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Parish relief, an early form of benefit system, existed in England simultaneously alongside the workhouses.

I'd like to understand what the system was that determined whether a person was eligible for parish relief or not, versus having to sign themselves in to the workhouse. From what I understand going to the workhouse was considered a more desperate situation.

I've heard it said that parish relief was for the old, disabled and infirm, but many of my ancestors who were old or even disabled also had to go to the workhouse so this can't be the case.

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There is an excellent resource for anyone who needs to understand the 'Poor Laws' and the operation of workhouses in England and Wales at workhouses.org.uk.

As explained there, 'parish relief'/'outdoor relief' was the only (locally administered) option for relieving poverty until the 1834 Poor Law Amendment Act introduced centralised workhouses (and Poor Law Unions) and aimed to abolish 'outdoor relief'.

Some Poor Law Unions dragged their feet over spending the money necessary to build a workhouse, and some clung on to outdoor relief as an alternative to the workhouse in some circumstances (e.g. able-bodied male paupers who could do hard physical labour such as stone-breaking or oakum picking) although it became increasingly difficult to avoid going into the workhouse as time progressed and more rules and regulations were introduced limiting the possibilities for outdoor relief.

So the answer to your question depends on: When did a person need relief? Before 1834: outdoor relief. After 1834 increasingly likely to go into the workhouse unless they lived within one of the Poor Law Unions that retained some discretion about outdoor relief for a while and they were able-bodied.

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While the intention of the 1834 act was that out-relief should be abolished the reality was that that was far from the case, if my local union (Romsey, Hants) was anything to go by. A colleague in my local history society (Phoebe Merrick) has made a study of the union records and found that a large proportion received out-relief throughout the 19th C. For example, in 1850 just 74 people (men, women, and children) were in the workhouse while 528 were in receipt of out-relief. Similarly, by 1898 there were just 81 in and 419 benefiting from out-relief; this was despite a list of 13 reasons for refusing out-relief General Rules agreed to by the Guardians of the Romsey Union at a Meeting held June20th 1892, for their guidance in the administration of relief.

1 No out-relief to be granted in any of the following cases, except under such peculiar circumstances as, after consideration by the Board of Guardians, may justify a deviation from these rules.
2 To non-residents.
3 To wives deserted by their husbands.
4 To wives or families of convicted prisoners.
5 To women with illegitimate children, or who are pregnant.
6 To wives or families of Militia men during duty.
7 To persons having relatives capable of maintaining them.
8 To persons residing with relatives, where the united income is sufficient for the support of all the members.
9 To men who refuse to work at reduced wages preferring out-door relief. 10 To any applicant under 45, except in cases where the applicant proves to the satisfaction of the Board of Guardians that he or she is drawing sick pay from a Friendly Society.
11 No relief to be given for more than 14 weeks.
12 Habitual drunkards and bad characters to be refused out-door relief. 13 To persons living in cottages above the average rent of the neighbourhood. 14 No midwifery order (except on loan) where there are less than 3 children, unless the father is not able-bodied.

The other important point to remember was that for the poor the workhouse infirmary was often the only place they could go for medical treatment or long-term care for the elderly if the family could not cope.

Phoebe recently gave a talk on her research, you can see a video of it on the Hampshire Field Club & Archaeological Society YouTube channel here https://www.youtube.com/watch?v=qAvJIScMCQo

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