Welfare Reform Bill

Memorandum submitted by the Convention of Scottish Local Authorities (COSLA) (WR 53)

Introduction

The Convention of Scottish Local Authorities (COSLA) supports the intention to reform the welfare benefit system and to remove the barriers from welfare into work. However, we are increasingly concerned about the speed at which such a complex task is being progressed, particularly when there seems to have been a lack of meaningful and timely consultation with devolved partners. COSLA believe this has led to a lack of comprehension and meaningful consideration of the interaction between welfare reform and the devolved competencies as well as the specific Scottish implications of this Bill.

COSLA supports the need for change but feels that key to avoiding unnecessary confusion, error and hardship when dealing with people’s financial circumstances is effective, seamless implementation. As such, COSLA supports a staged approach to implementing the reforms, starting with those benefits currently administered directly by DWP and HMRC. Only when that stage has been successfully completed and bedded down should consideration by given to a second development stage involving housing costs and support for council tax payment, should the will still exist. In the meantime, these latter two benefits should remain in place as is.

In terms of the main issues relating to the content of the Bill, COSLA supports

· A realistic review of timelines and transition periods

· Provision being made for direct payments to housing providers

· Devolved competencies to be properly financed to meet current and future welfare expenditure demand

· Local authority administration costs in any new system to be transparent and appropriately financed

· Maintain the link between benefit provision and liability

· Allow flexibility for varying circumstances such as those particular to rural areas

· Council Tax Benefit to remain unchanged

In compiling this submission COSLA has surveyed all Scottish councils and undertaken case studies with a sample in order to understand the impact the intended reforms may have. The evidence below makes use of illustrative examples from Local Authorities to support the arguments made.

Transferring risk and responsibility to Local Government

 

Benefit Reform and cuts will undermine overall system savings and cost more in the long term

1. Ultimately, cutting the level of welfare benefit, initiating direct payments to claimants and centralisation all increase the financial risk for, and the responsibilities of, Local Authorities. Balancing the UK budget is only effective if it does not pass hidden costs on to other parts of the public purse. For example the 20% cut to working age DLA expenditure, estimated at £1.3bn, will affect the care and mobility support disabled people can access and increase reliance on council services. Similarly, changes to how the private rented sector Local Housing Allowance is calculated could reduce the income of some 50,000 claimants in Scotland, potentially increasing demand for public sector housing, debt advice and homelessness services. Meanwhile, the extension of direct payment of housing costs to social sector claimants is likely to increase rent arrears and collection overheads and result in lost income to local authorities. Furthermore, these reforms and reductions to benefits will impact upon the vitality of local economies and the wellbeing of individuals and communities, and could have a detrimental effect on the wider regeneration of an area and the willingness of individuals and families to remain within the area.

There is a limit to how centralised welfare benefits can effectively be.

2. Welfare benefit is only one aspect of a package of support which is predominantly delivered by local authorities to support sustainable improvements in the lives of recipients and their children. This support (housing, social work, skills, training, alcohol and drug interventions) must be locally managed. To further disaggregate welfare support from this localised agenda may cut the welfare bill in Westminster but will do nothing to improve outcomes for people. Additionally, Local Authorities provide crucial expertise, customer advice and local knowledge which will be lost under the new and faceless system. Furthermore, the Universal Credit service is to be built around an online claims facility but a substantial proportion of claimants do not have access to computer facilities, making local face-to-face claims services for the vulnerable all the more crucial.

Council Tax Benefits

 

Support for the Status Quo

3. Scottish Local Authorities are clear that any counter proposal to centralise CTB into the Universal Credit would undermine devolution and the principles of localism. At a minimum, CTB should be devolved to Scotland to be managed by Local Authorities. However, both centralisation and full devolution are complex to achieve and Scottish Local Authorities believe that the most effective and efficient option is for CTB to remain unchanged. In a survey of Scottish Local Authorities, respondents argued that abolishing Council Tax provision – regardless of what replaces it – will result in the following problems and costs for Local Authorities: loss of economies of scale; potential overlap of two systems; financial costs of maintaining two systems for a period, particularly dealing with backlog of overpayments; financial penalties for existing contracts; data sharing issues; difficulty with third party system interfaces; loss of experience and local knowledge; and the additional cost and complexity of public communication, advice services and tribunal support.

10% cut to CTB if devolved

4. Indiscriminate cutting of budgets act as a disincentive to local fiscal responsibility. Since 2008/09 Councils have frozen CT and therefore the CTB bill has not risen. The UK Government have thereby financially benefitted from this policy by around 3% year-on-year savings. Applying a blanket 10% cut to CTB in a devolved settlement for Local Schemes will not reflect this.

The UK Government must provide for current and future liability in a devolved setting

5. If CTB is devolved, the transfer of finance needs to match the transfer of responsibility. Currently, Local Authorities estimate that 65% of those eligible actually take up CTB. Demand for benefit is likely to grow in the immediate future by virtue of economic and employment predictions and therefore this must be reflected in the transfer of resource.

Administering Universal Credit

 

Paying all benefits direct to claimants

 

6. Direct Payment to the claimant is not always in the interests of the benefit recipient – vulnerability to debt and financial difficulty should be a factor in sustaining payments made to providers such as councils. Because of the high levels of vulnerability found in the social rented sector, many benefit recipients are likely to struggle with household budgeting. The shift in benefit rates from RPI to CPI, rising food and fuel prices etc may also exacerbate an already difficult financial environment, compromising money management, risking arrears and reducing council income.

7. Paying all benefit to one member of the household could exacerbate the already vulnerable position and dependency of other members of the home who would no longer have access to an independent source of funds. For example, women who suffer from domestic abuse may be further disadvantaged by this proposal. It is equally likely that the cost to local authorities of supporting this group will increase as temporary accommodation and immediate costs are met.

8. Local Authorities are also concerned that paying benefits directly into bank accounts could add to the financial problems of recipients who find it difficult to manage very tight cash flow or who get into debt – albeit from a one-off unexpected cost. As banks reclaim their charges (plus interest) before other commitments can be met, it could result in spiralling debt problems for individuals and non-payment to service providers. Councils are aware that paying for council services such as council tax are likely to be at the bottom of claimant priorities in such situations.

Undermining secured income for Local Authorities

9. Direct payment to the provider maintains the financial stability of large organisations and therefore undermining their ability not only to achieve lower investment overheads but also to secure any additional finance. The removal of direct payment will lead to an increase in rent arrears, a reduction in direct income and pressure on councils’ ability to borrow money, reducing funding available to invest in existing stock and for investment in new affordable housing. Councils will also have to channel resources away from other services into managing and collecting rent arrears. To mitigate the effects of the removal of direct payments, Local Authorities may have to review rents. If rents are increased, this could cover some of the extra costs involved in monitoring arrears and rent collection. However, this may make social housing unaffordable to those on low incomes or reduce the benefit of the new taper rate.

Transferring the cost of bureaucracy

10. Centralisation of HB and paying it direct to the claimant alongside abolishing CTB in favour of local schemes does not remove bureaucracy from the system – it will merely transfer the burden and cost of bureaucracy to the local level. The Universal Credit may deliver a national process which seems less bureaucratic, given that there will be one claim and one payment made monthly to each household. However, the system will need to be administered in one way or another. This must be a transparent part of the system rather than a hidden cost to Local Authorities or the claimant.

11. If the UK Government stops facilitating direct payments to social sector landlords then those organisations will have to establish alternative ‘payment collection’ bureaucracies which engage directly with individuals. This will need to be supplemented by services dealing with arrears control, debt management, eviction proceedings and other court action for pursuit of debt. For example, Glasgow currently experiences 46% arrears for water and sewage costs. The cost of collection per property can be as much as £22. Costs may have to be met either by organisations themselves or passed on to benefit recipients. Demand for help with budgeting problems and debt management is likely to heap increased pressure on Local Authority welfare rights staff as well as on voluntary sector advice services.

12. Scottish Local Authorities currently receive between £76-£90 million from the DWP to administer HB and CTB. Because of the generic way in which financial services are administered in Local Authorities, this cost reflects significant economies of scale for the public purse. If HB is centralised and CTB abolished, this money will be lost to Local Authorities. This will affect the efficiencies councils can achieve across financial services within the authority. The loss of economies of scale is particularly important. In Highlands and Islands , the shared services agenda has been given a high level of priority with 8 back offices across neighbouring Councils sharing common infrastructure and software. Removing HB is likely to have an adverse effect which will be compounded by the abolition of CTB.

13. To further detail the type of additional effort required to set up a rent collection and debt management scheme, it is worth noting that on average in Scotland nearly 60% of local authority rental income (ranging from 33%-75%) and nearly 16% of Council Tax income (ranging from 7%-30%) is from Benefits. Furthermore, the complexity of collection from benefit claimants is increased by the mix of full and partial benefit receipts – something which is likely to be exacerbated by the real time flexibility of the new system. For example, in North Ayrshire 43% of rentals are full HB claimants and 26.4% are partial HB claimants while in the Shetland Islands, 25% of rentals are full HB claimants and 17% partial benefit claimants.

14. The current administrative figure of £76-£90million is therefore not an unreasonable estimate of the additional resource which councils may have to find to invest in the administration of local schemes and the local bureaucracy of debt management and rent collection necessary as a result of direct payments to the claimant.

The hidden cost of administrating the new system may undermine the value of the taper and the incentive it provides to move into employment

15. As described above, service providers may not be in a financial position to absorb the administration and debt associated with the new system and may pass those costs directly to claimants. If costs were passed to claimants, the impact of the increased central taper would be diminished with increased disposable income being used to meet the cost of establishing and maintaining multiple payment/collection mechanisms.

Housing Benefit

 

Devolved Context

16. Centralising Housing Benefit undermines devolved powers contained in law. The implications and housing policy priorities for Scotland are clearly different to the rest of the UK. Cuts already made as part of the CSR will have different significance in Scotland and occupancy rates, non-dependants, single room rate for under 35 year olds and the move to 30th percentile rents are more important here than the £400 cap. However, the concerns London Authorities had with the £400 cap resulted in more generous lead-in times to adjust to the impact of the policy change. For Scottish Local Authorities, the situation has worsened with each spending review and budget from the UK Government and currently, with no consultation and limited notification, the changes to the single room rate will need to be implemented by January 2012.

17. These cuts alongside wider welfare reform will bring about policy changes which compromise devolved authority and have potentially negative financial implications for local authorities and individuals. A key example for Scotland is in terms of the use, disposal and building of stock. No account has been taken of the changes Local Authorities and other housing providers will collectively need to make to their stock composition to meet demand for smaller sized accommodation that will result from the introduction of reduced levels of benefit for those living in accommodation deemed larger than necessary. Insufficient lead-in time and transitional support further increase the likelihood that needs will not be met. People will either have to continue to live in accommodation which costs more than HB, meeting those costs from money earmarked for other essentials, or Local Authorities will have to collect lower rents, or people will need to move.

Under-occupancy and stock capacity

18. The implications of the under-occupancy amendments will necessitate one of three responses with regards to affected benefit recipients: i) where accommodation is available, recipients will have to downsize and move. This may result in loss of community connections, opportunities for wider family contact and proximity to employment; ii) where alternative accommodation doesn’t exist because of policy decisions taken by virtue of devolution, local authorities will have to devalue their rental assets and lose secured income which supports the financial health of the organisation and wider services; iii) where accommodation does not exist and demand for housing of all sizes is high, individuals may be made homeless. However, the homelessness legislation in Scotland means that Local Authorities will again pick up the financial impact of welfare policy by meeting the costs of the placement – with serious implications for sustainable outcomes for benefit recipients.

19. The collective stock composition of housing providers in Scotland is not sufficient to allow people access to right-size accommodation. Most stock-based pressure will be placed on downsizing to 1-bedroom properties. Local Authorities currently make greatest use of 1-bedroom properties to meet legislative duties in relation to homelessness. In Scotland there are 244,420 HB recipients of working age in the Social Rented Sector (2009/10). 31% or 75,800 are underoccupying their property by 1 bed and a further 8% or 19,600 by 2 beds. An additional 26,000 properties are overcrowded. To give some idea of the capacity in Local Authorities, at current levels of homelessness 22 out of 32 Local Authorities will require over 60% of 1-bedroom lets to be available for homeless households. In East Lothian, Edinburgh, the Highlands and Islands, and West Lothian the need for 1-bed properties is substantially higher than availability, with a further 9 Local Authorities close to capacity.

20. In Edinburgh there is currently a significant mismatch between property size and demand. 61.8% of homeless applicants in 2009/10 required a 1-bedroom property. Currently, 1-bedroom properties only comprise 28.6% of the council’s total housing stock. The council does not currently have sufficient stock to meet demand if tenants who are underoccupying cannot afford to make up the difference in rent from their own income and are forced to downsize. This may result in increased pressure on temporary accommodation.

21. Glasgow are not expecting huge numbers of people to lose homes but foresee people will be squeezed from one part of the housing market to the other in a chain of home owners forced into the private rented sector then into social housing, while the capacity to expand social housing is reduced. 19,000 social rented units are due to be demolished between 2003-2015 and Glasgow is effectively experiencing a stock standstill.

22. In the Highlands and Islands there is a high level of housing need and this is projected to continue. There are also very high levels of fuel poverty with large areas having no gas supply. There is a shortage of smaller properties as single people increase demand and an overreliance on B&B which the council is trying to address but which may be undermined by HB changes.

Homelessness

23. In 2009/10 56,669 households made homeless applications to Local Authorities, of which 42,207 were accepted. 6,140 homeless cases presented from the PRS. If 5% of those affected by a drop in income from underoccupancy in the social rented sector become homeless there will be an annual increase in current homelessness levels of 4,700. In the PRS, conservative estimates suggest a further 3,000 additional homeless cases will present in 2011/12 and 2012/13 alone. In Scotland, homelessness costs vary from £25 per night for Bed and Breakfast and up to £40,000 for temporary accommodation or refuge.

Breaking the link between liability and benefit for both CT and HB

24. The proposed abolition of HB will also significantly undermine the financial stability of Local Authorities as the housing element included in Universal Credit will no longer match rental liability and will be paid as part of a monthly award direct to claimants. This could place already vulnerable people in a very precarious financial position and potentially increase the chances that many more will present as homeless.

25. Moreover, breaking the link between HB and market rents by moving from RPI to CPI makes it more difficult for families to meet all their basic needs from the Universal Credit. This will increase poverty over time – especially for those who cannot access employment.

26. Equally, centralisation of CTB into the Universal Credit or devolution to the Scottish Government could result in a standardised approach to cost which would break the link between people’s actual liabilities and benefit. If such an approach were taken, it would fail to capture local circumstances which vary by neighbourhood, community, local authority and region. It is also highly likely that centralisation and standardisation would either undermine the financial stability of Local Authorities or force recipients to make impossible decisions about money otherwise needed for eating, heating and clothing.

Timing and implementation

 

27. The Bill currently abolishes CTB in April 2013. It is unrealistic to suggest that Local Authorities should have a new scheme established by then. The timelines are so tight as to be unworkable as new arrangements would involve public consultation, political approval, design specifications for IT, tendering processes, modelling and testing periods, and finally, delivery and charging policy. With regards to HB, the lack of transitional arrangements takes no account of how possible it is to deliver the system requirements associated with welfare reform nor whether Local Authorities and RSLs have the required stock to accommodate change.

Disability Living Allowance

 

Devolved context

28. Similar to CT and HB, the devolved context needs to be carefully considered with regards to social care if the UK Government is to avoid compromising devolved powers. To date, Scottish Government and Scottish Local Authorities have focussed on the value of co-production, promoting and protecting independent living and self-directed care. Welfare Reform must take this into consideration as part of the reform agenda.

Cuts increase demand for services and compromise the affordability of care

29. The changes to DLA will force those who experience cuts to their income to seek support from Local Authorities in order to meet their needs - which will not have altered. Local Authorities are very sensitive to the fact that cutting the income of benefit recipients will result in increased demand for their services. Nowhere is this more relevant than with regards to DLA. However, increasing demand for services while decreasing the capacity of individuals and Local Authorities to pay for those services is likely to result in vulnerable people being left to cope without support. Dundee City and North Lanarkshire both expect annual losses of £7million with a direct impact on individuals and indirect impacts on carers, families and the local economy while Stirling Council is estimating a £1.8m loss to care budgets with a possible further £1.2m lost from Attendance Allowance.

30. In Glasgow, the 20% cut to DLA will affect the eligibility of individuals for council non-residential services and their ability to pay for those services. It is estimated this will initially amount to over £500,000 in cuts and result in significant levels of unmet need. It is important to note that presently 60% of DLA appeals represented by the Welfare Rights Team are successful but at a cost to the Local Authority. This suggests that if the DWP do not improve their own error rate, councils could face significant demand for support with appeals on top of dealing with cuts to income and service provision.

31. It is also likely that if service users lose DLA and premiums in income support and pension credit, then they are more likely to fall behind the council’s own tapers for charging, resulting in reduced income but not reduced demand. Often, benefit provision also acts as a match-funding mechanism for the provision of service. Where that funding is cut, it increases the cost to Local Authorities and decreases the added value of investment. Local Authorities will have to consider this impact in light of wider budget cuts and may have to re-evaluate the viability of services.

Impact on Passported Benefits

32. With the proposed reforms, the current criteria for access to passported benefits will no longer exist. A complete overhaul of the rules on access to passported benefits will be needed with considerable administrative, policy and financial implications for councils. This impact is difficult to assess given the range of service configurations councils have developed to meet local need. There will be a requirement for an alternative complex assessment procedure for services, notably applications for Blue Badges and Travel Cards. Carers will require individual assessments for support from Carers Allowance and consideration will be needed for how to transfer the current ‘carer status’.

33. Loss of protection from non-dependant deductions and entitlement to DWP premiums will lead to an overall loss of means-tested benefit, in turn leading to loss of free school meals, clothing grants and access to the Social Fund. A tenant receiving HB and DLA Care with a resident non-dependant would have the non-dependant deduction reintroduced, leading to an increased risk of homelessness resulting from non-payment of the difference.

34. Other indirect losses include home visiting services for libraries, accessible bus travel and a potential impact on shopmobility; if people can't afford transport to shop, demand for the shopping service will increase. In addition, many people currently in receipt of DLA will have less disposable income, leading to lower take-up of other services, including community alarms, health and social activities, support services, home care and gardening.

Employability and economic development

 

Improving employability

35. Welfare Reform must go hand in hand with a strategic commitment to employability. People coming off benefits are expected to enter a job market which is, at best, precarious, and benefit changes for many claimants will lead to reduced income. Cuts to household income without concomitant growth in jobs will have a knock-on effect on the economy of local communities - Rights Advice Scotland and the Scottish Local Government Forum Against Poverty estimate a loss of £480 million to the Scottish economy. This, in turn, will impact on job creation. Local Authorities must be supported to continue the good work they undertake in this area.

36. Initiatives in Glasgow have reduced the number of people without work from 100,000 to 85,000. It is envisaged that with welfare reform and the withdrawal of DWP funding for local programmes, it will be more difficult to deliver the joint economic strategy with its successful interventions such as the Commonwealth Games apprenticeship initiative which has benefitted 1500 young people to date. It will become increasingly difficult to get marginalised people into employment as the ability to deliver services and a people-centred approach is compromised by cuts in funding.

37. Edinburgh, in partnership with colleges and the NHS, has a new employability model which targets groups that are not ready for employment through single work programmes. They are focussing on individuals in receipt of Incapacity Benefit and alcohol and substance misusers, aiming to engage with clients as early as possible and to better integrate their support mechanisms. These target groups will be entering the labour market at minimum wage. Successful local programmes such as this will be at risk in future.

Avoiding a two tier workforce

38. Jobs must not only be created but they must be good jobs in the right places. Scotland has recently benefitted from a number of large job-creating opportunities. This is a welcome development but may also give the impression that Scotland is well-placed to absorb the impact of benefit cuts through a shift to employment in these areas. This will only be true if the jobs offered are the right level of employment, in those areas which suffer from low employment and low employability.

39. Glasgow has seen a growth in JSA claimants, from 25,245 in February 2010 to 26,045 in February 2011. There has also been a decrease in the numbers of vacancies notified, and the numbers of individuals moved into employment. Some of the movement will be seasonal but it is anticipated that there will be an overall decrease in the numbers of vacancies which will be available.

40. In rural areas of Scotland such as Highland there are pockets of deprivation even in relatively affluent areas, much work is seasonal and it is not uncommon for people to have more than one job. The Universal Credit – including the sanctions element – must be sensitive to local circumstances such as these.

The importance of affordable childcare

41. Under the proposed changes to the childcare element of Working Tax Credit which are intended to incentivise a move into the workplace, we expect more parents of young children to require affordable childcare if they are to maintain their income levels or move from benefit into the workplace. If this childcare does not exist or is not accessible to parents then moving into work may not be an easy option and income levels may be hit. As a provider of childcare, the burden to provide more places may transfer to Local Authorities. There is at least the potential for the proposals to reduce family income and not increase employability unless Local Authorities increase the number of childcare places at a further cost to the devolved public purse.

April 2011