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09.07.15

Welfare cut costs must not ‘simply transfer’ to other services - CIPFA

The costs of delivering the government’s £12bn cuts to direct welfare must not simply be transferred to other public services and the third sector, the Chartered Institute of Public Finance and Accountancy (CIPFA) has warned. 

During yesterday’s Summer Budget, the chancellor issued a wave of sweeping cuts to the welfare system that “will reduce the welfare bill by £9bn a year by 2019-20” – a slower pace of welfare cuts than pledged in the Tory manifesto. 

His main welfare announcements include a “youth obligation” for those aged 18-21 that says they must either “earn or learn”, rather than going straight on to benefits after leaving school. 

The government is also abolishing the automatic entitlement to housing benefit for 18-21 year olds. However, there will be exceptions made for “vulnerable people” and “other hard cases”. 

Those claiming the working element of Employment and Support Allowance (ESA) will see payments reduced, to match Job Seekers Allowance (JSA). 

The benefit cap will be reduced from £26,000 a year to £23,000 a year in London, and £20,000 in the rest of the country.  And there will be a freeze in working age benefits for four years. 

From next year, the government will reduce the level of earnings at which a household’s Tax Credits and Universal Credit start to be withdrawn. The income threshold in tax credits will be reduced, from £6,420 to £3,850. 

Universal Credit work allowances will be similarly reduced – and will no longer be awarded to non-disabled claimants without children. 

Alongside the freeze in working-age benefits, the government will reduce rents in social housing in England by 1% a year for four years, requiring Housing Associations and local authorities to deliver efficiency savings.

The government also believes that those on higher incomes should not be subsidised through social rents. Therefore, social housing tenants with household incomes of £40,000 and above in London, and £30,000 and above in the rest of England, will be required to “Pay to Stay”, by paying a market or near market rent for their accommodation. 

Osborne said: “Taken together, all the welfare reforms I have announced will save £12bn by 2019-20 and will be legislated for in the year ahead, starting in the Welfare Reform and Work Bill that will be published tomorrow.” 

CIPFA chief executive Rob Whiteman said the scale and pace of the cuts were “ambitious”. But he added that central government will need to work across the public sector to ensure that protection for those most in need is maintained. 

Whiteman added that the reforms to social housing will be of “real concern”. “If government want to truly tackle substantial increases in the Housing Benefit bill they must also look beyond the social housing sector and should address the rising cost of rents in the private sector,” he said. 

Cllr Gary Porter, chairman of the Local Government Association, stated that local authorities welcome the principle of any additional powers to set differential rent levels based on local circumstances and housing markets, but “these must remain affordable for those in work but on a low income”. 

He said: “Ultimately the devil will be in the detail and we are now asking government to work with us to make sure the details of the policy are workable and can have the greatest potential benefits to all of our communities.” 

Julia Unwin, chief executive of the Joseph Rowntree Foundation, noted that the chancellor is right to focus on building a prosperous UK with higher pay and lower welfare and the role of raising pay and productivity to achieve this. 

“The £12bn cuts to welfare have however been targeted at low-income working families, most of whom rely on tax credits to make work pay,” she added. “We need a credible long-term plan to make work more secure, build more affordable homes and lower essential bills, or times will simply get tougher for those on low incomes.” 

Paul Dossett, head of local government at Grant Thornton UK LLP, commented that the welfare, including the reduction in household benefit caps and social housing rents, will be dependent on the economy growing to provide the jobs suggested by the chancellor. 

“If these jobs are not available to all localities, there will undoubtedly be increased pressures on local authority services at a time of further local government funding reductions,” he noted. 

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