How will welfare reforms affect fuel poverty?

We need to investigate the effects of the benefits shake-up

18 January 2013

The impact of the benefits shake-up on the fuel poor has not yet been investigated. CSE's Ian Preston outlines the need for research:

The forthcoming reforms to the benefits system represent the most significant change to welfare in a generation. The Welfare Reform Act 2012 and its associated changes will impact on around 8 million households many of whom are amongst the most vulnerable in society. The principle change will be the amalgamation of several benefits to form a single payment known as Universal Credit.

To understand how these changes may impact on the fuel poor it’s important to consider the current state of play with benefits in the UK. Currently 75% of the fuel poor in the UK are either unemployed or economically ‘inactive’.  The fuel poor also have the lowest incomes with 87% being in income deciles 3 and below. The combination of low income and unemployment means the fuel poor are likely to be exposed to the changes associated with the introduction of Universal Credit.

Current take-up of benefits

Before we examine the potential impacts of Universal Credit, it’s worth thinking about the current landscape for benefits. In 2009-10 up to £12 billion in means tested benefits were unclaimed, nearly 25% of all available benefits expenditure.  In addition, up to £8.3 billion in Child Tax Credits and Working Tax credits went unclaimed.

Due to the fuel poor having high levels of unemployment and low incomes, it’s therefore likely that a significant proportion of fuel poor households do not claim many of the benefits they are entitled to. The Government’s Fuel Poverty Advisory Group (FPAG) has therefore called for benefit entitlement checks (BEC) to be incorporated into all energy efficiency schemes such as the Energy Company Obligation (ECO). Under Warm Front (ending in April) BECs identified on average more than £1,600 per year in additional income for those households who successfully received the service.


 What do we mean by Welfare Reform?

The following summarises the key changes that will follow the introduction of Universal Credit:

  1. Six core benefits will be integrated into one payment, namely; Income Support; income related Job Seekers Allowance; income related Employment Support Allowance; Child Tax Credits; Working Tax Credits; and Housing Benefit.
  2. A standard monthly payment that will replace a mix of weekly, fortnightly, four-weekly and monthly payments
  3. A new ‘fixed’ monthly assessment system that will replace the annual ‘flexible’ assessment period for tax credits, with monthly payment in arrears
  4. Payment of housing benefit to social tenants rather than directly to the social landlord
  5. Introduction of a single recipient model where the award is paid into one bank account
  6. Extension of the capital allowance rule, which currently applies to those on out-of-work benefits to all Universal Credit recipients 

In addition to the changes associated with Universal Credit described above, there will also be a penalty for tenants under-occupying a property and changes to the way fitness for work are assessed. Council Tax benefit will not be included in Universal Credit and instead will be devolved to the local level with a 20% cut in budget. 

The penalty for under-occupying a property has been dubbed by many as the ‘bedroom tax’. Housing benefit will be reduced by 14% for under-occupation by one bedroom and 25% for two bedrooms or more. 

From April 2011 to spring 2014 claimants of incapacity benefit, severe disablement allowance and income support paid on disability or illness grounds are undergoing a process of re-evaluation as a result of a work capacity assessment. If successful in their application claimants will receive Employment and Support Allowance. 

How are low income households coping?

Firstly, low income households are less resilient to the changing economic climate than the general population. For example, in 2010, 10 million  of those in low incomes were in unsecured debt. Low income households also tend to use complex short-term budgeting strategies to manage their finances, relying on a range of sources to get by i.e. family, friends and creditors.

They also tend to prioritise their spending on food, fuel, travel, clothing and other household goods depending on the immediate needs. For example, a recent Energy Bill Revolution campaign of Netmums’ members found that 1 in 4 mums chose to feed their families rather than heating their homes, with a further 9 out of 10 admitting that they ration their energy use. The following quote from CSE’s “You just have to get by” for eaga CT brings this home:

“I would have preferred to have it [the heating] on when it was really cold.  But that’s impossible. But I also have to balance it out with my children.  I have to keep them warm.  So yeah, I tend to turn it off as soon as they’ve gone to bed.  I just sort of put up with a blanket” (C53).

What do these reforms mean for the fuel poor?

The switch from historic payment of benefits over shorter timeframes and directly to claimants   to monthly payment to a bank account has raised concerns amongst a number of stakeholders. The Social Market Foundation’s Sink or Swim report found that some benefit claimants were concerned that they would not be able to manage their budgets effectively over a month. The consequences identified by participants in this research included an increased likelihood of running out of money before the end of the month and the risk of relying more heavily on formal or informal credit.

CSE has recently worked with two local social housing providers, Two Rivers Housing and Curo (formerly Somer Housing Group), to help them assess the opportunity for the ECO and the Green Deal in their housing stock. Both of these providers have raised concerns about the impacts of changes to housing benefit on their tenants, namely; tenants not realising that their rent is no longer paid directly and defaulting on payments; tenants not understanding that the potential increase to their benefits as a result of redirected housing benefit may mask reductions to other benefits; and the issue of under-occupancy with tenants not wanting to relocate for numerous reasons e.g. proximity to work, family and/or friends.

CSE is currently seeking funding to assess the impacts of Welfare Reforms on the fuel poor. Based on a response to a Parliamentary Question from Alex Cunningham MP in September 2012, the Minister for Energy and Climate Change, Gregory Barker, stated that the impact of the introduction of universal credit on levels of fuel poverty will first be assessed in 2015.  FPAG has recently called for a more timely review of these impacts given the far reaching implications of the reforms described above.

Despite the lack of formal evaluation of Welfare Reforms, CSE is extremely concerned about the potential impacts on low income households.

Our Fuel Poverty Advisor, Pauline Sandell said:

“We are very concerned about the move to monthly payments as well as housing costs being paid directly to the tenant rather than the landlord.  We feel that many people won’t be aware of these changes or able to manage them (quite apart from whether they have a bank account, which many don’t). This could lead the more vulnerable in society to be open to all sorts of issues including homelessness if they can’t get a handle on paying rent as that’s something that they may have never done before.  It’s hard managing money over a month when it’s tight; our evidence suggests it will be heating that will be cut back to cope, worsening the problem of cold homes and all their health and social impacts.”

The evidence to date

Whilst there has yet to be a detailed study on the implications of Welfare Reforms for the fuel poor, a number of stakeholders have made estimates of the impacts on their own client groups.

  • DWP’s own impact assessment anticipated that 2 million households, including 1.1 million households with children, will be entitled to less support than they currently receive .
  • A joint report by Disability Rights UK, Citizens Advice and The Children’s Society highlighted the likely impact of the reforms on the disabled. It found 100,000 households with disabled children stand to lose £28 per week, 230,000 severely disabled people who do not have another adult to assist them could receive between £28 and £58 a week less than currently and up to 116,000 disabled people who work could be at risk of losing around £40 per week. 
  • Research for Save the Children also found that the reforms would have a negative impact on the income of some working families. For example, they estimate that a single parent with two children, working full-time on or around the minimum wage could lose as much as £2,500 a year. 
  • A survey conducted by the DWP reaffirmed these findings. Half of the Job Seeker’s Allowance claimants and six in ten of Income Support claimants surveyed said that it would be harder to budget on monthly payments.

What can we do to help?

There is a strong case for encouraging and facilitating benefit take up through BECs. FPAG has reiterated their importance in its  recent tenth progress report and voiced disappointment over the Government’s proposal to discontinue publishing the estimates of benefit take-up data series. The Affordable Warmth component of the ECO currently covers heating and insulation; given the previous impact of Warm Front BECs and the forthcoming reforms to welfare, there is a strong case for the inclusion of BECs in ECO as a soft measure.

We also need to ensure that welfare that targets fuel costs continues to support those who need it most. The Institute for Fiscal Studies has stated that means-testing the Winter Fuel Payments by linking it to those claiming Pension Credit would save the treasury £1.5 billion. The Centre Forum recently released a report  stating that this revenue should be used to pay for social care costs. However, unless the previously identified shortfall in benefits take-up is addressed then this alteration to the Winter Fuel Payment would penalise those households in the worst circumstances i.e. those disadvantaged pensioner households who are entitled to benefits like Pension Credit but are not currently claiming them.

Research from National Energy Action has found that successful benefit entitlement checks uncover, on average, an extra £29 per week per household in unclaimed benefits. DWP estimate that one-in-three older households do not take up entitlement to Pension Credit. If all these householders were to take up these benefits then the savings from means testing the WFP identified by the IFS would largely be eroded.

Acknowledgements

The following reports and papers were extremely helpful in the production of this article and thanks go to their authors:

  • SMF, Social Marketing Foundation (2012), Sink or Swim
  • FPAG, Tenth Annual Report, 2011-12
  • Peter Smith, NEA for comments on the Winter Fuel Payments

References for this article:

Social Marketing Foundation (2012), Sink or Swim 
DECC (2012) Annual Report on Fuel Poverty Statistics 2012
DWP (2012) Income Related Benefits: Estimates of take-up in 2009-10
HMRC (2012) Child Benefit, Child Tax Credit and Working Tax Credit Take-up rates 2009-10
BIS (2010) Over-indebtedness in Britain: Second follow-up report
Hansard Citation: HC Deb, 3 September 2012, c26W
Department for Work and Pensions (2011), Welfare Reform Bill Universal Credit: Equality impact assessment, November 2011
Disability Rights UK, Citizens Advice and The Children’s Society (2012) Holes in the safety net: The impact of Universal Credit on disabled people and their families
Save the Children (2012) Ending Child Poverty: Ensuring Universal Credit supports working mums
Centre Forum (2012) Delivering Dilnot: paying for elderly care

Photo: Mrk Wragg | reproduced under creative commons

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