Welfare Reform and Work Bill

Explanatory Notes

Policy background

2 The measures contained within this Bill implement policies outlined in the Conservative Party manifesto or which were announced in the Summer Budget on 8 July 2015. The measures in the Bill are intended to support the Government's commitments to increase employment; slow the growth of the welfare budget to help achieve a more sustainable welfare system; and support the policy of rewarding hard work while increasing fairness with working households.

Statutory duties to report

3 The purpose of the statutory duties to report is to mandate regular updates from the Government on these key areas.

Full Employment Reporting Obligation

4 This duty will require the Secretary of State to report annually on progress towards full employment, and the report will include a statement of the measure(s) of full employment used for these purposes.

Apprenticeships Reporting Obligation

5 The manifesto also stated that new duties will require ministers to report annually on apprenticeships.

Troubled families Programme

6 The Troubled Families Programme aims to improve the lives of families with multiple, high cost problems across England.

7 The Government launched the programme in 2012. This worked with families where children were not attending school, young people were committing crime, families were involved in anti-social behaviour and adults were out of work.

8 In June 2013, the Government announced plans to expand the Troubled Families Programme for a further five years from April 2015 and to reach up to an additional 400,000 families across England. The operating model for this expanded programme is laid out in the Department for Communities and Local Government’s Financial Framework for the Expanded Troubled Families Programme, published in February 2015 in preparation for the commencement of the programme in April 2015. This provides the basis on which funding is provided to local authorities for the financial year 2015-16.

9 Local authorities and their partners identify families eligible for support in their area by reference to the terms set out in this Financial Framework. To be eligible for support, each family must have at least two of the following six problems:

a. Parents or children involved in crime or anti-social behaviour.

b. Children who have not been attending school regularly.

c. Children who need help: children of all ages, who need help, are identified as in need or are subject to a Child Protection Plan.

d. Adults out of work or at risk of financial exclusion or young people at risk of worklessness.

e. Families affected by domestic violence and abuse.

f. Parents or children with a range of health problems.

10 Families are then prioritised for inclusion on the basis of the following:

a. They are families who are most likely to benefit from an integrated, whole family approach, and

b. They are families who are the highest cost to the public purse.

11 Where families are prioritised for support, local authorities are responsible for ensuring these families achieve significant and sustained progress against all problems identified at the point of engagement or move into continuous employment. Apart from school attendance and employment outcomes, all outcome measures are defined locally and set out in a locally agreed Troubled Families Outcomes Plan.

12 The Troubled Families Programme offers local authorities and their partners an opportunity to reform their services and radically improve family outcomes. To support these goals, the programme aims to report on the progress and cost benefit of the programme in each local authority area on a regular basis. This information will inform and drive service reform and investment decisions.

13 The duty for the Secretary of State for Communities and Local Government to provide information applies to the expanded Troubled Families Programme, which began in April 2015. The first report to Parliament will also reference the progress of the first Troubled Families Programme, and the work of local authorities who began delivery of the expanded programme early in 2014/15.

Life chances measures

14 The Child Poverty Act 2010 placed a duty on the Secretary of State to meet a set of UK-wide targets by 2020 (and every year thereafter) on four income-based measures of child poverty (relative, absolute, combined low income and material deprivation, and persistent).

15 The May 2015 Conservative Manifesto included a commitment to "work to eliminate child poverty and introduce better measures to drive real change in children’s lives, by recognising the root causes of poverty: entrenched worklessness, family breakdown, problem debt, and drug and alcohol dependency."

16 In furtherance of this, the Government proposes to remove most of the legal duties and measures set out in the Child Poverty Act 2010 and to place a new duty on the Secretary of State to report annually on measures of children in workless households and the educational attainment of children in England at the end of Key Stage 4.

Reform of the social mobility and child poverty commission

17 The Social Mobility and Child Poverty Commission established in section 8 of the Child Poverty Act 2010 is to be reformed as the Social Mobility Commission.

18 The remit of the Commission will be to promote social mobility in England, to advise the Government at its request on how to improve social mobility in England and to publish a report setting out its view on progress made towards improving social mobility in the UK.

19 In addition the Commission will retain its remit to describe the actions taken by Scotland, Wales and Northern Ireland devolved administrations to prevent children experiencing socio-economic disadvantage.

Removal of other duties and provisions in the Child Poverty Act 2010

20 The specific parts of the Child Poverty Act 2010 that this Bill removes are:

a. The four UK wide targets along with the definitions of the related measures:

i. Relative low income;

ii. Combined low income and material deprivation;

iii. Absolute low income;

iv. Persistent poverty.

b. The duty upon the Secretary of State to meet these targets.

c. The continuing effects of the targets after the target year.

d. The provisions in section 8 relating to the Social Mobility and Child Poverty Commission.

e. The duty on the Secretary of State to lay before Parliament a UK wide strategy.

f. The duty on the devolved administrations in Scotland and Northern Ireland to describe in their strategies the progress they intend to make to contribute to the meeting of the targets in para a).

g. The duty on the Secretary of State to lay before Parliament a statement in relation to the targets described in para a).

h. The duty placed on local authorities to co-operate to reduce child poverty in their local area including the preparation of a joint child poverty strategy.

i. The duty placed on local authorities to prepare and publish an assessment of the needs of children living in poverty in their area.

Benefit cap

21 The benefit cap was introduced by sections 96 and 97 of the Welfare Reform Act 2012. It was introduced with the intention of increasing incentives to work, promoting fairness between the tax and welfare systems and helping to reduce the financial deficit. Sections 96 and 97 and section 150 of the Social Security Administration Act 1992 stipulate that the level of the cap should be determined with reference to estimated average weekly earnings and that the Secretary of State should review the level of the cap in each tax year to see whether its relationship with average earnings has changed and following the review. The Secretary of State would be able to increase or reduce the level of the cap, if the Secretary of State decided it was appropriate to do so.

22 The new legislation would lower the benefit cap, so that the total amount of benefits to which a family on out of work benefits can be entitled to in a year will not exceed £20,000 for couples and lone parents, and £13,400 for single claimants, except in Greater London where the cap is set at £23,000 and £15,410 respectively. The legislation removes the link between the level of the cap and average earnings and the requirement for the Secretary of State to review the cap each year, replacing it with the requirement that the Secretary of State must review the cap at least once in each Parliament and allowing the Secretary of State to review it more regularly at their discretion.

Freeze of certain social security benefits and certain tax credit amounts for four tax years

23 It was announced in the Summer Budget that certain social security benefits, including child benefit, and certain elements of working tax credit and child tax credit would be frozen for four tax years starting from 2016-17.

24 The social security benefits and tax credits in question are:

a. the main rates of income support, jobseeker’s allowance, employment and support allowance, housing benefit and universal credit;

b. the work-related activity group component of Employment and Support Allowance, the work-related activity component of Housing Benefit and the limited capability for work element of Universal credit;

c. the individual element of Child Tax Credit payable to a child or qualifying young person who is not disabled or severely disabled;

d. the basic, 30 hour, second adult and lone parent elements of working tax credit; and

e. both elements of child benefit, that is, the "enhanced rate" for the eldest child and "any other case" for any other child.

25 Benefits and payments that are not part of the freeze and which will continue to be up-rated in relation to prices (or earnings where applicable) include:

a. pensioner benefits;

b. extra cost disability benefits such as attendance allowance, disability living allowance and personal independence payments;

c. statutory payments such as statutory maternity pay and ordinary and additional statutory paternity pay;

d. The amount of the individual element payable in child tax credit where a child or qualifying young person is disabled or severely disabled.

e. Disabled and severely disabled elements of working tax credit.

26 Subject to Parliamentary approval, the freeze will take effect from April 2016.

Changes to the child tax credit

27 It was announced in the Summer Budget that, as part of the welfare budget savings, the maximum entitlement to child tax credit (CTC) would be restricted for families who become responsible for a child or children or qualifying young person(s) born on or after 6 April 2017. The changes will take effect from the 2017/18 tax year.

28 The changes being made are:

a. Restricting the child element of CTC to two children per family :

i. The calculation of the maximum rate of CTC currently includes an individual element (£2,780 for the 2015/16 tax year) for each child or qualifying young person for whom the claimant or claimants (if claiming as part of a couple) is responsible. This is currently referred to as the 'individual element' of CTC. Currently, the individual element is paid at a higher rate of £2,780 plus £3,140 or £4,415 where the child or qualifying young person is disabled or severely disabled respectively.

ii. The changes will restrict the individual element of CTC to two children per family where specified conditions apply. A claimant will only be entitled to an individual element for a maximum of two children or qualifying young persons unless they are claiming for more than two children or qualifying young persons who were born before 6 April 2017. New births after that date will not qualify for the individual element.

iii. The changes will, however, ensure that any disabled or severely disabled child born or qualifying young person born on or after 6 April 2017 will qualify for the additional individual element regardless of the changes referred to in (ii) above. This is achieved by the creation of a new disability element, which through changes to secondary legislation is intended to reflect additional individual element currently payable for disabled and severely disabled children (for 2015-16, £3,140 and £4,415). This will be paid for all disabled children or qualifying young persons.

iv. The restriction to the availability of the child element will be on a "rolling basis" so that when the eldest child ceases to be entitled to CTC, if there is a third child born on or after 6 April 2017, that third child will become eligible for entitlement. This will roll on to subsequent children as elder children cease to be entitled to the payment.

b. Removing the family element of CTC

i. The calculation of the maximum rate of CTC currently includes a family element. The calculation includes one family element (£545 for the 2015/16 tax year) regardless of the number of children or qualifying young persons for whom the claimant or claimants are responsible, and whether the children or qualifying young persons are disabled or severely disabled.

ii. The changes will remove the family element from the calculation of the maximum entitlement to CTC for all families are only responsible for a first child or qualifying young person who is born on or after 6 April 2017. The changes will take effect from 6 April 2017.

Changes to the child element of universal credit

29 These provisions implement a similar policy intent as the section above.

30 Currently, the 'child element' of the universal credit award is payable to claimants in respect of each child or qualifying young person for whom they are responsible. This includes a higher rate in respect of the first child or qualifying young person, and a lower rate in respect of the second and each subsequent child or qualifying young person.

31 The Bill seeks to limit the child element of universal credit to include amounts in respect of a maximum of two children or qualifying young person and to remove the distinction between the first and subsequent children in the rate of the child element. This limit will not apply to the additional amount that is paid in respect of a child or qualifying young persons who is disabled and the Bill allows this amount to be paid for each disabled child or young person for whom the claimant is responsible.

Removing the work-related activity component in employment and support allowance and the limited capability for work element in universal credit

32 Employment and support allowance (ESA) is an income-replacement benefit for people of working age and is currently the main income-replacement benefit for those who cannot work because of a health condition or disability. Universal credit (UC) provides a new single system of means-tested support for people of working age who are both in or out of work. UC is gradually replacing income-related ESA as it is rolled out and becoming available in an increasing number of areas across Great Britain.

33 These clauses remove provision for certain additional payments - that is, the ESA work-related activity component and the UC limited capability for work element, included within ESA and UC - to be paid to claimants with limited capability for work.

34 The intention is that regulations will include provision for claimants who are already in receipt of the work-related activity component or limited capability for work element to continue to receive that component.

Conditionality for responsible carers in universal credit

35 Conditionality is a core principle of universal credit that people who can, must look for work in return for benefit. Conditionality refers to the requirements for claimants to engage in activities which increase their chances of obtaining paid work (or more or better paid work).

36 Depending on their personal circumstances, a claimant may be subject to –

a. no work-related requirements;

b. a work-focused interview requirement only;

c. a work preparation requirement and work-focused interview requirement only; and

d. all work-related requirement group

37 Conditionality for responsible carers of children currently operates as follows:

a. responsible carers with a child under 1 are subject to no work-related requirements,

b. those with a child aged 1 or 2 are subject to work-focused interview requirements,

c. those with a child aged 3 and 4 are subject to work preparation requirements, and

d. those with a child aged 5 and over are subject to all work-related requirements unless their circumstances mean they fall into one of the other groups (for example because of a health condition).

38 The Bill seeks to change conditionality for responsible carers as follows:

a. those with a child aged 3 or 4 should be subject to all-work related requirements;

b. those with a child aged 2 should be subject to work-focused interview requirements and work preparation requirements; and

c. those with a child aged 1 should remain subject to work-focused interview requirements only.

Loans for mortgage interest

39 The Bill will enable interest-bearing loans to be made to eligible owner-occupiers in respect of their liability to pay mortgage interest for their home, which will be secured by a second charge on their property. Those entitled to receive income support, income-based jobseeker’s allowance , income-related employment and support allowance, State Pension Credit or Universal credit will be eligible to receive a loan.

40 The Bill will replace the existing legislative scheme that allows owner-occupiers who are receiving an income-related benefit to claim additional help towards their mortgage payments. This help will be replaced by the opportunity to apply for a loan which will only be granted if individuals satisfy certain requirements, including that they have received financial advice, and the loan will be secured against their property. The provision of help with mortgage interest in the form of a loan rather than a benefit will ensure that the Government continues to mitigate the risk of repossession while providing better value for the tax payer.

Social housing rents

41 Social housing rents are set according to Government’s rent policy. Rents set based on a formula are known as "social rent" (also known as "formula rent" or "target rent"), which was uprated annually at a rate of RPI + 0.5%. The policy includes a limit on annual rent increases of RPI + 0.5% + £2 where rents were below formula rent. In 2011, the Government introduced a new form of social housing, Affordable Rent, whose rent can be set at up to 80% of market rate, inclusive of service charges, and which is also subject to rent policy and the limit on annual rent increases. A new rent policy was published in May 2014 (with effect from April 2015) limiting annual rent increases to CPI + 1% for the next ten years. The underlying social or ‘formula’ rents are also uprated annually at a rate of CPI + 1%. In this Bill the Government intends to reduce rents in social housing in England by 1% a year for 4 years from April 2016. These reductions will reset the levels of rents in the social housing sector, which over recent years have become out of kilter with private rents. This will help protect taxpayers from the rising costs of subsiding rents through housing benefit, and protect tenants from rising housing costs.  This will reduce average rents for households in the social housing sector by around 12% by 2020 compared to current forecasts.

Prepared 16th July 2015