Poverty and Income Inequality in Scotland 2013/14

Annex 3: Welfare Reform in 2013/14

Welfare reform

In 2013/14, further welfare reform was implemented. In particular, the ‘bedroom tax’ for housing benefit recipients in the social rented sector, the 1 per cent cap on benefit uprating for most working age benefits, uprating of local housing allowance by CPI rather than local rent levels, and the introduction of personal independence payments.

Welfare reforms have been implemented since April 2011, and these statistics now capture the majority of reforms announced by the UK Government since April 2011. The full implementation of Universal Credit has been delayed, so is not fully reflected in these statistics. A full list of welfare reforms implemented between April 2011 and March 2014 is below.

As welfare reform has been phased in, individual benefits and groups of recipients have been affected over a three year period. For example, changes to housing benefit affected new claimants from April 2011 and existing claimants were mostly affected between January and December 2012.

In 2013/14, Scottish Government Ministers have increased welfare mitigation spending. In April 2013, responsibility for Discretionary Housing Payments (DHPs) was transferred to Scottish Government Ministers. In 2013/14, Scottish Government Ministers added an additional £20 million to the £18 million allocated by the UK Government. Prior to the introduction of the ‘bedroom tax’ in April 2013, DHP expenditure in Scotland was around £4 million. In 2013/14, £29.3 million was spent on DHPs in Scotland.

The Scottish Government also established the Scottish Welfare Fund (SWF), incorporating funding previously spent by Department for Work and Pensions in Scotland on two elements of the Social Fund, which were abolished. In 2013/14, £29 million was spent through the SWF.

Welfare reforms implemented in 2013/14:

• Introduction of the ‘bedroom tax’ for HB recipients in the social rented sector, for working age claimants.
• 1 per cent cap on benefit uprating.
• The introduction of the benefit cap limited the total amount of benefit that most people aged 16 to 64 could receive to £500 per week for couples and lone parents, and £350 per week for single adults. Those living in households eligible for Working Tax Credits or in receipt of certain prescribed benefits were not affected by the benefit cap
• Increase working age benefits and tax credits by nominal 1 per cent.
• Child Benefit frozen.
• Disability Living Allowance: reform gateway from 2013/14 (introduction of Personal Independence Payment, PIP).
• Uprating of Local Housing Allowance rates capped by CPI inflation. LHA rates were frozen in 2012/13, prior to uprating by CPI.
• Reduce Pension Credit Savings Credit in cash terms.
• Basic State pension uprated by 2.5 per cent in line with the triple guarantee.
• Increase Pension Credit Guarantee Credit by same cash amount as Basic State Pension.
• Freeze basic and 30-hour elements of Working Tax Credit in cash terms.
• Child benefit, along with elements of tax credits, frozen in cash terms. Tax credit elements for disabled adults and children were uprated at between 2.2 per cent and 2.5 per cent.
• Disability benefits (Disability Living Allowance and Attendance Allowance) were uprated by 2.2 percent
• Universal Credit was introduced in April 2013 for claimants in certain areas in England, progressively rolling it out nationally from October 2013. Given the relatively low caseloads in 2013/14, this is unlikely to have had an impact on the statistics in this publication.
• High income child benefit tax charge was introduced in January 2013. Individuals earning more than £60,000 per year lost entitlement to child benefit, as did their partner if they were entitled to child benefit. Individuals earning between £50,000 and £60,000 per year lost a proportion of child benefit, as did their partner if they were entitled to child benefit. For couples who both earn over £50,000 per year, only the highest earner lost part of their entitlement to child benefit.

Personal taxes:

• Increase personal allowance by £1,335 to £9,440 for those aged under 65, and was frozen at £10,500 for those aged 65 to 74 years and at £10,660 for those aged 75 or older.
• Reduce additional marginal income tax rate from 50 per cent to 45 per cent on income above £150,000.
• The threshold for the 40 per cent higher rate of income tax fell to £41,450 from £42,475.
• CPI-index some National Insurance thresholds.

Welfare reforms implemented in 2012/13:

• Taper the family element of Child Tax Credit immediately after the child element is withdrawn from April 2012.
• Remove the 50-plus element of Working Tax Credit in April 2012.
• Increase the Working Tax Credit working hours requirement for couples with children from 16 to 24 hours in April 2012.
• Freeze the basic and 30-hour elements of Working Tax Credit at 2010/11 rates from 2011/12 to 2013/14 inclusive, and then uprate by 1 per cent for two years from April 2014.
• Freeze the couple and lone parent elements of Working Tax Credit in 2012/13.
• Freeze Child Benefit at 2010/11 rates from 2011/12 to 2013/14 inclusive, and then uprate by 1 per cent for two years from April 2014.
• Taper Child Benefit away from families containing someone earning more than £50,000 in January 2013.
• Uprate the Basic State Pension by the maximum of CPI inflation, earnings growth and 2.5 per cent from April 2012, and uprate with RPI inflation in April 2011.
• Increase minimum guarantee for Pension Credit by the cash increase in Basic State Pension in April 2011, April 2012 and April 2013.
• Freeze maximum award of Savings Credit at 2010/11 rates from 2011/12 to 2014/15 inclusive, with reductions in April 2012 and April 2013.
• Time-limit contributory Employment and Support Allowance to one year from April 2012.
• Local Housing Allowance: remove the £15 excess that can be claimed above rent, set local reference rates at the 30th percentile of local rents rather than the median, cap all rates at the four-bedroom rate and introduce national caps on all local reference rates in April 2011 (new claimants) or January to December 2012 (existing claimants); increase the age below which single people can only claim the shared-room rate from 25 to 35 in April 2012.

Personal taxes:

• Increase the income tax personal allowance above indexation: cash increases of £1,000 in April 2011, £630 in April 2012 and £1,335 in April 2013.
• Freeze age-related allowances and restrict them to existing recipients from April 2013.
• All reductions in the basic-rate limit and necessary adjustments to keep the upper earnings/profits in line with the higher rate threshold: £2,500 in April 2011, £630 in April 2012 and £2,125 in April 2013.
• Uprate some direct tax thresholds in line with CPI from April 2012, with all direct tax thresholds uprated in line with CPI from April 2016.

Welfare reforms implemented in 2011/12:

• Uprating of most benefits in line with the CPI instead of RPI.
• Basic State Pension uprating was governed by a ‘triple guarantee’ where the increase is the highest of earnings, prices or 2.5 per cent.
• The standard minimum income guarantee in Pension Credit was increased in April 2011 by the cash rise in a full basic State Pension.
• Child Benefit Frozen.
• The following reforms impacted HB recipients in the private rented sector subject to Local Housing Allowance (LHA) calculations: the removal of the £15 excess, overall caps on LHA rates, the restriction to the four bedroom rate and reducing the level at which LHA rates are set to the 30th percentile of market rents rather than the median. Nine months transitional protection was afforded to existing customers from the anniversary of their claim. In January 2012, the shared accommodation rate in LHA (for claimants under the age of 25) was extended to claimants under 35 years old. The Government increased its contribution to local authorities’ funding for Discretionary Housing Payments by £10 million in 2011/12, and it started to include an additional bedroom within the size criteria used to assess HB claims in the private rented sector where a disabled person, or someone with a long term health condition, has a proven need for overnight care and it is provided by a non-resident carer. There were also increases in non-dependent deductions for those in receipt of HB and renting in the private or social rented sectors.
• Restricted eligibility to the Sure Start Maternity Grant to the first child only and abolished the Health in Pregnancy Grant from January 2011.
• The family element of the Child Tax Credit previously payable to families with an income of up to £50,000 was reduced to incomes of £40,000 from April 2011.
• Increased the rate at which tax credits are withdrawn once household incomes rise.
• The baby element of Child Tax Credit was removed from 2011-12.
• The basic and 30 hour element of working tax credits were frozen.
• Reduction from 80 per cent to 70 per cent of eligible childcare costs.
• The level of in-year rises of income disregarded from calculations of tax credit entitlement decreased from £25,000 to £10,000.
• People aged over 60 qualified for Working Tax Credit if they worked at least 16 hours a week, rather than 30 as previously.

Personal taxes:

• There was a £1,000 cash increase in the income tax personal allowance, with a corresponding decrease in the levels at which the 40 per cent higher rate of tax and the 2 per cent rate of NICs are paid, for those aged under 65.
• The main employee and self-employed NICs rate was increased by 1 per cent in 2011/12. The additional employee and self-employed NICs rate was increased by 1 per cent, from 1 per cent to 2 per cent. The primary threshold and lower profits limit were increased, whilst the upper earnings limit and upper profits limit were reduced.