Counting the cost of Welfare Reform

One of the most significant outcomes of the Stormont House Agreement was an agreement to extend to Northern Ireland the reforms to the welfare system that have been introduced in Great Britain. These reforms were persistently blocked by Sinn Féin, who did not want to endorse what they termed “Tory cuts”. The Treasury has fined the Executive £114m in the current budget for failure to implement the reforms, but they now look as though they are going to be introduced. Relatively little has been discussed recently about how these reforms are likely to impact upon people receiving benefits, and what the implications might be for the wider economy. I wanted to analyse data for both Northern Ireland and Great Britain to see what the impact of welfare reform has been where it has been implemented, and what the impact might be in Northern Ireland post-implementation.

Disability Living Allowance

The biggest impact on Northern Ireland is likely to be from reform to DLA. It is proposed to replace DLA entirely, and replace it with a new benefit, Personal Independence Payment (PIP). That Northern Ireland has more DLA recipients per head of population is well known; 10.9% of the population receive the benefit, compared to a GB average of 5.23%. Of the 406 local authority areas in the UK by DLA (or PIP) recipients per head of population, all of the top five are in Northern Ireland, as are 13 of the top 20.

Top 20 DLA

Total annual DLA payments in Northern Ireland (at August 2014 recipient volumes) are approximately £944.4m. The criteria for PIP eligibility have been tightened significantly. From a statistical analysis of 180 cases, it was determined that fewer current DLA claimants will be eligible for PIPs, and that even though some people will have their payments increased, the overall effect that those who are eligible will receive less. From an analysis of 16,730 cases due to be reassessed in 2014/15, it was estimated that overall PIPs payments will be 27.6% lower than current DLA payments. Extrapolated to the entire DLA population, this would mean that PIPs payments would reduce to £683.9m, an overall reduction of £260.5m.

This is a significant amount of money to be withdrawn from the local economy, and the largest impact is going to be felt in communities in the west of Northern Ireland, which are the areas of Northern Ireland with the lowest disposable incomes per head. The consequences for inequality and the wider economy could be huge, especially in areas such as Strabane where currently over 15% of the population claim DLA.

DLA Distribution

The Bedroom Tax

Another key plank of welfare reform in Northern Ireland will be the introduction of the “Spare Room Reduction”, popularly known as the Bedroom Tax. This will reduce Housing Benefit in cases where there is more than one bedroom per couple or person in a household, with two children of the same gender under 16 expected to share a room, or two children of any gender expected to share a room if they are under 10. The policy has caused much controversy in Great Britain. It has been estimated that over half of those affected by the Bedroom Tax have went into arrears or further into arrears with their rent, and that the majority of those affected are disabled, as defined by the Disability Discrimination Act. There is likely to be a significant number of people affected by a reduction in benefits due to the migration from DLA to PIPs, who will also be affected by the Bedroom Tax.

It is difficult to forecast exactly what the impact of the Bedroom Tax will be in Northern Ireland. However, data is available for Great Britain, and it may be expected that the proportion of Housing Benefit claimants affected by the Bedroom Tax will be broadly similar to rates in Scotland.

Based on the latest available data, August 2014, 15% of Housing Benefit claimants in Scotland were affected by the reduction (the rate was 12.6% in Wales and 13.6% in the North East of England), of which 12.8% received the penalty for having one additional bedroom and 2.2% the penalty for having two or more additional bedrooms. In 2013, there were 166,437 recipients of Housing Benefit. Extrapolating of Scottish Bedroom Tax incidence rates to Northern Ireland would imply that 22,635 would have the one bedroom penalty (£8.25 per week), and 3,662 would have the two bedroom penalty (£14.70 per week).  If these figures did transpire, it would imply an overall reduction in Housing Benefit of £12.5m per year.

Tougher Benefit Sanctions

It is intended to introduce in Northern Ireland the tougher benefit sanctions regime that has been enacted in Great Britain, which will primarily affect those claiming Jobseeker’s Allowance (JSA). The regime has been criticized for being draconian, and a read of this Stupid Sanctions Tumblr makes for astonishing reading. This Scottish Government report states that, of the 111,090 claiming JSA in February 2014, 10,721 (9.7%) faced a sanction decision, and according to DWP data 5,643 faced an adverse sanction; 5,007 a “Low Level” or “Intermediate Level” sanction (losing four weeks of JSA in the first instance), and 636 were given a “High Level” failure (a loss of benefits for 13 weeks).

This is significantly harsher than the current JSA sanctions regime. Data on current JSA sanctions in Northern Ireland proved hard to find, but this FOI request discovered that there were 7,273 sanctions over a six month period for JSA, Income Support and Employment and Support Allowance (ESA). I have assumed that 95% of these sanctions pertained to JSA, which is the ratio in Scotland. If correct, then approximate 1,150 JSA claimants are sanctioned in any given month. This would imply that 2% of Northern Ireland JSA claimants are sanctioned in any given month, but in Scotland the figure is just over 5%, suggesting that there will be something in the order of a 150% increase in JSA sanctions under the new regime.

It is hard to estimate what the reduction in overall benefits payable will be under the new regime, but as a ballpark estimate, currently 6.5% of those claiming JSA in Northern Ireland have a nil rate. If these are all due to sanctions, then a 150% increase in sanctions would mean that there would be 9.75% reduction in JSA payments, which would mean a total annual reduction of £17.6m from current total JSA payments of £180.7m.

There will be those who have limited sympathy for those who will be affected by the cuts in benefits. The discussion around this issue has become highly polarized, and many people in Northern Ireland will have anecdotes of people who are claiming benefits, especially DLA, who they may not consider the most deserving. However, if you are a business owner in a town where a large proportion of your customers are on benefits, and benefits are slashed, then this is going to have a severe impact on your business. This could cause a cascade of business failure throughout the local economy. Cuts to benefits have economic impacts far beyond those who claim them.

There is a growing body of economic thought that says that monetary policy such as quantitative easing, where the government attempts to increase private sector spending by creating money and using it to buy bonds, exacerbate inequality and inhibit growth as money does not reach the parts of the economy that need it. If the government is serious about private-sector led, real economic growth in Northern Ireland, then perhaps it should start to think about how to get money into the pockets of the poorest, instead of trying to extract it.

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  • Reader

    Interesting map. It looks like voting for nationalist parties is really bad for your health. Could Korhomme or Salmon of Data do a regression line for us?

  • I think it will be interesting to see how / if bedroom tax is implemented here. It certainly appears that there is a smaller number of one bedroom homes here for single people / couples to downsize into, thereby freeing up larger properties for families. It will be pretty unworkable to indefinitely penalise people who can’t find anywhere smaller to live. Not that that will necessarily prevent this tax being implemented but I’d be interested to hear what the proposed solutions to this will be.

  • hugh mccloy

    The cut already in housing has hit hard in private sector, in one area in particular fathers with contact with their child and live in carers are already affected it has just not made the media in the way it should, claimants they can still only claim one room to stay in a house they cant afford if they need benefits. Even dads with court granted orders they will not get any support full term as they wont get recognition of a child living with them, one side effect of this is if dad then cannot get a place to live and needs benefits he wont get contact outside of a contact centre.

    this bedroom tax per say is already here and replaced with this http://www.nihe.gov.uk/index/benefits/housingbenefit/discretionary_housing_payments.htm but you will only get this on the basis you move out and find somewhere else with no consideration what so ever , if this is the fund that will be brought in for welfare then all is not seems in the Stormont Agreement

    the next round of bedroom tax will most def hit hard.

    Looking at the map though its looks like a vote majority dark areas SF controlled

  • Glenn Clare

    Good to see the hard pressed tax payer is now getting some action from the government. The feckless and the lazy can now get up off their bloated back sides and do what I did years ago and take a low paid until a better job came along.

  • AndyB

    We do have the advantage that the bedroom tax has been postponed for at least another two years for existing tenants – if it’s ever implemented for existing tenants, which is now looking unlikely.

    Link is at http://www.belfasttelegraph.co.uk/news/local-national/northern-ireland/bedroom-tax-deal-wins-northern-ireland-a-fouryear-reprieve-29633007.html

  • hugh mccloy

    I think that article is slightly outdated, bedroom tax already in for private tenants and statutory one will be fast tracked in line with corp tax devolution

  • Surveyor

    The number of people in work and claiming housing benefit has rocketed by 59% and will cost the British taxpayer an extra £5 billion by the time this years general election comes around. Add in tax credits to supplement the poor wages paid by private companies and it’s hard to see where the savings are.

    Of course that’s not to mention the 55,000 or so unemployed here and the chronic lack of even those low paid jobs.

  • Jay

    How much of those savings do you think the tax payer will see?

  • PaulT

    Some of the area’s you mentioned also come under Rural Development. IIRC when the DUP prevented a SF Min from putting 100m of CAP into Pillar II for rural dev they did say it would be funded instead by OFdDM.

    Has it……………..

  • SeaanUiNeill

    Before someone else says this:

  • Kevin Breslin

    There’s no bedroom tax in the Republic of Ireland Hugh.

  • This morning the DSD committee met to run through the amendments the department has put forward for the Welfare Reform Bill that will be debated tomorrow. The main takeaway from those amendments is the reduction of sanctions. The mitigations agreed in the SHA will be introduced at a later date as an enabling clause, added into the bill, agreed by the Executive. Therefore until we know what they have agreed, we won’t know what the money set aside for this year will go towards. Essentially we know very little.

  • PaulT

    If you extend your logic to GB it looks like voting Labour is bad for your health. Vote Tory and we would all live in nice areas……………………….. just following your logic makes it so simple to understand and fix

  • PaulT

    Will probably need topping up in less than 12 months once the widening exchange rate starts to kick in around the border towns, according to Radio Ulster today predicting 1.50/1.90 Euro to the pound, thats cheap booze, petrol, shopping, cars, property etc just a few miles south

  • notimetoshine

    I’m surprised that in some parts there are so many unwell people. Surely this is a public health concern and maybe they should be doing something about this?

  • Reader

    PaulT, there are plenty of poor huns too, you know, so your analogy doesn’t work too well. In fact, many nationalists here on Slugger do like to look down on the ill-educated; uncultured; unemployable; uncontrollable prods…
    So, instead of knee-jerk defensiveness, how about giving a bit of thought to the DLA figures, and maybe, perhaps, trying to work out what is going on?

  • Old Mortality

    I think you would find that quite a few of them are not really unwell. DLA claims jumped in the late 90s after the Labour government introduced Jobseekers Allowance which meant being pestered to find a job. With DLA – at least until now – you were left alone to get on with your work, without being distracted by any of that nonsense.

  • Reader

    As you can see, there are already quite detailed theories going around on this thread. If you think there is something missing, by all means add your own.
    When you’re ready, I could do a bit of synthesis…

  • Surveyor

    DLA isn’t exclusively for the unemployed as you can also claim it if you have a job.

  • Reader

    I had a look for your theory about the distribution of DLA, but I didn’t see it.
    I’m sure I recall you setting yourself very strongly against the sort of theory presented by Old Mortality. But if anything you have said on this thread is even relevant, it is only if you think of DLA as a flavour of JSA. But if Old Mortality is wrong, and the system is working properly, they should be independent of each other.
    And why are the aging, decrepit huns East of the Bann so damned healthy?

  • Zeno

    I vaguely remember something about people being shifted on to sickness benefit.to cut the unemployed figures even before that?

  • barnshee

    Ni is a society created and sustained by the “benefits industry” Crudely- other peoples money– the chickens have now come home to roost