Welfare Reform and Work Bill

Written evidence submitted by Joseph Rowntree Foundation (WRW 15)

The following submission explores the proposals contained within the Welfare Reform and Work Bill in the context of JRF’s evidence base.

Key points

· Clauses 4-6: The life chances measures proposed by this Bill should be used to build upon the measures enshrined in the Child Poverty Act 2010, not replace them. There are a number of further measures which could be introduced to provide the government with a dynamic picture of poverty and opportunity in the UK.

· This Bill provides the government with an opportunity to make progress on their manifesto commitment to halve the disability employment gap, through the inclusion of a statutory target and further reporting requirement upon the Secretary of State for Work and Pensions.

· Clauses 9 – 10: Freezing the levels of benefit payments over this parliamentary term is likely to increase poverty and have a negative impact upon life chances. Annual reviews of uprating would allow the Chancellor to respond to positive changes in the UK economy and ensure that households on the lowest incomes share in the benefits of economic success.

· Clause 13: The proposed reduction in support given to those in the work-related activity group of Employment Support Allowance, combined with the longer periods of unemployment experienced by people living with a disability, will have a serious and prolonged impact upon the living standards of disabled people. To mitigate this, the government should look to improve the Work Programme so that the average length of unemployment faced by those with disabilities is much closer to that of JSA claimants, with whom they’ll be provided equal levels of financial support. The programme should focus on more intensive personalised support, bringing together the management of health conditions, mental ill health and disabilities with support to re-enter the labour market.

Introduction

 


The Welfare Reform and Work Bill marks the start of a significant shift in the UK’s welfare system, setting out a path away from a ‘high tax, low wage, high welfare’ system towards a ‘low tax, high wage, low welfare’ system. Undoubtedly, reduced reliance upon the welfare state to make ends meet and higher take home pay for low income families are positive objectives. Alongside this, the Chancellor made a commitment to clearing the budget deficit by 2019, placing a tight restriction upon the methods by which this economic and social shift might be achieved.

Our report ‘Will the 2015 Summer Budget improve living standards in 2020?’ (JRF, 2015) assesses the impacts of the Summer Budget upon living standards using our Minimum Income Standard (MIS) as a benchmark. MIS asks members of the public what goods and services they think are necessary to achieve a ‘minimum socially acceptable standard of living’ across a variety of household groups. This basket is then costed to calculate the income necessary to reach this standard of living.

The report finds that the introduction of a National Living Wage (NLW) is a major step forward in tackling low pay among some working households. Workers over the age of 25 who do not receive any benefits (and have relatively low housing costs) will be much better off, largely because of the NLW. For example, a single person aged over 25 who works full time on the minimum wage will have 97 per cent of what they need for a minimum standard of living in 2020, compared to 79 per cent in 2015, a significant improvement. Similarly, pensioners also stand to gain. Those who rely solely on the state pension currently receive 96 per cent of what they need to cover a decent standard of living, which will rise to 6 per cent above what they need by 2020.

However, many groups at the lower end of the income spectrum will not see their overall living standards rise as a result of the Budget proposals, primarily because of changes to benefits. Families with one full-time and one part-time earner will remain the same, while lone parents working full-time on the NLW will see their living standards decline. Working-age families who are reliant on safety-net benefits will fall even further behind what they need, due to the proposed freeze of welfare benefit levels, which will allow rising inflation to erode their value, and the reduced generosity of the Child Tax Credit for future claimants. For example, in 2020 a single person who claims out-of work benefits will get just over a third of what they need for a basic standard of living, compared to 41 per cent in 2010. Families with children will see their incomes fall from two-thirds of what they needed in 2010 to half in 2020.

Overall then, the Budget improves the prospects of those not reliant upon state support and sharpens incentives towards employment, while squeezing the incomes of lone parents in work as well as a broader section among those who do not have a paid job . The tight schedule that the Chancellor has set himself to eliminate the Budget deficit, and the focus upon achieving savings through working-age welfare have left little room for a more graduated shift in responsibility for the living standards of low income households from the state to employers, one which could soften the impact of Budget savings upon low incomes households.

Clauses 4 – 6 Repeal of the Child Poverty Act

 

The government is right to argue that a narrow reliance upon income measures to identify households in or at risk of poverty is insufficient. Our evidence suggests that exiting poverty is about more than simply moving across an income line set in relation to median incomes, but it also shows clearly that more money does directly improve children’s life chances (JRF, 2012). We support the introduction of the new life chances measures, but by replacing the previous income measures, they amount to a step backwards in developing an accurate picture of poverty. JRF believe that the government should report on the new life chances indicators alongside the range of income measures enshrined in the Child Poverty Act 2010 if it is to present a fuller picture of the state of life chances in the UK.

Furthermore, our annual Minimum Income Standards research (JRF, 2015) highlights the importance of costs in better understanding how households at the bottom end of the income spectrum are faring. JRF believe that income measures should better account for household costs, by including analysis of income after essential costs like childcare as well as accounting for the extra costs of disability. This would support a more accurate and dynamic picture of the absolute living standards of UK households.

The Bill introduces measures of worklessness (and attainment) to understand poverty and life chances in the UK. While all of our evidence suggests that work remains the surest route to improving one’s living standards, the rise of in-work poverty presents a new challenge to improving social mobility and life chances. JRF believe that this Bill presents the government with an opportunity to better understand and address this challenge. The government’s Households Below Average Income series shows statistics on parental work status, broken down by family type and whether each parent is working full-time, part-time or is self-employed. This could form the basis for a more detailed look at the bottom end of the labour market, underpinning action to address barriers to life chances such as low pay and underemployment. This data could be reported upon by the Secretary of State for Work and Pensions to focus attention upon a sustained reduction in in-work poverty and subsequent improvement in life chances. If it were expanded to look at both hours worked and pay, as will be made possible by Real Time Information, the government would have a clearer view of the contribution of low pay and underemployment to changing numbers of households in-work poverty.

Finally, the Child Poverty Act 2010 required the Secretary of State to develop a strategy for tackling child poverty. This requirement will be lost with the repeal of the Act under this Bill. The Welfare Reform and Work Bill should make provision for a new requirement upon the Secretary of State to develop and publish a life chances strategy, one which addresses all ages and maps a path towards progress on this important agenda. The Joseph Rowntree Foundation is continuing to develop its own strategy to improve the life chances of low income households and bring about a sustained reduction in poverty levels in the UK. We’d be glad to discuss our approach with the government in more detail.

Recommendations

· That the Bill includes a requirement to report on income measures alongside the new life chances measures. These should take account of essential household costs to present a detailed picture of the living standards of low income households.

· To draw focus towards tackling rising in-work poverty, the government should use the HBAI data on parental work status to identify drivers of in-work poverty in the labour market.

· The Bill should place a statutory requirement upon the Secretary of State to develop and implement a life chances strategy every four years, to be assessed by the Social Mobility Commission.

Halving the disability employment gap

 

In 2014, the charity Scope found that, since the year 2000, "the gap between disabled people’s employment rate and the rest of the population [has] remained largely static at around 30%" (Scope, 2014). This has been confirmed by our own evidence, which also suggests that people living with disabilities are "less likely to be working, and more likely to be low paid." (JRF, 2014) This employment gap, combined with the higher living costs associated with disability (JRF, 2004) is a likely driver in the high levels of poverty among disabled people; 38% of people in poverty live in a household with a disabled member, by comparison, 30% of all individuals live in a household with a disabled member. Furthermore, the inclusion of welfare support for the additional costs of disability within the standard assessment of disabled households’ income understates the overall number perceived to be in poverty. When such support to meet additional costs is removed from income, an additional one million disabled households fall below the relative poverty line (JRF, 2014).

The disability employment gap also presents a barrier to the government’s aspiration of achieving full employment, prompting the inclusion of a commitment to halving the gap over the course of this parliamentary term within the Conservative Manifesto 2015. This Bill provides an opportunity to demonstrate this commitment, through the inclusion of a statutory target and further reporting requirement upon the Secretary of State. A statutory target would provide a clear point of focus for concerted action over the course of this parliament. Actions to address the disability employment gap could be included in a life chances strategy widened to focus on adults as well as children.

Recommendation

· The Welfare Reform and Work Bill should place a requirement upon the Secretary of State to report on progress made in reducing the disability employment gap. Actions to address this issue could be included in a widened life chances strategy.

Clause 9 – 10 The freezing of welfare benefits

 

Clause 9-10 of the Welfare Reform and Work Bill freezes a range of welfare payments for four years to their value at April 2016. While this will make a significant contribution to progress with eliminating the deficit (assuming inflation returns to the target level), it is likely to have a serious detrimental impact upon working-age households reliant upon state support to top-up their income; as the value of the frozen benefits is eroded by inflation over the four year period, poverty will grow and deepen, reducing life chances and opportunities for households on the lowest incomes both in and out-of-work.

While our Minimum Income Standard 2015 research (JRF, 2015a) showed that low inflation has placed downward pressure on the price of many essential goods and services, the cost of some have continued to increase. For example, the research showed that over the year to April 2015, private rents have increased by 2%, while childcare costs increased by 2.4%. Though these are relatively modest figures, they follow a prolonged period of large above-inflation increases in the cost of essential goods and services which have had a very detrimental cumulative effect upon household budgets. This was especially acute for those at the bottom of the income distribution, who spend a larger proportion of their household income on essentials. The likely return to stronger inflation growth will place further pressure upon their ability to make ends meet. Indeed, JRF research demonstrates the fragility of the gains from the package of measures in the Summer Budget should inflation rise higher than forecast. An increase of 1 per cent a year above the forecast rate would wipe out the gains currently going to a couple with two children working full time on the NLW (JRF, 2015).

By extending the timetable for deficit reduction, the government have shown a willingness to respond to wider economic conditions while continuing to make progress towards their overall aim of balancing the books. Should we see higher revenue receipts brought about by an uptake in productivity and continuing improvements in the employment rate, the option to uprate benefits would allow the Chancellor to temper the impacts of welfare savings upon those at the bottom end of the income spectrum, linking growth to improved life chances.

JRF believe therefore that the Chancellor should retain an annual review of welfare payment levels to allow for a flexible approach to deficit reduction, one which can use the benefits of strong economic performance to maintain living standards for those on the lowest incomes while the NLW has time to increase its bite.

Recommendation

· JRF recommend retention of the annual review of benefit levels to allow the Chancellor to link strong economic performance with the maintenance of living standards at the bottom end of the income spectrum, while continuing to make progress towards the elimination of the deficit. For example, continuing with a flexible approach would allow the Chancellor to uprate specific benefits to offset increases in the costs of particular essential goods or services.

Clause 13 Employment support allowance; work related activity component

 

The Chancellor announced at the Summer Budget that he would reduce the level of benefit paid to claimants in the Employment Support Allowance ‘work-related activity group’ (WRAG) to the value of Jobseekers’ Allowance, as part of moves to make savings on welfare expenditure. The Chancellor argued that the additional employability support offered to those claiming Jobseekers, and the significant reduction in the number of JSA claimants since 2010 were reflective of a better system for encouraging people into work.

In our review of the links between disability, long term conditions and poverty (JRF, 2014) we could not find any evidence at a national level that disability employment rates are improved by reducing benefit generosity. While we appreciate that the savings made will contribute to the government’s deficit reduction plan, they will also have a serious impact upon the living standards of those disabled people identified for work related activity.

Furthermore, our evidence suggests that disabled people are likely to be out of work for longer than those living without a disability. This could be due to reduced opportunities in the labour market, sometimes as a result of employer reluctance to make adjustments to the workplace (JRF,2014). Though the evidence also points to a number of flaws in the Work Programme that will need to be resolved to equalise access to the labour market, and ensure that those in the work-related activity group do not have to endure significantly reduced living standards for much longer periods than others receiving JSA support.

Our submission to the Comprehensive Spending Review 2015 sets out the following proposal for further government efforts in relation to the Work Programme which could help to mitigate the impact of the above proposal;

For individuals with health conditions or disabilities their motivation to return to work and their perception of their health condition have proved important in evaluations of previous programmes. Yet evaluation of the Work Programme finds advisers too often do not have sufficient knowledge of health conditions to work with individuals to change their view of their own capabilities, where appropriate.

In addition, the way the Work Programme contracts are structured has not worked well for smaller, more specialist advisers, particularly those from the third sector. Evaluation of the Australian experience has found greater competition and diversity of providers, along with choice for service users has been associated with improved outcomes and participant experience.

Together this evidence suggests just tweaking the payment amounts within the Work Programme will not suffice: a different approach to delivering employment support is needed. This should be one that focuses on more intensive personalised support, bringing together the management of health conditions, mental ill health and disabilities with support to re-enter the labour market. The commissioning process should prioritise bids that can demonstrate links to wider local services, such as health services, condition management and treatment services.

In addition, responsibility for the delivery of the (voluntary) Work Choice Programme and the Access to Work scheme to provide support with the cost of workplace adaptations to enable people with health conditions, mental ill health or disabilities to take up a job should transfer to this programme. This will enable providers to offer a more integrated service to both service users and employer. This should incorporate a service to support employers with adaptations to prevent people exiting employment when a condition or disability has been diagnosed, in order to prevent people dropping out of the workplace in the first place.

Given the problems with contract incentives, one possible model would be to provide funding upfront, with providers liable for reimbursing DWP during periods when individuals aren’t working. This will both ensure providers have access to working capital and have a clear incentive to support people into work. Keeping the focus on earnings progression could be ensured by a payment by results element on the basis of earnings (JRF, forthcoming 2015).

Recommendation

· The proposed reduction in support given to those in the WRAG group of ESA, combined with the longer periods of unemployment experienced by people living with a disability, will have a serious and prolonged impact upon the living standards of disabled people in the work-related activity group. To mitigate this, the government should look to improve the Work Programme so that the average length of unemployment faced by those with disabilities is much closer to that of JSA claimants, with whom they’ll be provided equal levels of income support. The programme should focus on more intensive personalised support, bringing together the management of health conditions, mental ill health and disabilities with support to re-enter the labour market.


September 2015

 

Bibliographic References

 

Cooper, K. & Stewart, K., How much does money matter (JRF, 2012)

Hirsch, D., A Minimum Income Standard for the UK in 2015 (JRF, 2015a)

Hirsch, D., Projecting living standards of low income households until 2020 (JRF, 2015b)

JRF submission to the Comprehensive Spending Review (JRF, forthcoming 2015)

Post-Budget Analysis (IFS, 2015)

Reducing poverty in the UK: a collection of reviews (JRF, 2014)

Smith, N., et al., Disabled people’s costs of living (JRF, 2004)

Trotter, R., A Million Futures; halving the disability employment gap (Scope, 2014)

About the Joseph Rowntree Foundation

 

The Joseph Rowntree Foundation is an independent organisation working to inspire social change through research, policy and practice.

We want to see a prosperous UK where everyone can play their part. We work in partnership with individuals, communities and a range of organisations to achieve our goals. We use evidence and experience, and we search for the underlying causes of social issues so we can demonstrate practical solutions that bring about lasting change.

All research published by JRF, including publications in the references, is available to download from www.jrf.org.uk

Prepared 11th September 2015