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Financial Impacts of Welfare Reform - Illustrative Working Age Case Studies

Financial Impacts of Welfare Reform - Illustrative Working Age Case Studies

Friday, May 16, 2014

ISBN: 9781784124564

This paper outlines some of the changes from the UK government’s welfare reforms, and sets out their financial impacts through case studies of hypothetical working age households. It seeks to inform Scottish Government work on welfare reform mitigation by illustrating the kinds of specific impacts the various reforms are having, and identifying potential ‘winners and losers’ of the reforms.

Executive Summary

This paper outlines some of the changes from the UK government’s welfare reforms, and sets out their financial impacts through case studies of hypothetical working age households. It seeks to inform Scottish Government work on welfare reform mitigation by illustrating the kinds of specific impacts the various reforms are having, and identifying potential ‘winners and losers’ of the reforms.

In general, the reforms prior to Universal Credit have negative financial impacts on claimants’ incomes, with the scale of cuts to household budgets depending on the benefit. The most substantial reductions in income are faced by couple households losing their eligibility to Working Tax Credit due to the increase in hours they are required to work; those in the social rented sector deemed to be under-occupying; and single people under 35 renting in the private sector, who can now only claim Housing Benefit for a room in a shared property.

The introduction of Universal Credit will have more mixed financial impacts. Winners include individuals with children working less than 16 hours who are not currently eligible for Working Tax Credits, and who will be able to claim for the costs of childcare under Universal Credit. Households currently claiming Tax Credits and other benefits such as Housing Benefit will also increase their incomes as maximum entitlements will be combined before a taper is applied. They will no longer be facing separate and simultaneous calculations in which their income is taken into account twice.

Many welfare recipients will see no change as a result of moving onto Universal Credit. This includes single unemployed single adults, where the Universal Credit standard allowance is set at the same rate as income-based Job Seekers’ Allowance.

Losers include individuals working more than 30 hours a week, who can currently claim a higher rate of Working Tax Credit, for which there is no equivalent under Universal Credit. Relatively high income households claiming Tax Credits will also lose some income, as the withdrawal rate of Universal Credit is higher than that currently applying to Child Tax Credit.