Welfare reforms: larger families to bear brunt of £13bn in cuts

March 9, 2016

Larger families will be the most severely hit by George Osborne’s objective to shave £13bn off the cost of welfare, according to stark new research that highlights the impact on areas with big Asian communities.

The analysis, the first to examine the effect of the next round of welfare changes on specific types of household, found that more than 80 per cent of the reduction from the post-2015 reforms — or £10.7bn a year by 2021 — would fall on families with dependent children.

In research shared exclusively with the Financial Times, Sheffield Hallam University academics scrutinised data to assess the impact of welfare reform. The work updates and expands on an Austerity Audit they conducted for the FT in 2013.

They found that 15 of the 20 places that will lose the most per head have an above-average share of households with three or more children. In more than half of these places, the percentage of people of Asian origin exceeds 10 per cent.

The analysis of the impact of the welfare changes also points to a widening gap between people who live in the social rented sector compared with owner-occupiers. Overall, £6.2bn a year of the financial losses from the post-2015 welfare reforms — just under half — is estimated to fall on working-age social sector households. On average, social renters can expect to lose almost £1,700 a year, compared to £290 a year for those of working age who own their own home. 

Ministers are poised to soften a plan that would see people paying higher social rents when their income rises above a certain level, several reports have suggested.

Impact per working-age adult per year (£)
Source: Centre for Regional Economic and Social Research, Sheffield Hallam University

Geography, as well as household composition, will determine the effects of a fresh round of reforms, said Christina Beatty and Steve Fothergill, who carried out the analysis.

Older industrial areas, less prosperous seaside towns and some London boroughs will bear the brunt while parts of the country, notably the south east of England, remain almost untouched.

Blackpool and Blackburn, both in Lancashire, each lose £560 per working age adult as a result of the post-2015 reforms, compared to £150 in Guildford in Surrey, £140 in Richmond and £130 in the Hart district in Hampshire.

Prof Beatty said parallel changes in tax, the minimum wage, social sector rents and childcare entitlement would go some way to compensate for the losses, “but it is unlikely that the full financial loss will be offset”.

The research was funded by Sheffield Hallam, the Joseph Rowntree Foundation and Oxfam. The charity’s head of UK programmes, Rachael Orr, said the government’s promise to introduce the National Living Wage was “a step forward but it is no substitute for a proper national poverty strategy that prevents future cuts from unfairly falling on people living in the poorest places”.

Mike Cherry, policy director at the Federation of Small Businesses, said benefit cuts were having a disproportionate impact on parts of the country where incomes were lower and jobless rates higher. “In the long run, the only real way to address this is by supporting more businesses to set up in these areas and grow”.

This would generate more wealth and high-quality jobs, “on which the success of these local economies will depend”, Mr Cherry added.

The government said its welfare reforms “ensure that the system is fair both for those who need it and the taxpayers who fund it”. The new National Living Wage will boost the pay of up to 6m people, while the government is also increasing the personal allowance so people will pay less income tax.

Action was also being taken to support working families by freezing fuel duty, helping councils to freeze council tax bills and offering 30 hours of free childcare to working parents, “because evidence shows that the best route out of poverty is work, not benefits”, a spokesman said.

In Blackpool, austerity has hit benefit claimants in the pocket but so far the town has coped better than civic leaders had feared it would three years ago. Read more »
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Three years ago the FT commissioned work from the same Sheffield Hallam researchers to estimate the likely impact of an initial round of welfare cuts, introduced in 2013.

However, while the plans unveiled by Mr Osborne had called for more than £18bn to be removed from welfare budgets up to 2016, £2.5bn less than that figure was eventually taken out, according to the researchers.

The undershoot reflects the government’s failure to get nearly as many off the disability rolls as it had hoped and its over-estimate of the sums that would be saved by other measures, such as a cap on the amount a household could receive annually in benefits and uprating social security benefits by only 1 per cent.