Simon Barrow

Details of welfare cuts and the impact of the budget on the most vulnerable

By Simon Barrow
July 9, 2015

The budget ‘red book’ sets out how much money the Chancellor of the Exchequer is saving and spending from his various budget measures. It always makes interesting reading.

Overall, this Summer Budget raises almost £1 billion net in tax this year (2015-16), despite Chancellor Osborne’s peroration about wanting a “low tax economy”.

The corresponding fiscal tightening (tax rises plus spending cuts) is worth £3.5 billion this year alone.

By 2020/21 the overall tightening is a further £19 billion – less, and slower, than pledged back in March, but still a clear austerity programme with serious consequences.

By 2020/21 these measures will claw back some £13.1 billion from welfare – more, in fact, than the pledged £12 billion. The overall impact of government saving on the most vulnerable is between £34 billion (OBR) or just under £50 billion (Stewart Hosie), depending on how you calculate it.

The following measures, listed in order of how much the cuts are worth by 2020/21, indicate what the welfare cuts promised but not specified in GE2015 amount to:

1. Freezing working-age benefits and tax credits for four years - £4 billion

2. Reducing income thresholds in tax credits and Universal Credit - £3.4 billion

3. Cutting social housing rents by one per cent a year for four years - £1.4 billion

4. Limiting child tax credits and UC to two children - £1.4 billion

5. Removing the family element in tax credits for new claims - £675 million

6. Cutting employment and support allowance for some claimants - £640 million

7. Cutting the benefits cap - £495 million

8. Changing support for mortgage interest to a loan system - £255 million

9. Increasing the tax credits taper to 48 per cent - £245 million

10. Requiring ‘wealthy’ social housing tenants to pay market rents - £240 million

11. Cutting the income rise disregard in tax credits - £110 million

12. Stopping most 18 to 21-year-olds getting housing benefit - £40 million

13. Imposing new conditions on UC claimants when the youngest child turns three - £30 million.

It is worth bearing in mind that some decisions, like freezing benefits, do not take any money out of the budget for this year, but do take a lot of money out of the system further down the line.

Here are some of the tangible implications and consequences of such cuts and fiscal tightening on ordinary people:

Some 13m UK families will lose average of £260 a year due to budget's freeze on working-age benefits, says the Institute for Fiscal Studies (IFS).

With the changes made since 2010, the proportion of earnings of those in the top decile (the richest) have been hit less than those in the bottom three deciles.

Some of what is being done is plain humiliating. If a woman has been raped and it is her third child, she will now have to discuss the ordeal with the DWP and HMRC in order to receive child tax credits. (The repulsive new ‘two child policy’ seems perilously close to trying to control the numbers of poor people.)

A lone parent working 16 hours per week with two children will gain just over £400 from Chancellor Osborne’s ‘living wage’, but will correspondingly lose £860 via tax credit changes in 2016/17.

Changes to inheritance tax (which give older people less incentive to sell houses) could lead to more over-crowding for young, points out the Resolution Foundation.

The OBR assessment is damning on social rent reductions – they will will reduce house-building and would increase borrowing if housing association are treated as public sector. The budget not only does nothing to address the housing crisis, but aids its continuance.

Working-age benefits will be frozen for four years – including tax credits and local housing allowance.

Reducing wage support will hurt workers more than their employers, says The Economist. The idea that tax credits simply subsidise businesses who offer low-wage jobs does not fit the substantial academic evidence. The answer is higher pay, not cuts that hit those trapped in ghetto jobs.

Families earning between just £14,000 and £25,000 will be the real losers from today’s budget. They get no benefit from rebranded minimum wage and will facing massive losses on tax credits.

While the slashing of tax credit (0.5 million) and other changes hits three million "hard working families", the Chancellor has given £1 billion to the top four per cent of earners, just 26,000 people.

Education maintenance grants for students from some of the poorest backgrounds are being abolished and replaced by loans, adding to future debt.

Taking housing benefit from under 25s is cruel: as Shelter has pointed out, for some young people 'home' isn't an option. Exemptions are vital for housing benefit cuts to 18-21 year olds.

The government now wants the Low Pay Commission ‘living’ pay floor at 60 per cent of median earnings. But UK and EU already use 60 per cent of median household income as the poverty threshold.

In addition, there is fresh clampdown on public sector pay, which will be limited to one per cent a year for the next four years – a policy to which the Labour Party now apparently subscribes.

Including previous governments’ wage freezes, the civil service will have paid for bank excess with real terms cuts for a full decade.

Public sector employment will fall by 0.4 million by the first quarter of 2020, leading to a total fall from early 2011 of 0.7 million, estimates the OBR.

The OBR forecasts that the unemployment rate will fall slightly next year, but then rise each year until 2020.

Housing, childcare and travel costs are still rising for those who will lose out on credits or have pay frozen – having a further impact on in-work poverty and the economy, and not being offset by the so-called ‘living wage’.

New ESA claimants who are placed in the Work Related Activity Group (WRAG), will now only get the same rate of payment as those on standard Job Seeker’s Allowance – if they are able to demonstrate some “work-related activity”.

That is a loss of £30 a week, and ignores the fact that the people concerned have been assessed as not being able to work at present. It means that from now on these disabled people will lose around a third of their income.

The support component of ESA will not be frozen from April 2016. But the ESA basic allowance of £73.10 (for people aged 25 and over) and the work-related activity component of £29.05 will both be subject to a four year freeze. This will lead to many more ESA claimants struggling to survive by 2020, disability groups and charities point out.

Osborne’s cut will also hit many people with serious degenerative conditions such as multiple sclerosis, Parkinson’s disease and Motor Neurone Disease who are not yet sufficiently incapacitated to qualify for the support group, but whose condition will only get worse. These are people who are very unlikely to work again, but will still be punished. Their conditions will mean that they face substantial extra costs for things like heating, disability aids, transport and special diets – up to £200 a week in some cases. But to Chancellor Osborne, the extra £30 a week they are being denied is merely a ‘perverse incentive’ that keeps them from making the necessary effort to find an employer willing to take them on (Benefits and Work Guides).

Meanwhile, of net results from households according to research by the House of Commons Library, 70 per cent of the cuts will fall on women. Young people are also suffering disproportionately.

The UK government has resisted a judicial review requiring it (like, for example, the Scottish Government) to produce an equality impact statement for its budget changes.

It has also resisted pressure from the WOW (War on Welfare) campaign, disabled activists, the Centre for Welfare Reform and Ekklesia for a Cumulative Impact Assessment (CIA) on its policies – despite a public petition of 106,000 people triggering an unopposed parliamentary debate last year.

The departmental squeeze set to continue, with overall spending expected to be 16 per cent lower in 2019 than a decade earlier.

In summary:

In view of these implications, it would be quite misleading to describe the 2015 Summer Budget as a “one nation budget” or as favouring “working families” and “giving the nation a pay rise” in any meaningful sense. On the contrary it hits low income households and disabled people, and will increase further Britain’s alarming levels of inequality. Though easing austerity slightly, it also fails to address key economic weaknesses. But that is another story.

* Full 2015 budget coverage and commentary from Ekklesia at: http://www.ekklesia.co.uk/budget2015


© Simon Barrow is co-director of Ekklesia.

Although the views expressed in this article do not necessarily represent the views of Ekklesia, the article may reflect Ekklesia's values. If you use Ekklesia's news briefings please consider making a donation to sponsor Ekklesia's work here.