Five things Iain Duncan Smith doesn't want you to know about the benefit cap

Including why an out-of-work family is never better off than an in-work family, why it will cost more than it saves and why it will increase homelessness.

Iain Duncan Smith has been touring the studios this morning, rather unpleasantly referring to people "being capped". The policy which he's promoting - the benefit cap of £26,000 - is introduced nationally today (after being piloted in Bromley, Croydon, Enfield and Haringey) and is one of the coalition's most popular. A YouGov poll published in April 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 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). 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. It was this that led the House of Lords to vote 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

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.

Follow The Staggers on Twitter: @TheStaggers

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

George Eaton is political editor of the New Statesman.

Photo: Paul Sweeney
Show Hide image

Glasgow North East Labour MP Paul Sweeney: “Yes badges were cool in 2014 – now it's Jeremy”

The son of a shipbuilder harnessed the Corbyn surge to win over pro-Scottish independence voters.

In 2014, on the eve of the Scottish independence referendum, a young BAE graduate called Paul Sweeney introduced Gordon Brown.  He was there because of a referendum that “sent you into a black hole and spat you back out”, as he puts it. In his case, this started with a letter warning of the impact of independence on the shipbuilding industry, which led to a photoshoot, an appearance on the 6 o’clock news, and eventually the warm-up act for a former Prime Minister.

“Glasgow did feel like the ground was moving under your feet,” Sweeney says.  “It was exhilarating, terrifying.” But unlike Sweeney, most young Glaswegians were swept up in the independence movement, and the north east of the city where he lived was one of the strongest areas for Yes.

Brown’s speech was widely acclaimed for saving the union. But in Glasgow, voters were disappointed, and in the general election, Labour campaigners “were really told where to go”. Glasgow North East, a traditional Labour seat, fell to the Scottish National Party.

And yet, just two years and a snap election later, Sweeney is sitting in Westminster’s Portcullis House, as the constituency’s new Labour MP. How?

“From a very young age, I sensed an area that had fallen from a previous glory”

Sweeney, a fresh-faced 28, was ambitious for his constituency from a young age. “I was brought up in a Labour family – a working class family – in the north of Glasgow,” he tells me. “From a very young age, I sensed an area that had fallen from a previous glory.”

His mother, who worked in the Bank of Scotland, grew up in Milton, a housing scheme in northern Glasgow. “My mum used to talk about how it was a lovely area and lots of families there.” But by the time he was a child, drug abuse was on the increase, and “despair crept in”. Visiting his grandmother had to be done on foot: “You couldn’t drive a car in there because it would be vandalised.”

Sweeney’s father was a shipbuilder. In the 1990s, as shipyards fell silent, he was made redundant several times. “I remember getting up to see him off going to Barrow-in-Furness [in Cumbria],” Sweeney says. “I remember not getting much for Christmas because money was tight.” His father eventually became a taxi driver.

Sweeney, though, increasingly felt compelled to fight the decline. He studied politics and economics at Glasgow University and enrolled in the Territorial Army, before graduating and joining the defence giant BAE. In 2015, he moved to Scotland’s economic development agency, Scottish Enterprise.

At the same time, he joined Labour, inspired by the late John Smith, whom his parents called “the greatest leader my country never had”.  In 2009, he was doing his exams, when Sarah Brown, wife to then-prime minister Gordon Brown, called and asked him if he wanted to help Labour’s candidate Willie Bain in the Glasgow North East by-election.

Sweeney joined a team that included Kezia Dugdale, the future Scottish Labour leader. The Tory candidate was one Ruth Davidson. He recently reminisced with Dugdale about the by-election: “We were saying who would have thought all these changes would have happened in a relatively short period of time.

The Yes badges were the cool thing to have – now it was Jeremy

Bain won, but was swept from office by the SNP’s Anne McLaughlin in 2015 in such an upset that Sweeney started his 2017 campaign only hoping to reduce her 9,222 majority. With little funding, he relied on a team of young volunteers to design leaflets and door-knock.

Then something changed. Was it the Corbyn surge? “Absolutely – without a shadow of a doubt,” he replies.

Initially sceptical of Jeremy Corbyn, Sweeney believes his “vision of hope” revived Labour’s fortunes. In Dennistoun, a hipster neighbourhood known for its SNP and Green vote, all the posters in the windows were Labour ones. “It was sexy again,” he says. “The Yes badges were the cool thing to have on your school bag. Now it was Jeremy.”

One day, a group of young men began shouting at the canvassing team. “We thought, ‘Here we go,’ then it actually turned out they were shouting ‘C’mon the Jez, let’s get Jeremy in.’ It was people who you wouldn’t normally think would vote. I thought that was fantastic.”

All the same, Sweeney didn’t bother drafting a victory speech. He describes the count as “like you are flying through the air”.  When he knew he had won, his first thought was: “Oh, shit, I need to do an acceptance speech."

One of my best friends was killed in Afghanistan

Now safely landed in Westminster, Sweeney hopes to draw on his experience in industry and the military. The latter has taught him caution, not jingoism.

“One of my best friends was killed in Afghanistan,” he says. “It was a terrible time. It was just unbelievable. He went there because he wanted an experience. He wasn’t in the army as such – he was captain of the Scottish Lacrosse team.

“It does lead you to ask, ‘What are we doing? What is the meaning behind this? The intent is noble but there is a certain amount of ignorance about what needs to be done to achieve the political outcome.”

Afghanistan’s troubled Helmand Province, he points out, is the size of Wales: “We are trying to control it with 8,000 people.”

On Trident, an issue that traditionally divides Labour’s pacifists from its hawks, Sweeney’s view is also nuanced. “Trident actually saps services from other ship building industries,” he says. “There was a huge investment on the Clyde and money has to be diverted now. It is robbing Peter to pay Paul.”

Sweeney calls himself “restless” for change. He hates “energy vampires”, as he calls those that stand in the way. But while the spectre of economic neglect has clearly driven his career, he is also excited about ideas of nationalisation and regeneration.

“My family are steeped in the Clyde ship building,” he says. “Sitting on your dad’s shoulders watching these ships being launched – it is an extraordinary achievement.

“You can understand why it was so emotional when the ship building declined. It was part of their identity. These are the largest objects made by man. It is incredible to behold.”

Julia Rampen is the digital news editor of the New Statesman (previously editor of The Staggers, The New Statesman's online rolling politics blog). She has also been deputy editor at Mirror Money Online and has worked as a financial journalist for several trade magazines. 

0800 7318496