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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Why relations between Theresa May and Philip Hammond became tense so quickly

The political imperative of controlling immigration is clashing with the economic imperative of maintaining growth. 

There is no relationship in government more important than that between the prime minister and the chancellor. When Theresa May entered No.10, she chose Philip Hammond, a dependable technocrat and long-standing ally who she had known since Oxford University. 

But relations between the pair have proved far tenser than anticipated. On Wednesday, Hammond suggested that students could be excluded from the net migration target. "We are having conversations within government about the most appropriate way to record and address net migration," he told the Treasury select committee. The Chancellor, in common with many others, has long regarded the inclusion of students as an obstacle to growth. 

The following day Hammond was publicly rebuked by No.10. "Our position on who is included in the figures has not changed, and we are categorically not reviewing whether or not students are included," a spokesman said (as I reported in advance, May believes that the public would see this move as "a fix"). 

This is not the only clash in May's first 100 days. Hammond was aggrieved by the Prime Minister's criticisms of loose monetary policy (which forced No.10 to state that it "respects the independence of the Bank of England") and is resisting tougher controls on foreign takeovers. The Chancellor has also struck a more sceptical tone on the UK's economic prospects. "It is clear to me that the British people did not vote on June 23 to become poorer," he declared in his conference speech, a signal that national prosperity must come before control of immigration. 

May and Hammond's relationship was never going to match the remarkable bond between David Cameron and George Osborne. But should relations worsen it risks becoming closer to that beween Gordon Brown and Alistair Darling. Like Hammond, Darling entered the Treasury as a calm technocrat and an ally of the PM. But the extraordinary circumstances of the financial crisis transformed him into a far more assertive figure.

In times of turmoil, there is an inevitable clash between political and economic priorities. As prime minister, Brown resisted talk of cuts for fear of the electoral consequences. But as chancellor, Darling was more concerned with the bottom line (backing a rise in VAT). By analogy, May is focused on the political imperative of controlling immigration, while Hammond is focused on the economic imperative of maintaining growth. If their relationship is to endure far tougher times they will soon need to find a middle way. 

George Eaton is political editor of the New Statesman.