The Budget – what it means for welfare in Wales

6736158045_6eb22f6d83_z20 July 2015

Article by Hannah Johnson, National Assembly for Wales Research Service

On 8 July, the Chancellor announced a raft of new reforms to the welfare system, as part of the UK Government’s efforts to reduce the welfare bill by a further £12 billion by 2020.

Alongside the introduction of a  National Living Wage, there will be cuts to housing benefit for young people, a lowering of the benefit cap, and cuts to Employment and Support Allowance and tax credits.

As Wales is more dependent on welfare, and has a higher rate of poverty compared to other UK nations, the impact of these changes will be high up the political agenda in the Assembly.

However, the biggest single cut to welfare spending is set to come from extending the freeze in working age benefits, tax credits and local housing allowance out to 2020. The Institute for Fiscal Studies estimates that it will affect 13 million families in the UK, who will lose an average of £260 a year as a result of this one measure.

A summary of the major changes and an analysis of their impact on Wales is below. It is worth noting that most of these measures will only affect new claimants:

  • Automatic entitlement to housing benefit for 18 to 21 year olds will be cut from April 2017. The Welsh Government claims that 1,200 claimants in Wales could be affected by this change (without exemptions), with an average loss per claimant of around £90 a week, saving around £6 million a year. Around 55% of affected claimants are in the social rented sector in Wales.
  • The benefit cap will be reduced to from £26,000 to £20,000 in Wales, which the Welsh Government estimate will affect 5,000 households in Wales. However, the BBC quoted Community Housing Cymru as estimating it to affect 7,000 households;
  • The rates for the Work Related Activity Group (WRAG) within Employment Support Allowance (ESA) will be brought in line with Jobseekers Allowance (JSA), which will mean a cut of £29.05 per week.

According to DWP statistics, in November 2014 there were 36,530 people in the WRAG of ESA in Wales, which represents around a quarter of all claimants.

  • Child tax credits will be limited to two children from April 2017 for any new claimants and existing claimants who have more children after 2017.  Community Housing Cymru estimate that 51,000 working families in Wales already have two children so will be hit by the change if they have any more children [source].

Other changes include:

  • A reduction in how much families can earn before tax credits/universal credit (UC) start to be withdrawn:
    • Tax credits start to be withdrawn once family earnings are above £3,850 rather than £6,420;
    • Universal Credit also withdrawn much earlier (straight away for non-disabled households without children);
  • Backdating for Housing Benefit will be limited to a maximum of 4 weeks;
  • Family premium entitlement to housing benefit will be removed for claims made after April 2016;
  • Changing support for mortgage interest from benefit to loan.

The Bevan Foundation has also published a blog post on the new National Living Wage.