What are the Social & Economic Consequences for Claimants of the Welfare Reform Act 2012 - Essay Example

?Social and Economic Consequences of the Welfare Reform Act on the Claimants The new welfare reforms introduced by the coalition government of David Cameron seem to in the eye of a storm since its inception. While the government claims that the new welfare policies are simple, smart, just, effective and improve the financial position of the country, the opposition accuses the government of cruelty, callousness, miserliness and incompetence. The paper will explore what each side has to say and discuss them. Above all, it would examine how the claimants of government welfare are being affected or benefited. The Welfare Reform and its Rationales: There are several reasons why government wanted to pass and implement the Welfare Reform Bill of 2012. What was the rationale behind the bill and its main elements? Or should one rather ask- what are the benefits the bill will produce that the bill’s main proponent Lain Duncan Smith puts forward? The government believes that the previous system of welfare was complex. It also believes that the previous system failed to encourage people to take up jobs and increase work hours. They think the new system will be much fairer and affordable to alleviate poverty. They claim that the Universal Credit will bring together several benefits under a single payment system (Great Britain: Parliament, 2012, p 6). The Universal credit system will encourage people to take up a job, and increase their working hours. This will make sure that work pays. The Universal credit will make the transition of in and out of work smoother. The new system, according to the government, will be simpler, easier to understand and cheaper to administer. The system will also reduce the number of working poor. Other benefits a claimant will get are help with budgeting, supported accommodation housing cost and self employment start up period. The Department for Work and Pension (DWP) wil help the claimants with their budgeting by selecting appropriate bank accounts, financial products etc. for them. The financial products will be such that they should make sure one’s necessary bills are covered and one’s credit rating improves. The supported accommodation housing cost will help the DWP to meet the higher expenditures involving providing of supported accommodation. The provision of self-employment start up period will make sure that a claimant gets enough time to establish him/herself. When a person is self employed for a period less than 1 year, a start up period will be granted. Therefore, the person need not look for work or be available for work. This will give claimants more time to focus on the development of their business. People will be given a new start up period once in every five years; not once in their lifetime. (Great Britain, The Stationary Office, 2012, pp 1, 2; Department of Work and Pensions, 26 April 2013) Another element of the new bill is the Personal Independence Payment (PIP) which replaces the old Disability Living Allowance. They claim that PIP will help people towards the additional cost that one has to bear for a long term illness or disability. The PIP is base on the evaluation of the needs of an individual. It will not stress on what disability one has; but will consider how the disability will affect one. The PIP benefit is neither mean-tested nor subjected to tax. The pip is payable to person who has a job or is unemployed. Government claims that PIP will engage a more objective evaluation, with a direct consultation with an independent physician for most of the claimants. There will be regular reviews which will result in a continuous and appropriate support for individuals. (Great Britain,The Stationary Office, 2012. pp 56- 58; Department of Work and Pensions, 26 April 2013) Housing support comes under universal credit. The universal credit will take account of a suitable amount to meet the cost of room rent or a home-loan interest. The government claims that the new approach is fairer; improves motivation to work and brings stability in the market. The government has issued new directives on the size of accommodation that the benefits will cover. Without going into details it can be said that there are caps on number of rooms and strict rules on spare rooms to avoid unnecessary extra cost. By the new rules, tenants whose space is bigger than what they require will lose a part of his benefit. This will make sure that the government does not have to spend unnecessary extra amount; hence wiser spending of tax-payer’s money. There is also a change in mode of payment towards the housing support payment. The money will be paid directly to the claimants not to the landlords as the previous system used to do. This will encourage claimants to handle their own budget like others. The government claims that the Universal Credit payment will replicate the way one is paid when one is employed; not like a grant payment. People will learn to ta responsibility of their own benefits and rent payments. (Great Britain, The Stationary Office, 2012, p 53; Department of Work and Pensions, 26 April 2013) According to the new system there is a cap on the total amount a household gets from the benefits like: Child Benefit, Bereavement Allowance, Child Tax Credit, Carer’s Allowance, Employment Support Allowance, Housing Benefit, Income Support, Guardian’s Allowance, Incapacity Benefit, Widowed Parent’s Allowance, jobseeker’s allowance, Severe Disablement Allowance and Maternity allowance. The amount of the cap will be ?500 a week for couples and households with single parents and ?350 a week for single adult households with no children. This, the government thinks, will make sure that no household on working-age benefit receive more money in terms of benefits than the average income of a working family; and thus, ensure responsible utilization of taxpayer’s money (Department of Work and Pensions, 26 April 2013). Impact on Claimants: One may consider the impact, the new policy will likely to have, on the claimants. First a general look on the impact of the Universal Credit on Income and work incentive. Here the paper will consider a study done by Brewer, Browne and Jin published in the Journal of Applied Public Economics, Fiscal Studies. The study in its preliminary assessment concerning the way the bill will influence household incomes and measures of financial work incentive has found following facts: Universal Credit will make financial work incentive stronger for some people, as intended. But it will also weaken the financial work incentive for some others. The incentive to work will be stronger for the main earner of a family if he is a part time worker or has low earnings. But for the higher earning people the incentive will be weaker. This will also be the case for the 2nd earning member in couples. For the lower earners, effectual marginal tax rates will tend to fall. But, this will rise for the higher earners. There will be benefited people and, in long run, losers. In this new system, couples, particularly with children, will gain more. Single adult families, particularly single parents, will lose more, the study revealed- “In general, the impact on incomes is progressive, with the bottom income deciles gaining the most as a fraction of income” (Brewer, Browne, and Jin, Mar 7, 2013, p. 69). Under extreme assumption of complete capture up of all the benefits and tax credits, it is estimated, in long run that, “Universal Credit will lead to entitlement to benefits of ?1.1 billion a year greater than the previous system”. But the actual benefit-expenditure change will depend upon how take-up rate change, how labour supply, families and other decisions are affected (Brewer, Browne, and Jin, Mar 7, 2013, p. 69). Another important aspect that was pointed out by the study is the “Council Tax Benefit that operates separately from Universal Credit and that has rules that vary across English local authorities has the potential to undermine many of the supposed advantages of Universal Credit” (Brewer, Browne, and Jin, Mar 7, 2013, p. 69). The study has also pointed out that the moving from previous system of benefits and tax credits to a new system of single benefit will need major IT and administrative changes. But government attempted this at a time when expenditure on administration of benefits was being cut. A major reform where beneficial entitlement have been cut rather than increased might have political risks in its implementation (Brewer, Browne, and Jin, Mar 7, 2013, p 69). It has been feared that the impact of the new system on the claimants will be little in terms of financial aspects but the psychological impact might be considerable. The new system might affect people’s understanding of the benefit system (Brewer, Browne, and Jin, Mar 7, 2013, p 69). However a look at the news papers or current news articles posted on internet will show that a fierce battle is fought between the pro and the anti reform people. Church groups, charity group activists, labour unions and groups are protesting against the new system through demonstrations, rallies etc. It seems whatever might be the government’s logic behind the new system; people do not like the government’s aim of reducing the benefit expenditure. Of course, many people will get hurt, irrespective of, whether they are enjoying any unfair benefit or not. Amidst this noise, George Osborne has defended the new policy with the assertion that the welfare reform will make work pay. He said that the reforms are "about making sure that we use every penny we can to back hard-working people who want to get on in life. This month we will make work pay” (Wintour, April 2 2013). He said that for a long time the British people had a system where people who get up in the morning and go to work felt penalized, while people ho did wrong things gets rewarded. This shows that he believes the welfare reforms will indeed reward and encourage people to work. He also said that people with vested interest who enjoy unfair benefits from the failing existing system will always complain. He added that "Defending benefits that trap people in poverty and penalise work is defending the indefensible. The benefit system is broken; it penalises those who try to do the right thing; and the British people badly want it fixed. We agree – and those who don't are on the wrong side of the British public” (Wintour, April 2, 2013). However one must listen to what the oppositions have to say. The welfare reform is severely criticized by Labour Party M. P., Frank Field. He said that the Universal Credit system is unattainable and will “rot the soul” of low paid workers and will support reliance (Watt, September 10 2012). Field rejected Lain Duncan smith’s assertion that universal credit is a step away from means-testing, by saying that universal credit is an ultimate form of mean-testing. Then he said these lines: "It obviously gets extra money to hard-working families who earn low wages, but in doing so it rots the soul. Recipients have to be saints not to take the loss of credit payments into account when deciding whether to work longer or to train for a more highly paid job” (Watt, September 10 2012). Some critiques of the welfare reform, particularly universal credit system, are concerned about the cuts that people will face. They give little importance to government’s claim of “rewarding work”, instead they have pointed out that benefit claimants will be severely hit by the different cuts government have announced. In a news article posted on The Guardian, Polly Toynbee has pointed out that low earners and unemployed men and women struggling to save small sums will be robbed of ?17 a week by the rolling out of housing benefit cut. In the article, she has also given several real life examples showing how individuals were going to get hit by the reform. (Toynbee, Feb 2 2012). Another field of severe debate is the new form of housing benefit. The housing benefit has come under universal credit along with five other benefits. According to the new welfare law people will lose a certain amount of benefit payment if they keep extra rooms. This, according to government, will save unnecessary expenditure towards welfare payment. The government says that the new rule will encourage people to shift in to smaller housings and will save 480 million pounds annually from the spiraling housing benefit bill. But this benefit amount cut, which is now famous as “bedroom tax”, is now the eye of a storm. This is a hot topic of debate, where the government is predominantly being criticized savagely (Helm and McVeigh, Mar 30 2013). In a posting on Mar 30, 2013 on The Guardian website Toby Helms and Tracy McVeigh has reported reactions from different quarters of the country. They have reported that a body on behalf of 1,200 British housing associations has described the bedroom tax as bad policy; it also risks increasing the 23 billion pound annual housing benefit bill. “The chief executive of the National housing Federation, David Orr said” (Helm and McVeigh, Mar 30 2013) that the tax will harm the lives of millions of people. His comments coincided with a nationwide protest against the tax, which will affect six hundred and sixty thousand families each losing a projected average of ?14 per week (Helm and McVeigh, Mar 30 2013). In their article, McVeigh and Helms also reported that a large crowd has gathered in London’s Trafalgar Square on 29th March to protest against the new policy. Similar dissents were being campaigned in towns all over the UK. They have reported that a protester called Sue Carter, aged 58, belonging to Waltham Forest informed The Observer. “I'm a working single parent with a tiny boxroom and now I'm faced with the choice between food, heat or paying the bedroom tax. People have looked after their homes, improved them – why should they be turned out?” (Helm and McVeigh, Mar 30 2013). This shows how a lot of people will be affected by the reform. Under the scheme, which was introduced on 31st March, households with one spare bedroom will see their housing benefit shrunk by 14% and those with more than one bedroom would see it cut by 25% (Helm and McVeigh, Mar 30 2013). The National Housing Federation (NHF) says that the move will cause a major social disruption along with risking increase of costs to taxpayers because a dearth of smaller social housing properties might compel many families to downsize into smaller but more expensive private rented sector (Helm and McVeigh, Mar 30 2013). Charities pointed out that benefit cuts along with tax rises will amount to a ?2.3 billion hit on family finances. In another incidence Labour said that analysis has showed, on an average a family will be poorer by ?891 in the new financial year. (Helm and McVeigh, Mar 30 2013) Research conducted by the NHF have showed that there were around 180 000 households with two spare bedrooms. But the number of smaller properties available to occupy was far fewer. The federation has showed that if all the available accommodations are taken up by the people with extra bedrooms, the remaining 95, 000 households would have to choose between a cut in income or renting an accommodation in the more expensive private housing sector. Again the research says that if all the 95 000 take homes in the private sector the cost of housing benefit would increase by 143 million pounds (Helm and McVeigh, Mar 30 2013). Council tax benefit was also replaced, from the same week, like the move on spare bedrooms, by a new system. English local authorities will run it on a 10% less funding. It was feared that an additional burden will be borne by poor working-age adults as pensioners will be protected under the changes. The homelessness charity organization, Crisis has warned that millions of households will be hit as a result of restriction on the up rating of some welfare payments. The chief executive of Crisis Leslie Morphy said: “Our poorest households face a bleak April as they struggle to budget for all these cuts coming at once. People are already cutting back on the essentials of food and heating but there is only so much they can do. The result will be misery – cold rooms, longer queues at food banks, broken families, missed rent payments and yet more people facing homelessness – devastating for those directly affected, but bad for us all" (Helm and McVeigh, Mar 30 2013). While a Department of Work and pension spokesperson claimed, that the welfare reform will improve the lives of the poorest by the simplified universal credit system making 3million people better off, Crisis warned that homelessness will rise dramatically (Helm and McVeigh, Mar 30 2013). In another article the author, Ellie Mae O'Hagan has raised a question: what about a household that needs an extra bedroom to store medical equipments that keep them alive. This condition might arise in a household with a member with prolonged and serious ailments or disabilities. She accused the government of being careless or actively cruel as it has not considered many aspects of public housing and has not listened to warnings that the policy will evict many rendering them homeless. She has compared the “bedroom tax” with poll tax which had been defeated with protests on the streets and mass non-payment (O’Hagen, April 1, 2013). There in another aspect of the new welfare reform which also a subject of fierce debate- the Personal Independence Payment (PIP). The government’s claim that the new system will not stress on what disability one has; but will consider how the disability will affect one, seems to have backfired, thanks to a faulty disability assessment policy. It has been reported that three disabled person have challenged in the British high court opposing the government’s new PIP rules regulations. They were challenging the government’s latest change in PIP policy where, a person will only be entitled to high-rate mobility constituent of PIP if he/she fails to walk only 20metres. Earlier this distance was 50 meters. By not informing people that the distance might be reduced by 30 meters in the consultation process the government might have broken the law. The new distance might cause 420 000 disabled persons to lose their benefits. (Rivers, April 10 2013) The old policy, disability living allowance (DLA) entitled people with severe mobility-related disabilities to access schemes like subsidized car and special parking permit etc. Now some of them might lose those benefits and be effectively house bound as winning high-rate mobility component has become difficult. (Rivers, April 10 2013). However officials and ministers are constantly making claims of effectiveness and benefits of the PIP. A claim was made that 878 000 claimants have left ESA fearing tough medical assessment. Duncan Smith has made an assertion that there has been arise in the run up for Personal Independence Payment; and the reason for the rush is that PIP assessment process include a health check. However these claims are being rubbished by many. In an article on The Guardian website Declan Gaffney and Jonathan Portes have ridiculed the above claims. They have given some facts and figures that shows ministers and officials were selective when giving figures (Gaffney and Portes 15April 2013). Conclusion: From the above discussion it is clear that: (One) Nobody could say much against the system of universal credit. Government’s claim that it will send people back to work is not rejected much. Because, in this respect the government is correct, at least partially correct. The policy will indeed incentivize work. The policy will definitely encourage taking up jobs and increase hours. (Two) The government is being fiercely attacked for the new housing policy. However, it should be the concern of all governments to avoid unnecessary spending of taxpayers’ money. People living on government grant should not expect luxury. People living with spare rooms and making the government pay an extra amount should give up the extra room. Putting cap on unnecessary benefit amount is not an offence. What people are complaining about is the government’s ultimate goal of reducing the expenditure on welfare payment. However, government should make sure that nobody gets affected unfairly, or rendered homeless. It should make some amendments of the pitfalls the new policy have. Government should also make sure enough number of smaller dwelling are available in the government housings. (Three) when government says that it wants to give importance to how people are getting affected by their disablement not what disablements they have, it sounds tricky. What government actually wants is to put a check on the unfair claims made by undeserving people. But, government should be cautious handling the issue, as it is an immensely sensitive issue. Government should take care of the faults the new system have. It is too early to make an assessment of how claimants are actually being affected. The research had to be satisfied with some preliminary studies, comments from different people from different paths of life and news paper reporting. Time will say how the new policy affects of benefits people. References: 1. Brewer, M., Browne, J. and Jin, W. (Mar. 7, 2012). Universal Credit: A Preliminary Analysis of Its Impact on Incomes and Work Incentives. Fiscal Studies. Vol. 33 no. 1 pp. 39-71. 2. Department of Work and Pensions (26 April 2013). Simplifying the welfare system and making sure work pays: Issues. GOV.UK. available at < https://www.gov.uk/government/policies/simplifying-the-welfare-system-and-making-sure-work-pays > (accessed on May 3, 2013) 3. Department of Work and Pensions (26 April 2013). Simplifying the welfare system and making sure work pays: Introducing Universal Credit. GOV.UK. available at < https://www.gov.uk/government/policies/simplifying-the-welfare-system-and-making-sure-work-pays/supporting-pages/introducing-universal-credit > (accessed on May 3, 2013) 4. Department of Work and Pensions (26 April 2013). Simplifying the welfare system and making sure work pays: Making sure housing support is fair and affordable . GOV.UK. available at < https://www.gov.uk/government/policies/simplifying-the-welfare-system-and-making-sure-work-pays/supporting-pages/making-sure-housing-support-is-fair-and-affordable > (accessed on May 3, 2013) 5. Department of Work and Pensions (26 April 2013). Simplifying the welfare system and making sure work pays: Introducing Personal Independence Payment. GOV.UK. available at < https://www.gov.uk/government/policies/simplifying-the-welfare-system-and-making-sure-work-pays/supporting-pages/introducing-personal-independence-payment > (accessed on May 3, 2013) 6. Department of Work and Pensions (26 April 2013). Simplifying the welfare system and making sure work pays: Introducing a cap on the amount of benefits working age people can receive. GOV.UK. available at < https://www.gov.uk/government/policies/simplifying-the-welfare-system-and-making-sure-work-pays/supporting-pages/introducing-a-cap-on-the-amount-of-benefits-working-age-people-can-receive > (accessed on May 3, 2013) 7. Gaffney, D and Portes, J. (15April 2013). Conservative claims about benefits are not just spin, they're making it up. The Guardian. available at < http://www.guardian.co.uk/commentisfree/2013/apr/15/conservative-claims-about-benefits-not-spin?INTCMP=SRCH > (accessed on May 3, 2013) 8. Great Britain. The Stationary Office (2012) Welfare Reform Act, Part 5. The Stationary Office. UK. 9. Great Britain: Parliament: House of Commons: Work and Pensions Committee (2012) Universal Credit Implementation: Meeting the Needs of Vulnerable Claimants. The Stationary Office U.K. 10. Helm, T. and McVeigh, T. (Mar 30 2013). Bedroom tax will be costly disaster, says housing chief. The Guardian. available at < http://www.guardian.co.uk/society/2013/mar/30/bedroom-tax-disaster-housing-chief> 11. O’Hagen, E.M. (1April 2013). The bedroom tax's authors were either careless or cruel – it must be fought. The Guardian. available at < http://www.guardian.co.uk/commentisfree/2013/apr/01/bedroom-tax-careless-cruel-policy>. (accessed on May 3, 2013) 12. Rivers, S. (10April 2013). Has the government broken the law over disability benefit changes?. The Guardian. available at < http://www.guardian.co.uk/commentisfree/2013/apr/10/disability-benefit-changes-law-challenged?INTCMP=SRCH >.(accessed on May 3, 2013) 13. Toynbee, P. (Feb 2. 2012). The welfare reform bill will incentivise people: to turn on David Cameron. The Guardian. available at < http://www.guardian.co.uk/commentisfree/2012/feb/02/welfare-reform-bill-cameron-frightening>.(accessed on May 3, 2013) 14. Wintour, P (April 2, 2013). Welfare reforms: we will make work pay, says George Osborne. The Guardian. Available at .(accessed on May 3, 2013) 15. Watt, N. (September 10 2012). Universal credit scheme will rot soul of low-paid, says Frank Field. The Guardian. available at < http://www.guardian.co.uk/politics/2012/sep/10/universal-credit-frank-field >.(accessed on May 3, 2013) Read More