Explaining Northern Ireland’s welfare reforms

Posted on November 6, 2014 · Posted in Business Month

There has been enormous confusion about the cost to Northern Ireland of the UK Government’s welfare reforms. While the figure of £750m has been widely quoted, it has become clear in recent weeks that much of that sum relates to changes that have already been implemented.

 

The £750m figure came from a report – The Impact of Welfare Reform on Northern Ireland –produced by Sheffield Hallam University for the Northern Ireland Council for Voluntary Action (NICVA).  It was written by two of the UK’s foremost academic experts on the welfare system, Professor Christina Beatty and Professor Steve Fothergill.

 

That report painted a bleak picture of the impact of the welfare reforms. It concluded that if all the reforms proposed by the UK Government were implemented in Northern Ireland, they would take £750m out of our economy.

 

Northern Ireland is the hardest hit part of the UK by the welfare reforms. This is no surprise – we have the highest rates of economic inactivity and claims for benefits linked to incapacity and disability.

 

In absolute terms, the worst affected UK council district is the Lancashire seaside town of Blackpool, which has specific problems of poverty and young adults living in short-term accommodation. It also has above average numbers of poor elderly and disabled residents.

 

Below Blackpool, it is Northern Irish cities and towns that dominate the impact tables. The second worst affected place in the UK is Londonderry, the third is Strabane, the fourth Belfast, the seventh Limavady, the 15th is Moyle, the 17th is Omagh and the 20th is Newry.  This is out of 405 local authority areas and illustrates NI’s high benefit dependency.  The loss of household incomes is high.  In the case of Derry, there is an average loss per working age adult of £900 a year.

 

It needs to be stressed, though, that these figures were calculated on the basis that all the welfare reforms proposed by the UK Government will be implemented in Northern Ireland. Some of those reforms have already been adopted, others have not.

 

Reforms already agreed and implemented include the use of a cap for housing benefit payments based on average local rents – this was adopted in 2008. Since 2012, single adults under 35 have been entitled to housing benefit at a rate that assumes they share accommodation – whether they do or not.  This latest change is taking £55m out of the local economy.

 

Other changes already implemented include removing child benefit from higher income earners (£80m a year impact), cuts to tax credits (£135m), limiting benefits up-rating to 1% (£120m) and changes to rules on non-dependents (£10m). These five changes, already implemented, have taken £400m a year out of Northern Ireland’s economy – more than half the total impact of the proposed reforms.

 

There is another batch of reforms that are gradually being felt, by making entitlement more difficult. The Employment Support Allowance (ESA) was introduced in 2008 in place of Incapacity Benefit (IB) and all IB claimants in Northern Ireland have now migrated to ESA.  Tougher Work Capability Assessments mean that ESA claimants are more likely to lose their entitlements.  In addition, it is proposed that ESA could be time limited for many claimants to one year, but that has not yet been agreed here.  Northern Ireland could eventually lose £90m a year from these reforms to IB and ESA, according to the Sheffield Hallam report.

 

Professor Beatty explains: “It is not quite so straight forward to disentangle these two elements from the NI data I have.  However, in the work we did on GB in Hitting the Poorest Places Hardest, 60% of the total financial loss is due to the time limiting of ESA and 40% is due to other IB measures. So if the same was true in NI then approximately £90m pa would be lost due to these measures already underway.”

 

Other reforms have not yet been introduced. One of these is the move to Universal Credit.  A report from the Institute for Fiscal Studies published last year found that 10.9% of Northern Ireland families would lose from its introduction, while 11.4% will gain.  People with disabilities are likely to lose through this change, while families with single earners and children will gain, said the IFS.

 

We then have the so-called ‘bedroom tax’, which is officially called the Spare Room Subsidy. This measure limits payments of Housing Benefit to claimants who are considered to have more rooms in their homes than they need.  It has previously been adopted for private sector tenancies, but the UK Government has extended it to all tenancies.  If this were adopted in Northern Ireland it would have an impact of £20m a year.  But there has been agreement between the Department for Social Development and the UK Treasury that this will not be implemented here for the time being because of the shortage of smaller accommodation units.

 

The current impasse on welfare reform therefore comes down to the implementation of three specific measures that are outstanding and are included in Stormont’s stalled Welfare Reform Bill. One is the adoption of a cap on benefits of £26,000 – seeking to ensure people are better-off in work than on benefits – and the other is the replacement of the Disability Living Allowance by Personal Independence Payments, along with stricter assessments of entitlement.  Together these account for £250m of potential cuts, or just one third of the total package of reform cuts.  The third outstanding measure included in the Welfare Reform Bill is the time limiting of ESA payments to some claimants.

 

In terms of impact, the replacement of DLA by PIP is likely to have the severest impact. A modelling exercise by the Department for Social Development projected that 25% of existing DLA recipients will not be entitled to PIP, while 32% will have a reduced entitlement.  The next biggest hit from the proposals in the Welfare Reform Bill come from the time limiting of ESA.

 

Given that reforms have been implemented on a gradualised basis since 2008, it is difficult to measure a direct economic impact on Northern Ireland. Moreover, their implementation has coincided with the most severe recession in modern times and the worst property crash in the world.

 

But we can be certain that the benefit cuts have had effects on consumer spending. Glyn Roberts, chief executive of the Northern Ireland Independent Retail Trade Association, says that those of his members with more customers on benefits have been harder hit during the recession.

 

“There’s no doubt about that,” says Roberts. “Consumer spend is down.  There were a lot of retail casualties in the recession.  Many people on benefits use their local shops.  They are important customers for many of our members, particularly in urban areas.”

 

The overall impact of the reforms will continue and is serious. Professors Beatty and Fothergill spelt it out in their report for NICVA.  They concluded: “By lowering incomes more than elsewhere, a key effect of the welfare reforms will be to widen the gap in prosperity between Northern Ireland and the rest of the UK.”