The real cost of benefits squeeze: £1,600 per family

Welfare cuts that are meant to get the jobless back to work are driving down the living standards of hundreds of thousands of people who are in no position to find a job, an assessment of the Coalition’s welfare reforms says today.

Researchers, who have used data to forecast what will happen to the 1.18 million households where no one works, have calculated that 155,000 (roughly one in eight) can mitigate the effect of the cuts by finding work near their home, while another 115,000 will have the opportunity to move to more affordable housing. The rest – more than three-quarters of the total – will simply see their incomes drop, according to an independent study carried out for the Local Government Association by the Centre for Economic and Social Inclusion.

The effects will be felt all over the country, with fears that, were councils to make up the shortfall in benefit expenditure, it could force them to cut spending on roads, refuse collections and care for the elderly. The planned cuts in housing benefit are most likely to affect the South, where housing costs are higher.

The study calculates that most families on benefits will receive £1,615 a year less than they would have done under the old system – except in London, where high housing costs will reduce the incomes of households on benefit by £1,965 a year. In Westminster, in the heart of London, the average loss will exceed £5,000 a year.

Government ministers have been keen to stress that social security reforms are not supposed simply to be a cost-cutting exercise. They are also meant to encourage people to find work, for example by eliminating anomalies that mean that some people are actually better off at home claiming benefits than if they were in low-paid jobs.

“Welfare reform is about much more than saving money, vital though that is,” the Chancellor, George Osborne, told MPs in June, when he set out this year’s Spending Review.

“It is about reducing dependency and changing people’s lives for the better … Where is the fairness in condemning people to a life on benefits because the system will not help them to get back into work?” However, researchers examined the potential impact of the reforms in areas covered by 325 local councils, and found that, in 314 of them, most of the savings would come from reducing benefits paid to households where somebody works – especially in the North, where wages are lower than the South.

Sharon Taylor, chairman of the LGA’s finance panel, warned councils would be forced to raid other budgets, which were already being squeezed, in order to help tenants suffering as a result of housing benefit changes. “Demand for discretionary housing payments will significantly outstrip the money the Government has made available to councils to mitigate the changes. Local services have already taken the biggest cuts in the public sector and it would be wrong if councils had to reduce spending on other services such as caring for the vulnerable and fixing the roads to meet the new costs brought about by these changes to national policy.”

Overall, the social security reforms will save taxpayers £11.8bn in 2015-16, but it is reckoned that 59 per cent of that will come out of 530,000 households where there is someone working, compared with 41 per cent coming from 1.18 million households where no one works. Almost half of the total savings, £5.3bn, will come from a tightening up of tax credits.

The parts of England where the reforms will hit hardest are the North-east, Lancashire, the central North-west, Birmingham, parts of London and coastal towns such as Great Yarmouth, Scarborough, Plymouth and Torbay.

Councils will be able to make discretionary payments towards the housing costs of families affected, but the £155m that the Government has made available represents just £1 for every £7 that tenants have lost.

Ms Taylor added: “In many areas welfare reform is not encouraging people into work because the jobs simply don’t exist, while the opportunities for people to downsize their homes to cope with reductions in benefits are severely limited by a lack of affordable accommodation. Unless more is done to create new jobs and homes, households will be pushed into financial hardship and we will see a huge rise in the number of people going to their councils asking for help to make ends meet.”

The TUC’s general secretary, Frances O’Grady, said: “The Government has tried to sell its welfare reforms on the back of mistruths and nasty stereotypes. However, this research exposes what a devastating impact its policies are having on communities throughout the country.

“Ministers are not cracking down on cheats as they claim, but destroying the safety net that our welfare state is meant to provide for those who fall on hard times through no fault of their own. The Government’s attack on social security provision is not only hurting those unable to find work. Millions of working families are seeing an even bigger reduction in their financial support. Rather than addressing the shortage of jobs and affordable housing that are blighting many areas, ministers are slashing local authority budgets and expecting councils to deal with the fallout from their reforms.”

A DWP spokesperson said: “Crucially this research, as the LGA itself acknowledges, doesn't take into account the combined impacts of the Government’s reforms, including the raising of the personal income tax threshold, and the benefits of Universal Credit which will make 3 million households better off.

“The fact remains that the benefits bill has become unsustainable and it’s only right we take action to bring it under control, but we are bringing in all our reforms in ways that protect pensioners, vulnerable and disabled people.”

Welfare reform: The changes

Most benefits now paid to welfare claimants are being phased out.

Six of the main ones, including the jobseeker’s allowance, income support, tax credits and housing benefit are to be merged into one, called universal credit, which will be paid monthly into a bank account.

Disability living allowance is being abolished for all adults under 65, and replaced with a personal independence payment. Claimants will not be assessed on how serious their condition is but on how it affects them.

There is also to be a cap on the total amount of benefits that can be paid to one family, equal to the average wage for working families, or £26,000 for a couple or single parent with a child, which will apply equally everywhere, regardless of the cost of housing.

The so-called “bedroom tax” applies to tenants living in homes with more bedrooms than the Government thinks are necessary – with children under 16 of the same gender and all children under 10 expected to share.

This is not strictly a tax, but a cut in benefits. One “extra” room will cost the tenant 14 per cent of their housing benefit. Two or more will cost 25 per cent.

Introducing the changes in March last year, the Work and Pensions Secretary Iain Duncan Smith said: “Universal credit will mean work will pay for the first time, helping to lift people out of the endless cycle of benefits, whilst those who need our support will know they will get it.”