A new world heaves into view this week with sweeping changes in the fields of welfare, justice, health and tax
Monday 1 April
Bedroom tax introduced
The aim is to tackle overcrowding and encourage a more efficient use of social housing. Working age housing benefit and unemployment claimants deemed to have one spare bedroom in social housing will lose 14% of their housing benefit and those with two or more spare bedrooms will lose 25%. An estimated 1m households with extra bedrooms are paid housing benefit. Critics say it is an inefficient policy as in the north of England, families with a spare rooms outnumber overcrowded families by three to one, so thousands will be hit with the tax when there is no local need for them to move. Two-thirds of the people hit by the bedroom tax are disabled.
Savings: £465m a year. As many as 660,000 people in social housing will lose an average of £728 a year.
Monday 1 April
Thousands lose access to legal aid
Branded by Labour a “day of shame” for the legal aid system, the cutoff to claim legal aid will be a household income of £32,000, and those earning between £14,000 and £32,000 will have to take a means test. Family law cases including divorce, child custody, immigration and employment cases will be badly affected.
Savings: a minimum £350m from £2.2bn legal aid bill.
Monday 1 April
Council tax benefit passes into local control
Council tax benefit, currently a single system administered by the Department for Work and Pensions, is being transferred to local councils with a reduction in funding of 10%. Council tax benefit is claimed by 5.9 million low-income families in the UK. The new onus on councils has come at a time when local government funding, according to the Institute for Fiscal Studies, has fallen by 26.8% in two years in real terms. A Guardian survey of 81 councils last week found many claiming they face difficult cuts, with almost half saying they were reducing spending on care services for adults. This also comes at a time when 2.4m households will see a council tax rise.
Savings: up to £480m a year, but depends on decisions of local councils.
Monday 1 April
NHS commissioning changes for ever
An NHS commissioning board and a total of 240 local commissioning groups made up of doctors, nurses and other professionals will take control of budgets to buy services for patients. They will buy from any service providers, including private ones so long as they meet NHS standards and costs. Strategic health authorities and primary care trusts disappear.
Costs: £1.4bn, mainly in redundancies, followed by savings as high as £5bn in 2015 owing to fall in staff numbers.
Monday 1 April
Regulation of financial industry changes
The Financial Conduct Authority and Prudential Regulation Authority, housed in the Bank of England, replace the Financial Services Authority. The Bank promises these changes do not represent the death and Easter resurrection of the same body. A new, proactive supervisory approach towards the City is promised, focused on outcomes rather than a tick-box culture. It has powers to prosecute, throw people out of the industry and withdraw a bank’s licence. Above all it monitors risk to the financial system as a whole.
Saturday 6 April
50p tax rate scrapped for high earners
Announced in the 2012 budget. George Osborne said the 50p rate, introduced in April 2010, caused massive distortions in 2010-11 and raised only £1bn, rather than the £2.5bn forecast by Labour back in 2009. HMRC found £16bn was deliberately shifted into the previous tax year, largely by owner/directors of companies taking dividends in the previous year when the highest rate was still 40p. Labour claims 13,000 millionaires will get a £100,000 tax cut.
Monday 8 April
Disability living allowance scrapped
The personal independence payment (PIP) replaces the disability living allowance and, according to the DWP, is not based on your condition, but on how your condition affects you, so narrowing the gateway to the PIP.
It will contain two elements: a daily living component and a mobility component. If you score sufficient points, a claim can be made. Assessments will be face-to-face rather than based on written submissions, starting in Bootle benefits centre, handling claims across the north-west and north-east.
Monday 8 April
Benefit uprating begins
For the first time in history welfare benefits and tax credits will not rise in line with inflation and will instead for the next three years rise by 1%. Had there been no change benefits would have risen by 2.2%. Disability benefits will continue to rise in line with inflation.
Savings: £505m in the first year, rising to £2.3bn in 2015-16. Nearly 9.5 million families will be affected, including 7 million in work, by £165 a year.
Monday 15 April
Welfare benefit cap
The most popular of the welfare reforms will begin on 15 April in the London boroughs of Bromley, Croydon, Enfield and Haringey. The intention is that no welfare claimants will receive in total more than the average annual household income after tax and national insurance – estimated at £26,000. Other councils will start to introduce it from 15 July and it will be fully up and running by the end of September. Some estimate 80,000 households will be made homeless. The DWP says around 7,000 people who would have been affected by the cap have moved into work and a further 22,000 have accepted employment support to move into work. Households where someone is entitled to working tax credits will not be affected.
Savings: £51m over three years.
Universal credit introduced
The new in- and out-of-work credit, which integrates six of the main out-of-work benefits, will start to be implemented this April in one jobcentre in Ashton-under-Lyne, Greater Manchester. The aim is to increase incentives to work for the unemployed and to encourage longer hours for those working part-time. It had been intended that four jobcentres would start the trial in April, but this has been delayed until July, and a national programme will start in September for new claimants. They will test the new sanctions regime and a new fortnightly job search trial, which aims to ensure all jobseeker’s allowance and unemployment claimants are automatically signed onto Job Match, an internet-based job-search mechanism. Suspicion remains that the software is not ready.
Lack of growth means George Osborne is having to implement the second, most painful part of his recovery scheme
The 80:20 rule applies to the government’s austerity policies: about 20% of the Treasury plan for rebuilding public finances rests on tax rises, while 80% comes from reductions in spending. In the current phase, welfare spending faces the biggest squeeze.
Back in 2010, in the immediate aftermath of the general election, all eyes in the coalition were on the figure for annual public sector net borrowing. This measure shows how much debt is added to the government’s mountain of IOUs each year.
It was expected to fall only marginally from the record £156bn set in 2009 by the Labour administration. The cabinet agreed a plan to bring the annual overspend down from almost 12% of GDP to less than 3% by 2015-16, which was two years faster than Labour believed possible.
Tax rises were the first to take effect. An increase in VAT to 20% was allied to a rise in capital gains tax and a £2bn levy on the banks. George Osborne also implemented Labour’s 50p top rate of tax for people earning more than £150,000.
In the slipstream came cuts to Whitehall and local authority spending designed to help the government achieve budget cuts – after inflation – averaging 25% over four years. Health, education and international aid budgets were spared the axe, leaving other departments to take even bigger hits. Public sector workers suffered a pay freeze and then a 1% cap.
Osborne planned to impose drastic cuts on welfare spending in 2013, but he expected the economy to be in better shape. In 2010, many analysts said the government’s hope was that a recovery would be in full swing by this year and welfare cuts would be quietly forgotten.
However, two key elements of the Treasury’s plans have gone awry. By 2013 the economy was supposed to be 6.3% larger, but instead it delivered a double-dip recession and over 2011 and 2012 in effect flatlined.
With growth nonexistent, tax revenues were lower than expected and it became harder to reduce government spending. The Treasury’s independent forecaster, the Office for Budget Responsibility (OBR), expected the annual deficit to be £89bn in 2012-13 and then £60bn in 2013-14. In his most recent budget Osborne conceded that borrowing would be £120bn in both years, adding to a debt accumulator total that most experts believe will be £250bn higher than the OBR expected to be run up over five years when the plan was hatched in 2010.
Another element, the cost of implementing Iain Duncan Smith’s universal credit, which has needed considerable funds for new computer systems and administration before the largely online scheme begins to save money, was initially underestimated. It is due to go live for new claimants in October, but three out of four “pathfinder projects” were delayed last week and the October start date may also be deferred.
In the meantime, the government has saved £432m by cutting 10% from the council tax benefit grant to local authorities. The Resolution Foundation thinktank believes the move, which scraps the grant and replaces it with a payment worth 90% of its value, will hit 3.2m low-income households who pay no council tax or a reduced charge.
One of several benefit cuts to take effect from April 6 – which include the cut to child benefit for higher-rate taxpayers, reductions in disability living allowance, housing benefit cuts and a 1% cap on annual rises in benefit payments – council tax benefit cuts are designed to push government spending to less than 40% of GDP from a peak of 48% in 2009.
More than two million of the poorest households in England will pay more council tax from next week, according to an anti-poverty think tank.
Excerpt from: Poorest ‘face council tax rise’
Your reports (26 March) highlight the stark reality facing councils. They face unprecedented reductions in government funding, and the services that people depend on and value – care for children and the elderly, libraries, parks, and sports facilities – are affected. With the costs of social care and looked-after children rising while local authority income declines sharply, the problem is going to get only worse. The sustainability of councils is now being brought into question: the National Audit Office reports that 12% of local authorities are at risk of not balancing future budgets.
In addition, the cuts are being imposed in a fundamentally unfair way. The Audit Commission has found that councils in the most deprived areas have seen substantially greater reductions in government funding as a share of revenue expenditure than those in less deprived areas. The prime minister’s local authority of West Oxfordshire, one of the least deprived in the country, is actually getting an increase in spending power in 2013-14 of 3.1%, while Burnley, ranked 11th in the indices of multiple deprivation, is facing a cut of 8.8%.
It would be one thing if those responsible acknowledged the scale of the problems; instead, Eric Pickles, the self-proclaimed champion of localism, insists that the cuts are only “modest”. The country is now starting to discover exactly what modest means.
Hilary Benn MP
Shadow secretary of state for
communities and local government
• It is no wonder people feel little or no control over their own lives when Labour, Conservatives and Liberal Democrats are committed to cutting public spending on a massive scale. While people are hurting, the worst of the suffering has yet to hit the majority of working people. Austerity is not a cure for this crisis: it is no more than a smokescreen to destroy the welfare state and dismantle councils across the country. Even mainstream economic commentators are questioning austerity policies.
During this recession, with hundreds of thousands having to depend on food banks, it is time for a voice to articulate a clear alternative.
Cllr Don Thomas
Labour Councillors Against the Cuts Group, Southampton council
• It came as no surprise to read (Labour recriminations after frontbench abstains in vote on Poundlands case, 25 March)
Lord Wolfson complains about planning permission difficulties as his group announces a fall in growth and a rise in profits
The head of fashion chain Next has blamed “incompetent” local councils, who are resistant to change for the grim state of some of the country’s high streets, as he revealed “quiet” trading since January.
Lord Wolfson, a Conservative peer and government adviser, said: “There is a big opportunity to grow retail in the UK by providing people with better shops. [There are] many towns and cities where the stock of shops is inadequate.
“Some high streets have been neglected for 20 or 30 years and those are the ones that will die.”
As Britain’s only new shopping centre to open this year, Trinity Leeds, launched in the heart of the Yorkshire city on Thursday, Wolfson said councils prepared to allow “dramatic improvement” to their high streets could thrive.
“Some councils are incompetent, painfully slow or just don’t want change. It is not about the [political] colour of the council – it is about their approach to growth.”
He said Next’s store opening programme was being held back by difficulties in getting planning permission and it would now be more aggressive in fighting council decisions.
“In areas where councils traditionally have got away with saying ‘no’, we will be more active in harnessing the law and the full weight of public opinion to campaign for growth.”
Wolfson was speaking as the 536-store fashion and homewares chain said sales growth was running at only about 1% – a slide back from the 3.9% enjoyed in the final quarter of 2012.
He blamed the miserable spring weather and a squeeze on shoppers’ disposable income, but said it was too early to tell whether it was the wider economy or the unseasonable chill that was having more impact.
He predicted Next’s sales would rise by between 1% and 4% this year and did not expect shoppers to spend more freely until at least halfway through 2014.
Despite the sluggish economy, Next thrived last year, enjoying a 9% rise in profits to £621.6m as sales rose about 3% to £3.5bn in the year to January. Most growth came online where sales increased 9.5% and profits increased 15% over the year.
Profits were also lifted by £64m of cost savings, partly as a result of reducing warehouse and distribution costs and tricks such as re-scheduling staff rotas.
Next also benefited from a one-off gain of £42m by capping the salary on which the future pensions of the 1,000 staff in its final salary scheme would be paid.
Those savings offset a £29m hit from falling sales at stores open for more than a year. Although Wolfson expects sales to continue to fall at those stores, he insisted that Next would continue to open more high street and out of town outlets.
New stores contributed £26m to profits last year and the company said the high street was integral to the success of its online business, with internet shoppers picking up a fifth of their purchases in stores.
Simon Irwin, a retail analyst at Credit Suisse, said it was hard to fault Next’s strategy as it out-performed rivals such as Marks & Spencer.
“They have adapted their business model fantastically well. It is increasingly not right to look at the internet and stores in isolation as long as they are getting overall growth.”
Next plans to have about 23,000 sq
Most automatic discounts for council tax on second homes and empty property end from April in England.
Read more here: Empty home owner’s council tax shock