Five reasons why the benefit cap is wrong

The £26,000 cap, which is introduced in four London boroughs today, will raise child poverty, increase homelessness and cost more than it saves.

Whichever Conservative first came up with the line that "no out-of-work family should receive more in benefits than the average family receives from going out to work" probably deserves some sort of prize. The policy to which it refers - the benefit cap of £26,000 - has been framed so as to make reasonable disagreement appears impossible. Who can argue that it should pay more to be on welfare than in work? It’s unsurprising, then, that the policy is one of the coalition’s most popular (perhaps even the most popular). A YouGov poll published earlier this month found that 79 per cent of people, including 71 per cent of Labour voters, support the cap, with just 12 per cent opposed. But while politically astute, the cap, which is introduced in four London boroughs today (Bromley, Croydon, Enfield and Haringey), before being rolled out nationally from July, may be the most flawed of all of the coalition’s welfare measures. Here are five reasons why.

1. An out-of-work family is never better off than an in-work family

The claim on which the policy rests - that a non-working family can be better off than a working one - is a myth since it takes no account of the benefits that an in-work family can claim to increase their income. For instance, a couple with four children earning £26,000 after tax and with rent and council tax liabilities of £400 a week is entitled to around £15,000 a year in housing benefit and council tax support, £3,146 in child benefit and more than £4,000 in tax credits.

Were the cap based on the average income (as opposed to average earnings) of a working family, it would be set at a significantly higher level of £31,500. The suggestion that the welfare system "rewards" worklessness isn’t true; families are already better off in employment. Thus, the two central arguments for the policy - that it will improve work incentives and end the "unfairness" of out-of-work families receiving more than their in-work equivalents - fall down.

(And it will hit in-work families too)

Incidentally, and contrary to ministers' rhetoric, the cap will hit in-work as well as out-of-work families. A single person must be working at least 16 hours a week and a couple at least 24 hours a week (with one member working at least 16 hours) to avoid the cap. 

2. It will punish large families and increase child poverty

The cap applies regardless of family size, breaking the link between need and benefits. As a result, most out-of-work families with four children and all those with five or more will be pushed into poverty (defined as having an income below 60 per cent of the median income for families of a similar size). Iain Duncan Smith has claimed that “[at] £26,000 a year it's very difficult to believe that families will be plunged into poverty” but his own department’s figures show that the poverty threshold for a non-working family with four children, at least two of whom are over 14, is £26,566 - £566 above the cap. The government's Impact Assessment found that 52 per cent of those families affected have four or more children.

By applying the policy retrospectively, the government has chosen to penalise families for having children on the reasonable assumption that existing levels of support would be maintained. While a childless couple who have never worked will be able to claim benefits as before (provided they do not exceed the cap), a large family that falls on hard times will now suffer a dramatic loss of income. In view of this, the House of Lords voted in favour of an amendment by Church of England bishops to exclude child benefit from the cap (which would halve the number of families affected) but the defeat was subsequently overturned by the government in the Commons.

The DWP has released no official estimate of the likely increase in child poverty but a leaked government analysis suggested around 100,000 would fall below the threshold once the cap is introduced.

3. It will likely cost more than it saves

For all the political attention devoted to it, the cap is expected to save just £110m a year, barely a rounding error in the £201bn benefits bill. But even these savings could be wiped out due to the cost to local authorities of homelessness and housing families in temporary accommodation. As a leaked letter from Eric Pickles’s office to David Cameron stated, the measure "does not take account of the additional costs to local authorities (through homelessness and temporary accommodation). In fact we think it is likely that the policy as it stands will generate a net cost. In addition Local Authorities will have to calculate and administer reduced Housing Benefit to keep within the cap and this will mean both demands on resource and difficult handling locally."

4. It will increase homelessness and do nothing to address the housing crisis

Most of those who fall foul of the cap do so because of the amount they receive in housing benefit (or, more accurately, landlord subsidy) in order to pay their rent. At £23.8bn, the housing benefit bill, which now accounts for more than a tenth of the welfare budget, is far too high but rather than tackling the root of the problem by building more affordable housing, the government has chosen to punish families unable to afford reasonable accommodation without state support.

The cap will increase homelessness by 40,000 and force councils to relocate families hundreds of miles away, disrupting their children's education and reducing employment opportunities (by requiring them to live in an area where they have no history of working). 

5. It will encourage family break-up

Iain Duncan Smith talks passionately of his desire to reduce family breakdown but the cap will serve to encourage it. As Simon Hughes has pointed out, the measure creates "a financial incentive to be apart" since parents who live separately and divide the residency of their children between them will be able to claim up to £1,000 a week in benefits, while a couple living together will only be able to claim £500.

Work and Pensions Secretary Iain Duncan Smith speaks at the Conservative Party conference in Birmingham last year. Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

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Commons Confidential: Sleepy Zac is too laid-back

Lucy Allan's "threat", Clean for the Queen and the case of the invisible frontbencher.

After six years as a minister for Europe, David Lidington’s profile remains low. But the invisible frontbencher might be useful in a pub quiz, if not a referendum. A Tory snout muttered that David Who? has been boasting that he can name 20 of the 28 European commissioners currently parked in Brussels.

Lidington admitted that he will be history, should the UK decide to quit the EU. “If Britain voted to leave,” he nervously told a Tory gathering, “I think I’d let somebody else have a go in this job.” David Cameron is presumably thinking the same thing. Incidentally, can anybody name Britain’s EU commissioner?

“I wanted to get in touch to let you know about a fantastic initiative to help clean up the UK in advance of HM the Queen’s 90th birthday,” trilled the Banbury Tory Victoria Prentis in an email to fellow MPs. “‘Clean for the Queen’ brings together all the anti-litter organisations from the UK and aims to get people involved in the largest community-inspired action against litter . . . I will also be holding a drop-in photo opportunity . . . We will have posters, litter bags and T-shirts. Please do come along.” I await the formation of a breakaway group: “Republicans for Rubbish”.

Tory colleagues are advising Zac Goldsmith, I hear, to invest a slice of his inherited £300m fortune in speaking lessons to help him stop sounding so disinterested. Laid-Back Zac appears to lull himself to sleep on public platforms and on TV. My informant whispered that cheeky Tory MPs have been cooking up a slogan – “Goldsmith: head and shoulders above Labour” – ahead of the tall, rich kid’s tussle with the pocket battleship Sadiq Khan to become the mayor of London.

The Telford Tory Lucy Allan has finally received help after inserting the words “Unless you die” into a constituent’s email that she posted on Facebook, presumably to present herself as the victim of a non-existent death threat. Allan has since become embroiled in accusations of bullying a sick staffer. “The House has offered me a three-hour media training session,” the fantasist said in an email to colleagues. “There are two extra slots available . . .” How much will this cost us?

Oh, to have been a fly on the wall when the Injustice Secretary, Michael Gove, shared a drink with Chris Grayling and informed his predecessor that prisons would be the next piece of his legacy to be reversed. Chris “the Jackal” Grayling, by the way, is complaining that Gove’s spads are rubbishing him. And with good reason.

The Tory lobbyist Baron Hill of Oareford is the UK’s chap at the European Commission. He puts the margin into marginalised at the Berlaymont.

Kevin Maguire is the associate editor (politics) of the Daily Mirror

Kevin Maguire is Associate Editor (Politics) on the Daily Mirror and author of our Commons Confidential column on the high politics and low life in Westminster. An award-winning journalist, he is in frequent demand on television and radio and co-authored a book on great parliamentary scandals. He was formerly Chief Reporter on the Guardian and Labour Correspondent on the Daily Telegraph.

This article first appeared in the 11 February 2016 issue of the New Statesman, The legacy of Europe's worst battle