Full impact of welfare reform revealed

Published on Tuesday, 13 August 2013 10:44
Written by Vicki Mitchem

Less than a quarter of welfare recipients will be in a position to mitigate reductions in benefit payments by finding work or moving to cheaper accommodation, a ground-breaking independent study commissioned by the Local Government Association (LGA) reveals.

The study, which is the first ever assessment of the cumulative impact of the Government's welfare reforms, compares the financial impact on benefit recipients in a given area with the local job opportunities and potential to move into cheaper accommodation.

Carried out by the Centre for Economic and Social Inclusion for the LGA, the study shows that by 2015/16 the income of households claiming benefit will be lower on average by £1,615 per year (£31 per week). However, a shortage of jobs and affordable homes in many areas means that four out of every five of those households are likely to need some form of assistance from their council to help them cope with the reduction in welfare.

It is estimated that the combined impact of housing reforms on these tenants is likely to be £1 billion each year. So far £155 million has been made available to councils via Discretionary Housing Payments (DHPs), which represents just £1 in every £7 of the impact of housing reforms on tenants. The Government's recent announcement of an additional £25 million to support tenants is welcome, but does not significantly alter the picture.

The LGA, which represents more than 370 local authorities in England and Wales, warns that unless more is done to generate new jobs and build much needed affordable and social housing, helping households cope with the welfare reductions will syphon money away from local services such as caring for the vulnerable and elderly, fixing the roads and picking up the bins. Local services are already facing the deepest cuts in the public sector, with a 42 per cent real terms reduction in councils' grant from central government across the life of this Parliament.

The report's findings have prompted the LGA to demand that the Government introduce three major policy initiatives to deliver the new homes and jobs the welfare reforms require. They are:

Help councils deliver new homes by relaxing the rules which severely limit how much councils can borrow against their existing housing stock. Recent research shows that councils could build up to 60,000 new homes over the next five years if they were allowed to invest in housing under normal borrowing guidelines. This would deliver a 0.6 per cent boost to gross domestic product (GDP), create new jobs and reduce the benefit bill by increasing the provision of much-needed new social housing.

Give councils and their partners in business more influence over employment schemes so that training providers produce more people with skills that are closely matched to what employers in the area need. Earlier this year a report by the LGA showed that personalised local approaches are most effective in reducing the number of young people out of work and training, but that such schemes are undermined by national funding, performance and procurement systems driven by Whitehall. The report showed that a localised approach would cut youth unemployment by 20 per cent, result in savings of £1.25 billion a year to the taxpayer and contribute an additional £15 billion into the economy over 10 years.

Immediately re-evaluate the Discretionary Housing Payments (DHP) fund to ensure supply better matches demand in local areas. The Government has committed to the 'new burdens doctrine' which is supposed to ensure that any new costs or administrative burdens that are passed from central to local government are matched by the appropriate funding. The scheme should be redesigned to ensure that the Government meets its responsibility.

Cllr Sharon Taylor, Chair of the LGA's Finance Panel, said:

"In many areas welfare reform is not encouraging people into work because the jobs simply don't exist, while the opportunities for people to downsize their homes to cope with reductions in benefits are severely limited by a lack of affordable accommodation. Unless more is done to create new jobs and homes, households will be pushed into financial hardship and we will see a huge rise in the number of people going to their councils asking for help to make ends meet.

"Local government can help generate the necessary jobs and new homes but the Government has to give councils more influence over employment schemes and more freedom to borrow to build new houses.

"Demand for Discretionary Housing Payments will significantly outstrip the money the Government has made available to councils to mitigate the changes. This will have a massive impact on local government budgets, which are already stretched to breaking point by the deepest cuts in the public sector. Ministers must ensure councils have enough resources to meet demand. Local services have already taken the biggest cuts in the public sector and it would be wrong if councils had to reduce spending on other services such as caring for the vulnerable and fixing the roads to meet the new costs brought about by these changes to national policy."

Source: LGA

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