Benefits Cap

Recent news in the Telegraph and the Sun have reported that the government’s benefit cap – their plan to provide benefits up to but not above £26 000 a year – is already working.

The Telegraph reports that the cap is already ‘pushing thousands into work.’ According to Iain Duncan Smith (as quoted in The Telegraph) “These figures show the benefit cap is already a success and is actively encouraging people back to work.  We need a welfare state that acts as a safety net and encourages people back to work.”   Apparently this will also be an embarrassment to Labour, which had opposed the cap.

The Sun reported that “The benefits cap is driving hundreds of families off welfare and back to work — eight months before it comes into force…The rush back to work began after letters were sent in May to families affected by the cap…  In one case, a single mum with six kids got a job, and is now £100 a week better off.”

The BBC report s that, “Asked if the cap was really a distraction from the changes to disability benefits, ESA and housing benefits, from which people were suffering, [Iain Duncan Smith] said: ‘But they’re not suffering. The point about this is that what makes you suffer is the state that plunges you into dependency.’”   The Lib Dem deputy leader, Mr Hughes, said that “We cannot allow families to be unjustifiably and retrospectively penalised and left with not enough money to stay in their homes and be literally forced onto the street. That is unacceptable.”

So what is the cap about?  And what is going on?

The government originally estimated that 50 000 families would be affected by the cap.  This was then revised up to 67 000, and later revised down to 56 000. 40% of these families have three or four children and another 40% have five or more.   The high benefits come from child benefit, child tax credit, and the housing benefit received for an adequate house.  They estimated that 40% would lose less than £50/week, 45% will lose £50-150 and 20% will lose more than £150 a week.

The government’s figures show that only 39% of the households to be affected by the cap are on Jobseeker’s Allowance.  There is no discussion – indeed there may be no data available – of whether these parents are ‘work-shy’ or simply struggling to find work.  Many may have had work that enabled them to support their family in the past, but unforeseen events led to a loss of work.  We don’t know.  But one thing we do know is that it is unfair, even bigoted, to assume that everyone receiving large amounts of government support is a ‘scrounger’ to the extent that he or she needs to be forced through poverty to get a job, any job.

22% are on Employment and Support Allowance, which means they are recognised as too ill to work (given how tough this test is, there is no need to worry about high proportions of fakers).  38% are on Income Support.  This means that they are not expected to look for work because of such things as caring for children under 12 or caring for a disabled person for at least 35 hours a week.    However, because they cannot find work – even are not expected to find work – they will be subject to the cap.  Approximately half of the households subjected to the cap contain disabled people, although these are people considered not disabled enough to receive DLA (households where one member receives DLA are exempt from the cap).

When the benefits cap proposal was going through the House of Lords, the Lords recommended changes to it.  It was suggested that child benefit should be excluded from the cap.  After all, a family earning more than the £26 000 cap still gets child benefit (up until the point where one parent is earning at least £60 000 a year).   This was rejected on the basis that it would remove the point of the cap, as it is these benefits, coupled with the cost of adequate housing, that form a very large part of the benefits received over £26 000.  This means that children will suffer, simply because they were born into a (relatively) large family, and their parents are now struggling to find work.

Labour suggested that the cap should not be used if a family is at risk of becoming homeless.  This is not just a kind idea for helping people likely to be forced out of their homes because they no longer receive enough benefit to cover the rent.  It may also be the less expensive option, if large numbers of people have to be rehoused.  It is important to bear in mind that housing benefit is already quite low.  It used to be the average cost of a house in your area, given your circumstances, but now is set at the level of the 30th percentile (that is, 70% of similar houses are more expensive).  This already makes it much more difficult to find affordable accommodation, because the government supplies neither the money nor the housing at adequate rates.

In their initial document, the government reports that: “The cap will still make some parts of the country unaffordable on Housing Benefit alone for larger households receiving benefit and it is difficult to accurately predict what will happen to the affected households, as it depends on households’ behavioural responses and on the availability of accommodation. The impact on those affected will be that they will need to make a choice between a number of options including starting work, reducing their non-rent expenditure, making up any shortfall in Housing Benefit using a proportion of their other income or moving to cheaper accommodation or area. The Government is looking at ways of easing the transition for families and providing assistance in hard cases. “

The government’s plans refer only to families where no-one works.  As soon as one person works, the cap no longer applies.  This means that very few families – and these are anomalous – can get more from out-of-work benefits than they could from working and claiming in-work benefits.

It is also questionable whether the idea of a cap is appropriate.  The government clearly thinks that the amount of benefits a household can be entitled to is too high.  If this is so, then some of the component benefits must be too generous.  Given that the majority of the recipients of £26 000+ receive this through child and housing benefits, these are the benefits that need to be targeted.  The government is soon to be creating a new system of benefits.  It would make more sense for them to set up a system such that it is not possible to be entitled to large amounts of money, rather than to create entitlement and then refuse to pay it.

This would require the government to consider carefully, and explain carefully, which parts of the current system it thinks are inappropriate.  If the government has a problem with providing support to large families who are struggling to find work, it needs to say so.  And it needs to agree what is a ‘large’ family and what is not.  How many children is it okay to have? 2? 4?  Does the state have a right to refuse to help you and your children just because, at a time when you were financially independent, you chose to have more than two children?

At this point it is worth bearing in mind that many large families do work (and receive in-work benefits for their children).  It is not having a large family that is the problem; the problem is being out of work.  And child benefit does not cover the cost of raising a child.  Whilst large, workless families may receive large amounts of benefit, this does not usually fund a lavish lifestyle.  It simply funds what the government considers the right sum to give per child.

The Telegraph and The Sun report that 1700 families have come off benefits and started work since being warned in May of this year that, come April 2013, their benefits will be capped at £26 000.  According to Iain Duncan Smith, this shows that the planned cap is already working – before it has even come into effect.

Or maybe not.

There is no information available that would give any insight to this figure.  We don’t know at what rate people left the £26 000+ group before the letters were sent out, so can’t tell if the letters have increased the rate of such families finding work.  So we don’t know how many of the 1700 would have moved into work anyway.

The figure of 1700 is just 3% of the households affected , and it occurred over two months.  In comparison, around 18.9% of people on Jobseeker’s Allowance move off it each month.  Whilst there is no data on the typical rate at which the £26 000+ group move off benefits, the 3% figure does not compare well.  Even with the assumption that the people who moved into work all came from the JSA group, that is only 7.8% of those on Jobseekers.

We also don’t know what type of work these people went into.  Was it permanent or temporary?  Was it part-time or full-time?  Underemployment – people who want permanent full-time jobs but can’t get them – is high.

So what can we say about the Benefit Cap?  It is clear that newspapers treat it as a sensational headline, and it is popular politically.  As a soundbite, it sounds great – don’t let people who are out-of-work get more money that people in work.  But this completely misses the detail.  It misses the detail on who is too ill to work, who has caring responsibilities, and why those who could work haven’t got jobs.  It paints a picture of feckless families, not bothering to work, not bothering to use contraception.  But there is no data on whether this is the case.  No information on how many families have worked in the past but have been struck down by chronic illness or the lack of jobs.  And it certainly fails to mention that a working family in the same location and the same size family would also receive a lot of benefits from the government.

If the government wants to reduce payments to large families, let it say so clearly.  But let’s not have any post-hoc restrictions of what people are entitled to, for no better reason than it sounds good when there is no data to critique it with.



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