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Welfare reform and benefit cuts: the impact so far

Paul Dossett, head of local government at Grant Thornton UK LLP, discusses a major research project undertaken with councils and housing associations across the country. 

Welfare reform has come to the forefront of public debate in the era of austerity. A year since the first changes were implemented, the need for reform in public finances has clashed with the post-1945 consensus: to protect the most vulnerable members of society. Between the political ideology and the emotive backlash stand the local authorities and their partners. They are tasked with
finding an effective, pragmatic and fair solution to the problem of allocating diminishing resources to meet the demand for support from local people; and who have to provide a safety net during the transition period.

This is certainly a difficult task. Successful solutions require a joined-up, strategic approach to local economic and employment conditions, education and skills, and housing provision. They need to be supported by a good understanding of current and future demand for welfare in the locality and the ability of different parts of the population to bear the costs of this. This also requires some tough decisions on prioritisation.

A failure to address all these issues carries high risk, whether in the form of short-term financial impact on rent or council tax arrears, or the longer-term financial and social cost of poverty and inequality.

Delaying the full impacts

To better understand how organisations have approached this challenge, we undertook research in partnership with a national
cross-section of local authorities and housing associations.

Overall we found that it was still too early to draw firm conclusions as to whether the reforms had met their objectives.
The response of local authorities and their partners had been impressive in terms of the focus and energy that had been brought to
bear. There was general feeling from these organisations that transitional funding and other short-term measures had delayed the full impact of reform and the biggest challenges were yet to come. The Chancellor’s March budget statement did nothing to contradict this view, particularly with the rhetorical flourishes and symbolism surrounding the imposition of a DWP welfare cap.

Our detailed findings fell into three broad areas – steps that organisations have taken to meet the challenge of reform, the early signs of impact, and key risks for the future.

Loosening central controls

In meeting the challenge of reform, we found that most authorities had demonstrated good levels of consultation and communication with members, the public and partner organisations. Innovation was a feature of many local responses, taking advantage where possible of loosening central control over the use of funds. When we spoke to benefit and housing staff dealing with implementation in local government, the level of motivation and energy was highly encouraging, as was the continued focus on providing support to those who most need it, over and above the financial drivers.

The overall results from this line of enquiry were quite positive, but we did find that some organisations were not exploring all possible options for implementing reform. We found that the involvement of members in the planning and implementation governance of the reforms could be stronger in some organisations and that there was room for more effective partnership working in some others.

Characteristics of success

In our view, there were some common characteristics among those authorities that had been relatively successful in implementing welfare reform to date. They tended to have a dedicated benefit reform lead, with oversight across the services. This lead was supported by a governance and oversight group, with representation from across the authority, from key partners (such as housing associations, Jobcentre Plus and voluntary groups) and with strong member representation.

This group had general responsibility for co-ordinating various initiatives and service strategies, as well as providing strong governance over options and decisions put before the cabinet (or equivalent). Effective partnership working came out as absolutely key, and it was interesting to note in our discussions with housing associations that partners sometimes had differing views on whether arrangements were effective.

Self-sufficiency versus tailored support

Another interesting outcome was the emergence of two clear schools of thought on how best to support welfare claimants within the available financial envelope. The first of these was to provide the tools for claimants to help themselves, investing in online resources and published material: a cost effective solution that promotes self-sufficiency, but risks people falling through the gap with potentially expensive longer term consequences. The second was to deal with each individual claimant as a separate case, with a needs assessment and a tailored welfare package, including consideration of getting them into work: the intention being that this provides better outcomes, moving people off welfare, but is resource heavy and not financially sustainable in the longer term.

Following the changes to the Social Fund, we found that many authorities had maintained or even increased their budgets for hardship support in their local schemes. Most did not favour crisis loans, due to the problems with collecting debt. Some gave out grants, but increasing numbers favoured vouchers or even the direct supply of goods. Interestingly, direct promotion of local credit unions was not a part of the approach for the majority of authorities, possibly due again to concerns about personal debt. Most councils expressed some concern about the availability of crisis funding from central government beyond 2015/16 and the LGA is currently campaigning on this issue.

Increasing pressure on rent arrears and council tax collection

With most of the reforms in operation for only a year or less, it is hard to draw a firm conclusion, but we were able to glean some early signs of the impact of reform. The effect of reforms such as the spare room subsidy (the ‘bedroom tax’), the benefit cap, and more people having to pay council tax for the first time seems to have produced a net reduction in the income of some welfare recipients.

This seems to be manifesting itself in increasing pressure on rental arrears and there are signs that council tax collection is also starting to come under pressure.

The impact on disabled people

There seems to have been a particularly acute impact on many disabled claimants, partly linked to problems with applications with Personal Independence Payment (PIP) assessments. However, many councils are now reacting to address this locally, particularly where they take an individualised casework approach to claimants (e.g. by making concessions in regard to the spare room subsidy).

There also seems to have been some acknowledgement from MPs that delays for PIP processing are unacceptable.

Homelessness and food banks

The majority of councils we spoke to reported increasing homelessness and temporary accommodation costs. Most also reported a
rise in demand for food banks, with some anecdotal evidence that this was leading to problems with recruiting volunteers. The extent to which these factors are attributable to welfare reform in isolation is a subject of debate, but it seems likely that it is a contributing factor. Authorities have seen few people in social housing downscaling as a result of the spare room subsidy,
indicating that many are finding ways to pay the subsidy in the short term.

Looking to the future, the overriding risks seem to be around the funding of welfare reform, including during the transition phase, and the introduction of universal credit.

The Chancellor’s 2014 Budget statement set a course for further austerity and there remains some uncertainty about if and how this will impact on the funding for welfare locally. We have already discussed how hardship support funding is coming under pressure. Currently, the government is making available transitional funding, principally in the form of Discretionary Housing Payment (DHP). It seems likely that some welfare claimants are relying heavily on DHP allocated by their local authority and that this may be the reason why the impact of reform has not been as acute as many authorities expected, in terms of arrears and movement in the housing of claimants.

The danger is that DHP is just delaying this impact and the only solution is for councils to ensure that allocations are made as part of a longer-term plan to reduce those individuals’ reliance on welfare.

Universal credit and direct payments

The delays in implementing universal credit have been widely reported. However, the majority of councils we spoke with agreed
that it was a good concept, but had doubts about the execution.

Many councils were adopting a ‘wait and see’ approach, with some expecting major changes to the current scope of the project.

One risk is emerging in regard to the direct payment method that the credit will use. Some authorities expressed concern that direct monthly payments into recipients’ bank accounts could result in the money being used for other purposes, increasing the risk of arrears and evictions.

This system has been made to work in  places like the Netherlands, but it seems likely that authorities will again need to show innovation and determination to achieve this.

Overall findings of the welfare reform research:

• Early days (not quite a full year)

• Response of LAs and HAs good so far

• Full impact of reform yet to be felt

• Short-term fixes have delayed impact

• Biggest challenges yet to come