June 2010 ‘emergency’ Budget

An unbalanced budget

Budget: overall analysis Claim was tough but protecting most vulnerable. IFS analysis shows:  this is based on ignoring benefit cuts post 2013  Ignoring differential impact of a 25% cut in public services, more used by the poor  A deeply regressive budget – cuts hit the poorest

Shades of history I – Labour in power as Great Depression hits and tax receipts fall as unemployment bill rockets Economic orthodoxy said urgent action to balance budget to maintain confidence and the “Gold Standard” exchange rate Labour split over cuts esp in benefits A new National Government – Tories, National Liberals and National Labour implemented deflationary cuts during a recession – unemployment soared. A call for all to share the pain

As this opposition poster commented:

Unemployment set to rise ? Treasury paper estimates cuts will lead to:  Up to 600,000 job losses in public sector  Up to 700,000 job losses in private sector But Government hopes some 2 million new jobs in private sector over 5 years: This could be ambitious e.g.  In 1990s recovery – 7 years to create 1 million jobs  In Labour years, 2.5 million over 13 years (including 800,000 new public sector jobs and housing boom) Migration to ESA still to impact – aim was 1 million off IB/IS - into work, JSA or off benefit altogether.

Annual uprating From April 2011, Consumer Prices Index will be used for (almost) all benefits and tax credits Previously linked to a mixture of the RPI (non means tested) and the Rossi Index (means tested) Annual loss to claimants/ saving to Treasury:  2011/12: - £1,170m  2012/13: - £2,240m  2013/14: - £3,900m  2014/15: - £5,840m

Retirement Pension From 2012 the rate at which the State Retirement Pension rises will be linked either to: earnings or prices or will be 2.5% annually -whichever is greatest Annual gain to claimants/cost to Treasury:  2012/13 + £195m  2013/14 + £420m  2014/15 +£450m – but Retirement age likely to rise faster - and possibly further - than had been planned under the last Government

Pension Credit The rate at which Pension Credit rises will be linked to the rise in the State Retirement Pension Annual gain to claimants / cost to Treasury:  2011/ £415m  2012/13 + £535m  2013/14 + £535m  2014/15 + £535m

Child Benefit Child Benefit to be frozen for three years from 2011/12 A cut of:  2011/12 - £365m  2012/13 - £695m  2013/14 - £940m  2014/15 - £975m

Tax Credits (I) Reduce the tax credits second income threshold to £40,000 from Cuts of:  2011/12 - £140m  2012/13 - £145m  2013/14 - £155m  2014/15 - £145m

Tax Credits (II) Increase first and second withdrawal rates to 41% in 2011 Cuts of:  2011/12 - £640m  2012/13 - £710m  2013/14 - £730m  2014/15 - £765m

Tax Credits (III) Taper the family element of the Child Tax Credit immediately after the child element from 2012 Cuts of :  2012/13 - £510m  2013/14 - £515m  2014/15 -£480m

Tax Credits (IV) Remove the baby element in Child Tax Credit from 2011 Cuts of:  2011/12: - £295m  2012/13: - £275m  2013/14: - £270m  2014/15: - £275m

Tax Credits (V) Remove the 50 plus element in Working Tax Credit from 2012 Cuts of:  2012/13 - £35m  2013/14 - £40m  2014/15 - £40m

Tax Credits (VI) Reverse the £4 supplement planned in Child Tax Credit for children aged one and two from Gain to Treasury:  2012/13: - £180m  2013/14: - £180m  2014/15: - £180m

Tax Credits (VII) Reduce the income disregard from £25,000 to £10,000 for 2 years from and then to £5,000 in Gain to Treasury:  2011/12 - £105m  2012/13 - £140m  2013/14 - £340m  2014/15 - £420m

Tax Credits (VIII) Introduce an income disregard of £2,500 for falls in income from Cuts of:  2012/13 - £550m  2013/14 - £560m  2014/15 - £585m

Tax Credits (VIII) Reduce backdating for new claims and changes of circumstances from 3 months to 1 month from Cuts to claimants:  2012/13 - £315m  2013/14 - £320m  2014/15 - £330m

Tax Credits (IX) Increase the child element of Child Tax Credit above indexation by £150 in and £60 in Gain for claimants / cost to Treasury:  2011/12 + £1,200m  2012/13 + £1,845m  2013/14 + £1,930m  2015/16 + £1,995m

Housing Benefit Cap LHA rates to £250 for one bedroom, £290 for two bedrooms, £340 for three bedrooms and £400 for four or more bedrooms from 2011: Cuts to claimants:  2011/12 - £55m  2012/13 - £65m  2013/14 - £70m  2014/15 - £65m

Housing Benefit (II) Set LHA at 30 th percentile (rather than 50 th percentile) of local rents Cuts for claimants:  2011/12 - £ 65m  2012/13 - £365m  2013/14 - £415m  2014/15 - £425m

Housing Benefit (III) Uprate non-dependant deductions from 2011 Cuts for claimants:  2011/12 - £125m  2012/13 - £225m  2013/14 - £320m  2014/15 - £340m

Housing Benefit (IV) Limit social sector HB to appropriate-size property from 2013 Cuts for claimants:  2013/14 - £490m  2014/15 - £490m

Housing Benefit (V) HB to 90 per cent after 1 year for JSA claimants from 2013 Cuts for claimants:  2013/14 - £100m  2014/15 - £110m

Housing Benefit (VI) HB to allow for extra room for carer from 2011: Gain for claimants/ cost to Treasury:  + £15m a year

Housing Benefit (VII) Increase Discretionary Housing Payments budget from 2011 Gain for claimants /Cost to Treasury:  2011/12 + £10m  2012/13 + £40m  2013/14 + £40m  2014/15 + £40m

IS for Lone Parents Further lower the age limit to 5 (for youngest child), from October 2011 for new claims and April 2012 for existing ones Cost to claimants/ Gain to Treasury:  2012/13 - £ 50m  2013/14 - £150m  2014/15 - £180m

DLA Budget statement:  ‘new, objective medical assessment for DLA’  to ‘replace complexity of current forms’

DLA Budget costings document:  ‘introduce an objective medical assessment and revised eligibility criteria for both new and existing working-age claims for Disability Living Allowance, to be rolled out from 2013/14’.  ‘The assessment will follow a similar process to the Work Capability Assessment (WCA) used for claims to Employment and Support Allowance, with a points based system to assess eligibility to the different rates of the benefit’. Assurance since given to Disability Alliance that:  the test will not be the WCA

DLA Costing document:  ‘Drawing on the evidence of the impact of the WCA, the central assumption for this policy is that it will result in a 20 per cent reduction in caseload and expenditure once fully rolled out. It is assumed that existing claimants would be reassessed over three years, with 25 per cent of the caseload reassessed in the first year, 75 per cent by the end of the second year and 100 per cent by the end of the third year’

DLA Cuts for claimants:  2013/14 - £ 360m  2014/15 - £1,075m Implicit tightening of criteria;  DWP estimate of DLA fraud 0.5%  Treasury target to remove from benefit 20% - i.e. approx. 600,000 people

And don’t forget ESA... Not part of the budget Arrangements for “conversion” to ESA and the ending of IB, IS (for sickness) and SDA (almost) were in place before the election The new Government are fully behind the changes – despite the new Chief Secretary being one of the few MPs to challenge ESA

Failure rates for the WCA Failure rates for new claimants were underestimated by the DWP – they were estimated at 50% rather than the current 68% Failure rates on conversion will be much lower. The DWP estimated 15% But this was before the yet to be implemented “revised WCA – with an estimated 5% increase in failure rates

Cost savings Hard to put a figure on the savings from conversion Around 50% of those failing will switch to Income-related JSA Around 50% will lose any benefit, but can sign on to JSA for NI credits Somewhere in the order of £2 to £3 billion – see Observer front page 12/09/10