The benefit cap was announced by George Osborne at the Conservative Party Conference in October 2010. It means families will not be able to receive more than a total of £500 in benefits each week – regardless of local rental values or how many children are in the household. As the crucial votes on the cap take in the House of Lords on Monday, it’s important that the myths on which the cap policy is based are exposed.
Myth 1: The cap is just for out of work claimants of benefits
Ministers fostered the impression that this is about ensuring working families get a fair deal compared to those who don’t work. However, it was later quietly revealed in DWP’s impact assessment that any couple working up to 23 hours a week will still be affected by the cap when it is introduced. That means many families not in receipt of any out-of-work benefits – e.g. jobseekers’ allowance (JSA), income support (IS) and employment and support allowance (ESA) – and receiving just earnings, tax credits and in work benefits – e.g. housing benefit (HB) and council tax benefit (CTB) – will be hit by the cap too. (For the government’s confirmation that working tax credit will be used as indicative of being in work for the cap policy, see the impact assessment).
Myth 2: The claimants targeted have more money than the typical working family
Most of those hit by the cap will be in private rented households. It is the landlords that get the cash – often paid directly to them – meaning the families are really left struggling to pay for basic costs like utility bills, food, clothes, transport etc. The root problem of rising housing benefit costs – which in any case working families can get too – is the failure to maintain sufficient supplies of social housing, and the runaway inflation of private rents due to the bubble in the housing market. The cap does nothing about the root problem and the crisis in the supply of affordable housing is predicted to worsen by housing experts. (For more information on affordable housing crisis, see Shelter’s web page)
Myth 3: Families with a disabled member will not be affected
Disability living allowance (DLA) (then the personal independence payment (PIP)) will be used as a proxy to identify households that will be excluded from the cap on grounds of disability. However, many disabled people do not qualify for DLA – and even fewer will qualify for PIP. The government has admitted that they expect half of the households hit by the cap to have a disabled person (using the Disability Discrimination Act 2010 definition). Poor decision making for DLA claims, with high rates of successful appeals, will also mean many families going in and out of the cap unfairly, causing chaos, debt and homelessness. (For the government’s statement, see answer to PQ 68034).
Myth 4: There will be no behavioural changes and social impacts
The government’s impact assessment has assumed that there will be no behavioural changes, and states that there will be no social impacts. However, the measure introduces a couple penalty that will mean some families may be able to receive twice as much in benefit payments if they separate. A couple with at least two children who are subject to the £500 cap could claim up to £1,000 in benefits if the parents separate and divide the residency of their children between two homes. The incentive for families to break up will not just be financial, as it may also mean that they are able to remain living in the same area so that they can avoid their children changing schools and continue living in the same neighbourhood as networks of friends and relations. (For more information, see the impact assessment).
Myth 5: The cap will deliver fiscal savings
The cap is likely to reduce benefits spending by £240 million per annum, but it will lead to costs elsewhere in the system that may surpass those savings. Warnings from within government suggest there will be a net fiscal cost. The Private Secretary to Eric Pickles, the Secretary of State for Communities and Local Government, wrote to the Private Secretary to the Prime Minster last year and said, “we think it is likely that the policy as it stands will generate a net cost” as a consequence of the homelessness and migration that will be caused, and the costs this will place on local authority services. (You can read the full warning letter here.)
Myth 6: This is a new policy
This policy has in fact been tried and failed once before. The ‘wage stop’ in force during the 1970s was a similar policy which aimed to cap benefits at the level of average wages. It proved unfair and unworkable and was eventually abolished. (For more information on the wage stop, see this speech by Robin Cook who successfully campaigned for its abolition.)
On Monday the House of Lords votes on the cap, following amendments from the Bishops who have been taking the lead in opposing it. Unless the Liberal Democrats are prepared to back the amendments in both the Lords and the Commons, this awful assault on child welfare will progress will its full and dreadful force, and on the basis of its false prospectus.
‘The Independent View‘ is a slot on Lib Dem Voice which allows those from beyond the party to contribute to debates we believe are of interest to LDV’s readers. Please email if you are interested in contributing.
* Alison Garnham is Chief Executive of Child Poverty Action Group.
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30 Comments
Thank you for this analysis. I think more and more people are waking up to quite how awful the proposed changes to welfare policies are. But it may be too late to alter course.
Part of the problem flows from the impoverishment of political debate. It has focused upon what politicians are saying and has been largely either satisfied with or unwilling to challenge their assertions about the positive features of the change and protections, exclusions etc. As you illustrate, when you get beyond this smokescreen and understand the details of how the policy works and who it will affect its negative impact and potential incoherence becomes apparent.
Two comments 1. people cannot continue living off the state up to any level and never take responsibility for their own actions. 2.Because of the shortage of housing, as you say, in many areas landlords get most of the money anyway. Why should the taxpayer subsidise landlords? Do you think there should be no cap at all, irrespective of circumstances?
I read this and thought it interesting and I started to feel sympathetic to the line been given but then I checked out some of the points and feel the article is not all it claims to be.
For a so called ‘independent assessment’ the answers to the ‘myths’ are somewhat misleading… For example check out myth 3 and the answer to the PQ – the governmnet are indeed exempting 30,000 households (more than 50% of the 50,000 at risk of being impacted by the cap) from the cap as they have disabled people in the household… The inference given in the article implies something else and confuses the point…
Then I went back to myth 2 – so what if the claimants are in private rented property? The impact of rent subsidy is to push prices up for all – those in work and not on benefit as well as those out of work. Clearly there is a need for more affordable rented housing but the point is not relevant to the arguement about a cap to benefits of £500 per week.
As for Myth 1 – is this a real issue? How many part time workers will be capped? There is a problem of disincentive to work if my income is less than i could get just by claiming benefits – the poverty trap. We have to do muich to simplify the over complex and frankly dependency inducing culture which Gordon Brown built.
I struggle to agree with the case being put here that we should allow this all to continue – we simply should not and in case you haven’t noticed Labour won’t be opposing the changes.
Take the case of a family who live in the same area as I do, West Hampstead. A Somali family who came here as asylum seekers and who now have eight children have been given a £2m pound house to live in in Hilltop Road, one of the most expensive roads in my area and one in which I could only dream of living. They receive £8,000 in benefits every month. How can this be acceptable?
We need to “clean house” as far as benefit entitlements are concerned, with far greater stringency about who can receive them and need a complete reset as far as criteria are concerned. Once we have done that, we should think about increasing them, but not before.
I rather think anyone commenting on this article should be honest and declare their own circumstances. (We own our house, paid for long ago and the state benefits we get are our retirement pensions).
The proposal to include council tax benefit is ludicrous since the level depends on the level of your council tax. The proposal to include child benefit is a disgrace since it means that families with more children will be worse off than families with fewer children (the housing benefit part of the payment received will be effectively unchanged since it will have to go on the rent that will not change).
The huge growth in the private rented sector in providing homes for poor people has been a disaster. Bad for housing conditions, bad for rent levels, bad for families who shunt around housing, good for the commercial landlords who have hoovered up the profits. It’s all basically down to Tory policies over the years – deregulation of rents, removal of security of tenure and doling out housing benefit to fund so much of the profiteering.
The impression is being given that there are lots of families of “welfare scroungers” getting rich on what sounds like a lot of money – but all the rent money goes to the landlords not to the families. Those whose benefits will now be capped have a choice – move house (to where?) – and those who are in work may well lose their jobs as a result – will they be “intentionally homeless”? – or just spend less on the children. It is a disgrace.
There is a serious problem in the “bottom half” of the private rented sector. The problem should be tackled at source not by penalising the poorest families.
The rich Tories in the government may not have qualms about the way this debating is setting “their people” against the “undeserving poor” as they no doubt see them. The Liberal Democrats ought to know better. Nick Clegg said on the TV this morning that “it must always be better to work” ans so it is. But the many thousands of people who are being forced to spend much of their lives going through the motions in the hopeless task of applying for non-existent jobs could tell him a thing or two.
Tony Greaves
Tony Greaves
Myth 7
“The cap won’t break up families”
When it is the Landlords that are getting all this money and not the claimant, the actual money the claimant has to live on is pittance. It is hard enough for people on benefits to survive on what is left after they have paid their landlord and their council tax…
The simple solution is for Mom and Dad to live apart and take half the kids with them each, then neither party is claiming rent over the new limit…
This absurd limit punishes the unemployed for the sins of the greedy landlords. It punishes the vulnerable for the choices a previous government made to sell off all the council houses. It punishes those unable to defend themselves for the choice of this government not to build adequate social housing.
Simply adding up how much money passes through a claimants hands and comparing it to your salary is a ridiculous logic, NOBODY on benefits has thousands of pounds to live a lavish life style and jet away on holidays (that’s myth number
It is the Landlords who are making a fortune by charging extortionate rents so go after them. Or better still why not try building the social housing so that the poor claimants (and tax payers) don’t have to line the pockets of the greedy landlords to start with…
Typical Tory mentality to kick the genuinely poor…. But I expect better from Lib Dems and I expect better from Nick Clegg…
“Do you think there should be no cap at all, irrespective of circumstances?”
Surely enough has been written to make it clear that a cap on the total benefit paid to a household, irrespective of circumstances, is simply irrational.
As to whether there should be a cap on housing benefit, correct me if I’m wrong, but according to direct.gov.uk the council already has the power to assess whether “the amount of rent is reasonable for your particular home” and
whether “your home is a reasonable size for you and your family.” Why isn’t that sufficient?
Barry George writes: “The simple solution is for Mom and Dad to live apart and take half the kids with them each, then neither party is claiming rent over the new limit…”
I agree. It is extraordinary that a government which preaches about family life and the benefits of marriage is introducing a measure that actually incentivises families to break up!
But paralysed by the confines of the coalition and unwilling to call the Tories bluff the party is stumbling around and justifying all sorts of policy standpoints that would have been considered extraordinary by the average Lib Dem member before the General Election.
How much more of this before the troops rebel in force?
Tim Leunig writes an interesting piece on this in the Guardian; http://www.guardian.co.uk/commentisfree/2012/jan/22/housing-benefit-cap-62p-a-day?fb=native&CMP=FBCNETTXT9038
The trouble with blaming ‘greedy’ landlords is that in large part rents are pushed up by the availability of housing benefits – it’s a chicken and egg situation.
A few simple changes by the last Government – such as stopping the absurd situation whereby a (very few) people live in £100k a year houses would have enormously helped.
“The simple solution is for Mom and Dad to live apart and take half the kids with them each, then neither party is claiming rent over the new limit…”
Sp you accept the standard right-wing criticism of the benefits system – that it gives people an incentive to screw their lives up, and people respond to incentives?
Sp you accept the standard right-wing criticism of the benefits system – that it gives people an incentive to screw their lives up, and people respond to incentives?
I tend to take the left of centre view that building adequate social housing will boost the economy in this difficult time.. That once completed the houses could be filled with people who previously rented privately , saving millions off the welfare bill. The greedy landlords would be priced out of the market or forced to reduce their rents and that many unemployed people would find paid employment building these said houses. As market rents would fall the unemployed would be able to support their famils on a lower wage than they can currently..
It’s a win win win win situation and no chicken or eggs are required
Of course you could have thousands of new affordable homes or you could save 20 mins on the train journey times from London to Birmingham…
The cost is about the same but giving the relatively wealthy an extra 20 mins in bed each morning is clearly a higher priority to this government than affordable housing for the poor.
If the poor can’t find affordable housing then simply punish them by capping their ability to pay for the home they already can’t afford..
@Simon McGrath can you point to any research that backs up your claim that HB is a driver of rent inflation? There are other factors that are pushing up this inflation – people can’t afford to buy so they rent – those who can afford to buy will buy to rent which keeps up house prices – population growth that increases demand and only a small house building program that means supply does not keep up.
One way you can reduce house prices is to make a lot of people homeless. Surely that cannot be an acceptable solution?
Great article (as is Tim Leunig’s).
peebee – for me, the point of rebellion is this bizarrely-thought-out cap plus the disability benefits provisions of the WRB and legal aid reform. I’ve been a pretty stalwart coalition supporter this far, but this stuff makes zero sense.
Affordable rental stock, we used to have it, Thatcher flogged it (well started the ball rolling anyway). The right to buy votes should never have happened.
Sadly, LibDems appear to have enthusiastically embraced the Tory principle of “Ensuring those on benefits are worse off than those working”. The LibDem party I supported believed in “Ensuring those working were better off than those on benefits”….
Those ‘at the top’, many of whom caused the financial collapse, have awarded themselves up to 50% increases over the last year; we wring our hands but take no action. However, on the disabled and unemployed, we rush through legislation that, had there been a Tory administration, we would have opposed.
Please, please don’t tell me we have ‘managed to get 70% of our policies’ or ‘it’s the price of the coalition’…On the major, fundamental differences our representatives have ‘caved in’ without a whimper.
A lot of people are very eager to make a big thing about how much of the benefits bill goes to private landlords instead of tenants.
If they could perhaps explain why private landlords of tenants on benefits should be protected from having their rent capped, then we might make some progress. Please avoid using the same sentence to argue that these landlords are running slums in a poor state of repair and also that they will replace all their benefits tenants with employed ones who really want to live there.
Please also attempt to restrain the urge to make up a story about how any government would force people to become homeless. Even the Tories know that would make them unelectable. The reality is going to look more like “if you can’t find an affordable place to live, then you stay where you are until council housing is available, at which point you have to move there even if it’s small and a long walk away”.
I think we all know that the root cause of high rents is that we have too many people and not enough housing in the places where it’s needed. No amount of flapping about benefits is going to address this. Now, if we could perhaps get some houses built without you all coming back to complain about how the construction industry is making too much money and needs to be prohibited from building too many houses, then we might be able to do something about it.
Please explain the difference between these two statements, by identifying policies which accomplish one without the other.
Rubbish. Action is being attempted. It’s just not relevant to this article.
“If they could perhaps explain why private landlords of tenants on benefits should be protected from having their rent capped, then we might make some progress.”
The cap we’re discussing is a cap on total benefit per household, not on housing benefit per se. Perhaps we might make some progress if people like you could explain why – if you want a cap on housing benefit – you are supporting a cap on total benefit instead.
The unfair consequences of that are obvious. In a nutshell, the more expensive the accommodation the family lives in – for whatever reason – the lower the cap on other benefits in total. Do you consider that fair? If not, why are you supporting it? Do you think there is the slightest chance the Lib Dems would be supporting it if they were in opposition?
And regarding caps on housing benefit, maybe you could answer my point at 7:54 pm yesterday. Am I wrong in interpreting that advice to mean that councils already have the power to assess whether rents are fair, and limit housing benefit accordingly? If I am, I should have expected someone here to be able to set me straight.
Myth 6 – reading the 1974 Robin Cook speech you link to, it seems that the previous policy was to cap benefits at the level the person would earn if they were able to find a job – most of the time significantly less than 500 pounds per week. His main objections to it are that pre-minimum wage, that could mean the person getting less money than that calculated as needed to live on, and that it was discriminatory as it paid more to educated (and at the time white) claimants than to others. None of his objections seem to apply to the present proposals.
By the way I agree that a per adult cap would make more sense than a per household cap.
The Benefits Cap policy was announced by IDC and supported by Cameron and Osborne, not in the interests of social justice, or to provide ‘incentives to work’ but to throw live red meat before the ugly, nasty, greedy and selfish gathered at the Tory Conference (i.e. the minority who weren’t lobbyists or paid apparatchicks).
The fact the policy is so popular shows how susceptible the British public are to the sort of lying propaganda that made the German public turn on their Jewish neighbours in the 1930s (also following a banking crash, although far worse than ours).
The worst thing about the ‘cap’ is it does not compare like with like. The average household income of £26,000 quoted by Government does not include Child Benefit, Housing or Council Tax Benefits or Working Tax Credits – all of which most working families with children would receive, and would take the average household income to £31,000. All of these are, however, included in the £500 pw of the cap.
Even Eric Pickles (such a softy and a ‘wet’ that man…) says applying the cap would cost even more than not applying it as families in high-rent areas are forced to become homeless. The feckless and workshy (they do exist – I’ve met them and their families) would simply divide the household by seeking to formally separate the couple (with half the children living with each) but come under the £500 limit. Only the struggling families who want to stay together would suffer.
Much of this would have been avoided if their had been any significants Social Housing built in the last 25 years (including the 13 wasted years of New Labour).
Now, of course, land prices in London and much of southern England means the majority of rent subsidies are paying, not the direct landlord or the construction industry, but the property companies who turned derelict factories or victorian villas with large gardens into blocks of flats. Another argument for the Party to push for Land Value Taxation as a way of redistributing the wealth created by society (via demand and planning permissions) back to society at large.
And here the ‘cap’ might have a point. Without any realistic means of taxing the value of land, aren’t current benefits merely subsidising the low pay of the bankers’ cleaning ladies, while the bankers friends pocket the housing benefit payments?
First thing:
this discussion so far seems to be conflating the questions of whether any cap on benefits is acceptable with whether the mooted level of such a cap would have disasterous ramifications. There’s a similar thread in this as was heard before the minimum wage was introduced.
The principle of a cap has many positive arguments, but the practice of what level it is set at will determine if the outcome is positive.
Second thing:
Housing Benefit is a different sort of benefit to other forms of support as it plays into an acknowledged economic market for housing. That the housing market is a mess and needs restructuring requires parallel changes to the way HB is calculated based upon related demographic impacts.
It would fair to say that the change should be designed to pick up on overpaying for small property in up-market locations, not comparably-priced larger properties for families who need housing elsewhere. So this is where a per-adult cap does not work – housing benefit is paid to the household, whereas other forms of welfare are paid to the individual.
A dual cap which separates HB and other benefits resolves much of the tension, as the regional variation in HB sums could then be removed from a flat universal cap which is blind to circumstance.
Would it be possible to link a cap for welfare excluding-HB to the personal tax allowance limit? Seems about the right level given the figures noted in the discussion.
MYTH 1: “many families not in receipt of any out-of-work benefits …will be hit by the cap too.”
Alison, can you explain why people who are working should not be affected by a benefits cap, when those who are out of work are capped? Seems that CPAG have their priorities skewed.
MYTH 2: “Most of those hit by the cap will be in private rented households…” as will most of those “typical working families” about whom you don’t seem to care. You still need to explain why “typical working families” in private rented accomodation and earning below average incomes should pay taxes to benefit non-working families in private rented accomodation who have incomes above average.
“The root problem of rising housing benefit costs – which in any case working families can get too – is the failure to maintain sufficient supplies of social housing, and the runaway inflation of private rents due to the bubble in the housing market.”
Uneconomic nonsense as usual. The correct statement is that “The root problem of rising housing benefit costs is the failure to maintain sufficient supplies of all housing”. Since the introduction of the Town and Country Planning system in 1947 housebuilding has failed to keep pace with housing demand, leading to a rise in prices. This has nothing to do with “the bubble in the housing market”, which was a temporary phenomenon – if the bubble was to blame, then there would have been a correction in the last 5 years, but rents have not fallen; in fact they have risen.
MYTH 4: “The incentive for families to break up…” remains unproven, but there is a serious potential pitfall here for Lib Dems. This same argument was used by the Tories in proposing their married couples tax allowance. How can the Lib Dems deny the logic of dynamic effects in one area of policy and then embrace them in another? I wonder where CPAG stood on the married couples tax allowance.
Aha! A real problem that needs addressing. The “family unit household” concept does seem a bit flawed here.
I think you’re just observing a form of “capitalism tends to favour the rich”.
How about a cap on rents instead? A cap on the number of properties buy-to-let parasites can own? A minimum number of new social houses to be built every year? Anything to make the cost of living easier? Of course we can’t have that though, those kinds of wealth creators vote Tory and they’d lose out!
I think £26,000 a year on benefits is more than enough to live on after all these people are getting paid at tax payers expense for basically producing children that they cant afford and basically getting paid for doing nothing. I am a full time working Mother with a 2 year old child and including my annual salary, and child tax credits and child benefits, I still don”t achieve £26,000 per year and even if I went on to have 4 or 5 more kids, I still would be working where I am and I would NOT expect the government to be paying me ludicrous amounts of money for doing nothing. My motto is, is if I produce children, I (not the government) provide for them.
“My motto is, is if I produce children, I (not the government) provide for them.”
You must find it incredibly frustrating to be forced to pay National Insurance contributions, as that’s your motto.
Personally I feel that the flipside of all those years of NI Contributions is that if I needed help at some stage the state could reciprocate by providing it.