Budget Focus: Welfare in flux – what does this mean for charities?

March 21, 2016 at 17:42

After Iain Duncan Smith’s shock resignation from the cabinet this weekend, the government have announced that they will drop their controversial plans to change the way that the daily living component of the disability benefit – the PIP – is calculated from January next year.

This is welcome news, especially for the people that would have been affected by the £4bn cut, and the charities that support them. But there is little time for complacency as the Chancellor will now have to look elsewhere for these savings. How might charities be affected? 

What has the impact of the welfare cuts been so far?

The Institute for Fiscal Studies (IFS) shows that the various cuts to work age benefits introduced under the welfare reform act have led to steep loss of income for those working-age people at the bottom half of the income distribution – as illustrated in the graph below.

It is this group that have benefited least from the measures introduced to offset benefit cuts and the increase in VAT such as the increase in personal allowance and falling petrol duty.

In my previous role at NCVO, I researched how charities have been affected by the then Coalition Government’s welfare changes.

Charities have been on the frontline of the welfare changes which have represented the biggest retrenchment of the welfare state since its creation. They have supported people by providing practical support, advice and advocacy.

Reflecting the findings from CFG and IoF’s Managing in the New Normal 2015 report, the welfare research found that charities had experienced increasing demand on their services, thereby posing significant challenges to continue to meet demand against a backdrop of funding cuts.

Long-run impact of tax and benefit reforms introduced between May 2015 and April 2019 by income decile and household type (including universal credit).

Long-run impact of tax and benefit reforms introduced between May 2015 and April 2019 by income decile and household type (including universal credit). Source: IFS

Where might the axe fall next?

Today’s U-turn represents the second time that the Chancellor has abandoned cuts to the welfare bill in the last 5 months after Osborne decided not to cut working tax credits in the Spending Review.

Whether or not the Chancellor will meet criticism that the government has implemented policies that promote society’s better off with a change of approach is unclear. However, the Conservative Party Manifesto promised to cut welfare spending by £12bn which they are yet to achieve, so unless the government significantly changes tack on their manifesto we should still anticipate these cuts to come from welfare.


What does this uncertainty mean for charities?

So charities are left wondering what will happen – to their beneficiaries, and ultimately to them.

The sector can let out a small sigh of relief – but ultimately the threat of further cuts to the welfare bill, in particular working-age benefits are likely. Unless the government is to change tack permanently.

Swift changes in policy caught charities off guard. Under the last changes to the benefit system many charities only became aware of the changes when their beneficiaries sought support.

Charities have proven to be adaptable. Some of the examples presented in the welfare reform research showed that charities met the changing demands on their services with the innovative flair expected of the charity sector.

For example, in response to an increasing number of young people being sanctioned, staff and volunteers at the YMCA introduced a range of preventative measures, including: keeping track of dates their residents are required to sign on, supporting them with job search activity and working more closely with local agencies.

However, if the Chancellor does decide to backload cuts in the final years of this Parliament, we can expect charities to be faced with another period of increased demand on their services, in a continuing volatile funding environment.

In the meantime, we enter a period of uncertainty for those charities that support those people reliant on the welfare state. As uncertainty is the thorn in the side of businesses, so too does it create significant challenges for charities.