The Cumulative Impact of Tax and Welfare Reforms: Equality and Human Rights Commission

1. The Cumulative Impact of Tax and Welfare Reforms:Equality and Human Rights Commission Julie Jarman Principal Living Standards Programme Social Security Advisory Committee 7 November 2018

2. What is Cumulative Impact Assessment? • Quantitative analysis of the impact of a set of policies which affect net incomes taken together, e.g. : • Tax policies (direct/indirect) • Welfare/social security (benefits, tax credits, Universal Credit) • Policies affecting gross incomes (e.g. National Living Wage, public sector pay policy) • Other public spending (e.g. health, education) • Uses microsimulation modelling based on survey data

3. Objectives of this project To identify • The cumulative impact of Government tax and benefit changes made between 2010 and 2017 and model these for the FY 2021/2 • The distributional impacts of tax and spending decisions on people sharing different protected characteristics, and conduct intersectional analysis. • How much per year individuals and households will lose as a result of tax and welfare reforms • How many adults and children will fall below an adequate standard of living due to changes to taxes and social security? • Present results by country (England, Scotland, Wales)

4. Reforms included / not included • High Accuracy Taxes: Income tax; N I Contributions; Changes to income tax in Scotland 2018-19 Transfer payments: Most parts of the benefit, tax credit and UC system Gross incomes: Above-inflation increases in minimum wage (ie NLW) • Lower Accuracy (some info not in EUL datasets) Local Housing Allowance aspects of Housing Benefit (don’t have local authority info) (Re-)Assessment for disability-related benefits (ESA, PIP). FRS has more info than before on severity and nature of disability which allows approximate results of assessments but not full accuracy • Not / Can’t be included Benefit sanctions (data doesn’t have info on who is being sanctioned, and why) Living Costs and Food Survey data on disability only has current receipt of disability-related benefits so can’t be used for modelling (re-assessment for PIP, ESA etc)

5. Distributional impact of all reforms, cash terms, by household income decile, 2021/22

6. Distributional impacts by ethnicity of adults in household

7. Distributional impacts for households with disabled adults

8. Distributional analysis by household demographic type (percentage terms)

9. Individual-level distributional analysis by gender and household income decile

10. Cash impact of reforms to direct tax and transfer payments for women by ethnicity and income

11. Other headline findings • Tax and welfare reforms since 2010 are projected to lead to 1.5 million additional children in (AHC relative) poverty by 2021/22 • In particular, the child poverty rate for children in lone parent households is forecast to increase from 37% to 62% • The reforms are regressive with bottom fifth losing 10% of income. • For households with at least one disabled adult and a disabled child, average annual cash losses are just over £6,500 – over 13% of average net income. • Households with greater numbers of disabilities lose more thanthose with fewer disabilities • Lone parents lose nearly a fifth of total income (average loss of £5,250), and disabled lone parents with a disabled child will lose 29.5% of their income (average loss of £9,500). £7,900/24% • Men fare better than women from the reforms in every ethnic group and across every point in the income distribution. • Analysis of trends in employment rates for different household types suggest that it is highly implausible that improvements in the financial incentives to work are the main driver of differences in employment rates between different demographic sub-groups.

12. Recommendations • UK Government should review the level of welfare benefits to ensure that they provide an adequate standard of living for households who rely wholly or partly on transfer payments • HMT should publish a detailed explanation of process by which it will ensure that future Spending Reviews comply with PSED • HMT should convene an independent advisory group to advise on the equality impact of the next Spending Review • Scottish and Welsh Governments should also publish EIAs of key individual tax and social security measures

13. Recommendations - specific • Uprate all benefits in line with inflation and review the level of benefits to ensure it meets adequate living standards. (LP/R/D) • Reverse the two child limit on Child Tax Credits within Universal Credit. (LP/R) • Reverse the Severe and Enhanced Disability Premiums (SDP and EDP) under Universal Credit. (D) • Provide increased support to disabled people placed in the Employment and Support Allowance Work Related Activity Group (WRAG), which is equivalent to the support group, and acknowledges the additional, unavoidable living costs relating to their condition. (D) • All full-time disabled students who receive DLA or PIP should be eligible for Universal Credit on the grounds of being treated as having a limited capability for work. (D) • Introduce publicly available service standards for the social security system which sets out the rights of claimants, are fair and accessible, and measured and reported on. (LP/R/D) • Ensure that work coaches are trained to deliver tailored employment support, providing evidence of the steps taken to ensure that the specific needs of lone parents and disabled people are being met and conditionality is reasonable and based on flexibility of easements  (LP/D) • Collect and analyse ethnicity data broken down to more specific ethnic groups including Gypsy, Roma and Traveller, and ensure that reporting of ethnicity data is accompanied by a narrative identifying the main patterns within and across the data sets. (R)

14. Report available at: • https://equalityhumanrights.com/en/effect-tax-and-welfare-reforms • A supplementary report on the distributional impact of other changes to public spending (e.g. health, education, social care, transport etc) will be published in Nov 2018.