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Welfare Reform in Northern Ireland

Posted on November 02, 2014 by Tom Healy

Tom Healy, Director NERI
Tom Healy, Director NERI

The story goes about a town built just beyond the bend of large river. One day three bodies were sighted floating along downstream in the river. One body was dead so they buried it. One was alive, but quite ill, so they put that person into the hospital. The third turned out to be a healthy child, who was placed with a family who cared for the child and who took her to school.  ‘However, during all these years and despite all that generosity and effort, nobody thought to go up the river, beyond the bend that hid from their sight what was above them, and find out why, daily, those bodies came floating down the river’ [the story was told by writer Ron Rolheiser in 1991]. 

The challenges of dealing with poverty, disability, exclusion and low pay resembles the response of that town. We can mobilise resources including government funds and charitable giving to help those in need. Yet, the complex and multi-faceted causes of poverty and exclusion remain somewhat out of sight or ‘up river’.  This point was brought home for me, last week, at a Northern Ireland Community and Voluntary Action conference on UK Welfare Reform when a community activist and volunteer recounted how the number of food banks in East Belfast (where she worked) had gone from zero in 2008 to 4 this year. (3 hours and 16 minutes into this clip).

Welfare reform has proved hugely controversial in the United Kingdom. A BBC documentary programme shown in March of this year illustrates in graphic detail the impact of cuts in welfare on individuals and families. The surge in food banks is a direct consequence. More recently a Channel 4 Despatches programme documented the widespread failure to implement Universal Credit payments in just one English town of Warrington where it is being piloted. The issue of welfare reform is also central to the current fiscal and political crisis in Northern Ireland.

  • Why is this happening?
  • And why is it getting worse?

There is a widely held view – by no means confined to the UK – that work doesn’t pay because welfare is too generous. Solution? Cut benefits and give people ‘incentives’ to go out and get a job – it is proposed.  A recent process of reforming welfare begun in the UK under the Labour Government (when unemployment was low). It has been extended and deepened under the present coalition government. Northern Ireland has not escaped. The aim of reducing public sector borrowing and balancing the books has been added to the claim of incentivisation as a reason for deep and continuing welfare reform  across the UK.

These reforms include a freeze on child benefit, the introduction of the ‘bedroom tax' (not to be implemented in Northern Ireland) as well as many other changes which reduce payments and eligibility one way or another. All the major political parties including Labour are committed to further welfare reforms in the next Parliament.

To date, significant changes have been made to both UK Tax Credits and housing benefits. Although the Northern Ireland Executive has discretion in relation to social security spending any refusal to implement UK changes will see a cut in some other part of the UK ‘Block Grant’ from Westminster to Northern Ireland. The longterm impact of these changes could be roughly in the order of £750 million. To date, changes to child benefit, tax credits (administered by HMRC) and changes to the local housing allowances element of housing benefit are already taking place. These change will remove approximately half a billion pounds from the Northern Ireland economy in a full year (or 1.5% of total income in Northern Ireland). Already implemented Personal Independence Payments includes more stringent and frequent medical tests. Of the remaining quarter of a billion pounds under the stalled 2012 Northern Ireland Welfare Bill there has been some limited mitigation as a result of talks last week in Belfast (see speech to NICVA conference by Minister for Social Development Mervyn Storey MLA here).

The total annual spending on social protection including support for communities in Northern Ireland  is £8 billion of which just over £7 billion is in payments of tax credits, unemployment, disability, housing, pension and child benefits. The impact is estimated to be in the region of £650 per annum per adult in the working age population. A planned reduction of around £750 million including already-implemented reforms represents a very significant proportion of the total estimated welfare bill.  In 2012-13 there was an estimated 19% of the Northern Ireland population in poverty after adjustment for housing costs (indicator 5.2 in NERI Autumn 2014 Quarterly Economic Facts). For a couple with two children both under 14 years of age the weekly poverty threshold after housing costs as calculated by the UK Department of Work and Pensions was £364.

Does welfare constitute a disincentive for work in the UK and Northern Ireland?  Comparative data published by  the OECD suggests not. To measure this analysts estimate a ‘Net Replacement Rate’ (calculated as the ratio of welfare after being made unemployed to net income benchmarked on 67% of the country’s average wage). For a single person the ratio, in the UK is 20% and is the lowest of any OECD country (the OECD average is 64 while that for the Republic of Ireland is 50). See indicator 5.5 in NERI Autumn 2014 Quarterly Economic Facts. If we take a two-earner couple with 2 children the ratio is 67 for the UK – the third lowest of any OECD country in 2012.  This does not constitute convincing evidence of widespread work-shirking and benefit dependency behaviour. When taxes and benefits are brought together (indicator 5.6) the UK has a ratio of benefit to wages of 37 for single persons and 46 for a couple with 2 children. Once again the UK is towards the bottom of the OECD comparison with only Australia, New Zealand, Greece and Korea (southern) having lower ratios for couples with 2 children. In the case of single persons only South Korea has a lower ratio than the UK.

Is not the principal problem facing unemployed persons lack of job opportunities (and suitable training in many cases) rather than incentive to work?  Using Northern Ireland Labour Force Survey data together with Department of Employment and Learning Vacancy Statistics it is possible to track the ratio of unemployed to job vacancies since 2009 (indicator 2.3B in NERI Autumn 2014 Quarterly Economic Facts).  This shows consistently high ratios of unemployed to vacancies rising from 10.1 in Q4 of 2009 to a high of 19.4 in 2011 before falling back to 12 in the second quarter of 2013.

In summary, there is no evidence that by cutting welfare payments and putting some welfare recipients through humiliating and punishing procedures to claim their rights will make any difference to levels of employment participation. Rather, such measures will increase poverty, mental stress and social breakdown. Ironically, in some cases, recourse to welfare may increase as people desperately seek to avail of hardship funds, emergency lines of funding not to mention the growing number of voluntary foodbanks and charities (many of which are in receipt of public funding). There are concerns about a growing number of people who fall between the cracks – especially young vulnerable people seeking employment – and who may be encountering difficulties in relation to eligibility, administrative errors, delays in payment and sanctions triggered by circumstances outside their control.

A meaningful and effective approach to reform is to create employment, develop enterprises and call a halt to the continuing haemorrhage of demand in the local economy as a result of austerity to date.  Two specific areas of policy could make a major impact on welfare over the coming decade:

  • Building of an adequate number of social housing units
  • Raise earnings at the lower end of the wage distribution.

These measures would (a) contribute to a lowering of housing benefit where people – especially the young – are increasingly dependent on privately rented accommodation, and (b) lower the cost of tax credits and working family tax credits as workers are lifted out of poverty pay.

This is where welfare reform needs to go. Similar lessons apply in the Republic of Ireland.

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