Living with the Benefits Cap

//Living with the Benefits Cap

Living with the Benefits Cap

In November the Government reduced the total amount of benefits families could receive: for some families, this benefits cap could lead to homelessness…

If you saw the BBC’s Panorama on Wednesday night you will know that thousands of families hit by the recently reduced cap on benefits have effectively been left with just £26 a year – of 50p a week – towards the cost of their rent. As a consequence, many families face being made homeless.

What is the Benefits Cap?

With tabloid headlines such as ‘family of nine living like millionaires on benefits’ the introduction of some form of a cap on benefits was inevitable. The Benefits Cap was introduced by the Coalition Government, theoretically as a way of restoring fairness to the benefits system: the intention was to limit total household benefit income to no more than the average working family earnings of £26,000 a year.

Cheered on by the Cap’s apparent popularity with the working public, the Conservative government changed the law in 2016 to lower the Cap further. Estimates suggest that the new, lower Cap will affect four times as many households as it predecessor.

What level are benefits capped at?

Following the reductions in November 2016, the benefits cap for a couple (with or without children) or a single parent living outside London is £384.62 per week: in London, the figure is higher, at £442.31 per week. These figures are equivalent to £20,000 a year outside London and £23,000 a year in London. For single people the equivalent figures for the benefits cap are £257.69 per week and £296.35 – or £13,400 and £15,410 per year in London.

How does the Benefits Cap work?

The Benefit Cap will only affect you if are in receipt of certain benefits – housing benefit or universal credit. If the cap does affect you, then your housing benefit or universal credit is reduced. The first thing to say is that the benefits system is very complicated – here is the explanation page from the Citizens’ Advice Bureau. There are multiple benefits, and the way they work together is not easy to understand – so if you think you might be entitled to benefits, do not hesitate to ask for advice.

Is the Cap fair?

The answer to that probably depends on your political persuasion. We will try and stay as neutral as possible! The idea is to narrow the gap between those in work and those receiving benefits: to make the system fairer. Welfare Delivery Minister Caroline Nokes said,

“We wanted to incentivise work. We know that the outcomes for children will be better if they are in families that are working.”

She added that a family that is only receiving 50p a week in housing benefits will still be receiving £20,000 a year in total benefits (outside London): and yes, many people might well think that £20,000 a year in benefits is more than fair when a registered nurse earns an average (taxable) starting salary of £23,316.

The Panorama Survey

The panorama survey

The survey covered hundreds of local councils across the UK and discovered that 7,585 families had their housing benefit cut to this lowest possible level. By implication, there will be many other families who have seen significant cuts, without their housing benefit reaching the ‘headline’ 50p per week level.

Not surprisingly, charities are alarmed by the move, fearing that some families could be left homeless. Alison Garnham, Chief executive of the Child Poverty Action Group, said,

“Removing people’s housing benefit basically means people cannot afford their home, so it puts people at risk of homelessness.” She added, “Money that is intended for food for their children and for other living expenses has to go on rent.”

How many people will be affected by the Benefit Cap?

The government estimates that 88,000 people will be affected by the benefits cap: however, some experts believe that the figure will be much higher. According to the 370 councils that responded to the Panorama survey, almost 67,500 households have been capped so far. There are 418 local councils in the UK: so simple maths would seem to favour the government’s view at this point.

Where has the Benefit Cap hit hardest?

According to the figures from Panorama, Birmingham has the highest number of households on 50p a week housing benefit, at 578 of 2,968 households that are capped. Leeds is second at 223 and Manchester third at 179.

In proportional terms, North Hertfordshire has 30% of households that are capped on 50p a week housing benefit: Bolton follows at 29% and Sandwell in the West Midlands is 3rd at 27%.

After all this, does the Benefits Cap work?

Again, your response to this question might well depend on your political standpoint, but looking at it as objectively, early indications that it has had – at best – a marginal effect. The Institute for Fiscal Studies published a study suggesting that only 5% of the 80,000 households hit by the first Cap subsequently moved into employment.

A study by Oxford Council – done with the DWP – went further, saying that cutting people’s benefits reduced their chances of finding work. Put simply, they were spending more time dealing with the effects of poverty, so they had less time to look for work. Other studies have suggested that those people on benefits who did move into work were close to working anyway – perhaps already with job offers – leaving the long-term unemployed mired deeper in debt and despair.

As I say, your interpretation of these studies depends very much on your political starting point: I can already hear those people that support Norman Tebbit’s famous ‘get on your bike’ maxim snorting in derision…

…And, not surprisingly, the Government take a different view. Speaking in November, Secretary of State for Work and Pensions, Damian Green, said,

“By making sure that those people who are out of work are faced with the same choices as those who are in work, the Benefit Cap has been a real success. By lowering the Cap today, we are ensuring that the values of this Government chime with those of ordinary working people, and [we are] delivering on our commitment to making sure that work pays more than welfare.”

As always, time will tell…

By | 2017-07-21T11:29:44+00:00 April 7th, 2017|Personal Finance|Comments Off on Living with the Benefits Cap

About the Author:

A previous financial services business owner, Mark is an experienced Copywriter, Speaker, Speechwriter and Coach. He has written for a number of websites, web applications and landing pages related to the financial sector, as well as writing a blog that is a humorous look at family life that has won numerous awards. Along with publishing a number of books, Mark often speaks about how to create and deliver consistently good content, often running courses on blogging and social media where he puts his extensive writing and financial experience to good use.