The Benefit Cap 2.0
Posted on 18th November 2016
On 7 November 2016 a new benefit cap began rolling out across the country, and will affect all areas by 23 January 2017. The new benefit cap is an extension of the cap introduced in 2013. In a nutshell, it imposes an absolute ceiling on the amount of “income” from benefits that a household can receive. It applies to most of the main benefits, and significantly it targets child-related benefits and housing benefit.
The effects of the previous cap were far-reaching and have been much-publicised. First, it has driven a lot of people into poverty and desperation: the cap is one of the factors driving ever increasing numbers of people to dependence on food banks. Because it is an absolute cap, the effects are far harsher on some groups than on others, and there is a disproportionate effect on larger families on the one hand and lone parents on the other. Second, it has been a catalyst for the current trend in “social cleansing of the poor”, because of its effect in forcing benefit claimants to move away from areas where rents are universally too high.
Before 2013, housing benefit was limited to the cheapest housing in any given area, but it would be available for at least some properties in each given area. The benefit cap changed this, effectively barring benefit claimants from certain areas altogether. The worst effects of this mainly applied to London households – and especially inner London households – but the knock-on effects rippled out across the country.
The new cap
The new benefit cap will now extend the woe well beyond London. The previous cap of £26,000 per year (or £500 per week) applied as a flat rate in and out of London (with a reduced cap of £350 per week for single people without dependent children). As well as lowering the overall rate, the new cap also introduces a further reduction for those living outside the capital. The new figures are:
|Single parent / couple||Single person without dependent children|
|In London||£442.31 per week|
(£1,916.67 per month)
|£296.35 per week|
(£1,284.17 per month)
|Outside London||£384.62 per week|
(£1,666.67 per month)
|£257.69 per week|
(£1,116.67 per month)
Impact of the new cap
Meanwhile, property prices and rents have only increased since 2013, in all parts of the country, and the inevitable consequence is going to be that many more households will struggle to cope, and many more will be unable to. The pattern is clear from the last time round: Unable to cover the shortfall, affected households will fall into debt, and into rent arrears in particular. This will lead in time to a wave of possession orders and warrants for eviction (already up 53% from 2010-2015), but not before significant arrears have built up already, since tenants who surrender their tenancies before the full passage of the court process risk being found “intentionally homeless”. The arrears debts will then follow these households for years to come, or have to be written off by their landlords (most likely in the case of already cash-strapped housing associations).
These evictions will then lead in turn to further increases in the ever-rising rate of homeless applications. Where the council accepts a duty to rehouse, households will as a matter of course be moved ever further from their family, friends, support and other vital connections. Although there is a duty on councils to accommodate applicants in their own district “as far as reasonably practicable”, they will argue that it cannot be “reasonably practicable” if the rents in their districts are too high. The effect will be the same for those who must find their own accommodation without assistance from their local council.
Landlords will be yet more reluctant to rent to those who require housing benefit, since increasing numbers of claimants will now be entitled to even less. Last time round, this was primarily a matter of residents of the more central London boroughs being dispersed to the outskirts of London or beyond; this time round it is likely that the trend will be national, and households will routinely be moved distances which will preclude their maintaining any ties with their previous areas. Many of those effected this time will already have been through the same ordeal previously.
The express intention behind the government’s introducing the cap is to incentivise people to find work, grounded on “a clear principle that work should always pay more than welfare”. While it is surely right to incentivise work, the government is wrong to attempt it in this way. It is a misconception that any significant number of people take advantage of the benefits system and shun work because they are comfortable as they are. If there is room for manoeuver, it does not relate to an overly generous benefits system lavishing excess disposable income on benefit claimants. There is an endemic problem which relates to low and insecure pay in employment, and incentivizing work should surely concentrate on remedying this rather than meting out arbitrary punishments to benefit claimants. The reality is that many of those who do move into work will move into insecure and low paid jobs, and still be heavily dependent on tax credit payments. The majority of those affected will be unable to move into work in any event, and the benefit cap is not an incentive but a condemnation. The cap does not take into account the practicalities of finding employment for single parents of very young children, or for jobseekers generally during periods of stagnation in the jobs market.
More fundamentally, there is a piece of subterfuge at the heart of this justification for the benefit cap. If penalizing benefit claimants in order to incentivize work was the real justification, then the cap would have been tied to disposable income, but this is not at all how it works. The households most affected by the benefits cap are not those which have the most disposable income, but those which live in the areas where levels of rent are out of control.
The main effects of the benefit – widespread displacement of claimants away from where they have been living – is clearly not aimed at getting people into work. The approach of the benefit cap is to target overall spending on benefits, and the real motivation for it is simply to cut this benefits bill. However, the reason the overall benefits bill is high (and ever increasing) is not because benefit claimants are spoilt; rather, it is because of the chronic trend in market rents’ increasing significantly above inflation. In order to reduce the benefits bill, what is required is a strategy either to get market rents under control, or to increase the supply of genuinely affordable housing.
Tackling the problem through the benefits caps penalizes the wrong people, and is not value for money in view of the massive social problems it creates.