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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The tale of Battersea power station shows how affordable housing is lost

Initially, the developers promised 636 affordable homes. Now, they have reduced the number to 386. 

It’s the most predictable trick in the big book of property development. A developer signs an agreement with a local council promising to provide a barely acceptable level of barely affordable housing, then slashes these commitments at the first, second and third signs of trouble. It’s happened all over the country, from Hastings to Cumbria. But it happens most often in London, and most recently of all at Battersea power station, the Thames landmark and long-time London ruin which I wrote about in my 2016 book, Up In Smoke: The Failed Dreams of Battersea Power Station. For decades, the power station was one of London’s most popular buildings but now it represents some of the most depressing aspects of the capital’s attempts at regeneration. Almost in shame, the building itself has started to disappear from view behind a curtain of ugly gold-and-glass apartments aimed squarely at the international rich. The Battersea power station development is costing around £9bn. There will be around 4,200 flats, an office for Apple and a new Tube station. But only 386 of the new flats will be considered affordable

What makes the Battersea power station development worse is the developer’s argument for why there are so few affordable homes, which runs something like this. The bottom is falling out of the luxury homes market because too many are being built, which means developers can no longer afford to build the sort of homes that people actually want. It’s yet another sign of the failure of the housing market to provide what is most needed. But it also highlights the delusion of politicians who still seem to believe that property developers are going to provide the answers to one of the most pressing problems in politics.

A Malaysian consortium acquired Battersea power station in 2012. Initially, it promised to build 636 affordable units. This was pretty meagre, but with four developers already having failed to develop the site, it was still enough for Wandsworth council to give planning consent. By the time I wrote Up In Smoke, this had been reduced to 565 units – around 15 per cent of the total number of new flats. Now the developers want to build only 386 affordable homes – around 9 per cent of the final residential offering, which includes expensive flats bought by the likes of Sting and Bear Grylls.

The developers say this is because of escalating costs and the technical challenges of restoring the power station – but it’s also the case that the entire Nine Elms area between Battersea and Vauxhall is experiencing a glut of similar property, which is driving down prices. They want to focus instead on paying for the new Northern Line extension that joins the power station to Kennington. The slashing of affordable housing can be done without need for a new planning application or public consultation by using a “deed of variation”. It also means Mayor Sadiq Khan can’t do much more than write to Wandsworth urging the council to reject the new scheme. There’s little chance of that. Conservative Wandsworth has been committed to a developer-led solution to the power station for three decades and in that time has perfected the art of rolling over, despite several excruciating, and occasionally hilarious, disappointments.

The Battersea power station situation also highlights the sophistry developers will use to excuse any decision. When I interviewed Rob Tincknell, the developer’s chief executive, in 2014, he boasted it was the developer’s commitment to paying for the Northern Line extension (NLE) that was allowing the already limited amount of affordable housing to be built in the first place. Without the NLE, he insisted, they would never be able to build this number of affordable units. “The important point to note is that the NLE project allows the development density in the district of Nine Elms to nearly double,” he said. “Therefore, without the NLE the density at Battersea would be about half and even if there was a higher level of affordable, say 30 per cent, it would be a percentage of a lower figure and therefore the city wouldn’t get any more affordable than they do now.”

Now the argument is reversed. Because the developer has to pay for the transport infrastructure, they can’t afford to build as much affordable housing. Smart hey?

It’s not entirely hopeless. Wandsworth may yet reject the plan, while the developers say they hope to restore the missing 250 units at the end of the build.

But I wouldn’t hold your breath.

This is a version of a blog post which originally appeared here.

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