Welfare safety net Contents

Summary

Delivering a speech at Kennington Jobcentre on 11 January 2019, the Secretary of State for Work and Pensions, Rt Hon Amber Rudd MP, set out her belief in the importance of the “welfare safety net”:

As a nation, I believe we all want a decent safety net: if you’re facing a difficult moment in life, the state should be there to help you. Whether that’s becoming unemployed, falling ill, or facing bereavement–nobody should find themselves alone in desperate circumstances. But it is vital that people are supported by this safety net, not trapped beneath it.1

Since 2010, Britain’s welfare system has undergone substantial reform. This has changed both the benefits available to claimants, and the levels at which those benefits are set. The Department for Work and Pensions (DWP/the Department) says that those changes are intended to encourage and incentivise work—rather than benefit receipt—and to alleviate and prevent poverty. But we have heard repeatedly in our recent inquiries that the Department’s reforms are pushing some people not only into poverty, but into hunger and destitution. The “welfare safety net” is not fit for purpose for people living on the breadline.

People rarely approach select committees when everything is going well. Even allowing for that, the contrast between the Department’s characterisation of the effect of recent reforms, and the evidence we have heard, is stark. It is difficult to avoid concluding that the Department simply does not understand the impact of its reforms on some of the most vulnerable people it supports. DWP’s policy decisions have a direct impact on the incomes of millions of people. There is no excuse for a lack of understanding or transparency about the effects of those decisions.

Measuring poverty and destitution

The Department’s announcement, in June 2016, that it will develop a new measure of poverty is encouraging. The Government’s existing measures of poverty focus on household income. It has no way of capturing whether that income is adequate for a household to live on. The new measure, based on work by the Social Metrics Commission (the Commission)—an independent, non-partisan commission—offers a more sophisticated understanding of who is “poor” and why. The Commission’s innovation is to view household finances like a profit and loss account, with income on one side and “inescapable costs” (such as childcare, housing or the costs of a health condition) on the other. We commend the Department for adopting the Commission’s measure. We are concerned, however, that it intends to use it alongside its existing measures, which will remain the “official” measures. To avoid accusations that it cherry picks which poverty data to use, we recommend the Department makes the new measure its official, central measure of poverty.

The Commission’s measure is of poverty, not destitution. These two terms are distinct. Some of the most worrying evidence we have received is from, and about, people who are “destitute”: chronically lacking basic resources such as food, stable housing or fuel because of a lack of money. The Department acknowledges that it would be helpful to understand these issues better, but the Government does not measure, or even define, “destitution” officially. The Commission’s approach shows that it is possible to take the debate away from arguments about terminology, towards a more constructive approach to tackling major, sustained hardship. The Department should replicate this approach, setting up an independent commission to develop a measure of destitution.

Risks of poverty

The Commission’s measure finds approximately the same number of people in poverty as the Government’s measure. But the composition of poverty—who is poor—is different. Under the Commission’s measure there are more disabled people and working-age families in poverty, but fewer pensioners, than the Government’s measure suggests.

Some people are more at risk of poverty than others. That is because they have “inescapable costs”. Disabled people often need to spend more than non-disabled people just to make society accessible and to have a similar standard of living. Parents—especially lone parents—who want to work frequently cannot avoid the costs of childcare. Those same groups may also find that their ability to increase their income through work is limited. This is where the safety net is needed most. The Department should do more to understand whether the benefits it offers to offset these costs are adequate. It has already said that it will review caps on childcare support. It should also commission an independent survey of the additional costs of disability, and use this when setting rates for disability benefits.

Governments’ successes in halving pensioner poverty since 2001 highlight just how important positive welfare policy can be in improving the living standards of people who cannot work, or are not expected to work. But unlike pensioners, working-age people have seen substantial reductions since 2010 in the value of some of the benefits that they may be entitled to.

The benefit freeze and uprating changes

‘Uprating’ is increasing the value of benefits to account for inflation. In 2011, the then-Government changed the measure of inflation used in uprating, from the Retail Prices Index (RPI) to the Consumer Prices Index (CPI). From 2013, most working-age benefits (including payments for people in work, for disabled people in the ESA-WRAG group, and for housing benefit claimants in the private sector via Local Housing Allowance [LHA]) were uprated by just 1%.

Even without any further changes, this would have contributed to a reduction in financial security for many of the households DWP supports. This includes people who need benefits to top-up income from low-paid work. But in 2015, the then-Chancellor announced that those same benefits would be frozen in cash terms for five years at 2015/16 rates. The Government said this was necessary because benefit growth had outstripped wage growth following the 2008 financial crisis: the freeze was framed as necessary to ensure “that it always pays to work”. The outcome is that already low rates of benefit have become divorced from the real costs of living.

By 2019, the Department had already saved £4.4 billion via the freeze: £0.9 billion more than it intended. It rejected our request to end the freeze early, however. Doing so would have lifted 200,000 people out of poverty; the Department’s regrettable decision means that very disadvantaged people are still losing out. When the freeze ends in 2020/21, a substantial chunk will have been taken out of the incomes of some of the country’s most vulnerable households.

Lifting the freezes as planned in 2020/21, therefore, is not enough. From 2020/21, the Government should increase the rates of frozen benefits by CPI plus 2%. That would mean that benefit rates would, after four years, reach the level at which they would have been set if they had not been frozen. From that point, the Department should commit to uprating benefits at least in line with inflation. In addition, the Department should produce a medium-term plan for linking the rate at which benefits are set with the real cost of living.

Understanding the impact of DWP policies

Universal Credit is the Department’s flagship reform: when it is fully rolled out, it will be claimed by seven million people. It represents a huge cultural and system change in itself. Its implementation alongside other reforms means that many thousands of people will be coping with multiple changes to the benefits they receive. DWP told us that it does not assess the cumulative impact of these changes, because such assessments do not usually take into account the effect of policy on behaviour. We think a full assessment is vital nonetheless: it is only by looking at changes in the round that the full impact of reform on household incomes can be understood. We recommend that the Department commissions and publishes a cumulative assessment of welfare reform since 2010 on claimant incomes.

The Social Metrics Commission’s approach to measuring poverty is underpinned by a conviction that “what gets measured gets done”. That also applies to the service that claimants receive from DWP. The Department is clear about what it expects from claimants, but vague about what claimants can expect from it in return. It lacks any kind of publicly available, measurable targets for its own performance. It claims this is because it wants to maintain flexibility in its service delivery. But that applies equally to other public services such as health and education, where standards are independently monitored and measured. DWP is not a special case.

The Department is concerned that people are being put off applying for Universal Credit by what it has called “scaremongering”. Unless it defines what is “acceptable” and measures whether that is being achieved, it cannot confidently claim to be delivering a consistently high-quality service, and in so doing refute the “scaremongering” allegations. It will also struggle to reassure sceptical claimants that they will be well-supported, especially as they move to Universal Credit. The Department should work with its stakeholders and delivery partners (including Citizens Advice) to agree and implement clear, measurable, published performance measures. In the longer-term, it should consider whether there is a case for introducing an independent regulator for working age benefits to ensure that specific service standards are met—mirroring arrangements in other parts of the welfare state, such as health and education.

The welfare safety net is about more than income, and more than DWP’s policies. But DWP has a vital role to play in maintaining its integrity, simply because its decisions affect the incomes of so many households and particularly the poorest. Successive Governments have made huge savings from almost a decade of changes to uprating policies and freezes. The outcome, however, is an increasingly patchy safety net, which is failing to support some of those who need it most. The Department has made an important first step in committing to measure poverty differently. It must now stand ready to act on what it will find.





Published: 31 July 2019