UK welfare policy: impact on families with children

5. Long-term impact on households - illustrative case studies

5.1 Methodology

Each illustrative case study has been chosen to highlight the different impacts of welfare policies on various family types. In each case study the net income (from benefit entitlement and earned income) of each family in 2020/21 is estimated. This is done by using the Tax and Benefits of Scottish Households ( TABOSH) model, which is capable of calculating the income of households taking into account income tax, national insurance contributions and benefit entitlement under both legacy and UC systems.

Two scenarios are modelled in each case study. The first scenario assumes that all welfare policy changes, income tax threshold changes and minimum wage policy changes passed in the 2015-17 parliament are applied. The second 'counterfactual scenario' assumes the welfare system, income tax thresholds and minimum wage uprating policy remains unchanged, with none of the 2015-17 parliament policies being applied ^[16] .

The net income for a given case study is then calculated under both scenarios. The difference between both income figures represents the reduction in the amount each family could have been entitled to in 2020/21 had UK welfare policies not been enacted.

5.2 Assumptions

For reasons of simplicity in presenting this analysis and because the report focuses on changes in net income by 2020/21, it is assumed that, in all cases, families are receiving Universal Credit and not legacy benefits or tax credits that UC is replacing. Full Service rollout of UC is expected to be complete by September 2018, which means that all Jobcentre Plus offices are expected to offer UC to all new claims by that date. Managed migration of existing legacy benefit claimants will start once Full Service rollout is complete, with all cases expected to be migrated to UC by March 2022.

The analysis disregards the Council Tax Reduction scheme. This is not a social security benefit, but is likely to be received in full by all case study families, mitigating their council tax liability.

The analysis assumes that housing costs of each family are below the Local Housing Allowance rate their Broad Rental Market Area ^[17] . This means that these households will be largely unaffected the housing related welfare changes passed since 2015/16. These welfare changes will be the subject of a future report on the impact of welfare policies related to housing. In each case study it is also assumed that each case study family are renters rather than owner-occupiers.

The analysis does not take into account any Transitional Protection payments . Transitional Protection ( TP) is an extra 'transitional' amount which tops up a household's Universal Credit award so that the households is not worse off immediately when migrated to Universal Credit compared to their entitlement under legacy benefits. These payments are only for cases which are 'managed migrated', a process which will not commence until June 2019. Households such as those in the case studies outlined in this report may be entitled to a TP payment ^[18] .

The analysis also disregards entitlements to childcare elements of UC. Under Universal Credit families with children may claim 85% of their childcare costs up to a maximum of £646 per month for one child and £1,108 per month for 2 or more children. This policy was part of UC package, brought in before 2015. Childcare cost arrangements are more generous than those under the legacy system, however, since this analysis does not compare families situations between UC and legacy benefits it is less relevant to include in the analysis.

Further to the above simplifications, to carry out this analysis a number of assumptions are made about the future economic variables such as the CPI inflation rate used to uprate benefits and the level of the National Living Wage by 2020/21. A full list of economic assumptions is provided in Annex A, which are in line with the latest OBR projections.

Technical details of how the Poverty Thresholds were calculated for each of the case studies are provided in Annex B.