Social Security and Welfare Reform

Both the Archbishop and the Minister are right in their argument over welfare reform

  • Published: Feb 17, 2014
  • Author: Peter Kenway
  • Category: Social Security and Welfare Reform

In an interview with the Telegraph , Archbishop Vincent Nichols portrays the government’s programme of welfare reform as having “torn apart” the “basic safety net that was there to guarantee that people would not be left in hunger or in destitution”. (The full interview is here).Hitting back, Mr Duncan Smith’s department says that its reforms will “transform the lives of some of the poorest families in our communities”.

Left as just another knockabout round between the government and its critics, people can only tune out or find their previous beliefs to be confirmed, be they about clerics, ministers or reforms. Yet the key point here is that despite the vivid imagery that each employs against the other – “torn apart”, “transforming lives” – both sides are right. If welfare reform is to be a success and enjoy public approval again, this needs to be understood.

Starting with what the archbishop said: when he talks about the “safety net” what he is referring to is the minimum amount of money that the state says that a person needs to live on. That amount varies according to whether the person has a partner and whether they have dependent children. For a single working-age adult, it is £58 a week for someone aged under 25 or £72 a week otherwise. For a single pensioner it is £145 a week. A lone parent with one child is due £155. A couple with two children is due £261.

Obviously, it is always possible to argue about whether the safety net is set at the right level. Under the last government, the amounts for both pensioners and dependent children increased substantially. But for something like the last 35 years, the safety net for working-age adults has only been increased in line with inflation. As a result, the £72 safety net for a 25 year-old now represents just one third of the income of a single adult at the mid point of the income distribution. Since April last year, annual increases in the value of the safety net for working-age and for children have been held down further, to 1% a year.

But this is not what people are referring to when they talk about holes being torn in that safety net. Whether it is uprated in line with inflation or something else is an argument about the net’s height above the ground. Holes in the net, by contrast, are about how other reforms mean that some of that money has to be spent on things that until recently did not. These are mostly to do with housing.

So in the end, the bedroom tax, the overall benefit cap and caps on the amount of housing benefit for tenants in the private sector all boil down to the same thing, namely, that that some of that safety net money, now has to go towards the rent. This was not previously the case: in essence, someone receiving safety net support got their housing benefit paid in full.

The other thing the money has to go on now is council tax. Previously, someone eligible for safety net support had their council tax met in full. Since last April, across most English local authority areas, that is no longer so. Instead, almost all working-age households now have to pay some council tax. What was once available for food, energy, water, clothing and other essentials now has to go on rent and tax too. As we have shown before, “heat or eat” really is the choice for some now. The Archbishop does not exaggerate.

Neither, though, does the DWP when it replies that universal credit will transform lives. Unlike the present arrangements, where any income above a minimum £5 or £10 leads to a pound for pound reduction in the safety net provided, universal credit tapers much less punitively as income, assumed to be from earnings, starts to come in. As a result, household income can increase significantly - up to some £40 a week for a single adult, higher for couples and parents – even when just 15 hours paid work are done a week.

The graph illustrates the difference in weekly disposable income for a single adult under the current and universal credit arrangements, and is drawn under the assumption that they are paid the London Living Wage of £8.80 an hour. To keep the picture simple, rent and council tax (and the relevant benefits) are ignored. 

It is clear how the claims of Mr Duncan Smith and Archbishop Nichols can be reconciled: while the cleric is referring to the situation of people in a workless household, the minister is referring to what will happen to them when they enter work. Yet in two respects, the Archbishop’s challenge retains the upper hand over the minister’s response.

First, universal credit is still largely a work in progress and, aside from the very simplest cases (that is single adults with no dependent children or housing costs), still something for the future. To answer an Archbishop’s earthly concerns with promises about a hoped-for life to come is a curious reversal of roles.

Second, universal credit takes the value of the safety net as its point of departure. Even if it boosts incomes to the extent suggested here, the hope that that will be “transformative” depends on the income it makes possible somehow being enough. If the safety net really is being “torn apart”, that claim is ever more called into question. Rather than resisting the Archbishop, the minister really needs him in as an ally.

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