Comment

Easing the burden: the impact of welfare reform

Paul Dossett, head of public sector audit at Grant Thornton UK LLP, looks at the impact welfare reforms are having on local authorities.

With its commitment to deliver a further £12bn in welfare cuts, the Conservative Party laid down the gauntlet for welfare provision in the UK. With the Conservatives now in government and drawing up plans for how these savings will be made in practice, local authorities are bracing themselves for further significant reductions to both central government funding for the welfare system and to local authority funding in general. 

In our 2015 report ‘Easing the burden: The impact of welfare reform on local government and the social housing sector’, we investigated how local welfare reform has developed over the last two years from the point of view of local authorities and housing associations. 

We found that there is a real danger that reduced grant funding for welfare specifically, and for local government in general, may undermine the capacity of local authorities and housing associations to pursue some of the more efficient methods of delivering welfare that they have developed, such as early intervention strategies. 

As has happened more generally across the local government sector in the face of reduced funding, welfare reform has prompted an impressive response from many local authorities and housing associations and been a key driver for innovation and improvement. The question is, can they continue to make efficient use of rapidly reducing resources? Our research suggests that without some flexibility from Whitehall and further measures, such as further devolution of welfare funding, this is unlikely. 

Policies to reduce benefit dependency based on getting people into work, coupled with a growing economy and better joint working between different agencies, have already mitigated some of the impact. This could support the argument that the further devolution of powers to local government, particularly in areas such as housing benefit, could be the key to a sustainable future, especially if local authorities can work closely with housing associations and other partners. 

The collective impact of welfare reform on those in need of support is to some degree hidden due to the lack of data on the causal link between welfare reform and poverty. Our research found that only 42% of local authorities track poverty levels to measure the impact of welfare reform. 

As the government puts together its plans to deliver the outlined £12bn in savings, we believe it’s vital that the impact of cuts to welfare reform that are put forward are carefully considered, not just in isolation, but collectively. Whilst Whitehall fiscally sees only individual cuts to local authorities, the people affected and we, as auditors and advisers to the sector across the UK, see the cumulative impact. 

The key findings of our report demonstrate a number of things that illustrate this. 

The cumulative effect of various welfare reforms is putting a significant financial strain on those needing support 

The majority of local authorities and housing associations in the survey had seen a rise in average council tax and rent arrears since 2012-13, which they attributed at least partly to welfare reform. 

Bedroom tax and benefit cap reforms have not been as effective as planned 

Reforms to housing benefit have led to increased movement to smaller properties, but generally less than 10% of those affected have moved. A shortage of smaller properties for people to move to plays a key role in this. 

Local authorities are relying on DHP to plug the gap for those unable to pay 

95% of local authorities think that recipients of DHP (discretionary housing payments) are either wholly or partly dependent on DHP to avoid homelessness in the longer term. Any proposed reduction in DHP funding from central government is therefore likely to result in further increases to rent arrears and homelessness in the next two years, unless mitigated by other means. 

The cost of administering housing benefit has risen as a result of welfare reform 

Following reform, 47% of local authorities and 51% of housing associations surveyed said housing benefit is significantly more costly to administer, partly due to the increased complexity of cases. This trend could continue under universal credit. 

So what specifically needs to change to ensure that cuts to welfare reform don’t risk rising levels of hardship by placing too heavy a burden on local authorities? 

There are a number of areas of national policy that need to be better coordinated, so that the financial burden for welfare placed on local authorities can be fully understood. These include: house building to keep pace with demand; health and social care integration – particularly in regard to interrupting the cycle of decline that can follow instances of hardship, and; the policy towards supporting groups of foreign nationals who have bypassed official immigration channels. Failure to take stock of the whole impact of further reforms will put pressure on the ability of local authorities to support vulnerable people.

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