Social Security and Welfare Reform

The overall benefits cap - more politics than policy

  • Published: Apr 04, 2013
  • Authors: Adam Tinson, Tom MacInnes
  • Category: Social Security and Welfare Reform

This week, we are posting a series of blogs that look at the main changes to social security benefits introduced this ‘Black April’.

Today we are looking at the overall benefit cap, designed to prevent working-age households from receiving more than average earnings from benefit payments. This is equivalent to £350 a week for single childless adults and £500 a week for couples or those with children. The benefit cap is designed to affect those who are workless, and so those receiving Working Tax Credit (WTC) or who work enough hours to be eligible for WTC are exempt.

The benefits counted for the cap include the main out of work benefits and means tested benefits such as housing benefit, child benefit and child tax credit.  Most disability and some sickness related benefits exempt the recipient from the cap. For a full list of included and exempt benefits, click here.

DWP estimates that 56,000 households will be affected by the benefit cap, and the average loss is £93 a week. In cash terms, this is expected to save around £275m in 2013-14 and 2014-15 (£270m and £265m in 2012-13 prices)*. A leaked letter from Eric Pickles’ office to the Prime Minister suggests that the cost estimates do not include those borne by the local authorities from the increase in homelessness and temporary accommodation. In fact, the letter notes ‘we think it is likely that the policy as it stands will generate a net cost.’ The letter said the overall benefit cap could produce 20,000 additional homelessness acceptances and may stall affordable house building.

One of the intended consequences of the overall benefit cap is that low-income families will move out of expensive areas. In fact, there is some evidence of this already happening in the private rented sector, where a similar cap was introduced in 2011. One could expect this to be repeated with the introduction of the overall benefit cap.

But the policy is also intended to send messages; of all the changes brought in this month, it is the most political. To that end, it has been successful – it is frequently cited as one of the Coalition’s most popular policies. Examples of families claiming £50,000 or even £100,000 per year under the previous system are frequently rolled out, irrespective of their rarity in real life (see the Chancellor’s speech this week for a recent example). The change actually affects very few people, but the signals it sends out are strong.

The cap further erodes the idea that housing benefit will fully cover rent leaving the personal allowance to be spent on everything else. This is an extension of the principles in both the LHA cap and the introduction of council tax support, so in itself is not a new principle. What is really new about this cap is that it restricts the amount of money payable in child support. Beyond a certain family size, the amount received in benefit stops increasing.

Putting to one side whether or not these principles are correct, the second of them at least has never really been made explicit. If the amount of child support families can claim is to be capped at – say – four children, the government should say as much. This is a big change.

The cap is currently set at the level of average household earnings. Coincidentally, the cap of £500 is more or less the poverty threshold before housing costs for a couple with four small children. This is certainly more generous than, say, job seeker’s allowance for two adults without children, which comes nowhere near the poverty line.

Whether the level of the cap is problematic is at least debatable. Whether the way the change is being implemented is not. Suddenly cutting the amount of money a family receives by more than £90 a week on average is a huge hit which leaves them with stark choices to make. That a family should move house is a consequence the government would clearly be happy with. That it might be more economical for that family to split up is surely not. If ever a change should be made with long transitional arrangements then the introduction of a limit on the number of children for which the state will offer support must be it.

In any list of welfare reforms, restricting the amount paid to a small group of people would not be our priority. It is lamentable that such a policy has been allowed to dominate any meaningful discussion of social security. At some point, a government will have to come along –history shows that it could be of the left or the right – to sort out the mess caused by reforms designed to serve political rather than practical ends. 

*Since this blog was published, the government has revised its figures. The number of households thought to be affected is now 40,000 according to a more recent impact assessment. The Treasury also lists the savings from the benefit cap as £110m in 2013-14 and £185m a year subsequently, contrary to DWP’s initial impact assessment.

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