The benefit cap: what does it mean and why is it unfair?

Peers are to fight plans to cap benefits at £26,000, despite public support. Here is everything you

What is the benefit cap?

A cornerstone of Iain Duncan Smith's welfare reform, the principle behind the benefit cap is that unemployed people should not be paid more than working families. Under the proposals, working-age benefits would be capped at £500 per week, or £26,000 a year. This is equivalent to the average wage earned by working households after tax.

What do voters think?

The public are broadly with Duncan Smith on this one. A YouGov poll shows that 76 per cent of the public are in favour of the benefits cap, including 69 per cent of Labour voters. It also shows that 36 per cent would like to see even tougher measures, with no household getting more than £20,000 in welfare payments.

Why is it unfair?

There are several criticisms levelled against the cap, centering on the impact on children, and on the very families -- those in work and paying taxes -- who it is meant to defend.

It takes no account of children
The benefit cap is the same regardless of how many children a family has. Therefore a family with five children would receive the same amount as a family with just one or two. This has proved particularly problematic, with church leaders have called for child benefit to be exempted, while Nick Clegg conceded that government may need to look at "the place of children who were born, if you like, innocently into another set of rules".

Leaked government analysis showed that the move could push a further 100,000 children into poverty. Duncan Smith's team are scathing about an amendment that would exempt child benefit, saying it would encourage people on benefits to have more children. But what about families that already have many children? They should not be penalised for the fact of their existence.

It ignores employment history
A couple who have never worked will end up being less affected than families on a low to middle income who are suddenly affected by unemployment in the recession. This is because families with parents who have never worked will tend to live in social housing where rents are cheaper. However, low to middle earners are likely to rent privately: they are not poor enough to qualify for council accommodation but not well off enough to buy. There are 680,000 working households claiming housing benefit, making up 14 per cent of the total housing benefit caseload.

As the recession claims more and more jobs, many families who need short-term support could find themselves in an impossible position. Duncan Smith has criticised "people being placed in houses they cannot afford", but for these families, it is a case of rapidly changing circumstances rather than flagrantly living above their means.

It penalises those in the south-east
Rents are higher in the south-east, and cutting housing benefit to £100 a week makes it practically impossible for a family with children to rent privately. In the Guardian today, Tim Leunig says that after council tax, rent and utilities, a family with four children would be left with 62p per person per day to live on.

Critics have said that this will result in "social cleansing" from inner-city areas -- the percentage of privately rented properties in central London available to housing benefit claimants will fall from more than 50 per cent to just 7 per cent. Leunig predicts that many people will remain in these areas, where job prospects are better, but will have to "downsize", with siblings sharing bedrooms and parents sleeping on sofa-beds.

Who opposes it?

Lord Paddy Ashdown, the former Liberal Democrat leader, has said that he is unable to support the reform as it will unfairly penalise children in benefit dependent homes. He said:

I voted with the Government on everything until now. I see it as my job as an ex-leader to support my successor, but I will not support the benefit cap in its present form.

Church of England bishops, led by John Packer, the Bishop of Ripon and Leeds, will today table the key amendment around which rebel Lords plan to gather. It would exempt child benefit from the cap. As outlined above, the government is hostile to such a plan, though Clegg has suggested that there may be some scope for "transitional arrangements" to cushion the effect.

Samira Shackle is a freelance journalist, who tweets @samirashackle. She was formerly a staff writer for the New Statesman.

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The twelve tricks in George Osborne's spending review

All Chancellors use chicanery, and George Osborne is no exception.

There is no great shame to a wheeze: George Osborne is no more or less partial to them than other Chancellors before him. Politicians have been wheezing away since history began. Wheezes aren’t even necessarily bad policy: sometimes they’re sensible as well as slightly sneaky. And we shouldn’t overstate their significance: the biggest changes announced yesterday were described in a clear, honest and non-wheezy way.

But it’s fun to try to spot the wheezes. Here are some we’ve found so far.


  1. Give people less time to pay their tax bills. Yesterday the Chancellor announced tax rises that will raise, in total, a net £5.5bn in 2019-20. A sixth of that total – £900m – results from the announcement that, from April 2019, anyone paying Capital Gains Tax (CGT) on the sale of a house will have to cough up within 30 days. Has the Chancellor made a strategic decision to increase taxes to pay for public services? Not really – he’s just moved some tax forward from the subsequent year to help his numbers stack up, at the price of bigger hassle for people who are selling houses. Not necessarily a bad thing – but a classic wheeze.


  1. Dress up a spending cut as a minor bureaucratic change. The Treasury yesterday announced what sounds like a sensible administrative change to the Government’s scheme for automatically enrolling people into pensions: “to simplify the administration of automatic enrolment for the smallest employers in particular, the next two phases of minimum contribution rate increases will be aligned to the tax years”. Nice of them to reduce bureaucratic hassle for the smallest employers. This also happens to save the Government £450m in 2018-19, because instead of paying an increased subsidy into people’s pensions from January 2018, it will do it from April 2018.


  1. “Tuck under”.  The phrase “tucking under” is a Whitehall term of art, best illustrated with an example. We learnt yesterday that “DfID [the Department for International Development] will remain the UK’s primary channel for aid, but to respond to the changing world, more aid will be administered by other government departments, drawing on their complementary skills.” That sounds like great joined-up government. It also, conveniently, means that the Government can continue to meet its target of keeping overseas aid at 0.7% of Gross National Income, without having to increase DfID’s budget at the same rate as GNI: instead, other departments pick up the slack. Those bits of other departments’ budgets have thus been “tucked under” the ODA protection. See also: the Government is “protecting” the schools budget in real terms, while slashing around £600m from the funding it gives to local authorities to support schools, so that schools will now have to buy those services from their “protected” funding – thus “tucking” the £600m “under” the protected schools budget. (See also: in the last Parliament, the Government asked the NHS to contribute to social care funding, thus “tucking” some social care “under” the protected health budget.)


  1. Cumulative numbers. Most of the figures used in the Spending Review are “in-year” figures: when the Government says it is giving £10bn more to the NHS, it means that the NHS will get £10bn more in 2019-20 than it got in 2015-16. Then you read something like: “The Spending Review and Autumn Statement provides investment of over £1.3 billion up to 2019-20 to attract new teachers into the profession.” That’s not £1.3bn per year – it’s the cumulative figure over four years.


  1. Deploy weasel words. The government is protecting “the national base rate per student for 16-19 year olds”. Sounds great – and it will be written up in many places as “Government protects 16-19 education”. But the word “base” is doing a lot of work here. Schools and colleges that educate 16-19 year olds currently get a lot of funding on top of the “base rate” – such as extra funding for disadvantaged students. Plans for that funding have not yet been revealed.


  1. Pretend to hypothecate a tax. The Chancellor announced yesterday that – because the EU won’t allow him to reduce the ‘tampon tax’ – he’ll instead use the proceeds of that tax to pay for grants to women’s charities. This sounds great – but all he’s really saying is that, among all the many other millions of pounds of grants issued by the government to various causes, £15m will be given to some women’s charities, which might have got that funding anyway. It’s not real hypothecation: it’s not as if women’s charities will get more if there’s a spike in tampon sales. See also: announcing that local authorities can raise council tax so long as they use it to pay for social care – LAs would probably have spent just as much on social care anyway (and other services would have suffered).


  1. Shave away a small fraction of a big commitment. The Conservative party made great play in the election campaign of its commitment to provide 30 hours of free childcare to 3 and 4 year olds in working families. In the July Budget, it made more great play of re-committing to this. Yesterday, it announced that “working families” excluded any parent working less than the equivalent of 16 hours at the minimum wage, or more than £100,000. That sounds like a fairly small change – but it saves the Government £125m in 2020.


  1. Turn a grant into a loan. If government gives someone a grant, that is counted as spending and increases the public sector deficit. If instead the government gives someone a loan, that doesn’t count against the deficit, because it’s assumed that the loan will be paid back (so the loan is like an asset which the Government is holding). Recently we’ve seen a lot of government grants turning into loans – in the July Budget it was student maintenance grants; yesterday it was bursaries for trainee nurses.


  1. “Reverse” a decision that hasn’t happened yet. In 2012 the Government announced that, from April 2016, it would remove the 3% “diesel supplement” that puts a higher tax on company cars that use diesel than on others. Yesterday, it cancelled this, saving over £265m per year for the rest of the Parliament. People complain less about you cancelling a tax cut when you haven’t done the tax cut yet. (Perhaps this doesn’t qualify as a full wheeze, but there’s something wheezy about it.)


  1. “Protect” things in cash terms. If you really want to protect an area of spending, you should at least increase it in line with inflation, so that it can still buy the same amount of stuff. This government – like the Coalition before it – enjoys protecting things only in cash terms. Examples yesterday included the basic rate of funding per 16-19 year old in education, and the entire children’s services budget.


  1. Freeze things in cash terms. Yesterday the government announced that the repayment threshold on student loans – the level above which ex-students must start paying back their loans – will remain frozen in cash terms for 5 years, instead of increasing with earnings (which is what has happened to date). This saves the Government £200m in 2019-20. In a particularly bold move, the Government has even applied this rule to loans that have already been issued – changing the terms on which students took out the loans in the first place.


  1. Hide all these wheezes in sweeping statements. The first chapter of the Spending Review tells us that “£3 billion [of reduction in the deficit] is being delivered through reforms such as Making Tax Digital and further measures to tackle tax avoidance.” The innocuous phrase “reforms such as” covers the bringing forward of £900m in Capital Gains Tax (see number 1 above) and the £450m saved by delaying automatic enrolment into pensions (see number 2 above).

Catherine Colebrook is chief economist at the Institute for Public Policy Research