Labour Research April 2015


The poor are hardest hit

This month sees further cuts to social security as the Tory-led coalition’s “welfare revolution” continues to hammer the poorest.

Work and pensions secretary Iain Duncan Smith maintains that the aim of the government’s welfare reforms is to get people back into work and end a “welfare dependency” culture. The social security budget is also being hit by the coalition’s austerity-driven public spending cuts which are supposedly reducing the nation’s debt.

But two recent reports show that the reforms are not only failing to reduce the deficit, but are hitting the poor, with children, working families and pensioners among those groups hardest hit.

A major new report from the London School of Economics and the universities of Manchester and York, The coalition’s social policy record: policy, spending and outcomes 2010-2015, published in January, shows that despite the government’s promise that the rich would carry the burden of austerity, poorer groups have been worst affected by changes to direct taxes, benefits and tax credits.

The report points out that while the incoming government declared that “its most urgent task was to tackle the country’s debts”, it also insisted that fairness would lie at the heart of its decisions “so that those most in need are most protected”.

The better-off would be expected to “pay more than the poorest, not just in terms of cash, but as a proportion of income as well”.

However, as the report emphasises, first of all, it is the poor that have borne the brunt of the government’s changes to direct taxes, tax credits and benefits over the period from May 2010, when the coalition came to power, up to 2014-15.

Poorest bear the brunt

The poorest groups have been those hardest hit by the coalition government’s changes to direct taxes, benefits and tax credits, according to the report, The coalition’s social policy record: policy, spending and outcomes 2010-2015.

Undertaken by the London School of Economics and the universities of Manchester and York, the report says that these changes were “mainly regressive”, taking more away from those in the bottom half than they gained through higher tax allowances.

And although the government has claimed that these and other public spending cuts are necessary to deal with the national debt, the cuts to benefits and tax credits that hit low income families hardest were offset by tax reductions for better-off households, and so made no impact on the deficit.

The study says that up to 2014-15, the poorest 20th lost nearly 3% of their incomes, on average, from these changes (not allowing for VAT and other indirect taxes), and that people in the next five 20ths of the income distribution lost almost 2%.

With the notable exception of the topmost 20th, those in the top half of the distribution were net gainers from the changes.

“Perhaps surprisingly, overall the welfare cuts and more generous tax allowances balanced each other out, contributing nothing to deficit reduction,” it adds.

Children lose most

Secondly, the study shows that while the government has protected pensioners in relative terms (see below), its reforms are hitting children hard — with families with pre-school children particularly affected.

It points to a modelling analysis by the Institute for Fiscal Studies which suggests there was a sharp rise in relative poverty between 2012-13 and 2014-15 for children as well as for working-age non-parents.

A TUC report, Keeping up with the cuts, reveals that families with children under five have been hit harder than any other household type. Changes specifically affecting mothers, babies and toddlers, for example, include: the abolition in January 2011 of the Health in Pregnancy Grant; the abolition in April 2011 of the Child Tax Credit (CTC) baby element, worth £545 to families with a child under one, and the Sure Start Maternity Grant for second and subsequent children, worth £500; and the abolition in April 2012 of the CTC supplement for children aged one and two.

Meanwhile, the benefit cap, introduced in April 2013, hits families with three or more children particularly hard.

The report estimates that there will be a further rise in poverty to 2020-21, with the relative child poverty rate reaching 21% — an increase of 3.5% from 2012-13. And, it says: “Qualitative evidence suggests growing hardship since 2013 among households affected by a combination of falling real wages, rising fuel and food costs, changes to benefit rules, and sanctions.”

Impact of sanctions

And thanks to benefit sanctions, the hardship faced by some households is especially severe. Helen Flanagan, a member of the PCS civil service union’s national executive council, told a recent TUC conference on welfare that 18% of claimants of Jobseeker’s Allowance (JSA) — almost one in five — have been sanctioned, and that “the regime is more punitive than breaking the law”.

Figures published by the Department for Work and Pensions (DWP) in February 2015 show that in the two years to September 2014, 884,479 people were subject to 1.56 million sanctions leading to loss of benefit. In 668,569 cases, people went without any money for four weeks; 373,603 for three months; 7,044 for six months; and 2,048 had sanctions imposed for three years.

Dr David Webster, University of Glasgow honorary senior research fellow of urban studies, estimates that the money directly lost to claimants through JSA sanctions imposed in 2013-14 is in the region of £328 million.

TUC senior policy officer Richard Exell told Labour Research: “Sanctioning is making life a misery for hundreds of thousands of vulnerable families. There are now 100,000 children in sanctioned families living in severe hardship.”

Working familites hit

The TUC has commissioned its own analysis of the impact of cuts in social security support. The August 2014 report by Landman Economics, Benefit cuts by household type — who has been hit by the government’s benefit cuts? says: “The big cuts in social security spending taking place over the course of this parliament — around £30.5 billion a year (in today’s prices) — are supposedly targeted at unemployed people as a way to encourage them to find work.” But the analysis shows that “the reality behind the government’s rhetoric is very different”.

Despite talk of “workers versus shirkers”, it shows that most of the cuts will fall on people already in work. Even after the introduction of Universal Credit (UC) — which will replace six existing benefits, including JSA and Housing Benefit, and which recently began its national roll-out for single claimants — the majority of cuts will hit working families. Twice as many cuts will hit those in work as those of working age who are not employed.

The analysis shows that cuts to tax credits will reduce support for low-paid working families by over £12 billion a year by 2016. The real terms reduction of Child Benefit will cost working families another £3.4 billion annually.

Stigmatising claimants

Head of the Unite general union’s Community section Liane Groves said that the Tories’ “talk of strivers going out to work versus skivers with the blinds closed all day, trying to divide working and unemployed people, has been very successful. Just look at polling — people think that benefit fraud is enormous.”

In reality, benefit fraud was just 0.7% of the benefit bill in 2011-12 or £1 billion, compared with £70 billion in illegal tax evasion, according to think tank the Centre for Labour and Social Studies.

“The Tories’ very political approach to the welfare state is creating a climate that makes it almost impossible to claim unemployment benefit,” said Groves, who added that they “have been vicious, blaming the unemployed for unemployment.” And both she and the TUC’s Richard Exell said that disabled people have been particularly hard hit — both in financial terms and in terms of being vilified for claiming benefits.

“Families with a disabled child can easily have lost £3,000 a year in tax credits,” said Exell.

“The worst cuts for any family type are those with a disabled adult and a disabled child who are a working family. The proportional cuts are tougher for them than for any other group.“

And he added: “There are high levels of public hostility. In the past, there were media campaigns in newspapers, but now we have TV programmes that would have been inconceivable a few years ago — 30-minute hate programmes about benefit claimants —and on a scale never seen before.”

The reality, he said, is that the numbers of unemployed people getting JSA are very low, while the massive growth of low-paid jobs means that more working families need benefits to survive at the same time as benefits are being cut.

Pensioners not spared

The TUC study also shows that while there is a perception that pensioners have been spared the pain of the cuts, the pledge to protect pensioner benefits made by prime minister David Cameron in the run-up to the 2010 general election has been broken. “Over a fifth of all social security cuts will fall on pensioner families once Universal Credit is rolled out,” it reports.

Benefit cuts by household type points out that the total cost of cuts to pensioner benefits (£6.38 billion — principally reductions in Pension Credit, but also the State Pension and Attendance Allowance), is more than 10 times more than the benefit cap, “and yet these changes are barely mentioned, either by ministers or the media”.

The fight against sanctions

While polling shows that the government’s welfare reforms are still popular, there are some signs that attitudes may be beginning to change.

Last month, a report by a coalition of churches highlighted that nearly 100,000 children went hungry last year because their parents were sanctioned and had their benefits stopped or cut. Meanwhile, people with mental health problems were sanctioned at a rate of more than 100 a day. Channel 4’s Dispatches programme also reported on the sanctions regime. In addition, Unite Community held a Stop Benefit Sanctions National Day of Action last month.

“Like immigrants, the unemployed have been made the scapegoats that has allowed austerity to continue,” said Liane Groves.

“We have to take action to ensure that the public turns against sanctioning and turns against the Tories. It’s our duty and our job to highlight the consequences.”