Welfare Reform: the view from Scotland

The surprising outcome – according to prior polling – of last week’s general election has returned a slim majority for the Conservatives.

Instead of a period of uncertainty, with closed negotiations and carve ups, we have some clarity and plans for a 100 day policy blitz.

Sinn Fein’s sudden opposition to the Stormont House Agreement was an attempt to kick welfare reform down the road, in the hope that the election outcome would give them some leverage to ease reductions to social security - it has not.

Iain Duncan Smith has returned to the Department for Work and Pensions and his reforms will continue, and continue to grow.

Punitive measures against Stormont, should the Assembly not bring Northern Ireland into line with the rest of the UK, will be too great to handle so – however it plays out – it appears certain that welfare reform will come to Northern Ireland.

So, what will be the consequences for the public and the third sector?

Scotland

Welfare Reform (WR) has yet to fully roll out across the UK. However, in parts of Scotland it has been coming into effect for a couple of years, and two reports published in the past six months have examined its impact.

In December, the Scottish Council for Voluntary Organisations (SCVO) published Third sector and welfare on the frontline, its assessment of welfare reform on the public, from NGOs’ point of view.

Scope previously wrote about Holyrood’s Welfare Reform Committee; that group also published a report, in March, called The Cumulative Impact of Welfare Reform on Households in Scotland, prepared by Prof. Steve Fothergill at Sheffield Hallam University.

Neither strikes an optimistic tone.

The committee’s report found that welfare payments will reduce by £440 per year, on average, for every adult of working age in Scotland.

Of course, these reductions in social security mean the money that would have been diverted into social security will instead go, or stay, elsewhere.

This could mean tax cuts, redirected governmental spending – though that has not been a major message of this government – or a trimming of the deficit (it should be noted that deficits are extremely common in a spluttering economy and a return to robust growth can tackle them as well, if not better, than cuts).

However, the report says the key issue is that WR “falls very unevenly on different places, and on different households”, adding:

“Families with dependent children are one of the biggest losers – in Scotland, couples with children lose an average of more than £1,400 a year, and lone parents around £1,800 a year. Because this is the cumulative impact of several individual benefit changes the overall impact has previously been hidden.

“Claimants with health problems or disabilities also lose out badly. Reductions in incapacity benefits are estimated to average £2,000 a year, and some of the same people also face big losses in Disability Living Allowance as well as reductions in other benefits.

“Nearly half the reduction in benefits might be expected to fall on in-work households.

“There is little prospect in Scotland that the loss of benefit income will be offset by growth in income from employment, and increases in Income Tax allowances only go a small part of the way for some households.”

Clearly not everyone in the UK will be worse off thanks to welfare reform. The picture painted is, broadly speaking, one of a reduction in redistribution – which probably comes as no surprise.

So regions like London and the South East might find their local economy benefits from these changes, though of course many individuals therein will still see lower incomes. Northern Ireland is likely to offer a significant contrast to that.

In our interview with the Michael McMahon MSP, linked to above, the convenor of the WR Committee in Scotland said:

“Fothergill’s report talks about averages [in terms of financial impact] and the averages are eye-watering. But averages mean some people will be below that and some will be above, so the impact on some can be excessive.

“And given we are talking about people already on the bread line it’s clear just how badly some people are affected.”

One of the arguments from DWP in support of cuts to social security is that people are better off in work whenever possible and that these reforms will “make work pay”.

The committee report says: “There is no question that the welfare reforms do increase the financial incentive to work. On the other hand, even before the reforms began most out-of-work claimants would have been financially better off in employment. Financial disincentives only came into play for relatively small numbers at specific cut-off points in the system. It is these cut-offs that Universal Credit is intended to address by ensuring that claimants are financially better off in work in all circumstances.

“Additionally, it is worth remembering that several of the welfare reforms – the changes to Tax Credits, to Child Benefit and Housing Benefit for example – impact extensively on those who are already in employment. Many of those in employment may find it difficult to increase their working hours to offset the loss of income. Relatively few employers can offer this flexibility.”

Third sector

The SCVO’s report noted similar findings to that of the Welfare Reform Committee: saying the reforms have aggravated existing problems for people, in-work poverty is “significant”, and stress on existing claimants has increased.

It also painted a bleak picture for NGOs and their provision – something that should ring some bells in the local third sector, given it is already being squeezed for funding, leaving it not best placed to cope with rising demand.

The report says: “A lot of anxiety exists about the end of Scottish Government welfare reform mitigation funding in 2015. The ever-increasing competition for available sources of funding, the difficulties presented by short-term funding contracts and cuts in local authority budgets are all key concerns for organisations.”

It also raises concerns that the need to firefight people’s concerns in the face of benefits cuts is distracting organisations from their core work, and that smaller NGOs are seeing their frontline staff struggling to keep abreast of all the changes given these other concerns.

DWP itself came in for criticism as administrative errors were creating further work for the third sector. The need for a living wage was also highlighted as was a requirement for “more sustainable employment opportunities”.

The report concludes: “Government funding to tackle welfare mitigation should focus on ensuring people are prepared for and understand the current (and future) welfare support system. We need to ensure a greater emphasis on preventative approaches to welfare support. The third sector in particular, has shown that it plays a unique role here.

“There must be opportunities with any further devolution of power to the Scottish Parliament to ensure that people who are dependent on social security are enabled to live a full and fulfilling life and not consigned to abject poverty, through no fault of their own… New powers must be used to do something quite different, taking a positive approach that helps people build their dignity, self-respect and confidence.”

The SCVO – and, previously, the Scottish Welfare Reform Committee – has also be voluble in its concerns about the use of sanctions in welfare reform.

To some that might appear a striking omission from this article, however Scope will address that in the coming weeks.

It should also be remembered that across the UK, welfare reform is yet to really happen. According to Michael McMahon: “What we [the Scottish committee members] have done is we’ve looked at practical solutions to what has changed up to now, but the main changes are to come through, they haven’t actually happened yet, including the roll out of universal credit – which is comfortably the biggest single element of change, so we know that the worst is still to come.”