Welfare Reform and Work Act 2016

Policy background

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

3. Impact Assessments in relation to welfare policies within this Act were published on 20 July 2015.

Statutory duties to report

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

Full employment reporting obligation

5. This duty requires the Secretary of State to report annually on progress towards full employment, and the report will set out the interpretation of full employment for these purposes.

Apprenticeships reporting obligation

6. These are new duties which require ministers to report annually on progress towards delivering three million apprenticeships. The apprenticeships target was set out in the May 2015 Conservative Manifesto.

Troubled Families Programme

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

8. 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.

9. 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.

10. 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:

    1. Parents or children involved in crime or anti-social behaviour.
    2. Children who have not been attending school regularly.
    3. Children who need help: children of all ages, who need help, are identified as in need or are subject to a Child Protection Plan.
    4. Adults out of work or at risk of financial exclusion or young people at risk of worklessness.
    5. Families affected by domestic violence and abuse.
    6. Parents or children with a range of health problems.

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

    1. They are families who are most likely to benefit from an integrated, whole family approach, and
    2. They are families who are the highest cost to the public purse.

12. 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.

13. 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.

14. The new duty in section 3 of the Act 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.

Children living in low-income households

15. This section requires the Secretary of State annually to publish data on the percentage of children in the United Kingdom living in households with relative low-income, combined low-income and material deprivation, absolute low-income, and persistent low-income.

Life chances measures

16. The Child Poverty Act 2010 placed a duty on the Secretary of State to meet a set of UK-wide targets by the end of the financial year 2020/21 (and every year thereafter) relating to four income-based measures of child poverty.

17. On 1 July 2015, the Secretary of State announced to Parliament that the Government would bring forward legislation to remove the measures and targets in the Child Poverty Act 2010, as well as the other duties and provisions. This Act introduces a duty to report on measures of worklessness and educational attainment.

18. The Life Chances sections in the Act remove most of the legal duties and measures set out in the Child Poverty Act 2010 (cited as the Life Chances Act 2010) and places a new duty on the Secretary of State to report annually on measures of children in workless households in England and the educational attainment of children in England at the end of Key Stage 4. Key Stage 4 is the term for the two years of school education normally known as Year 10 and 11, when pupils are aged between 14 and 16.

Reform of the Social Mobility and Child Poverty Commission

19. The Social Mobility and Child Poverty Commission established under the Child Poverty Act 2010 (cited as the Life Chances Act 2010) is reformed as the Social Mobility Commission.

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

21. In addition the Commission retains its remit to describe the measures taken by the relevant Northern Ireland department in accordance with a Northern Ireland strategy. The Commission no longer has this role in relation to Scotland or Wales.

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

22. The specific parts of the Child Poverty Act 2010 that this Act removes are:

    1. The four UK-wide targets along with the definitions of the related measures:
       1. Relative low-income;
       2. Combined low-income and material deprivation;
       3. Absolute low-income; and
       4. Persistent poverty.
    2. The duty upon the Secretary of State to meet these targets.
    3. The continuing effects of the targets after the target year defined as the financial year beginning with 1 April 2020.
    4. The provisions in sections 8-8C relating to the Social Mobility and Child Poverty Commission.
    5. The duty on the Secretary of State to lay before Parliament a UK wide strategy.
    6. The duty on Scottish Ministers to lay before the Scottish Parliament a Scottish strategy.
    7. The duty on the relevant Northern Ireland department to describe in its strategy the progress it intends to make to contribute to the meeting of the targets as described in paragraph (a).
    8. The duty on the Secretary of State to lay before Parliament a statement in relation to the targets as described in paragraph (a).
    9. 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.
    10. The duty placed on local authorities to prepare and publish an assessment of the needs of children living in poverty in their area.
    11. The role of Scottish and Welsh Ministers in appointing members of the Commission.

Benefit cap

23. 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 of the Welfare Reform Act 2012 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. Following the review, the provisions allowed for the Secretary of State to increase or reduce the level of the cap, if he decided it was appropriate to do so.

24. This Act lowers the benefit cap, so that the total amount of benefits to which workless households can be entitled to in a year will not exceed £20,000 or £13,400, except in Greater London where the cap is set at £23,000 and £15,410 respectively. The Act gives the Secretary of State the power to determine which annual limit applies to which category of claimant. It is the Government’s intention that the higher levels will apply to couples and lone parents and the lower amount to others. This Act also 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 a 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 his discretion.

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

25. It was announced in the Summer Budget 2015 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. Sections 11 and 12 provide for this.

26. The social security benefits and tax credits in question are:

    1. The main rates of income support, jobseeker's allowance, employment and support allowance, housing benefit and universal credit.
    2. 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.
    3. The individual element of child tax credit payable in respect of a child or qualifying young person who is not disabled or severely disabled for whom the claimant is responsible.
    4. The basic, 30 hour, second adult and lone parent elements of working tax credit.
    5. Both rates of child benefit, that is, the "enhanced rate" for the eldest child and "any other case" for any other child.

27. Benefits and payments that are not part of the freeze include:

    1. Pensioner benefits including state pension and pension credit.
    2. Extra cost disability benefits including attendance allowance, disability living allowance and personal independence payments.
    3. The support group component of employment and support allowance and the limited capability for work and work-related activity element of universal credit.
    4. Carer's allowance and carer premiums within other benefits.
    5. Statutory payments including statutory adoption pay, maternity pay, ordinary and additional paternity pay, shared parental pay and sick pay.
    6. The amount of the individual element in child tax credit payable in respect of a disabled or severely disabled child or qualifying young person for whom the claimant is responsible.
    7. Disabled and severely disabled elements of working tax credit.

Changes to child tax credit

28. It was announced in the Summer Budget 2015 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. Section 13 provides for these changes to take effect from the 2017/18 tax year.

29. The changes being made are:

    1. Restricting the child element of CTC to two children per family:
       1. 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 or are 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.
       2. 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.
       3. 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.
    2. A new disability element will ensure that the equivalent of the higher amount of the individual element of CTC for disabled and severely disabled children will continue to be available:
       1. The change will ensure that any disabled or severely disabled child 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 29(a)(ii) above. This is achieved by the creation of a new disability element, which through changes to secondary legislation is intended to reflect the additional amount of the 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.
    3. Removing the family element of CTC
       1. 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.
       2. This change will remove the family element from all families who are only responsible for a 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

30. These provisions implement similar policy intent to the section above.

31. 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.

32. The Act limits the child element of universal credit to include amounts in respect of a maximum of two children or qualifying young persons for whom the claimant is responsible and removes 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 as the Act 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

33. 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 either 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.

34. Sections 15 and 16 remove specific 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.

35. 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

36. Conditionality is a core principle of universal credit and requires 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).

37. Depending on their personal circumstances, a claimant may be subject to:

    1. no work-related requirements;
    2. a work-focused interview requirement only;
    3. a work preparation requirement and work-focused interview requirement only; and
    4. all work-related requirements.

38. Conditionality for responsible carers of children currently operates as follows:

    1. responsible carers with a child under 1 are subject to no work-related requirements;
    2. those with a child aged 1 or 2 are subject to work-focused interview requirements;
    3. those with a child aged 3 and 4 are subject to work-focused interview requirements and work preparation requirements; and
    4. 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).

39. The Act changes conditionality for responsible carers as follows:

    1. those with a child aged 3 or 4 should be subject to all-work related requirements;
    2. those with a child aged 2 should be subject to work-focused interview requirements and work preparation requirements; and
    3. those with a child aged 1 should remain subject to work-focused interview requirements only.

Loans for mortgage interest etc

40. The Act enables interest-bearing loans to be made to eligible owner-occupiers in respect of their liability to make owner-occupier payments in respect of their home, in particular mortgage interest payments. 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.

41. The Act replaces 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 is 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. The Act enables the Secretary of State to secure a charge on the individual’s property as security for the loan. The Act also makes provision about the transition from the current provision of support for mortgage interest to the new loans scheme, and allows the Government to manage the introduction of the new scheme in an appropriate way.

42. 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.

Expenses of paying sums in respect of vehicle hire etc

43. The Motability scheme leases and sells motor vehicles to disabled persons in receipt of a qualifying benefit. The Government facilitates this arrangement by diverting the benefit payments of participating claimants to Motability Operations Ltd, so they do not have to collect the money themselves. This is of direct benefit to Motability.

44. The cost of administering these payments varies annually, although it currently stands at under £1 million. Although Motability has indicated they are willing to pay these costs, the Government does not currently have the power to recover them. The Act enables the Secretary of State to make regulations for doing so. Motability are supportive of this and have provided assurance that the expenses incurred will be absorbed by the scheme and not result in any changes to customer pricing.

45. Although Motability is currently the only organisation running a discounted vehicle scheme for disability living allowance/personal independence payment claimants, the provisions would apply to any scheme that is equivalent in purpose.

Social housing rents

46. Prior to the Act, Government rent policy for social rented properties was generally set based on a formula (a model known variously as "social rent", "formula rent" and "target rent"), which was uprated annually at a rate of RPI + 0.5%.This policy was mandatory for private registered providers, but discretionary in relation to local authority providers. The policy included 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 (or at formula rent where that is higher). Affordable Rent was 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 were also uprated annually at a rate of CPI + 1%.

47. Through the new provision in this Act the Government reduces rents of social housing in England by 1% a year for 4 years from April 2016. The Government intends these reductions to 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.