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Without flexibility from government, further cuts to welfare funding will pressurise loc.....

Without flexibility from government, further cuts to welfare funding will pressurise local authorities and risk rising levels of hardship, warns Grant Thornton research

A report released today by leading public sector and business advisors Grant Thornton UK LLP calls on the incoming government to take stock of the impact of recent welfare reforms on local government and consider the major challenges that have yet to be resolved. It warns that a failure to do so will put pressure on the ability of local authorities to support vulnerable people and urges the government to consider further devolution of welfare funding as a solution that could boost innovation.

"Easing the burden: The impact of welfare reform on local government and the social housing sector"  investigates how local welfare reform has developed over the last two years from the point of view of local authorities and housing associations.  The research is based on a survey of 75 organisations in these sectors, as well as drawing on Grant Thornton's expertise as the largest supplier of external audit to English local authorities and a significant supplier to housing associations.

The report warns that reduced funding for welfare specifically, and for local government in general, will impede the progress of the more efficient plans that have been developed by local authorities and housing associations, such as tailored cross-organisational support packages and early intervention strategies. It suggests that devolution of welfare budgets could play a key role in ensuring that this type of innovation continues.

It also highlights that many local authorities have been plugging the funding gap with temporary measures such as discretionary housing payment (DHP) allocations and local hardship funding schemes, which are likely to be the focus of funding cuts in the near future.

Paul Dossett, Head of Local Government at Grant Thornton UK LLP, said:

"In general, welfare reform has prompted an impressive response from many local authorities and housing associations and has been a key driver for innovation and improvement.  The question is, can they continue to make efficient use of rapidly reducing resources? Our research suggests that without flexibility from Whitehall and further measures, such as devolution of welfare funding, this is unlikely."

For the local authorities and housing associations surveyed the key impact of welfare reform to date includes:

The cumulative effect of various welfare reforms is putting a significant financial strain on those needing support - the majority of local authorities and housing associations in the survey had seen a rise in average council tax and rent arrears since 2012/13, which they attributed at least partly to welfare reform.

Bedroom tax and benefit cap reforms have not been as effective as planned

Reforms to housing benefit have led to increased movement to smaller properties, but generally less than 10% of those affected have moved.  A shortage of smaller properties for people to move to plays a key role in this.

Local authorities are relying on DHP to plug the gap for those unable to pay

Ninety-five per cent of local authorities think that recipients of DHP allocations are either wholly or partly dependent on DHP to avoid homelessness in the longer term. Any proposed reduction in DHP funding from  central government is therefore likely to result in further increases to rent arrears and homelessness in the next two years, unless mitigated by other means.

The cost of administering housing benefit has risen as a result of welfare reform

Following reform, 47% of local authorities and 51% of housing associations surveyed said housing benefit is significantly more costly to administer, partly due to the increased complexity of cases

Paul Dossett added:

"The collective impact of welfare reform on those in need of support is to some degree hidden due to the lack of data on the causal link between welfare reform and poverty. Our research found that only 42% of local authorities track poverty levels to measure the impact of welfare reform.

"We urge the new government to consider carefully the impact of the cuts to welfare reform that are put forward, not just in isolation, but collectively.  Whilst Whitehall fiscally sees only individual cuts to local authorities, the people affected and we, as auditors, see the cumulative impact.

"A significant cohort of people – both working and unemployed – will remain in need of support, so local authorities and housing associations will need to focus any available money on them.  Further devolution of powers to local government for welfare administration could be the key to a sustainable future, especially if different agencies work together."            

The report identifies a number of areas of national policy that need to be better co-ordinated so that the financial burden for welfare placed on local authorities can be fully understood and more effectively managed. These include:

  • house building to keep pace with demand;
  • health and social care integration – particularly in regard to interrupting the cycle of decline that can follow instances of hardship, and;
  • the policy towards supporting groups of foreign nationals who have bypassed official immigration channels

For more information and to download the full report please click here.