Welfare Reform (Further Provision) (Scotland) Act 2012: annual report 2017

2. UK government welfare reforms

2.1 Overview of welfare policy since 2010

The purpose of sections 2, 3 and 4 is to add up the reductions in expenditure on social security, as a result of policy changes over the last two UK Parliaments and to give an indication of how much lower benefit spend is compared to what it would have been had those changes not been made. In section 2, a list of all of the significant welfare measures counted for in the analysis is provided and in section 3 the results of this analysis is presented.

It should be noted that only some of the policies included were part of the Welfare Reform Act 2012. In addition, it should be noted that this type of analysis is subject to a great level of uncertainty because the counterfactual spending had the 2010 system not been implemented, cannot be observed and therefore is difficult to establish.

Therefore, most of the analysis in this section utilises the data included in the most recent Welfare Trends report by the independent Office for Budget Responsibility laid before the UK parliament in October 2016 ^[13] .Since October 2016 there have been two fiscal events (Autumn Statement 2016 and Budget 2017) which have included revised costings for some of the policies. We have attempted to take account of these where possible. The analysis in sections 3 and 4 are also based on the figures from the OBR's report.

During the 2010-15 and 2015-17 parliaments, the UK Government (Coalition and Conservative) implemented a program of significant changes in the welfare system, which formed a central part of a wider policy objective of austerity and deficit reduction. During this period, according to the OBR, the UK Government announced around 150 separate measures affecting welfare spending.

In this section, 39 significant measures which reduced welfare spending are identified (see table 1). In line with the OBR's methodology, these measures are categorised as either 'uprating measures' or 'non-uprating measures'. Uprating measures include any policy which changed how benefits were increased each year to take into account increases in the cost of living, whilst non-uprating measures captures all other policies that affected welfare spending. As shown in section 3, over time, uprating measures have a much more significant effect on reducing welfare spending.

This list of policy measures outlined in table 1 excludes, for example, small welfare-related measures that saved negligible amounts and small administrative changes such as improvements in debt recovery, changes in waiting days for benefit payments and alterations to delivery schedules of new benefits ( UC and PIP) ^[14] .

Finally, it should be noted that the Welfare Reform Act only introduced 8 significant welfare measures (see table 1) which reduced spending. The introduction of Universal Credit was expected to increase welfare spending by £0.1 billion when fully implemented and so is excluded from table 1 ^[15] . The effect of changes to UC, such as the cut in the work allowances and the 2 child limit are captured separately in table 2 of measures introduced in the 2015-17 parliament.

2.2 Uprating measures announced in the 2010-15 parliament

Some of the most significant welfare spending cuts implemented by the Coalition government were the result of cutting awards across all recipients via uprating policies (1, 10, 22, 30, 38 and 39 ^[16] ). Most of these measures were not introduced by the Welfare Reform Act because they did not require primary legislation. However, they cannot be discounted in the context of estimating the reductions in welfare spending made by UK Governments since 2010 and are included in the OBR report.

Savings form uprating policies are linked to the true rises in the cost of living across 1 or more years as measured by an appropriate inflation index. The more the cost of living (inflation) rises over the period where uprating policy is changed, the more impact the policy will have had on spending. For example, Child Benefit rates were frozen for three years from 2010/11. The savings from this policy depended on how much Child Benefit would have been uprated each year had the freeze not been in place, and is therefore particularly dependent on the actual cumulative rate of inflation over the three year period.

Inflation is difficult to forecast. For example, higher oil prices contributed to inflation between 2011 and 2013 being significantly higher than forecasted in June 2010, while the opposite was true of more recent forecasts, with CPI inflation falling to around zero in 2015. All of this uncertainty means that an accurate assessment of how much uprating policy has saved can only really be made once the true path of inflation is known for a given measure ^[17] . Hence the impact of policies over the 2010-15 parliament are more reliable than those that are still to take place. The impact of uprating measures to 2020/21 are subject to more uncertainty that the impact of non-uprating polices to 2020/21.

Table 1: Significant welfare measures that reduced welfare spending introduced in the 2010 - 2015 parliament (including those in the Act)

Fiscal Event	No.	Policy measures	Uprating
Budget 2010	1	Benefits, tax credits- switch to CPI indexation from 2011/12	Yes
	2	Introduction of Personal Independence Payments	No
	3	Lone parent benefits: extension of conditionality	No
	4	Health in Pregnancy Grant: abolish	No
	5	Sure Start Maternity Grant: apply to first child only	No
	6	Support for Mortgage Interest: set payments at the average mortgage rate	No
	Housing Benefit reforms
	7	LHA: set at the 30th percentile of local rents from 2011/12	No
	8	Changes to deductions for non-dependents	No
	9	Introduction of the bedroom tax	No
	10	Switch to CPI indexation for LHA from 2013/14	Yes
	11	Reduce awards to 90% after 12 months for claimants of JSA	No
	12	LHA: caps on maximum rates for each property size	No
	Tax Credit reforms
	13	Tax credits second income threshold: reduce to £40,000 from 2011/12	No
	14	First and second withdrawal rates: increase to 41% from 2011/12	No
	15	Child Tax Credit: taper the family element	No
	16	Child Tax Credit: remove the baby element from 2011/12	No
	17	Working Tax Credit: remove the 50 plus element from 2012/13	No
	18	Child Tax Credit: reverse the supplement for children aged one and two	No
	19	Reduce the income disregards	No
	20	Introduce an income disregard of £2,500 for falls in income from 2012/13	No
	21	Reduce backdating from 3 months to 1 month	No
	22	Child Benefit: freeze rates for three years from 2011/12	Yes
Spending Review 2010	23	Contributory ESA: One year time limit for Work Related Activity Group	No
	24	Housing Benefit: Increase age limit for shared room rate from 25 to 35	No
	25	Introduction of the Benefit Cap	No
	26	DLA: Remove mobility component for claimants in residential care	No
	27	Support for mortgage interest: extend changes to waiting period/capital limit	No
	28	Council tax benefit: reduction in expenditure and localisation	No
	29	Child Benefit: remove from families with a higher rate taxpayer	No
	30	Working Tax Credit: freeze in the basic and 30 hour elements for three years	Yes
	31	Working Tax Credit: reduce payable costs through childcare element	No
	32	Child Tax Credit: increase the child element by £30 in 2011 and £50 in 2012	No
	33	Tax credits: increase hours requirement for couples with children	No
Budget 2011	34	Support for Mortgage Interest: one-year extension from January 2012	No
	35	ESA Youth: abolish National Insurance concession	No
Autumn Statement 2011	36	Child Tax Credits: reverse the planned £110 increase in the child element	No
	37	Working Tax Credit: freeze the couple and lone parent elements	Yes
Autumn Statement 2012	38	Working age benefits: increase by 1% for three years	Yes
	39	Child Benefit: limit increase by 1% for two years from 2014/15	Yes

Note: Measures in bold were introduced by provisions in the Welfare Reform Act 2012.

In terms of uprating measures passed in the 2010-15 parliament, the Budget 2010 decision to switch uprating of most working-age benefits from RPI (Retail Price Inflation) or Rossi inflation to CPI inflation (Consumer Price Inflation) ^[18] , is expected to have saved £5.2 billion by the end of the 2015 parliament or around 20% of the total reduction in welfare spending during this period. As mentioned, another significant uprating measure included the three year freeze to Child Benefit payments, which reduced spending by around £1.4 billion by 2015/16. Other changes in uprating included the three-year freeze in the basic and 30-hour elements of the working tax credit saved around £1 billion by 2015/16 ^[19] .

Another point to note when considering the savings associated with uprating policies is that for a number of benefits, there is no statutory requirement to uprate them by a specific measure of inflation.

2.3 Non-uprating measures announced in the 2010-15 parliament

Although non-uprating measures have not saved the Treasury as much as uprating measures, the impact of these welfare measures on particular households, such as lone parent households and particular equality groups such as people with disabilities and younger people has been significant ( see section 5).

Introduced by the Welfare Reform Act, the UK government enacted two major reforms during the 2010-15 parliament: the replacement of disability living allowance ( DLA) with the new personal independence payment ( PIP) and the replacement of six working-age benefits with a new single universal credit ( UC) ^[20] . The direct effect of UC on spending was expected to be minor, however the reform to disability benefits was intended to generate significant direct savings by reducing the number of people able to claim those benefits.

The original costing assumed that PIP would reduce disability benefit spending by 20% once the rollout was complete in 2015/16, thus returning working age DLA spending to 2009/10 levels in real terms ^[21] . However, by 2015/16, the rollout of PIP was not complete, with around two-thirds of the working-age disability caseload remaining on DLA ^[22] . In addition, compared to initial expectations, there was a higher success rate of DLA reassessments, higher average awards and a higher number of new PIP claims. As a result, the OBR has revised the estimate of savings by 2015/16 from £1.4 billion to just £0.1 billion ^[23] . Further details on the impact of PIP are included in sections 5.2 and 9.1.

Also within the Act, the UK government announced a significant change to Employment and Support Allowance ( ESA) (policy 23 in table 1). The 2010 Spending Review introduced a limit to one year the period over which claimants of contributory ESA in the work-related activity group ( WRAG) could receive the benefit ( see section 9.2). This was originally estimated to save £2.0 billion in 2015/16. The OBR have reported that a higher-than-expected proportion of those affected by the 1 year curtailment moved onto the income-based benefit and that therefore, in the round, the policy reduced spending by only £0.2 billion in 2015/16 ( see section 8.2).

Other policy changes include the introduction of the high income child benefit charge which removed child benefit from those families with a high earner ^[24] , the removal of the second threshold for the family element in Tax Credits which affected higher earners, the bedroom tax ( see section 10.1) and the Benefit Cap ( see section 8.4).

2.4 Measures announced in the 2015-17 parliament

In the Summer Budget 2015 and Spending Review 2015, the then Chancellor of the Exchequer set out £12 billion of additional cuts to welfare spending over the course of the next parliament ^[25] . The measures highlighted in table 2 are policies that relate to the Act.

The only uprating measure - the 4 year working-age benefit freeze - was estimated to account for a substantial proportion (£4.0 billion by 2020/21 ^[26] ) of the planned reduction in welfare spending ( see section 8.5). Reductions in income thresholds in tax credits and work allowances in Universal Credit were also estimated to account for a substantial £3.4 billion worth of savings by 2020/21. This saving was revised to £3.2 billion when the cut to Tax Credits was later reversed. The revision was small as the cut to Work Allowances in UC remained and will affect more households as the rollout of Universal Credit continues.

Table 2: Significant welfare measures that reduced welfare spending introduced in the 2015 - 2017 parliament

Fiscal Event	No.	Policy Measure
Summer Budget 2015	1	4 year uprating freeze of working-age benefits
	2	Lowering of the Benefit Cap to £20,000 p.a. (outside of London)
	3	Removal of child element for 3rd and subsequent children ( CTC and UC)
	4	Removal of the family element ( CTC and UC)
	5	Reduction of UC work allowances
	6	Tax credit income rise disregard
	7	Removal of housing benefit entitlement of 18 to 21 year olds
	8	Pay to stay
	9	Pension Credit savings freeze
	10	Reduce social sector rents by 1 per cent each year for 4 years from 2016/17 (England only)
	11	Support for Mortgage interest loan
	12	Removal of the £29 addition to Employment and Support Allowance ( WRAG group)
	13	UC conditionality
	14	1% reduction of social sector rents each year (England only)
Autumn Statement 2015	15	Cap social rents to Local Housing Allowance
Autumn Statement 2016	16	UC taper rate change from 65% to 63%

Limiting Child Tax Credits and Universal Credit child element to the first two children ( see section 8.2) and the removal of the family element for new births/claims was expected to save around a further £2.2 billion by 2020/21. The imposition of the LHA cap on social sector tenants ( see section 10.3) is expected to also save around £0.7 billion by 2020/21, although the impact in Scotland will be offset by typically lower social rents in Scotland compared to the rest of the UK. In addition, the reduction of social sector rents by 1% for 4 years will only be applicable in England.

Other measures, announced during this parliament are expected to make relatively modest reductions in welfare spending compared to other measures. The Benefit Cap ( see section 8.4) for example, was expected to save around £120 million by 2020/21 and the removal of housing benefit from 18-21 year olds (with exemptions) will only save around £35 million by 2020/21 across the UK.

The announcement of a reduction in the taper rate (the rate at which Universal Credit is withdrawn for households in work) under Universal Credit will increase spending by around £0.6 billion by 2020/21.