Welfare Reform & Work Bill. July Introduction. 2. Child Poverty becomes Life Chances. 3. Welfare Benefit Cap

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1 Welfare Reform & Work Bill July Introduction GCVS has prepared this briefing on the Welfare Reform and Work Bill to update members on the contents of the Bill and the potential impact of each proposed change. The Bill sets out the legislative framework for additional changes to the benefits system, as set out in the Chancellors summer budget on 8 July Child Poverty becomes Life Chances The Child Poverty Act 2010 placed a duty on the Secretary of State to meet UK-wide targets to reduce child poverty by 2020, and every year after that, based upon 4 economic indicators of poverty. The indicators of poverty were relative, absolute, combined low income & material deprivation, and persistent. The Bill proposes to repeal the Child Poverty Act 2010, effectively scrapping the targets that had been set by the Labour Government and to introduce a new Life Chances Act. The Life Chances Act will not focus on economic indicators of poverty but on life chance indicators such as worklessness and educational attainment. Potential Impact: Moving from economic indicators of poverty could be potentially harmful for many children in Scotland. It is short-sighted to assume that economic poverty does not play a role in life chances and scrapping economic indicators could make it very difficult to target interventions to those children and families who need additional supports e.g. if measures focus only on the number of children in workless households, how do we count and support the children and families who experience inwork poverty? 3. Welfare Benefit Cap The Welfare Reform Act 2012 introduced a household benefit cap, the cap was set at 26,000 a year for couples and lone parents or 15,600 for single people and includes the main out of work benefits, plus housing benefit, child benefit and child tax credits. The Bill proposes this cap be reduced to 20,000 for couples and lone parents, and 13,400 for single people (outside London), representing a reduction of almost 25% for couples and lone parents, and almost 15% for single people. The Bill will also give the Secretary of State the power to review the level of the benefit cap once each year. 1

2 The reduction in the benefit cap is likely to impact around 90,000 more households across the UK if someone receives more money than the cap the surplus is taken directly from their housing benefit, which means they have to make up the shortfall in rent from their other income. There are a number of implications for people affected by this change, such as increased economic poverty, ability and capability to meet housing costs, security of tenancy, etc. 4. Freezing of Benefits & Tax Credits Benefit uprating levels have been under attack since the Coalition s Emergency Budget in This Bill proposes to freeze certain benefits for a further 4 years. The benefits affected are: Income Support Job Seekers Allowance Employment & Support Allowance Housing Benefit Universal Credit Child Benefit The Bill also proposed to freeze elements of Child Tax Credits and Working Tax Credits: The individual element of Child Tax Credit, where the child or young person is not disabled or severely disabled. The basic, 30 hour, second adult and lone parent elements of Working Tax Credit The freeze is due to take place from April Benefits have not risen in line with inflation for more than 7 years, people in receipt of benefits have, in real terms, already experienced a significant reduction in the level of financial assistance they receive. Freezing Housing Benefit will put pressure on Housing Associations, reducing the income they receive and on which they rely to unlock funding for repairs, maintenance and building. This measure may also make it more difficult for people in the Private Rented Sector to access and/or sustain their tenancy. Families and individuals are likely to find themselves in even greater financial difficulties as for many, their benefits already do not meet their basic needs. 5. Child Tax Credit Changes Child Tax Credits are currently paid for each child or qualifying young person that a parent or guardian is responsible for. The Bill proposes to restrict the individual element of Child Tax Credits to 2 children or young people per family from the tax year 2017/18. Families who currently claim for more than 2 children will still be entitled to do so, however if a family has 2 children at present and a third child is born on or after 6 April 2017 they will only be entitled to claim for their first 2 children. 2

3 A disability element of Child Tax Credit will be introduced which will allow parents or guardians to claim the individual element of Child Tax Credit for any disabled or severely disabled child born after 6 April These changes will also apply when Child Tax Credit is delivered as the Child Element of Universal Credit. These measures could see the number of children living in financial poverty rise across the UK. 6. Removal of the Work Related Activity Component of ESA Currently those assessed as having limited capacity for work and receiving Employment and Support Allowance receive a premium, known as the Work Related Activity component. The Bill proposes to remove this premium, meaning that those who are too ill to currently work will receive the same amount as people on Jobseekers Allowance. This change also affects the limited capacity for work element of Universal Credit. This change should only impact new claims, with provisions in place for people who already get the work related activity component to continue to receive it. This removes the premium people get in respect of their health condition and the potential additional costs they face due to their health condition. There are two potential outcomes of this change: Everyone who applies for ESA is granted it as there is no difference between the ESA amount and JSA. Those receiving ESA are not counted as unemployed, so there is the potential for statistics to be manipulated. People are deterred from applying for ESA or the limited capacity for work element of Universal Credit to avoid having to go through an assessment which will not result in any additional monies. 7. Universal Credit Responsible Carers At the moment, if you are a lone parent of a child under 5 and you receive Universal Credit, you aren t required to actively seek work, depending on the age of your child you may be required to do different things that are work related: Child under 1 no work related requirements Child aged 1 or 2 work focussed interview requirements Child aged 3 or 4 work preparation requirements The Bill proposes to change these requirements and people with a child aged 3 or 4 will be subject to all work-related requirements, including actively seeking employment and taking up offers of employment if they arise. Those with a child aged 2 will be required to take part in work focussed interviews and prepare for work. 3

4 The reasoning behind these changes is linked to the free childcare place pledge made by the Conservative Government. However, experts have warned that it is unlikely that there will be adequate childcare provision to meet demand. This could place families under real pressure - if they do not meet the requirements placed on them to take a job or undertake work preparation because of lack of access to childcare they could be sanctioned. 8. Loans for Mortgage Interest At the moment if you receive an income related benefit such as income based JSA or ESA and are a homeowner you are entitled to receive help towards your mortgage interest. The Bill proposes to replace this help with a loan scheme, the loan will be secured against the person s property. Potential Impacts Providing a loan instead of financial assistance could cause real financial difficulties for people returning to work. The fact that the loan is secured could result in people losing their home to repossession if they cannot afford to pay it back, or keep up agreed repayments. 9. Changes to Working Tax Credits 1 The income threshold for Working Tax Credits will be lowered from 6420 to 3,850 this means that anyone who earns more than 3,850 will get less money from Working Tax Credits. At the moment if you earn up to 5,000 in additional income this is disregarded it doesn t affect how much Working Tax Credits you get for the remainder of the year. From April 2016 this disregard amount will be reduced to 2,500. As households earn more money the amount of tax credits they receive is reduced this is known as a taper. The rate at which Working Tax Credits taper is being increased to 48% Potential Impact: These changes are estimated to hit 45% of working families, decreasing their income and increasing the number of those who are in-work poverty. The changes are likely to increase the number of children in financial poverty. 10. When will these Changes take effect? The changes will come into effect at different times: Child Poverty Act amendments will come in to force two months after the Welfare and Work Bill is passed and become an Act. The freeze to benefits and tax credits and the power to revise the benefit cap will come into effect on the day the Welfare and Work Act receives royal assent. The changes to tax credits will come in to force on 6 April The Secretary of State will set a date for the other changes to come in to force in regulations. 4

5 11. Stages of the Bill The Bill passed its second reading on 20 July 2015, the Bill is now at Committee Stage this means each line of the Bill will be scrutinised by a Public Bill Committee a group of between 16 and 50 MPs. At this stage the Committee can take evidence from experts and interest groups and will consider amendments to the Bill proposed by MPs. 12. Influencing the Bill At the moment there hasn t been a date set for the Committee Stage to begin and there have been no calls for evidence. If evidence is invited, the GCVS Expert Group will work with members to develop and submit evidence outlining the negative impacts of the Bill and how they will affect the citizens of Glasgow. The GCVS Expert Group will also consider how best to engage with elected representatives to influence amendments to the Bill. 13. More Information This paper will be updated as the Bill progresses through parliament, however if you would like more information, or to comment on the paper please contact Johanna on or johanna.speirs@gcvs.org.uk 5