Budget Day is a wake-up call for Wales

The Chancellor’s Summer Budget has, as always, meant that some people gain and some people lose from changes to the tax and benefit system. But as well as affecting the cash in people’s pockets, the budget also raises some important issues that so far have not been considered in Wales.

Our latest report sets out the impact of the Chancellor’s budget in respect of tax and benefits on Wales.

On a positive note, about 150,000 people will gain from the premium on the National Minimum Wage; around 650,000 pensioners will see their state pension rise by at least 2% a year as a result of the triple lock; and disabled people will see their disability benefits (if not other benefits) keep pace with inflation. In addition, around 1.4 million tax payers will make a very modest gain (typically less than £1 a week) from higher personal allowances. Altogether, we estimate that the Chancellor’s ‘give-aways’ are worth roughly £168 million a year to the Welsh economy.

Less positively, a substantial minority of people will see their incomes fall in real and / or cash terms as a result of numerous changes to earnings and the benefit system. The combination of freezing benefit rates, the benefit cap and changes to the eligibility for some benefits will ‘take-away’ approximately £183 million a year from the Welsh economy. Limiting public sector pay rises to 1% is an additional albeit notional loss.

The acid test is not just the total cash gains and losses, or even who wins and loses at a personal level, but the impact on different social groups. And here is where the challenges lie.

The Institute for Fiscal Studies calculate that the least well off third of households will see their incomes fall by at least 5% by 2020, equivalent to an average drop of £20 a week, and a small number of households, such as those affected by the benefit cap, could lose as much as £75 a week.   For the better-off two-thirds of the population, the impact on incomes are estimated to be broadly neutral.

There are also differences between types of household. The budget is broadly neutral for pensioners and dual-earner couples (whether or not they have children). But workless families are likely to see a drop of more than 15% of their income and workless single adults are estimated to lose about 9% of their income. Some families on already low incomes will be hard hit indeed.

The budget wasn’t only about money – the Chancellor also made some announcements which, although they apply to England only, have important implications for Wales. These include the offer of apprenticeships funded by an employer levy, 30 hours a week of free childcare for three and four year olds whose parents are working, and changes to social housing rents.

Taken as a package, the Summer 2015 budget creates some specific challenges and also opportunities that we have yet to start thinking about let alone responding to. Yet action is needed as a matter of urgency.

• Youth employment and training

The budget effectively forces young people aged 18-21 to participate in education, training or employment by withdrawing of housing benefit, freezing Job Seekers’ Allowance at £57.90 a week, and tough requirements to seek work (with the consequences of non-compliance being the withdrawal of benefits completely).   Unless young people are able to find a suitable job, training or learning opportunity they risk homelessness or destitution.

In England, apprenticeships are being increased through the employers’ levy, providing at least one option for young people. There is an urgent need in Wales to develop a coherent youth training and employment programme to provide opportunities to all 18-21 year olds who are not in education, employment or training. The involvement of the private and third sectors in such a programme is crucial.

• Childcare

Parents, whether working or not, will come under increased pressure from the benefits system to increase the amount of paid work that they do. In England, working parents will have access to 30 hours a week of free childcare for children aged 3 and 4, helping them to work and cutting costs. In Wales the free childcare offer is for fewer hours, is focused on early years learning rather than childcare, and is rarely compatible with paid work.

There needs to be a step-change in the provision of childcare in Wales to avoid some parents being penalised by their inability to take up employment, and to enable them to maximise their household incomes.

• Employment for disabled people

Changes to disability benefits mean that many disabled people with less severe impairments are likely to experience falls in their income and increased pressure to find work. Many disabled people want to work but face real difficulties finding a suitable job – the employment rate of disabled people is about half that of non-disabled people. We need to think urgently about what can be done to help disabled people, including people with mental health conditions, to find and sustain paid work. And equally, we need to find ways of encouraging employers to recruit disabled people.

• Reducing deep poverty

The budget means that some households will experience a substantial drop in already low household incomes. The drop is such that some will inevitably lack of the basics of life such as food, heating, warm clothing and shelter. It’s worth remembering that Job Seekers’ Allowance for a single adult is a maximum of £73.10 a week, which has to include all heating, food, clothing, phone, personal care, travel (including travel to and from the Job Centre), and any shortfall in housing costs. One-off emergencies can be addressed through the Discretionary Assistance Funding and charitable activities like food banks, but the impact of a long-term shortfall of income relative to needs is going to need a different kind of response.

• Reducing cost burdens

The least well-off one third of households in Wales, whether working or not, is forecast to see an average reduction in income of £15 – £20 a week. It is inevitable that most will face financial strain if not outright hardship. We need to think how to increase the financial resilience of low income households, many of which are not only cash-poor but time-poor as well. For example the public sector could eliminate non-essential costs like pricey school uniforms and enabling small, regular payments of public sector bills.

• Prioritising Children

Of all the groups of people affected by the budget, children are the consistent losers. Yet they are the least able to do anything to change their circumstances – even pensioners are able to continue working for some time after retirement and many have assets. We need a fresh look at how the public sector supports the health and wellbeing of children in Wales, from reviewing the eligibility for certain schemes to considering how to ensure children’s basic needs are met.

• Changes to the safety net

Last but by no means least is the long-term impact of the shrinkage of in the ‘safety net’ and the emergence of ‘holes’ in the system. This budget and other recent changes have reshaped the benefits system radically: it now offers a great deal less than it did if people fall on hard times. Redundancy, long-term illness, divorce or bereavement are risks that everyone faces. For individuals and families with few or no savings, limited assets and weak job prospects the shrinking safety net is a very real difficulty.

Time is short.

Some of the Chancellor’s proposals are being implemented in nine months’ time, the vast majority from April 2017. The Welsh Government is not noted for the speed of its decision-making, and there is the small matter of Assembly elections ahead. But these challenges and opportunities cannot be ignored if people in Wales are to be able to make the most of the next five years.

Victoria Winckler is Director of the Bevan Foundation