Written Statement - Welfare Reform

This statement is to update Members on the current position regarding the impact of the UK Government’s Welfare Reform agenda, and the Welsh Government’s response.

The Welsh Government welcomes many of the aspirations of the UK Government’s welfare reforms; specifically the intention to create a simpler, more transparent benefit system, in which work pays and poverty can be tackled. However, taken collectively, we are seriously concerned that the current proposals to change the benefits system are likely to have significant negative implications here in Wales.

The cumulative impacts of the Welfare Reform changes have the potential to drive many of the most vulnerable members of our society into deeper poverty and undermine the Welsh Government’s efforts to reduce poverty in Wales.

As welfare and benefits being reformed under the UK Government proposals are non-devolved matters, we are strongly of the view that the Welsh Government should not carry the financial burden of changes instigated by the UK Government. We have therefore committed in our Programme for Government to do all that we can to mitigate the impacts of the changes in Wales, as well as ensuring that associated resources are used to target the most vulnerable.

In direct response to the concerns about the impact of the welfare reform changes in Wales, the First Minister has established a Ministerial Task and Finish Group, which I chair. This group includes the Ministers for Local Government and Communities; Housing, Regeneration and Heritage and Deputy Minister for Children and Social Services. The Group has been tasked with the responsibility for assessing and monitoring the cumulative impact of all the welfare changes on Welsh Government policies and services, and with coordinating a cross Welsh Government response.

We have a particular concern about the apparent lack of analysis by the UK Government of the implications of the reforms and specifically around the cumulative impacts of the changes. To help us address this, the Welsh Government has itself commissioned a comprehensive assessment of the cumulative impacts of the welfare reforms on people in Wales and this is now underway. Early work undertaken as part of this assessment has drawn on regional analysis published by the Institute for Fiscal Studies (IFS) following the UK Government Spending Review. This analysis shows that the combined tax and benefit changes to be implemented over the next few years will be regressive in Wales, as is the case in the UK. Furthermore, because average incomes are lower in Wales than in the UK, and because a higher proportion of the working age population in Wales receives welfare benefits (18.4 per cent versus 14.5 per cent ), it is expected that cuts in benefits will be felt with greater force in Wales than across the UK as a whole. In fact, the IFS estimate that on average, households in Wales will lose 4.1 per cent of their income as a result of the tax and benefit reforms to be introduced by 2014-15. This compares to a UK average loss of 3.8 per cent. 

The IFS has also analysed the impact of the tax and benefit changes to be introduced between 2010-11 and 2014-15 on different household types (at a UK level). Their recently published analysis  illustrates that families with children will lose more than pensioner households and working-age households without children across the income distribution, regardless of whether Universal Credit is accounted for. Furthermore, the poorest households with children will lose the largest proportion of their income as a result of the tax and benefit changes. Under the scenario where Universal Credit is not taken into account, the IFS estimate that families in the poorest income decile will lose around 10 per cent of their income by 2014-15 compared to the situation where no changes are made to the tax and benefit system. This group continues to lose more than average (at around six per cent) even after the introduction of Universal Credit. Both the IFS and HM Treasury estimate that the changes made by the Coalition Government will have a negative impact on child poverty.

The results of this early work, and the remainder of the Welsh Government commissioned assessment, will help the Ministerial Task & Finish group identify how best to protect the most vulnerable and mitigate negative implications resulting from the UK Government changes.

In the meantime, work is progressing through a number of Department of Work and Pensions fora in order to better understand the potential effects of the changes for Wales. The fora also provide a mechanism to express our views and concerns to the UK Government and to help tackle some of the issues.

I intend to issue a further statement on Welfare Reform once further analysis has been carried out toward the end of February.