Spending review: who loses out?

In the Spending Review delivered to parliament today, George Osborne promised cuts that would “fall on the broadest shoulders”. But who really loses out in the deep cuts to benefits and services?

Following the Chancellor’s speech, his Labour shadow – Alan Johnson – described the Coalition Government as “deficit deniers” who were engaging in “a reckless gamble with people’s lives”. So will those with the greatest income really pay proportionately more than those from lower socio-economic groups?

‘Worrying’ disability changes
The Chancellor today announced that a number of people claiming Employment and Support Allowance (ESA) would be limited to a year of benefit payments.

Around one million people who are disabled or who have health conditions will be affected by the change, affecting those placed in the work-related activity group.

They say it will incentivise people to work. It won’t. It will make them more desperate. Claudia Wood, Demos

Job Seeker’s Allowance
ESA claimants will be migrated to Job Seeker’s Allowance (JSA) if they cannot find work within a year which, a leading think tank told Channel 4 News, is a “worrying” revelation.

An individual on ESA can receive between £91 and £97 per week, depending on the severity of their disability or health problem. A shift to JSA would see weekly income drop from £20 – £40 per week and would mean ESA claimants lose vital support.

Claudia Wood, a senior researcher at Demos, told Channel 4 News the changes meant disabled people would find it even more difficult to get jobs.

“Disabled people take a lot longer to find a job due to issues such as transport and employer discrimination,” she said.

“A large proportion of disabled people will take more than a year to find a job.

“They will then face a sudden £20 – £40 a week drop in income when shifted to JSA. Not only do they lose money but they lose important support.

“And then if you’ve been on JSA for over a year your housing benefit is cut by 10 per cent – a third of people claiming benefits for incapacity are receiving housing payments.

“The drop in income is unwelcome, but the bigger worry is actually further limiting people’s chances of getting into work by withdrawing support such as access to work schemes.

“If you can’t get into work on ESA there’s no way they will get into work on JSA. The government are withdrawing cash and withdrawing support.

“They say it will incentivise people to work. It won’t. It will make them more desperate. This is probably the most the worrying element of CSR.”

The mobility component of disability living allowance for those in residential care will also be removed. It will affect the estimated 58,000 DLA claimants in care homes.

‘Broadest shoulders? I don’t think so’
Donald Hirsch, head of income studies at the Centre for Research in Social Policy at Loughborough University, told Channel 4 News: “It is not the case that the rich are paying more, that the broadest shoulders are taking the weight.”

Even when higher rate of tax is taken into account, the poorest will lose out to a greater degree because they are more likely to depend on the services and benefits which will be reduced.

“I think that some of the cuts that the government has made to benefits are going to fall very hard on some of the poorest families. The government’s own figures show that if you combine the effects of cuts to benefits and tax credits it’s worse, because people who are poor feel it the most. People with the ‘broadest shoulders’ do not systematically pay the most in relation to income.

“Big reforms are needed… but it is very messy… In the longer term, what’s really going to matter to people on lower incomes is whether the government can find the considerable extra resources needed to create a new and better system – £2bn is a very small amount to cover the kind of changes they’re talking about. A lot of questions have been left unanswered.”

In addition, while the cuts will be felt across the country, the impact of the spending review will be felt more acutely in some regions than others, which some fear may exacerbate a north-south divide which already sees the northern regions economically underperform. Overall, the north will be most affected, with public services making up around one third of the workforce in major northern cities like Liverpool (39 per cent), Sheffield (33 per cent) and Manchester (29 per cent), as well as Scottish cities Glasgow (31 per cent) and Edinburgh (30 per cent).

Housing
Although Mr Osborne promised to “ensure in future social housing is more flexible” – 150,000 new affordable homes over the next four years, an improvement to existing housing stock through the Decent Homes Programme and encouraging housebuilding through a New Homes Bonus, help towards housing costs for the most vulnerable and an extra £4.4bn of capital for social housing – social housing will suffer a cut of 50 per cent.

Campbell Robb, Chief Executive of Shelter, a charity that tackles homelessness and bad housing, described the cuts to housing as “a huge blow”. He described a history of neglect of spending on social housing: “A succession of governments has failed to address our housing crisis and today’s announcements suggest the coalition has firmly joined them in denying responsibility for an entire generation’s ability to access decent, secure, affordable housing.”

While the Chancellor tried to put a positive spin on changes to social housing provision, Campbell Robb says: “The proposed figure of up to 150,000 affordable homes over four years represent less than a third of what this country urgently requires to bring the housing system from its knees, notwithstanding the half a million ‘lost’ homes referenced by the Chancellor himself.”

Mr Robb said that the protection of the vulnerable was welcome, but cautioned: “These measures address those in urgent, dire need, and not the millions of people who already face a continual struggle to find and keep a decent, affordable home. The combined worry of cuts to housing benefit and the slashing of the affordable house building subsidy, coupled with the absence of a long term strategy, will be devastating for the housing aspirations of thousands of young people consigned to increasing costs and bringing up their future families in an insecure private rented sector.”

Women
The government has announced that the state pension age will increase to 66 for both men and women by 2020. Ros Altmann, Director General of Saga, believes this adversely affects women: “Women are bearing a huge burden of increase in their pension age. Over the next ten years, while men’s pension age increases by just one year, women’s pension age rises by 6 years.

She said: “That is a huge change and will be difficult for many women. The problem is the speed of change, not the concept that men and women’s pension age should rise.

“The original suggestion was that men’s pension age would reach 66 in 2016, but that has been delayed for 4 years, whereas women’s pension age was already changing between 2010 and 2020, with the changes being accelerated even more, while giving very little notice.”

Families
Following the recent announcement of changes to the universal child benefit, there is further discontent for families. According to Sarah Jackson, Chief Executive of Working Families, a charity which supports and gives a voice to working parents and carers, it will now be harder for parents to get into work. The charity has condemned the cuts in today’s comprehensive spending review which it says will cut the support for childcare costs through tax credits from 80 per cent to 70 per cent and could act as a disincentive to work.

People at the end of their working lives will be disappointed that the rise in state pension age has been brought forward. Michelle Mitchell, Age UK

“Reducing funding for childcare costs makes it £30 a week harder for a parent to go back to work,” Ms Jackson said. “The government currently pays up to 80 per cent of childcare costs for working families up to a maximum of £240. In future, a parent returning to work will only get a maximum of £210. We know that high childcare costs are a significant work disincentive and parents struggle to pay them now. It is difficult to imagine how this cut will support the Government’s promise that work will always pay.”

“We’re also disappointed that couples will now have to work at least 24 hours a week to be entitled to Working Tax Credits. A single earner on the minimum wage working 16 hours a week will see their family’s income reduced to less than the amount they’d get from claiming Jobseekers’ Allowance as a couple – a real disincentive to work.

Older people
George Osborne promised that under the spending review, elderly people would no longer ‘fall between the cracks’ and many universal benefits were kept.

Michelle Mitchell, Charity Director at Age UK, said: “Generally Age UK believes that this is a fair deal for older people… We are relieved that universal benefits such as winter fuel payments have been retained.

“We welcome the Department of Health’s decision to find an extra £2bn for social care but at the moment it is unclear whether this will represent a rise in spending in real terms, given the swingeing cut of 26 per cent to government funding for councils. We are disappointed that the Chancellor has presented the entire amount as additional funding whereas it appears unlikely that this is the case.

“People at the end of their working lives will be disappointed that the rise in state pension age has been brought forward by six years as this will impact most on the poorest by shortening the retirements of those living in areas of low life expectancy. However we understand that difficult decisions have had to be made in the current climate.”

We need urgent reforms of the labour market. Ros Altmann, Saga

Ros Altmann of Saga was, however, more critical of the impact on the over-50s. She said: “It will be vital for older people to be able to find work, otherwise they will lose out even more because the Pension Credit, which currently is paid from age 60, will not be paid till age 66 by 2020. That means any men or women who cannot find a job will be forced onto unemployment benefit, which is much less than the Pension Credit available now.

“We need urgent reforms of the labour market, ensuring an end to age discrimination and also making sure that the Government’s initiatives for helping people back to work are focussed on older workers, not just the young.

“The most vulnerable are those over-50s who cannot find work, whose private pensions have not worked out or who have fallen victim to the vagaries and failures in the personal finance sector, as well as those who have mental health issues such as dementia. They will lose the option of claiming Pension Credit from age 60 and may be forced onto unemployment and disability benefits which are less generous.”