My apologies for the silence here. I’m in the middle of a round of Welfare Reform training around the country (I just got home from Newcastle, via the Durham blizzard). I’m also updating my papers, merging the two into one combined document and updating the Future Benefits Model (FFBM) to a 2012 / 2013 baseline which means that I’ll have to update all the examples as well.
Maybe quite soon now is a better header.
I see that the suggestion is that in todays’ budget there will be, at some point, an increase in the personal tax allowance to £9,205. That’s worth an extra £305 in net income – £5.86 a week.
The problem is, as I’ve said before, that is worth £5.86 to those not on benefits, earning perhaps £100,000 a year. For those lowest earning workers though, who depend on Housing Benefit and Council Tax Benefit, it will be worth much less.
The change in net pay reduces their Housing Benefit by 65% of the increase – £3.81 and reduces their Council Tax Benefit by 20% of the increase – £1.17. That’s a total of £4.98 of the extra pay taken back, leaving them with a total gain of 88p.
I suppose that they can celebrate with about the quarter of a pint of beer that will buy them on average.
A little more detail on what I’m trying to do.
As the real detail starts to appear about the new system(s) I want to add to our existing range of assessments in the FFBM some more human examples. As well as the existing scenarios, which use a range of incomes at standard intervals and averaged housing costs etc., I’d like a range of real, anonymised, examples with real housing costs, incomes, circumstances etc. I can then build them into a library and model the impacts on them and also the effects of changing their circumstances; more or less income, changes in numbers of kids etc.
From these I can generate impacts based on ‘Ms X from Hackney’ or ‘Mr. Y from Rotherham’. I suspect that this may be a more useful exercise for comment rather than the analytically valuable standard case types. I think both are needed but I don’t, anymore, have the sharp-end access to real people that this needs.
So… examples please.
The Parliament website shows Royal Assent for the Welfare Reform Bill is expected tomorrow, the 8th of March.
I’m soon going to have to change the subhead of the blog, when Royal Assent is given, but it means that I’m now going to start the really detailed work.
As the draft and final regulations appear, I’ll be building them into our Future Benefits Model (FFBM) and assessing the impact that they will have over the next five years. As these regulations will be subject to debate and positive agreement, the modelling will hopefully inform that process. To help this, I’d be very grateful for suggestions of realistic case types to use; figures around housing costs, earnings, childcare and family types will help to put examples into a more real context in a more local setting.
Feel free to post anonymised figures, or email them to me directly, and I’ll start creating a library of them with comparisons of current scheme and future scheme assessments year-by-year.
Apologies for the advert but I’m running some courses looking at Welfare Reform impacts around the country next month and in the autumn.
There are two courses initially, Welfare Reform and Means-Tested Benefits and Welfare Reform and Older People. They’re being held in Cardiff, Chester, Leeds, Newcastle, Birmingham and London (or in-house) and you can get details at Ferret’s website.. I’m looking at putting a Welfare Reform and Housing course together now as well – more later.
The pro-cap speakers in Parliament have consistently focused on one argument, why should people out of work be better off than those in work in the same situation?
Although others have tried to point out that those in work also get benefits to support them, the point has not seemed to be grasped. I thought it was worth (even now) putting some figures into the argument so I’ve put some simple comparisons into our Future Benefits Model (FFBM) and the results are below.
The first example looks at a couple with one partner working 35 hours a week, earning £26,000 a year gross (a notional average wage) and paying rent of £100 a week and Council Tax of £1,250 a year. I then modelled the situation with varying numbers of children from 1 to 10.
The net earnings are the same, of course, regardless of the number of children at £385.43 a week (£20,042.36 a year). The remainder of the family’s income is made up of Child Benefit, Child Tax Credit, Housing Benefit and Council Tax Benefit.
Net income increases as the number of children in the family increases, reflecting the benefits system view of the increased needs.
When these families move onto Universal Credit their situation is similar.
There is actually a small increase in benefits for those with up to 7 children under Universal Credit (not the case for those with much lower earnings).
If this family is not in work, and therefore subject to the cap as reintroduced by the Commons, the situation is very different.
Before the cap is applied, there is a clear amount attributable to each child in the make up of their support. While they remain on the current benefit scheme the maximum amount of the cap, from 2013, is limited to the level of Housing Benefit that they are entitled to, so there is still some additional benefit for each extra child.
On Universal Credit, with the full rigour of the cap, there is no protection for additional children and the chart shows this clearly.
If we look more closely at the figures, some points worth commenting on appear.
The table for the family working for average earnings (Apologies that it’s an image, I can’t get tables to work here).
The table for those out of work.
If we compare that with a table showing the benefits that are payable to the family in work, the results are interesting.
I find it interesting:
that a working family with 8 or more children would currently get more in benefits than the total cap figure is suggested to be. With realistic figures for rental of a suitably sized house, at LHA levels, the figure could be substantially higher and apply to those with fewer children.
there are no circumstances where the out of work family has an income less than about £100 a week lower than the working family and with Universal Credit it may be more than £500 a week lower because of the cap.
It is curious that the family on average earnings may easily receive more in benefits than in net earnings when that seems to have been the justification for capping those out of work.
Says it all; the Government has succeeded in overturning the increase in the period people can remain on contributory ESA.
Not a good omen.
-later-
…. and indeed all the ESA amendments are overturned.
Chris Grayling has also said that the Government will treat the benefits cap measure under financial privilege so that the Lords cannot reject it again.
We are back. it seems, to the Lords amendments all being overturned with some small concessions by the Government.
I’m not very hopeful that the Commons won’t reverse all the Lords’ changes on Wednesday. In fact I’m sure that they will. Nonetheless I thought I’d run our Future Benefits Model (FFBM) to see the effects of leaving Child Benefit (ChB) out of the cap; and here are the results.
If we take the capping proposals applied to the current benefits scheme first – this is the situation where Local Authorities cap Housing Benefit (HB) – then with ChB in the cap the way in which capping affects different sized families out of work looks like this:
Current Benefit Scheme capped by HB
The rent is based on £86.54 (if you want to know why, download my paper here) so that’s the maximum cap which will be applied. The chart shows the effect of different numbers of children, from 1 to 10, on total income.
If we look at what happens to these families when they move onto Universal Credit, the chart is quite different.
Because the cap applies to much more of the income in the UC example we see the £500 a week figure applying, once five children are reached in this example, and nothing extra is awarded as the numbers of children increase.
If ChB is removed from the cap then the charts look like this. First the current system capping HB only.
It can be seen that some families are lifted clear of the cap by the exclusion of ChB.
The effect on capping in UC looks like this.
Again some families are lifted away from the cap and in the worst cases the cap leaves them with over £100 a week more than the rigid £500 a week cap. Each extra child brings with them the Child Benefit, albeit frozen for three years and reducing in real value.
As Nick Clegg is pushing for an increase in personal tax allowances to £10,000 a year, on the basis that it’s a way of protecting the lowest paid workers, it’s worth pointing out that it’s not.
The 2012 Income Tax personal allowance increase that’s already in the pipeline will be worth £2.42 a week to those earning £100,000 a year but £0.37p to the poorest workers as it reduces their Housing Benefit (HB) and Council Tax Benefit (CTB).
The mechanics are simple; as net earnings rise, HB and CTB are reduced.
65% of the £2.42 increase in net earnings is taken off Housing Benefit – £1.57p
20% of the £2.42 increase in net earnings is taken off Council Tax Benefit – £0.48p
That’s £2.05 of the increase clawed back leaving just 37p, while those who have income too high to need HB or CTB keep the whole £2.42
If the £10,000 level he is calling for was introduced in April then the same things, or worse, would happen.
Net earnings would increase by £9.71 for those without benefits but those receiving HB and CTB would see most of it clawed back.
65% of the £9.71 increase in net earnings would be taken off Housing Benefit – £6.31p
20% of the £9.71 increase in net earnings would be taken off Council Tax Benefit – £1.94p
That’s £8.25 of the increase clawed back leaving just £1.46, while those who have income too high to need HB or CTB keep the whole £9.71.
The end result is to give the better-off £8.25 more than the little given to those the change is meant to protect.
