Welfare reform: annual report 2019

Executive Summary

This report is the seventh in a series of Scottish Government reports which examine the effects of UK Government social security reforms introduced since the Welfare Reform Act of 2012. In this year’s publication, we focus on key recent changes to the welfare system, and particularly on new evidence relating to the benefit freeze, Universal Credit (UC) work allowances and the two-child limit. Our modelling estimates that these changes, alongside removal of the first child premium, could reduce benefit spending in Scotland by around £500 million per year once UC is fully rolled out.

The benefit freeze

The freeze on key working-age benefits has continued into 2019/20, which is expected to be its fourth and final year of operation, reducing the real-terms value of most working-age benefit rates by a further 2.4%. Scottish Government modelling estimates that the full effects of the benefit freeze could reduce benefit spending in Scotland by around £300 million per year. The Joseph Rowntree Foundation^[1] estimate that by 2020, the benefit freeze will have brought 400,000 people across the UK into poverty. 

Universal Credit work allowances

Following a policy announcement in the UK 2018 Autumn Budget, the 2019/20 financial year has seen a £1,000 increase in annual UC work allowances, worth up to £630 per year to employed UC claimants. However, for most households, this increase does not fully compensate for the UC work allowance cuts which were introduced in 2016/17. At this stage of UC rollout, 86% of the households claiming UC in May 2019 have a lower UC work allowance in 2019/20 than they would if work allowance rates had been retained at their original level and uprated in line with inflation since 2013/14. Our modelling, which assumes full UC rollout, estimates that UC work allowance and taper rate changes since 2016/17 could ultimately reduce annual social security spending in Scotland by around £100 million per year. 

The two-child limit

In January 2019 it was confirmed^[2] that the two-child limit would no longer apply to any children born before 6 April 2017. We estimate that this will exempt around 900 Scottish households from the effect of the limit. Regardless of this change however, our modelling suggests around 40,000 Scottish households could eventually be affected by the limit at full rollout. The Department for Work and Pension’s (DWP’s) most recent two-child limit statistics show that as of April 2019, 8,540 families across Scotland have been denied entitlement for a third or subsequent child. We have modelled the effects of the UK Government’s two-child limit and first child premium removal and estimate that by full UC rollout, these changes could reduce benefit spending in Scotland by around £100 million per year.

Other reserved social security policy updates

A number of smaller UC reforms were announced in the 2018 Autumn Budget,^[3] including run‑on payments for claimants with a pre-existing legacy benefit claim and an easing of rules around UC debt recovery policy. The full package of these smaller reforms are estimated to cost approximately £20 million per year in Scotland between 2020/21 and 2023/24, and could improve claimants’ experience of UC. The scheduled date of UC full rollout has also been pushed back to December 2023 to allow time for a one year pilot of UC managed migration to take place in Harrogate.

DWP have confirmed^[4] that from 15 May 2019, couples with one partner over pension-age and one working-age partner (referred to by DWP as mixed age couples) will no longer be able to make new claims to Pension Credit (or pension-age Housing Benefit) and must claim UC instead. This could reduce the income of these households by up to £7,000 per year. We estimate that by 2023/24 around 5,600 households across Scotland could be affected by this change.

A total of 3,320 Scottish households were benefit capped as of May 2019. Recent evidence shows that 82% of households affected by the benefit cap experience barriers to work that prevent them from finding employment,^[5] and therefore lack a practical way to avoid the cap’s effects. The most recent data shows that 91% of the 2,730 Scottish households with capped Housing Benefit contained children. The average loss for a family with capped Housing Benefit in Scotland is £64 per week, equivalent to around £3,320 per year.^[6]