Introducing Broken Benefits

It is unusual for something to be simultaneously so crucial, yet so disliked and mistrusted, as Britain’s social security system.  The same system which prevents mass destitution, and reduces social inequalities, is also seen as badly targeted and poorly operating.

Broken Benefits looks at the crucial period from 2010 – when benefits reform started under the coalition Government – through to 2020, when the process of reform will be well underway (though still by no means complete).

The book makes the case that over this period welfare reform has failed in three key respects.  It has deeply undermined the safety net which protects households from destitution, it has failed to make the system easier for claimants to navigate, and it has failed to increase the “fairness” of the benefits system – including failing to “make work pay”.

Punching holes in the safety net

The first job of an effective social security system must be to prevent mass poverty and destitution.   The benefits system was by no means perfect in this regard, but reductions in the value of many key benefits between 2010 and 2020 are expected to significantly drive up poverty rates over the course of the decade – by 2020 15.6 million people are expected to live in poverty, 2.5 million more than in 2010.

In part this is the result of cuts in key benefits – such as the introduction of the “2 child limit”, reductions in support for many disabled children, and cuts to help for those unable to work because of ill health or disability.

However, in significant part this is also the result of reductions in the value of benefit entitlements relative to rising costs of living.  For example, whilst costs of living (as measured by the Retail Prices Index) are expected to rise by around 35% between 2010 and 2020, Child Benefit will have increased by just 2% over the decade.

A simple calculator here helps show the comparative “safety net” benefit entitlements – (by which I mean the amount that claimants might receive if they have no other income or savings) in 2010 and 2020.

Whilst much has been made of the increasing value of the State Pension, one of the groups most severely affected by cuts to the safety net has been “younger older” people – those in their early to mid sixties – and particularly those on a low income.  At the start of the decade this group might expect a retirement income from the age of 60, but by 2020, will have to wait at least an extra seven years; for many this will remove the best part of their retirement.

Of course it is not just the value of core benefit entitlements which affects the safety net.  Rules which restrict how quickly claimants can get paid, which restrict access to additional disability support, which make it harder to appeal a poor decision, or which impose sanctions for minor infringements of the rules, can all mean that the amount which people actually receive is less than might otherwise be expected.

Benefits complex-ification

Much sought for, and extremely hard to achieve, a key goal of welfare reform has been simplification of the benefits system.  Over the course of this decade, welfare reform has achieved the reverse.  A system which was always hard to navigate has now become nigh on impossible.  The benefits system is now laden with traps which can prevent people from getting the support they need.

For some people, the system may present problems of when to claim benefits – with a few days difference leaving potentially leaving people hundreds of pounds worse off.  For example, the complex rules for Universal Credit payments mean that if the date you are paid by your employer doesn’t perfectly align with the date of your claim for benefit you can find yourself with significantly less money as a result.

In other cases, some people may actually be worse off claiming benefits to which they are entitled.  For example, this is the case for some working families claiming Widowed Parents’ Allowance which may both be deducted in full from other benefits that they receive, and also be taxed.

Many of the complexities in the system are the direct result of cuts to support.  For example, cost saving reductions in the value of “earnings disregards” in the Tax Credits system mean that many people who face earnings fluctuations during the course of the year can find themselves being paid the wrong amount through no fault of their own.  In 2014/15 more than one in three Tax Credit claimants faced an overpayment on their claim. 

A less fair system

One of the key goals of welfare reform – and in particular, the introduction of Universal Credit – has been to improve the “fairness” of the benefits system. For example, recognising that for many people work “doesn’t pay” because of deductions from benefit entitlements when people move into employment, or take on additional hours.

However, many of the reforms introduced in recent years have actively reduced work incentives.  For example, a couple of years ago the Government announced cuts to the “work allowances” in Universal Credit.  This change reduced the amount of money someone could earn before additional earnings start to affect their benefit entitlement, and will cost some working families as much as £2500 per year.

However, whilst it is perhaps the one which has received most attention, this is only one of a number of recent reductions to in-work benefits for different groups.  For example, the removal of the so-called “limited capability for work” component of Universal Credit removes a significant portion of in work support from working people who face difficulties as a result of disability or ill health.

Social security wasn’t working in 2010, but by 2020 it is heading towards being a complete mess.  The safety net has been punched full of holes; it frequently punishes behaviour which ought to be rewarded; and, in many respects, it is becoming increasingly complex for claimants to navigate.

The system needs fixing – and future blogs will start to set out some possible approaches to this.  However, in the mean time, it is important to remember that for all its faults the benefits system remains something in which we should take pride.  It is a system which each day prevents millions of households from facing destitution and is a critical leveller of income inequality.  It needs fixing, but perhaps it is only by first recognising how important it is, that we can start to make the changes needed.

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