The Impact of Welfare Reform in Scotland - Tracking Study - Year 1 Report

2 Welfare Reform and Impact

• Chapter 2 presents a brief overview of the literature and data on the impact of welfare reform on working age benefit recipients in Scotland.
• Some aspects of welfare reform affect many people across Scotland; for example over 200,000 DLA recipients will be affected by the introduction of PIP.
• Other reforms are yet to have widespread effect - for example, in April 2014 there were only 300 recipients of Universal Credit.

2.1. The baseline report of this tracking study (Lister et al., 2014) discussed the background to welfare reform, and presented literature on impacts (which at this stage of the reforms were mostly predicted impacts). This chapter presents the policy situation at the time of writing this report, and relevant statistics on the number of welfare benefits recipients which illustrates how many working age people in Scotland are currently affected by the welfare reforms under consideration^[3]. It also adds some more recent literature on the impact of these reforms than was presented in the previous report of this study.

Benefit recipients in Scotland

2.2. Table 2.1 shows the number of working age individuals in Scotland claiming the DWP's 'key' benefits^[4] in November 2013. Figures are also presented for May 2013, as presented in the previous report in this study (Lister et al., 2014). In total, in November 2013, 521,610 people claimed at least one of these 'key' benefits. This represents a slight decrease since May 2013, and seems to be driven predominantly by a decrease in the number of Jobseeker's Allowance (JSA) recipients (the reasons for this are discussed below), and the number of Income Support (IS) recipients, as Incapacity Benefit (IB) recipients continue to be migrated onto ESA.

Table 2.1: Number of claimants of selected 'key' benefits in Scotland, May and November 2013

Benefit	Number of claimants
	May 2013	November 2013	% change
Any 'key benefit'	546,490	521,610	-4.6
Jobseeker's Allowance	130,360	106,800	-18.1
Employment and Support Allowance	195,590	227,330	16.2
- Assessment phase	47,510	46,480	-2.2
- Work Related Activity Group	67,560	72,440	7.2
- Support Group	73,410	102,320	39.4
Incapacity Benefit	52,910	22,040	-58.3
Disability Living Allowance (working age claimants)	205,000	200,310	-2.3
- Care, high rate	46,660	45,720	-2.0
- Care, middle rate	71,120	69,930	-1.7
- Care, low rate	63,400	61,870	-2.4
- Mobility, high rate	95,850	93,020	-3.0
- Mobility, low rate	89,260	88,350	-1.0
Income Support (claimants under 60)	90,100	76,150	-15.5
- Incapacity benefit claimants	32,060	19,410	-39.5
- Lone parents	39,770	38,350	-3.6
- Carers	14,710	15,180	3.2
Carers allowance (working age claimants)	54,570	56,020	2.7
Bereavement Allowance	6,380	6,220	-2.5
Widow's Benefit	3,270	3,040	-7.0

Note: numbers may not sum to total recipients, as some people claim more than one benefit.
Source: DWP Tabulation Tool, http://tabulation-tool.dwp.gov.uk/100pc/tabtool.html

The progress of welfare reform

2.3. The UK Government's welfare reforms revolve around two central, inter-related planks: getting people into work, and managing expenditure on the welfare system. This section will consider progress to date on the key measures introduced to achieve these aims, and how many working age people in Scotland are being affected by these measures.

Conditionality and sanctions

2.4. The rationale for a sanctions regime for those claiming out of work benefits is that it enforces adherence to job seeking agreements - and therefore should have a positive impact on employment - as well as limiting expenditure by restricting it only to those who are meeting their agreed actions in looking for work. The current sanctions regime for JSA recipients was introduced in December 2012. The number of sanctions imposed on JSA recipients who fail to meet the requirements of claiming this benefit has seen an uneven but generally upward trend (Figure 2.1). The number of sanctions increased from 3,376 in October 2008 to a peak of 6,909 in October 2013, but fell to 4,730 in December 2013.

Figure 2.1: Number of adverse sanction decisions applied to JSA claimants in Scotland, October 2008-December 2013

Source: StatXplore, https://stat-xplore.dwp.gov.uk/

2.5. An independent review of the sanctions regime for the Department for Work and Pensions concluded that there are a number of issues with the current regime that are causing unnecessary hardship for recipients (Oakley, 2014). It found that the way in which decisions and processes are communicated to recipients is not adequate, and recipients are too often not aware of why they have been sanctioned or how to appeal. Communications are too long, complex, and unclear, and recipients are left unsure why they have been sanctioned and unaware of how to appeal. Citizens Advice confirms that its clients often seek help for this reason, and report that those who receive sanctions can experience severe hardship as a result (Reid, 2014; Manchester CAB Service, 2013).

2.6. New ESA sanctions^[5] were also introduced in December 2012. The number of sanctions imposed on ESA recipients has increased sharply, from a low of just 5 sanctions in May 2011 to a high of 258 in December 2013 (Figure 2.2). The current conditionality regime for ESA recipients has been in place since December 2012, and a definite increase can be seen after this point, although the numbers were already increasing prior to this.

Figure 2.2: Number of adverse sanction decisions applied to ESA claimants in Scotland, October 2008-December 2013

Source: StatXplore, https://stat-xplore.dwp.gov.uk/

2.7. The most recent independent review of the Work Capability Assessment (WCA) identified a need for recipients to be treated with greater dignity and respect, the need to simplify the process, and the difficulty in assessing the capacity of those with mental health issues within the current framework (Litchfield, 2013). Many of these findings reflect the experiences of the participants in our study.

2.8. The other notable reform in this area has been to bring forward the stage at which lone parents cease to be eligible for Income Support, which is now when their youngest child turns five. This has brought increasing numbers of lone parents in Scotland into the JSA conditionality regime; from 530 in October 2008 to a peak of 13,000 in February 2013, followed by a drop to 9,910 in November 2013. The number of sanctions imposed on lone parents (Figure 2.3) has seen a relatively steady increase over this period, from 17 in October 2008 to 481 in October 2013.

Figure 2.3: Number of adverse sanction decisions applied to JSA lone parent claimants in Scotland, October 2008-December 2013

Source: StatXplore, https://stat-xplore.dwp.gov.uk/

Support to work

2.9. Since June 2011, those who have been on JSA for a year (or 9 months for those aged 18-24) have been required to attend the Work Programme. The programme provides additional personalised support for JSA recipients to find work, with the intention of moving more people into work. The exact nature of this support is up to the service provider delivering the programme (Fuertes et al., 2014).

2.10. The success of the Work Programme in helping recipients into work has been modest. Between June 2011 and March 2014, there were 150,250 referrals to the Work Programme in Scotland, of which 89.1 per cent were mandatory referrals.^[6] Of these referrals, 26,740 (17.8 per cent) have resulted in what the programme defines as a 'Job Outcome', which is at least six months in employment, or three months for more disadvantaged participants.^[7] Qualitative research on the delivery of the Work Programme has suggested that it does not always address participants' barriers to employment, and that participants are not always fully engaged in the process (Newton et al., 2012).

Managing expenditure

Changes to support for housing costs

2.11. Tenants in the private rented sector receiving LHA have seen a number of changes since April 2011. LHA rates are now based on the 30^th (instead of 50^th) percentile of local rents, and subject to national caps, and uprating is no longer in line with local rents, but with the Consumer Price Index, and has been further restricted to one per cent from April 2014 until April 2016 (Wilson, 2013). In February 2014 there were 98,744 recipients of LHA in Scotland.

2.12. The main reform affecting tenants in the social rented sector receiving Housing Benefit is the 'bedroom tax', introduced in April 2013. Those deemed to be over-occupying their property are subject to a reduction of 14 per cent of their rent for one additional bedroom, or 25 per cent for two or more. The rationale for this was to create parity with the way in which LHA is calculated for private sector tenants (who are already subject to these criteria), and to provide an economic incentive for those with additional bedrooms to downsize, thus making larger properties available for families living in smaller properties than they need (Wilson, 2014). Those affected by the reduction can apply to their local council for a Discretionary Housing Payment (DHP), which is assessed against household income. In May 2014, the UK Government agreed to transfer powers to the Scottish Government to set the cap on DHPs, although at the time of writing, this has yet to be formally approved in both parliaments.

2.13. In February 2014 there were 377,352 claimants in the social rented sector in receipt of Housing Benefit in Scotland, of whom 69,916 (18.5 per cent) had a reduction applied for over-occupancy.^[8] Table 2.2 shows some characteristics of claimants affected by the bedroom tax. In the financial year 2013/14, Local Authorities in Scotland received 110,535 applications for DHPs, of which 87,362 (79 per cent) were granted, with an average award value of £335 and a total value across Scotland of £29m (Scottish Government, 2014b).

Table 2.2: Characteristics of claimants affected by the 'bedroom tax' in Scotland, Feb 2014

Characteristic		Claimants affected
		N	%
Tenancy	Local Authority	40,991	58.6
	Social landlord	28,923	41.4
Number of additional bedrooms	One	59,795	85.9
	Two or more	9,853	14.1
Number of dependent children	None	58,814	84.1
	One	6,027	8.6
	Two or more	5,081	7.3
Weekly reduction in Housing Benefit payment	Up to £4.99	508	0.7
	£5 to £9.99	35,330	50.5
	£10 to £14.99	24,605	35.2
	£15 to £19.99	5,674	8.1
	£20 to £24.99	2,688	3.8
	£25 and above	1,116	1.6

Note: Figures may not sum to total claimants affected, due to missing data on characteristics in the database
Source: DWP StatXplore, https://stat-xplore.dwp.gov.uk/

2.14. A review of evidence and survey of social and local authority landlords for the Joseph Rowntree Foundation found that, although arrears had increased, this was not leading to eviction in most cases. A substantial portion of the policy's 'savings' seem to have been absorbed by social landlords, who are facing additional costs due to rent arrears, the management of arrears, and increased transfer requests (from those who did want to move) and turnover costs (Wilcox, 2014). In a longitudinal study of 15 housing associations, some reported that they and their tenants were managing the change reasonably well, while others reported struggling (Williams et al., 2014). A survey of 750 affected tenants and 252 who had not been affected by the change found that those who had were more likely to be concerned about rent arrears and eviction, although most did not intend to move, most commonly because they felt happy or settled where they were (National Housing Federation, 2014).

2.15. Housing Benefit recipients in the private and social rented sector, and those claiming Council Tax Reduction, have been affected by changes to the deductions for non-dependents. These deductions are made from the Housing and Council Tax Benefit of a person claiming income-related benefits if there are any persons living in the household who are over the age of 18 and not a partner or lodger. The deduction rates were frozen in 2001, but have been increased between April 2011 and April 2014, to reach the level they would have been at had they not been frozen, and are now subject to rises in line with the Consumer Price Index. These changes affect those who have at least one non-dependent in the household; 7.0 per cent of LHA recipients and 11.2 per cent of Housing Benefit recipients in Scotland.^[9]

Transfer of the discretionary social fund to local authorities

2.16. Elements of the DWP's Social Fund have been replaced by local schemes, with the rationale of creating a more responsive and efficient mechanism for allocating funds to those in need. People in Scotland now have recourse to the Scottish Welfare Fund (SWF), to which they can apply for a Community Care Grant (CCG) or Crisis Grant (CG). Legislation to ensure a successful transition from interim to permanent arrangements is currently going through the Scottish Parliament (Lyall & Johnson, 2013).

2.17. In the first year of the interim scheme (from April 2013 until the most recent available statistics from March 2014), there were 166,582 applications to the SWF, from 104,222 households. Of these, 67 per cent of applications for CCGs and 72 per cent of applications for CGs were accepted, with an average award of £644 and £71 respectively (Scottish Government, 2014a). The largest category of recipients was those on income-based ESA (24 per cent of recipients), followed by those on income-based JSA (16 per cent) and Child Tax Credit (14 per cent).

2.18. Qualitative research on the operation of the interim SWF found that on the whole the scheme was perceived as working well by those using or supporting people to use it, although some areas were suggested for improvement (Sosenko et al., 2014).

The replacement of DLA with PIP

2.19. Personal Independence Payment (PIP) replaced DLA for working-age new claimants from April 2013, and for those reapplying or reporting changes to their condition from October 2013; reassessment of the majority of existing recipients is not scheduled to begin until October 2015 (Kennedy, 2014).

2.20. The number of PIP claimants in Scotland has been slowly increasing, from 17 in June 2013 to 5,015 in February 2014, although the total still represents a fraction of the total DLA caseload (see Table 2.1 above). Statistics on waiting times and the proportion of outcomes that are successful were still being compiled at the time of publication, but tentative estimates from the first few months suggest that the acceptance rate (for those not applying under special rules for terminally ill claimants) is around 37 per cent of applicants (Department for Work and Pensions, 2014a).

2.21. The Scottish Government has estimated that 66,000 fewer working-age DLA claimants will receive DLA/PIP by 2018, due to the introduction of PIP. This is forecast to lead to a total reduction in expenditure of £740 million over the period 2013/14 to 2017/18 (Scottish Government, 2014c).

2.22. An initial report from the National Audit Office (NAO) reported that early operational performance had been poor; by October 2013 there was a backlog of 92,000 claimants - 55 per cent of claims received up to this date - and the NAO concluded that this was because insufficient testing had been carried out to determine whether the system could handle a large volume of claims (National Audit Office, 2014). The NAO also found that the average waiting time for a claim decision was 107 days - compared with the DWP's initial estimate of 74 days - and noted that the DWP was unable to tell claimants how long they were likely to wait, and that this could cause distress and financial difficulties for claimants (National Audit Office, 2014).

Benefit freezes and restrictions on uprating

2.23. Certain elements of the tax credits received by low income families have been frozen or uprated by less than inflation in recent years, in effect creating a fall in these entitlements in real terms. Table 2.3 shows the uprating of tax credit element for the year 2014-15, along with the number of families with children claiming these tax credits, and the number of children in these families. This table shows that apart from families with disabled children or disabled workers, households receiving tax credits have seen these rise more slowly than prices, therefore the purchasing power of the same tax credits is lower than it was the previous year. Over half a million children in Scotland live in families that receive tax credits.

2.24. Since January 2013, Child Benefit has been withdrawn from higher-rate taxpayers, with progressive tapering through the tax system at incomes over £50,000, until a zero entitlement is reached at incomes over £60,000 (Kennedy, 2012). The impact of this on families and Scotland has not been estimated to date. Prior to the introduction of the change, the Institute for Fiscal Studies estimated that 15 per cent of families claiming Child Benefit would be affected, although this was for the UK as a whole (Joyce, 2013). If this has been the case in Scotland, this change would have affected around 93,000 families (HMRC, 2013).

Table 2.3: Percentage uprating of tax credits in 2014-15, and number of claimant families in Scotland

Tax credit	Uprating 2013-14 to 2014-15 (%)	Number of claimants - families (2012)	Number of children in claimant families (2012)
All Child and Working Tax Credits		367,000	549,800
Child Tax Credit		315,800	549,800
Family element	+0.0
Child element	+1.1
Disabled child element	+2.8
Severely disabled child element	+2.9
Working Tax Credit	193,600	231,700
Basic element	+1.0
Couple and lone parent element	+1.0
30 hour element	+1.3
Disabled worker element	+2.8
Severely disabled worker element	+2.9
Childcare element		32,800	N/A
eligible costs for one child	+0.0
eligible costs for two or more children	+0.0
Inflation
RPI	+3.2%
CPI	+2.7%
Earnings	+1.2%

Note: Figures are not available for claimants of individual tax credit elements. 2012 is most recent data available for this particular breakdown of figures (geographical and tax credit type).
Source: HMRC (2013).

Universal Credit

2.25. The national roll-out of UC, due to begin in October 2013, has now been delayed until 2016 (House of Commons Work and Pensions Committee, 2014). The scheme currently operates in ten 'pathfinder' areas including Inverness, and between April 2013 and 30^th April 2014, 6,960 claimants across the UK started to claim UC (Department for Work and Pensions, 2014b). In April 2014 there were 5,880 claimants, of whom only 330 live in Scotland.^[10]

Estimating the overall impact of welfare reform

2.26. To summarise the figures presented above,^[11] the number of working age recipients in Scotland subject to welfare reform are as follows:

• 106,800 claiming JSA, of whom 4,730 received a sanction in the month of December 2013
• 227,330 claiming ESA, of whom 258 received a sanction in the month of December 2013
• 200,310 claiming DLA and 5,015 claiming PIP
• 98,744 recipients of LHA, of whom 6,884 have at least one non-dependent in the household
• 377,352 recipients of Housing Benefit, of whom 69,916 have a reduction applied for having a 'spare room' and 42,701 have at least one non-dependent in the household
• 330 recipients of Universal Credit
• 93,000 higher-rate taxpayer recipients of Child Benefit
• 367,000 families in receipt of tax credits

2.27. These figures provide a rough guide to the extent to which different reforms are currently affecting the working age population in Scotland as a whole. Issues such as the household benefits cap and the introduction of UC affect relatively few, and even the transition to PIP is yet to have a widespread impact, while issues such as the ESA assessment process, changes to tax credits, and JSA sanctions affect a substantial proportion of claimants.

2.28. An update to the previous analysis of the impact of welfare reform conducted for the Scottish Parliament (Beatty & Fothergill, 2013) was presented to the Parliament in June 2014 (Beatty & Fothergill, 2014). These revised figures estimated the total impact in Scotland of all the reforms once they have come into effect, at a loss of £1.6billion per year; very close to the previous estimate, but around £60 million less. This translates to £460 per adult of working age per year, £20 less than the previous estimate. The figures have been revised down slightly due to the mitigation of the 'bedroom tax', and smaller than expected numbers being affected by the household benefit cap. The magnitude of the impact of other reforms, such as changes to incapacity benefits, changes to tax credits, and the move to one per cent uprating, remain the same.

2.29. The Scottish Government is required, under the Welfare Reform (Further Provisions) (Scotland) Act 2012, to produce an annual report on the impacts of the Welfare Reform Act on the people of Scotland. The most recent report, published in June 2014, suggests that the strongest impacts will be felt with the greatest reductions in 2014/15 and 2015/16, and when UC and PIP are rolled out more widely. The cumulative impact of all changes is predicted to be a £6 billion reduction in welfare expenditure in Scotland over the years 2010/11 to 2015/16, almost exclusively affecting those of working age.

2.30. The interim findings of this study (Lister et al., 2014) are echoed in the findings of other similar studies (Real Life Reform, 2013; Advice Leeds, 2014; Power et al., 2014). These researchers found, as we did, that respondents were: struggling on the low income provided by benefits; cutting back on basics such as food and heating; feeling the impact of the additional pressure on income from sanctions and the 'bedroom tax'; and experiencing high levels of stress and anxiety.