Welfare Reform Act 2012: implications and challenges for local authorities

This speech was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government

Speech by Lord Freud, Minister for Welfare Reform.

I want to thank Sharon Taylor, the Local Government Association and local authorities for your longstanding work in providing welfare services in your local communities that make a difference.

And for your crucial support as we reshape welfare for the future.

It is a pleasure to be sharing the platform with Lord Adebowale.

He has made a valuable contribution to debates on the Welfare Reform Bill.  And helped many people with complex needs find work and get their lives back on track through Turning Point.

I will be announcing the recommended local authority led pilot sites to help residents prepare for the introduction of Universal Credit in a moment.

With so many excellent bids, we’re having a very difficult time making our selection.  

You suddenly see the real enthusiasm and determination of local authorities to promote financial and digital access, so they can bring everyone in their communities into 21st century society.

You will have the opportunity to hear more about the impact of our welfare reforms, and discuss them, in the plenary sessions and workshops later today.

And I look forward to taking your questions.

All the changes happening mean that local authorities will take on a breadth of new powers and responsibilities. 

And the community and voluntary sector will have an even more important role to play.

I know there are challenges ahead too and I want to touch on those later.

And I fully understand the funding challenges that local authorities will face. 

But I want to start by setting out what our reforms are really about: providing a lever for social change. 

Helping people regain the independence and self-reliance they have lost because our welfare system kept them trapped down in dependency.

And how I see welfare reform changing the social ecology of communities throughout the country.

At the heart of welfare change is Universal Credit.

Universal Credit will change the benefits landscape.

Transforming the way services are delivered, and transforming local communities as a result.

We have been working closely with the LGA and local authorities to support the introduction of Universal Credit from October 2013

And local authority led pilots will provide a unique opportunity for councils to shape the development of Universal Credit

Universal Credit

Universal Credit will tackle the root causes of welfare dependency, providing a simpler, more efficient system that will make work pay.

And because Universal Credit is not restricted to people out of work, it is safe for claimants to try a job, or increase their earnings, without the fear of losing their benefit.

Universal Credit will help claimants and their families manage their benefits and wages independently and, where possible, become independent of state support.

Financial and digital Inclusion

What I see developing is a whole new area of common ground where social inclusion can take root and flourish. **

We want to make it as fertile as possible. 

And we recognise this will need a lot of different intermediaries.

Local authorities, the community and voluntary sector, credit unions, and social landlords among others.

Most people on a low income already have bank accounts, and manage their money well. 

However, we recognise that some people will need extra support when Universal Credit comes into force.

People on low incomes who can’t get mainstream financial services face a poverty premium.

They end up paying more because they cannot get direct debit discounts or affordable credit. 

And they can fall prey to loan sharks and doorstep lenders.

This hinders the regeneration of whole local communities.

So we are working with banks to increase access to accounts that accept income from wages as well as benefits; transactional accounts, which will allow facilities like direct debits and simple standing orders.

And we are exploring the types of budgeting advice and information services that claimants will need.

We are also looking at ways to provide specific, practical support at the start of their claim for people who have debt problems, poor numeracy skills, drug addiction or mental health issues.

We are designing Universal Credit to be digital by default to boost online access for people of working age.

Clearly where broadband access is not available we intend to make sure that appropriate alternative support is at hand for them.

New research [by Ipsos Mori, published by DWP) reveals that 74 per cent of claimants surveyed have a broadband connection at home.

And 62 per cent say they would be willing to apply for a benefit or Tax Credit online.   These are encouraging results.

Wider context

But let’s take a moment to stand back and look at why we need to take action.

Our welfare system is failing the very people it was set up to help.

A system that stifles incentive, opportunity and responsibility.

A system that denies them the opportunity to get on in life that everyone deserves.

We have to restore integrity and fairness. And end the complexity and cost which has spiralled out of control.

Housing Benefit spend doubled in the last decade from £11 billion to £21 billion in 2010/11 in cash terms. We simply can’t afford to continue paying Housing Benefit as we have done in the past.

So we have capped Housing Benefit. Putting an end to the scandal of families on benefits living in houses hard-working families could never afford.

This is the right and fair thing to do.

Housing Benefit will still be able to meet rents of £20,000 a year.

Independent research into housing benefit reform [ by the Centre for Regional Economic and Social Research at Sheffield Hallam University, published June] shows many scare stories about housing benefit reform are simply not happening.

77% of LHA landlords say they intend to continue letting to LHA tenants in the next 12 months.   Most landlords work with tenants to reduce arrears. And a third of all LHA landlords said they had either reduced rents for tenants in exchange for direct payments or would consider doing so.

The six demonstration projects we have set up to trial direct payments to Housing Benefits claimants living in social sector housing are underway.

These will help us learn how best to introduce directs payments when Universal Credit comes in.

These reforms illustrate how the relationship between central and local government is changing.

We understand this means you will have much greater involvement with your tenants.

On Social Sector Size Criteria, nearly one third of working age social housing tenants on Housing Benefit are living in accommodation that is too big for their needs.

Despite the fact that a quarter of a million households today are living in overcrowded social housing and there are very large waiting lists.

We will stop the practice of the state paying for rooms beyond the claimants needs and help tackle the social housing shortage that blights too many lives.

Without this reform our Housing Benefit bill would reach £25 billion by 2014/15 in cash terms.

Another important area of reform is the Benefits Cap.

It is simply not fair that people on benefits can receive more in welfare payments than hard working families.   And where a life on benefits robs people of achieving their potential.

We have to put an end to the culture that says a life on benefits is an acceptable alternative to work.

A Benefits Cap of £26,000 will mean that no family on benefits will earn more than the average salary of a working family (£35,000 a year gross or £26,000 net).

The rationale behind the pilots

Let me now turn to the local authority led pilots. 

These pilots will help local authorities and DWP identify the best ways to help Universal Credit claimants when Universal Credit comes in.

They will test different propositions and help local authorities set up their systems.

I know from my visits to Lewisham and Sevenoaks Councils earlier this year the vital work that local authorities already offer many of those who will be Universal Credit claimants.

Many local authorities are involved in the various steering, assurance and working groups on the design of Universal Credit.

We are working with the LGA right across the Universal Credit programme.

And we recognise the very important contribution that housing sector and voluntary sector organisations are making to Universal Credit.

Local Authority Led Pilots announcement

The idea for the pilots came from a roundtable I had with the LGA, and various representatives of all national local authority associations, at the beginning of the year.

From these talks we developed proposals to run a dozen or so local authority led pilots across Great Britain, to deliver face to face support to people who may need to claim Universal Credit.

The pilots will look at:

  • encouraging claimants to access online support independently;
  • improving financial independence budgeting support and helping people find work;
  • delivering efficiencies and reducing fraud and error; and
  • reducing homelessness.

The LGA had the unenviable task of choosing from 38 strong applications. 

All the recommended local authorities offer very interesting ideas on how they might help people with their claims for Universal Credit and progress into work.

And I am pleased to announce that the LGA has recommended 15 proposals as potential local authority led pilot sites in England** **for us to make our final selection.

We have a separate process to select around five pilots for Scotland and Wales and we will expect to announce those shortly.

They based this choice on the best fit with what we agreed we wanted to test.

Digital self-service, financial inclusion with a focus on work, efficiency, and reducing fraud and homelessness;

And they made sure their recommendations for us to select from represented a broad range of demographic mix and type of authority.

The 15 authorities recommended by LGA are:

Bath and North East Somerset
Hammersmith and Fulham (in consortium with Kensington and Chelsea, Wandsworth and Westminster)
Newcastle under Lyne
North Dorset
A consortium of North Yorkshire authorities led by Scarborough
West Lindsey; and

I met representatives from all 15 authorities last week, and I was really excited by the quality and scope of their plans.

They have a very clear focus on increasing online access and reducing reliance on mediated support, and promoting financial inclusion.

All the recommended local authorities offer very exciting ideas on how they might help people with their claims for Universal Credit and progress into work.

We are now working through the long-list with a view to announcing the final dozen or so successful authorities across Great Britain in the summer.

We are talking to all the authorities individually to see how effective their proposals are in practice, how they line up with DWP’s own operational work in these areas, and to check on value for money. 

The pilots will start in the autumn.

But even for those authorities we can’t include in the final selection, we are keen to involve all those who are interested in this agenda.

And we will develop a network of all local authorities who are interested in working with us, so we can keep them plugged into developments as we move towards Universal Credit going live in October 2013.

The breadth of responsibilities local authorities will have

Looking beyond Universal Credit, the whole direction of welfare reform will provide greater powers for councils to localise welfare support.

You have the local expertise and knowledge to apply it where you can have a real impact.

And we strongly believe the most effective solutions are designed and delivered locally. 

You will gain a breadth of new responsibilities.

Let me be clear about this.   All local authorities will have to look at changing their systems.

You will have to look hard at how you organise yourselves.

When you look at the responsibilities moving across to local government , you will have to decide who gets Social Fund payments, localised council tax support, and direct payments for Local Housing Allowance

You will provide support for troubled families, continue help for homelessness, and have a greater role in supporting the most vulnerable members of your communities.

It will be up to you to help ensure that financial inclusion and digital inclusion work in practice. 

So it’s vital that the services you design and provide have a real fit with Universal Credit and our reforms, so that people get the seamless support they need.

We will work with you to make sure we get this right. 

I am absolutely determined we will do all we can to help local authorities in this vital work 

And clearly the pilots are a very important part of this.


So let me sum up. Welfare reform will bring about radical social change.

It is a challenge. 

But I am confident it is a challenge the Local Government Association, local authorities and the community and voluntary sector will meet.

Working together we can really start to transform our communities.

And help people regain the independence, self-reliance and wellbeing our welfare system has denied them for far too long.