Welfare Reform Bill

Memorandum submitted by the Mayor of London (WR 24)

1. Overview

1.1. The Mayor of London supports the Government’s ambition to simplify the benefits system and incentivise people’s efforts to return to work, so that they can lift themselves out of poverty and away from reliance on state benefits through employment. The Mayor supports the London Living Wage Campaign as one important way to help make work pay in London.

1.2. The Mayor is concerned, however, about the potential impact of the reforms on London, due to higher housing and childcare costs in the capital, together with greater travel times and distances to work. If benefits thresholds are set on a national basis and do not reflect local differences, then these factors could combine to make the reforms less effective in London compared to the rest of the UK.

1.3. While the Mayor is supportive of the government’s principle that no household should receive more in benefits than the average household earnings, he is concerned about the effect of the proposed total benefit cap on people not in work, or working under a certain number of hours. As currently defined, the cap is likely to have a disproportionate effect in the capital as it will create a shortfall between benefits received and housing costs. It might also be a significant barrier to the delivery of family-sized homes in London through the Government's new Affordable Rent product.

1.4. The Mayor is also keen to ensure that financial support under the proposed Personal Independence Payment adequately reflects the extra costs faced by disabled people in London.

2. Background

2.1 Universal Credit, as defined by the Welfare Reform Bill, has two main premises: to make work pay by allowing people to keep more of their earnings when they move into work; and to simplify the current complex system of benefits. It also includes provision for increased expectations on the claimant to take reasonable steps to find work, and that failure to do so may result in sanctions or financial penalties.

2.2 Universal Credit replaces Working Tax Credit, Council Tax Credit, Housing Benefit, Income Support and income-based Jobseeker’s Allowance and income-related Employment and Support Allowance. It should generally allow recipients moving in to work to keep more of their earnings than under the current system by using a standard 65 % taper rate.

2.3 Furthermore, those moving into work will have an ‘earnings disregard’. Depending on their circumstances (couple, children etc), recipients will be able to earn more before their benefit is withdrawn. The earnings disregard will have an upper and lower limit also depending on the recipient’s circumstances. DWP has proposed that the disregard will be reduced by one-and-a-half times the recipient’s eligible rent or mortgage interest support, meaning the higher the housing costs of an applicant, the smaller the amount of benefit they get to keep when they move into work.

2.4 It is proposed that Universal Credit be accessed through online channels.

2.5 The cap as currently defined will mean that out of work claimants can receive a maximum of £26,000 per year, or £500 per week.

3. Impact of changes

3.1 The Mayor is keen to highlight that it is more difficult to make work pay in London than the rest of the country due to the higher cost of living. The Mayor and the GLA are working closely with DWP to establish the precise impact of the Universal Credit changes on London but we know already that housing costs are 50% higher then the national average; childcare is, on average, between 25-35% more expensive than the England average; and London transport is 63% more expensive on average than in other metropolitan areas.

3.2 It is important that the incentives into work in London are equal to the rest of the country, and that as conditionality and sanctions step up, Londoners who move in to work are not made worse off than they were on benefits.

3.2.1 The Mayor is particularly concerned that this could result in an increase in child poverty - 50% of children living in poverty in London are in households with at least one working adult.

3.3 The Mayor is concerned that online channels are not universally accessible, and in some circumstances either alternative arrangements or guidance may be needed.

3.3.1 Nationally, 53% of low income/unemployed people do not have access to the internet. Black, Asian and Minority Ethnic (BAME) people are over-represented among this group, and 49% of all BAME people in England live in London. Digital exclusion can also be an issue for young people: in a recent study of 250 disadvantaged young people, 1 in 5 did not have access to the internet (Catch 22, 2010).

3.4 The Mayor also welcomes some of the flexibilities announced on the total benefits cap, for example excluding households on Disability Living Allowance and in receipt of Working Tax Credit. However, without further flexibilities, the impact of the total benefits cap on London is likely to be greater than for the rest of the UK.

3.4.1 The GLA estimates that at least 21,500 households privately renting their home and 5,400 social renters in London will face a shortfall between their benefit and their rent. This could lead to increased child poverty in the capital, particularly affecting larger families.

3.4.2 The cap is also likely to make it challenging to deliver a reasonable number of family-sized affordable homes in the capital through the new Affordable Rent model. This is because there would be insufficient headroom to increase rents anywhere close to 80% of the median market rate – indeed, for some properties there would be insufficient to cover the existing social rent.

3.4.3 The existing mitigation measures announced, while welcome, do not include households in part-time work and do not mitigate against the risk for housing associations and lenders of rent arrears were a household exempted from the cap to become unemployed.

3.5 The Mayor would therefore like to see mitigating measures put in place while retaining a total benefits cap, both to ensure the delivery of the new affordable homes that London needs and to assist those households most likely to be affected. One option is for child related benefits i.e. child benefit and child tax credit, to be excluded from the cap. There is logic in excluding both benefits given tax credits are not included when calculating the average earnings on which the cap is based.

3.6 The Mayor is concerned that if the focus of the reforms to disability welfare payments is solely efficiency-driven, it may fail to ensure that the needs of disabled people are adequately met and they, and their families, may suffer additional hardship and isolation. A particular concern is the removal of one of the three levels in the care component, as this could mean some the people on the lower rate losing all entitlement to support. The Mayor responded to the consultation on the change from Disability Living Allowance to Personal Independence Payments, setting out his views on this issue.

3.6.1 GLA research shows that in 2009, the employment rate for disabled people stood at 45% in London and 48% in the rest of the UK. Median hourly earnings for disabled people were 13% below those of non-disabled people.

3.6.2 The rate of child poverty is much higher in households with one or more disabled adults: in 2008/09, 55% of children in these households in London were living in poverty compared with 36% in households with no disabled members (after housing costs are taken into account).