OXFAM RESEARCH REPORTS APRIL 2014

MULTIPLE CUTS FOR THE

POOREST FAMILIES
1.75 million of the poorest families have seen their
benefits cut due to welfare reform

HANNAH ALDRIDGE & TOM MACINNES

New Policy Institute

For a second year in a row benefits values have increased below prices. At the
same time, council tax support and housing benefit has been cut for 1.75 million
of the poorest families. This leaves affected families with even less money to pay
for essentials such as food, heating and transport.

Oxfam Research Reports are written to share research results, to contribute to public
debate and to invite feedback on development and humanitarian policy and practice.
They do not necessarily reflect Oxfam policy positions. The views expressed are those
of the author and not necessarily those of Oxfam.

www.oxfam.org.uk
CONTENTS

Executive Summary 3

1 Introduction 5

2 The under-occupation penalty 7

3 Local housing allowance limits 8

4 Overall benefit cap 10

5 Localised council tax support 11

6 Cumulative Impacts 12

About the authors 16

2 Multiple cuts for the poorest families

EXECUTIVE SUMMARY
The government has introduced a number of changes to the UK benefit system in recent years.
In doing so, it has changed the shape of welfare support.

Firstly, it has lowered the overall value of benefits by uprating them by less than inflation. This
includes basic cash benefits which, according to the Department for Work and Pensions (DWP),
are intended to cover all normal day-to-day living expenses.

Secondly, multiple changes to housing benefit and the localisation of council tax support mean
that some families have to use some their cash benefit to pay for rent and council tax costs
they were previously deemed too poor to pay.

This briefing looks at how many of the poorest families have been affected by one or more of
1
these benefit cuts to date.

In April 2014, 780,000 of the poorest families were experiencing a shortfall in their housing
benefit as a result of the welfare reforms since April 2011.

Around 410,000 (52 per cent) of these families are private renters affected by the Local Housing
Allowance (LHA) changes, 345,000 (44 per cent) are affected by the under-occupation penalty,
and 28,000 (4 per cent) are affected by the overall benefit cap.

More than half (440,000) of those families seeing a cut in their housing benefit entitlement are
single adults without children. On average their housing benefit has been cut by 10.48 per
week. These individuals now have to manage on an income of 61.92 per week after housing
costs a cut of nine per cent.

Couples with children have lost on average 20.71 per week. They only account for 65,000
(eight per cent) of the poorest families affected. This compares with 200,000 lone parents who
have also experienced an above average cut of 15.96 per week.

As of April 2014, 1.4 million families have to pay on average 154 per year (2.96 per week) in
council tax, an amount they were previously deemed too poor to pay.

As a result of these cuts in housing benefit and changes to council tax support, around 1.75
million or the poorest families have seen an absolute cut in their income. Of these, 480,000
families are seeing their benefits being cut twice as they are affected by more than one of the
changes.

Whether a family is affected and by how much varies based on a range of factors which are
largely out of the control of the individual. They depend on council tax band, the cost of local
housing, family size and property size. But they all apply irrespective of income.

The government needs to instate an absolute minimum level of support. It should apply
regardless of local authority or tenure and it should be high enough to prevent people from
having to walk the breadline.

1 Family refers to the DWP definition used to calculate income and benefit entitlement. A family is a
single adult or a couple (either married or cohabiting) and all their dependent children.

Multiple cuts for the poorest families 3

Figure 1: 1.75 million of the poorest families have seen their incomes cut as a result of
welfare reform

*OBC: Overall Benefit cap, 28,000 families, cut by 70 per week on average; UOP: Under-occupation penalty, LHA:
Local Housing Allowance, CTS: Council Tax Support.

4 Multiple cuts for the poorest families

1 INTRODUCTION

Aim
The current government has introduced a number of changes to the benefit system. In doing so,
it has changed the shape of welfare support. Firstly, it has lowered the value of benefits. In April
2014, for the second year in a row, the value of most means-tested benefits was increased by
less than prices. Secondly, multiple changes to housing benefit and the localisation of council
tax support mean that some families have to use some their cash benefit to pay for rent and
council tax costs they were previously deemed too poor to pay.

For each of its benefit changes, the government has produced an estimate of the number of
people affected, and by how much their benefit is cut. However, many of those affected by one
change will also be affected by another seeing their incomes cut multiple times. The
government has produced no assessment that looks at the cumulative impact of its reforms on
families.

In this report we attempt to identify how many families have been affected by one or more of the
major benefits changes. We focus on the changes to means-tested benefits intended to support
those with no alternative source of income to assess the impact of welfare reforms on the
poorest families.

Along with the below-inflation up-rating of benefit values, this report looks at the impacts of four
policies that have led to an absolute cut in benefit for those affected. These are:

the under-occupation penalty (bedroom tax). This has cut the housing benefit
entitlement of working-age social renters with a spare room;

a reduction of the limits on Local Housing Allowance (LHA). This is the housing benefit
provided to help pay rents for those living in the private rented sector (as opposed to
social housing);

the overall benefit cap. This is a cap on the total benefit paid to a workless family;

the replacement of council tax benefit with local council tax support (CTS). This has
changed council tax exemption for low-income families to a discount on council tax, the
level of which varies between local authorities.

What is the value of means-tested benefits?

Families without alternative means are provided with a minimum income from the state which,
according to the Department for Work and Pensions (DWP), is intended to cover all normal
day-to-day living expenses. For working-age adults it is provided through one of the following
three cash benefits:

Jobseekers allowance for unemployed people who are available for and actively
seeking work;

Income Support for carers or a lone parent with a child under five;

Employment Support Allowance for those with an illness or disability that renders
them unable to work.

Multiple cuts for the poorest families 5

The value of this cash benefit depends on family size and circumstance. In April 2014 it was
worth 113.70 per week for a working-age couple (72.40 for a single adult). Families with
children get extra through Child Tax Credit (a further 150.11 for families with two children). A
pensioner couple is entitled to 226.50 per week.

The graph below shows how the value of these benefits has changed over time. The longer
term trend has been for pensioner and child benefits to rise above inflation, and working-age
benefits to rise only with inflation. In real terms, the value of benefits for a working-age couple in
2014 is the same as it was in 1979. Pensioner benefits are now 50 per cent higher than in 1979,
and benefits for children are three times higher.

In the last five years the value of these benefits has not kept pace with prices for any group.
Compared with 2009, benefit values in 2014 were 8 per cent lower for working-age adults, 7 per
cent lower for pensioners and 5 per cent lower for children.

Figure 2: The value of benefits for different age-groups

On top of this cash benefit, the poorest families are also entitled to full housing benefit (to cover
their rent) and full council tax support (an exemption from paying council tax). This ensures that
the cash benefit does not have to be spent on rent or council tax.

However, entitlement to housing benefit and council tax support has been cut recently. This
means that affected families have to cover some of their rent and/or council tax using their cash
benefit intended for normal day-to-day living expenses.

All in all, this means that the value of benefits has been lowered at the same time as the
number of costs it has to cover (i.e. rent and council tax) has increased.

In the next section, this report looks at the three main cuts to housing benefit and the
localization of council tax support in turn. For each change it identifies how many families have
had their benefit cut, and how many of them are among the poorest (i.e. their incomes are low
enough to also qualify for one of the three cash benefits listed above). Lastly it looks at the
benefit changes as a whole, to identify how many of the poorest families have been affected by
more than one change.

6 Multiple cuts for the poorest families

2 THE UNDER-OCCUPATION
PENALTY

Background
The under-occupation penalty (often referred to as the bedroom tax) was introduced in April
2013. It cuts by 14 per cent the housing benefit entitlement of working-age households living in
social housing deemed to have a spare bedroom (or by 25 per cent if they have more than one
spare bedroom). This penalty is applied regardless of household income or whether alternative
suitable accommodation is available.

Impacts
In November 2013, 500,000 people were having their housing benefit cut by an average of
14.40 per week because they lived in a property with a spare room. In total 350,000 of those
affected (70 per cent) qualified for housing benefit because their income was already low
enough to be entitled to a basic cash benefit as well.

Figure 3 shows the number of families affected by the under-occupation penalty. The shaded
bars indicate those families with low enough incomes to also qualify for a basic cash benefit.

Most of those affected are single adults who lose on average 14.36 per week. There are
220,000 such families with a total income of 72.40 per week (from their cash benefit) who now
have to spend some of this money on rent for the first time. On average this leaves them with
an income of 58.04 per week after paying for rent a cut of 20 per cent.

Figure 3: Thousands of families affected by the under-occupation penalty and average

cut

*The poorest families are those with an income low enough to also qualify for a basic cash benefit (such as Job-seekers
Allowance, Employment Support Allowance or Income Support).

Multiple cuts for the poorest families 7

3 LOCAL HOUSING
ALLOWANCE LIMITS

Background
Local Housing Allowance (LHA) rates are used to calculate housing benefit for tenants renting
from private landlords. In April 2011 the maximum amount of rent for which a household could
claim benefit was lowered from the median level of local rents to the 30th percentile level. In
practice this meant that low income families who could previously expect housing benefit to
cover the costs of renting the cheapest half of properties in the local area, now find that it will
only cover the cost of the cheapest 30 per cent. Those affected could lower their housing costs
by moving to a cheaper property or negotiating a rent reduction with their landlord. Otherwise
they have to meet the shortfall in housing benefit using their cash benefit.

Impacts
Initially DWP estimated that 770,000 families (83 per cent of LHA claimants) would have their
housing benefit cut as a result of this change. The average cut was of 9 per week. Of the
affected families, 470,000 qualified for LHA because their income was already low enough to
entitle them to a basic cash benefit as well.

Three years after implementation the number of LHA claimants has grown. We estimate that in
2014 790,000 households are entitled to less housing benefit as a result of these changes. In
total, 420,000 of those affected (53 per cent) are also entitled to a basic cash benefit, i.e. they
are among the poorest families.

In reality, the number affected is likely to be higher. This 790,000 estimate assumes that one-
third of those affected were able to move to cheaper accommodation to mitigate the cut.
According to the DWP research, one-third of claimants surveyed prior to the change said they
would seek cheaper accommodation, but subsequent research suggests that in practice it could
be as low as three per cent.

Figure 4 shows the estimated number of families affected by the LHA changes. The shaded
bars indicate those families with low enough incomes to also qualify for a basic cash benefit.

The majority of those affected are single adult households with or without children. But the
size of the shortfall is greatest for households with children as they require a larger home. For
lone parents the average cut is 10.80 per week and for couples with children it is 12.40.

8 Multiple cuts for the poorest families

Figure 4: Thousands of families affected by the LHA cap and average cut

*The poorest families are those with an income low enough to also qualify for a basic cash benefit (such as Job-seekers
Allowance, Employment Support Allowance or Income Support).

Multiple cuts for the poorest families 9

4 OVERALL BENEFIT CAP

Background
The overall benefit cap was introduced between April and September 2013. It limits the benefit
entitlement of a workless family to 500 per week (or 350 for single adults). Families receiving
benefits in excess of 500 have their housing benefit cut to the level of the cap.

How can a family receiving at least 500 per week in benefit be among the poorest? The 500
total includes housing benefit, which goes directly to the landlord to cover rent. For affected
families, the income remaining after housing costs is considerably less.

Impacts
Compared with the other two changes to housing benefit, the overall benefit cap affects a
relatively small number of families: 28,000 were subject to the cap in December 2013. But the
average cut to income, at 70 per week, is much greater.

Around 600 families were seeing their benefit cut by more than 250. This means that they
have a housing benefit shortfall of 250 per week which has to be covered using their cash
benefit intended for day-to-day living expenses.

Around 81 per cent of those families affected by the cap contain three or more children. Such
households are entitled to a larger amount of cash benefit to reflect the needs of both the
individual claimant and their dependents. On top of this they require a larger home and
therefore a higher housing cost. The overall benefit cap is fixed regardless of family size.

A quarter of those affected qualify for Employment Support Allowance which means they are
assessed as unable to work due to disability or ill-health. A further 40 per cent quality for
Income Support as they are unable to work due to caring responsibilities. Such families have
little prospect of finding suitable paid work in the short term.

Figure 5: Breakdown of families affected by the overall benefit cap

10 Multiple cuts for the poorest families

5 LOCALIZED COUNCIL TAX
SUPPORT

Background
Prior to April 2013, council tax benefit (CTB) gave low income families a discount on the amount
of council tax they had to pay. For the poorest families it meant they did not have to pay any
council tax. For working-age adults in England this has been replaced with council tax support
(CTS).

Entitlement to CTS varies in each of Englands 326 local authorities and is determined by local
councils. From April 2014, 244 councils require all families to pay at least some council tax
regardless of income. Only 45 councils continue to offer the same level of support as under the
former system.

Impacts
From April 2014 2.34 million families were paying more council tax as a result of the change to
CTS. This includes 1.4 million of the poorest families who prior to April 2013 were exempt from
paying any council tax. These families will pay on average 154 in council tax a year
(amounting to 2.96 per week) and will have to meet this cost using their basic cash benefit.

The amount of council tax that affected families have to pay depends on their local authority.
Around 650,000 families will have to pay less than 100 in 2014/15 and 500,000 will pay 200
or more.

Figure 6: Number of the poorest families paying council tax in 2014/15 by annual
council tax bill

Multiple cuts for the poorest families 11

6 CUMULATIVE IMPACTS

Background
The real-terms value of cash benefits has been lowered (i.e. it can now buy less). Yet at the
same time, the government has cut housing benefit entitlement and it has localized council tax
support. This means that the cash benefits now have to cover more costs (rent and council tax)
which were previously exempt. These changes affect low income families who now have to pay
for items they were previously deemed too poor to pay.

The under-occupation penalty, the lower rates of LHA and the overall benefit cap introduced
under this government have cut families entitlement to housing benefit. The council tax
changes have increased council tax. Many of the poorest families have seen their incomes cut
as a result of housing benefit cuts, council tax increases, or both.

Housing benefit cuts taken together

From the three housing benefit changes, we estimate that a total of 1.3 million families have
seen a cut in income. Of those, 780,000 were among the poorest families in the country (i.e.
their incomes are low enough to also be entitled to a basic cash benefit). This includes 270,000
families with children. On average this cut in income amounts to 12.94 per week, but some
households incomes are being cut by much more.

Figure 7 shows how many of the poorest families are seeing their housing benefit cut, by the
policy that is affecting them.

Single adults are the most common family type to be affected. As they tend to have lower
housing costs, the average shortfall is lower than for other families, at 10.48 per week. This
means that 440,000 single adults must meet this housing benefit shortfall with an income of
72.40 per week from their cash benefit (an amount that has not increased above inflation since
the 1970s).

Lone parent families are the next largest family type be affected by the housing benefit cuts with
200,000 of the poorest now having to use their cash benefit intended for day-to-day living
expenses to meet their housing costs. The average housing benefit shortfall for lone parent
families is 15.96 per week.

12 Multiple cuts for the poorest families

Figure 7: The number of the poorest families with a housing benefit shortfall

Cuts to both housing benefit and council tax support

Taking the cuts to housing benefit and council tax support together, we estimate that 1.75
million of the poorest families now have to spend some of their basic cash benefit on rent or
council tax. Of these, 490,000 families have to spend it on both. The diagram below
summarises how many families are affected by each change and the average cut.

1.75 million of the poorest families have seen their incomes cut as a result of welfare
reform

*OBC: Overall benefit cap, 28,000 families, cut by 70 per week on average; UOP: Under-occupation penalty, LHA:
Local Housing Allowance, CTS: Council Tax Support.

Multiple cuts for the poorest families 13

Implications
These cuts to benefits are not uniform. Whether a family is affected and by how much depends
on a range of factors. For council tax support, it depends on the local authority the family lives
in. For the overall benefit cap it largely depends on family size and housing costs. For the
under-occupation penalty it depends on the number of bedrooms in the property. For the LHA
changes it depends on the cost and demand for rented housing in the local area.

But all of these cuts apply irrespective of a familys income or their ability to cope. Of affected
families, 1.75 million are among the poorest, with incomes that are low enough to qualify for a
basic cash benefit. This is the minimum level of support provided by the welfare state to the
poorest families to cover normal day to day living expenses. If their other benefits are cut, this
basic level of support is compromised.

There ceases to be an absolute minimum provided by government to prevent people from

having to walk the breadline. It now varies in different parts of the country and in different
tenures in unpredictable ways.

This absolute minimum needs to be instated and it should apply regardless of local authority or
tenure; and it must be high enough to mean that those at the minimum level are not forced to
walk the breadline. The government must first commit to the principle and then decide its level.

14 Multiple cuts for the poorest families

NOTES AND SOURCES
Introduction

Department for Work and Pensions refers to the applicable amount as the amount intended to
cover normal day to day living expenses here:
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/208145/foi-2007-
2013.pdf

Data on the value of benefit is published by DWP; historical information on the value of benefits
was accessed via IFS.

The under-occupation penalty

The data is from DWP via Stat Xplore. It refers the housing benefit caseload in Great Britain
November 2013.

Local Housing Allowance limits

DWP does not publish data on the number of LHA claimants with a rental cost above the cap,
nor on the size of this gap. The data presented here are NPI estimates.

The initial LHA impact assessment was completed carried out by DWP in 2010 and is available
online: http://socialwelfare.bl.uk/subject-areas/services-activity/poverty-
benefits/departmentforworkandpensions/144202impacts-of-hb-proposals.pdf

To estimate the number affected in 2014, the proportion of LHA claimants affected in the
original impact assessment is applied to the LHA caseload in November 2013. It accounts for
variation by bedroom requirement and local authority.

The number affected is reduced by a third as this is the proportion of claimants that said they
would look for cheaper accommodation in a survey prior to the change:
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/203105/rrep838_
pt4.pdf. This is likely to under-estimate the number affected as research shortly after the LHA
changes were implemented found that only 3% of affected claimants had moved (Parliamentary
library SN/SP/4957).

Overall benefit cap

DWP publish monthly updates on the number of people affected by the overall benefit cap. The
data used here is for December 2013.

Localised Council Tax Support

These figures are derived by NPI using a combination of caseload data, information on local
CTS schemes and local council tax levels; see www.counciltaxsupport.org for more information.

Cumulative impacts

The figures presented here assume that there is no overlap between the overall benefit cap and
the under-occupation penalty. It assumes half of those affected by the overall benefit cap are
private renters (as estimated by DWPs original impact assessment,
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/220178/benefit-
cap-wr2011-ia.pdf) that would otherwise be affected by the LHA cap.

Multiple cuts for the poorest families 15

ABOUT THE AUTHORS
NPI
New Policy Institute is a research institute. Wholly independent, it has neither financial backers
nor political patrons. Almost all its funding is project-based and comes principally from
charitable foundations, trade unions, voluntary sector organisations and public sector bodies.

Hannah Aldridge
Hannah is Senior Researcher at NPI. Over the last three years she has co-authored a number
of reports including London Poverty Profile and Monitoring Poverty and Social Exclusion in the
UK. Her specialist areas are housing and welfare reform.

Prior joining NPI Hannah was an analyst for a housing research consultancy looking into
affordable housing and the housing needs of specialist groups.

Tom MacInnes
Tom MacInnes is NPI's Research Director, and leads on all major reports into poverty and
social exclusion, co-authoring over a dozen reports in the area. He has been at NPI since 2006,
having previously worked as an analyst at the Department of Health.

In addition to NPI's ongoing monitoring poverty work, Tom leads on NPI's reviews of
international poverty strategies and the links between poverty and disability. Tom also develops
infographics and interactive data presentations.

Oxfam Research Reports

Oxfam Research Reports are written to share research results, to contribute to public debate and to invite
feedback on development and humanitarian policy and practice. They do not necessarily reflect Oxfam
policy positions. The views expressed are those of the author and not necessarily those of Oxfam.

For more information, or to comment on this report, email info@npi.org.uk.

Oxfam GB April 2014

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The information in this publication is correct at the time of going to press.

Published by Oxfam GB under ISBN 978-1-78077-585-2 in April 2014.

Oxfam GB, Oxfam House, John Smith Drive, Cowley, Oxford, OX4 2JY, UK.

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16
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Multiple cuts for the poorest families