Social Security and Welfare Reform

No easy way out on welfare reform for Northern Ireland

  • Published: Apr 24, 2014
  • Author: Adam Tinson
  • Category: Social Security and Welfare Reform

The arithmetic of welfare reform does not offer the Northern Ireland Assembly a way to avoid difficult decisions

The political debate on welfare reform continues in Northern Ireland, with this month seeing a falling out between the First and Deputy First Minister. One argument worth exploring further, made by the former DSD minister Alex Attwood, is whether the numbers suggest this debate needs to be held at all. Attwood remarked back in February in a debate on the Budget bill that it was worth paying the £5m a month penalty that Westminster was imposing for Stormont’s failure to implement the Welfare Reform bill. Based on research from Sheffield Hallam University showing that Northern Ireland is set to lose £750m a year from welfare reform, “a penalty of £5 million a month is imposed by the Treasury arising from the failure to bring the Welfare Reform Bill back to the Chamber … is a price that should be paid.”

Even given that the penalty will escalate to £200m a year or closer to £17m a month does not dent this logic. But there are several problems with this argument, which suggest that arithmetic does not offer an easy way out on welfare reform.

First, the numbers do not add up quite as neatly as “£200m is less than £750m”. The graph shows the welfare reforms outlined in the Beatty and Fothergill research on the left, with the totals divided on the right. Those in red are income cuts from before the welfare reform bill, while those in blue are those expected to result from the bill.

 Income_loss_due_to_welfare_reform_in_NI.png

The only change has been to split the changes to incapacity benefits up into those that have already happened and those contained in the welfare reform bill.[1] The result is that the majority of the income loss - almost £500m - has already happened. These include many of the Incapacity Benefit reforms introduced by the last Labour government, uprating decisions, and changes to tax credits. Although the £266m a year lost by the welfare reform bill changes is still larger than the £200m a year penalty, the prospect of Universal Credit leading to a net increase of entitlements of around £35m means the simple arithmetic is now nowhere near so clear cut.

Second, whereas the £266m is borne by citizens, the £200m penalty is borne by government. Of course, some of the costs faced by citizens are borne again by government; for instance rehousing those made homeless by housing benefit changes (as is happening in Great Britain). The Northern Ireland Executive is also constrained in both its ability to borrow and raise revenue. While the UK government could borrow more or raise taxes to avoid welfare reform, the Executive can essentially only cut spending.This is not to say necessarily that it should not cut spending in other areas to avoid elements of welfare reform, only to note that it would have to.

Third, it is an open question whether the Westminster government would be happy to see its flagship welfare reforms not apply to a corner of the UK. There may also be a political investment from some parties in Northern Ireland both with welfare reform itself and also the parity principle; the notion that NI should remain in step with Great Britain in terms of benefits.

There is no clear cut fiscal arithmetic which means Northern Ireland can ignore welfare reform. The devolution of social security to Northern Ireland, an unusual historical relic, means that the Executive has an opportunity to shape how an important area of national policy operates. But this opportunity comes with difficult decisions.

 

[1] Some assumptions have been made to do so; namely that the income impact in Northern Ireland for time-limiting and the other changes differs in the same ratio as in Great Britain.  

 


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