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.

Photo: Getty
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Will the House of Lords block Brexit?

Process, and a desire to say "I told you so" will be the real battle lines. 

It’s the people versus the peers, at least as far as some overly-excited Brexiteers are concerned. The bill to trigger Article 50 starts its passage through the House of Lords today, and with it, a row about the unelected chamber and how it ought to behave as far as Brexit is concerned.

This week will, largely, be sound and fury. More peers have signed up to speak than since Tony Blair got rid of the bulk of hereditary peers, triggering a 200-peer long queue of parliamentarians there to rage against the dying of the light, before, inevitably, the Commons prevailed over the Lords.

And to be frank, the same is ultimately going to happen with Article 50. From former SDPers, now either Labour peers or Liberal Democrat peers, who risked their careers over Europe, to the last of the impeccably pro-European Conservatives, to committed Labour and Liberal politicians, there are a number of pro-Europeans who will want to make their voices heard before bowing to the inevitable. Others, too, will want to have their “I told you so” on record should it all go belly-up.

The real battle starts next week, when the bill enters committee stage, and it is then that peers will hope to extract concessions from the government, either through defeat in the Lords or the threat of defeat in the Lords. Opposition peers will aim to secure concessions on the process of the talks, rather than to frustrate the exit.

But there are some areas where the government may be forced to give way. The Lords will seek to codify the government’s promise of a vote on the deal and to enshrine greater parliamentary scrutiny of the process, which is hard to argue against, and the government may concede that quarterly statements to the House on the process of Brexit are a price worth paying, and will, in any case, be a concession they end up making further down the line anyway.

But the big prize is the rights of EU citizens already resident here.  The Lords has the advantage of having the overwhelming majority of the public – and the promises of every senior Leaver during the referendum campaign – behind them on that issue. When the unelected chamber faces down the elected, they like to have the weight of public opinion behind them so this is a well-chosen battleground.

But as Alex Barker explains in today’s FT, the rights of citizens aren’t as easy to guarantee as they look. Do pensions count? What about the children of EU citizens? What about access to social security and health? Rights that are easy to protect in the UK are more fraught in Spain, for instance. What about a British expat, working in, say, Italy, married to an Italian, who divorces, but wishes to remain in Italy afterwards? There is general agreement on all sides that the rights of Brits living in the rest of the EU and citizens of the EU27 living here need to be respected and guaranteed. But that even areas of broad agreement are the subject of fraught negotiation shows why those “I told you sos”  may come in handy sooner than we think.

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to British politics.