Financial Impacts of Welfare Reform - Illustrative Working Age Case Studies

4 Conclusion

Key points

4.1 This paper has provided a number of case studies illustrating the potential impacts of the various welfare reforms including the forthcoming introduction of Universal Credit on a range of hypothetical households in Scotland.

4.2 In general, the reforms prior to Universal Credit have negative financial impacts on claimants' incomes, with the scale of cuts to household budgets depending on the benefit. The most substantial reductions in income are faced by couple households losing their eligibility to Working Tax Credit due to the increase in hours they are required to work; those in the social rented sector deemed to be under-occupying; and single people under 35 renting in the private sector, who can now only claim Housing Benefit for a room in a shared property.

4.3 The introduction of Universal Credit will have more mixed financial impacts. Winners include individuals with children working less than 16 hours who are not currently eligible for Working Tax Credits, and who will be able to claim for the costs of childcare under Universal Credit. Households currently claiming Tax Credits and other benefits such as Housing Benefit will also increase their incomes as maximum entitlements will be combined before a taper is applied. They will no longer be facing separate and simultaneous calculations in which their income is taken into account twice.

4.4 Many welfare recipients will see no change as a result of moving onto Universal Credit. This includes unemployed single adults, where the Universal Credit standard allowance is set at the same rate as income-based Job Seekers' Allowance.

4.5 Losers include individuals working more than 30 hours a week, who can currently claim a higher rate of Working Tax Credit, for which there is no equivalent under Universal Credit. Relatively high income households claiming Tax Credits will also lose some income, as the withdrawal rate of Universal Credit is higher than that currently applying to Child Tax Credit.

Future Analysis

4.6 The TABOSH model on the basis of which these case studies have been developed is currently being extended to include disability benefits, meaning that the impacts of reforms on disabled individuals and their households can be investigated.

4.7 The following means tested benefits are expected to be added:

• Working Tax Credit - disabled worker element and severe disability element
• Child Tax Credit - disabled child element and severely disabled child element
• Income Support / income based JSA - disability premiums
• Housing Benefit -disability premiums
• Income-related Employment Support Allowance
• Limited capability for work elements / disabled child additions in Universal Credit

4.8 The model will also include Disability Living Allowance/Personal Independence Payment, but since any change in income from that transition will be due to the difference in medical assessments, rather than the amounts available at each rate, the model cannot be used for DLA/PIP comparisons as such. Instead, any components of these two benefits will be included as inputs to the model.

4.9 Case studies illustrating the impacts of the reforms to disability benefits will be developed over the next few months, with an intention to publish in summer 2014.

4.10 In addition to the TABOSH development work, the Scottish Government has commissioned Napier University to conduct a qualitative longitudinal research study on the impacts of welfare reform on real households. The research looks at the impact of UK welfare changes on households in Scotland and is intended to inform work in mitigating the impacts of the UK Government's welfare reforms. The work is being carried out by Napier University starting in summer 2013 and is initially for one year, with a probable contract extension for up 3 three years in total. The study follows 30 households with a range of characteristics affected by different welfare reforms, who will be interviewed twice a year. Publication of findings from the first two sweeps is expected in autumn 2014.