENEFITFerret Information Systems 20/03/11

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