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7 November 2016

A cut to the benefits cap is more politically perilous than it looks

It doesn't even seem to work.

By Julia Rampen

Back in 2013, when the Coalition government introduced a pilot of the benefits cap, the then-Prime Minister David Cameron hailed it as a “big day for welfare reform”. The idea, his ministers explained, was a policy to keep benefits tied to typical wages and encourage claimants into work. An out-of-work family could receive a maximum of £500 a week, or £26,000 a year. Claimants without children received less. It was just another part of a governing style which portrayed benefits claimants as the undeserving poor. 

The cap has long been a symbol of a draconian approach to social security. But for most, it has simply been that. The 20,000 families that hit the cap tend to fit a certain profile, much maligned in certain sections of the press. They are families with lots of children, concentrated in cities with high rents, like London, Edinburgh, Manchester and Leeds. Just 3 per cent of affected households were based in the North East and Wales, two areas of the UK with significant deprivation. 

Now, though, the government is reducing the cap to £20,000, or £23,000 in Greater London, and a different set of families will feel the pain. 

According to the Institute for Fiscal Studies, an out-of-work couple with two young children renting privately could be affected by the new cap in more than half of local areas across England. The number of households affected in the North East, the IFS predicts, will rise from 600 to 4,000. In the East Midlands, the number will rise from 800 to 5,000. “It is possible for the benefit cap to quickly affect many more out of-work families in an area”, the report found. Across the UK as a whole, the number affected is expected to quadruple. With poorer communities already under pressure because of cuts to local services, and a freeze in working-age benefits already, the tighter cap could be the spark that starts a fire.

And it isn’t even effective. The government argues that the benefits cap, which only applies to those who are working less than 16 hours a week, encourages claimants to seek work. But the numbers do not add up. The IFS found that under the previous cap, just 5 per cent of those affected moved into work. An even smaller fraction moved house. More turned to their already-strained local authority for help – the IFS estimates nearly 40 per cent of the savings from the cap were spent anyway through emergency housing support. 

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This is not so surprising. One reason affected claimants tend to be concentrated in cities is because they need more housing benefit to cover high rents. Such a trend is not going away. The number of households living in private rented homes more than doubled between 2001 and 2015, according to a PwC report. The average rent in September was £910 a month, according to HomeLet – more than half of the annual benefit cap. Other demands on families, like childcare, can be expensive. Combine a dysfunctional housing market with rising prices, and the benefits cap seems less like a work incentive and more like a punishment for being poor. 

As Cameron’s successor, Theresa May, has recognised, the Brexit vote was in part the voice of the “just managings” – families who work hard but can only just about get by. But what if the “just managings” are made redundant, and can’t manage anymore? Under the new benefits cap, they will feel the pain. And suddenly, a policy designed to play to the masses looks politically perilous.