This week the £26,000 absolute cap on benefits is back in the news. To many people £26,000 sounds like a lot of money. It is, after all, the average wage. The idea that anyone out of work should get more than the average family appears offensive. That is why this policy plays so well with the public – and make no mistake, it does.
But the claim, repeated by the Department for Work and Pensions, that this policy is needed so that people on benefits do not get more than those on average earnings is a lie. People on average earnings are also eligible for benefits, particularly if they have a family.
If you earn £26,000 you pay about £5000 in tax and national insurance. But – if you have a family – you are eligible for in-work benefits. If you have a non-working partner, 4 children, and live in central London, then the online benefit checker says that you will get around £8,000 in tax credits, £16,000 in housing benefit and £3,000 in child benefit. Your benefits total £27,250, and your total income is £48,000 net.
If that person loses their job, then under the current system their income will fall by £15,000 a year, to £32,800 a year – surely a big enough fall to create an incentive to look for a job. The government wants this family’s income to fall further, to £26,000.
You can argue, if you wish, that £32,800 is too generous, although as Sandi Toksvig might remark, that is to put the “n” into “cuts”. But what you can’t argue is that we need a £26,000 cap to prevent the unemployed family being as well off as the family on average earnings because it simply isn’t true. The unemployed family is already 33% worse off than the employed family, and has less than half the disposable income once you subtract housing costs.
The only grounds to support the £26,000 cap is believing that unemployed people with large families should be poorer than they currently are. If you believe that, support it. If you don’t, oppose it.
Dr Tim Leunig is Reader in Economic History at the London School of Economics and Chief Economist at Centreforum. He would like to thank Mark Lloyd for excellent research assistance.
Follow @LibDemVoice on Twitter
Like us on Facebook
Subscribe to our feed
Sign-up for our daily email digest
Budget: Mortgage borrowers face biggest rise in interest payments since financial crisis
Get Out Get Active!
New Lib Dem disciplinary code "viewed as a way to settle personal scores"
"Spend our Money properly" Lib Dems demand as Liverpool Council starts budget consultations
Groetjes uit Vlaanderen, by Mohamed Ouaamari
New solar farm bid for Ledwyche on the outskirts of Ludlow
Conservative MP found to have broken rules 36 times by official watchdog
Another them and us decision by MPs
Peter Davies
Michael BG
Roland
Brad Barrows
77 Comments
Your analysis of the people working being substantially better off is dependent on 1. them having 4 children, 2. them living in Central London, 3. them not owning their own house. I know that you point all of these things out in your brief piece but to try and say there currently isn’t a problem because the existing system works in an extreme niche case isn’t really a justifiable argument.
I’m also dubious about the figures you supplied. I just went through the government’s benefit checker for a couple, one non-working, two children at school and was told I would be entitled to just under £2k per year in child tax credits and £0 per year in working tax credits. This seems a lot more likely to me and would put the person getting £26k per year in benefits £5k per year better off than the family where 1 person is working a 40 hour week.
I’m sorry this article is completely wrong: To say “The only grounds to support the £26,000 cap is believing that unemployed people with large families should be poorer than they currently are.” is spurious. I support the cap because I believe tax payers money can be better spent in Health, education etc. The simple answer for an unemployed family is to move out of Central London into a place where rent won’t cost them so much.
I’ve got to admit, some of this is where the economic liberal in me comes out. If a four-child, single-earner family can’t afford to live in Central London without support from the state, let them live elsewhere. I used to commute to central London from Oxford daily – it wasn’t fun, but it was just about tolerable.
If there weren’t this state subsidy then fewer people would be able to afford to live in central London. There’d be less demand, and hence landlords would need to cut rent. Companies might look at moving their jobs outside of central London – surely something we should be supporting as part of our desire to balance the economy geographically.
Other benefits are subject to debate, but I don’t believe we should be subsidising people to live in expensive areas, which helps keep them expensive.
Excellent piece by Dr Leunig who is one of the best lib-dem thinkers out there at the moment. This clearly and concisely dispels some convenient myths propagated by the Coalition. As for Tommy (above), who is ‘not sure about the figures’, go and put them in the benefit tracker yourself. They are accurate.
It is frankly inhumane to add to the financial burden of large, poorly-off families, trying to make ends meet while raising children. And what effects will it have on those children’s upbringing? and what will be the social cost of those effects a few years down the line?
This cap is immoral and short-sighted, and its justifications are mendacious.
Having to move to a completely different area at a time when there is already significant negative life events is very damaging for people’s mental health. This creates cost for the NHS and makes it harder and slower for them to get back into work. Apart from the humanitarian issues, extra expense to the state and loss of tax revenue may mean there is no overall saving. I would remind readers that our Party’s constitution states that ‘ no one shall be enslaved by poverty’. I therefore consider it contrary to that constitution for MPs of our Party to vote in favour of measures which increase poverty.
Oh dear Tim. On your figures, they earn £26k, pay £5k in taxes and get £27,250 in benefits. No wonder there is a deficit.
As for an incentive to look for a job ? Is this true ? Having lost a job, you may be elgible for all sorts of other benefits: free prescriptions, free dental care, free glasses, reduced admission to council leisure facilities,
there is no travel to work cost, perhaps less child care costs, no need for work clothes, More time to shop around for bargains, a bit of ‘black market” trading.
The £15k loss of income is probably only £10k after tax, so perhaps not a great incentive?
The other point i would make is that they don’t receive most of the benefit, what in fact happens is the state pays a private landlord £16k a year. The reality is that if housing costs are £16k and a hosuehold earns just £26k, then it is not possible for a family to live without state subsidy. Which is why Coucnils providing homes for low cost rent was such a good idea and so much more cost effective for the tax payer.
The numbers are correct. I have checked them and checked them again. They are also net of tax.
Clearly if you have fewer kids you get less in benefits if you are working. But in that case you won’t get £26k in benefits if you are out of work in any case! The £26k cap only applies if you have a large family, and that is why it makes sense to discuss a large family here, and only to discuss a large family here. Equally if you live in a cheap housing area, or have social housing, the £26k cap will not apply to you. Hence I do not discuss these groups. The £26k policy hits a niche group, and that is the niche group I consider.
It is easy to say that “people should move” and in the case of single people and couples I agree. I support limiting housing benefit in those cases. But moving a family is different, because moving school can be hugely disruptive and lead to intergeneration poverty of the sort that all liberals despise. It is also not always easy to get school places if you move, particularly if you have more than 1 child of a similar age. For that reason I am much more willing to spend money on benefits to keep kids in their current school, than I am to support high housing benefit expenditures for people who could live further away.
As Mouse says, if housing were cheaper, the benefits bill would be lower. I have written widely on this elsewhere, but for the moment we have the housing stock we have, and we need to act accordingly.
Thanks for commenting!
“If you earn £26,000…have a non-working partner, 4 children, and live in central London…”
Which is representative of exactly how many people, please?
so… if someone has expensive medical / care needs… 😛 😛
surely that’s the real reason to offer no support to these stupid one-size-fits-all rules.
As someone who moved several times when growing up can I just say that the moving house=intergenerational poverty is rubbish.
Overall the argument is not really about amounts but what the welfare state is for. I grew up being told by my parents that it was a short-term safety net. He is retired now and sees his pension taxed and the bills paid for people who will never, ever, work as hard as he did. Or put as much effort into raising their kids as he and my mum did. Understandably he is a bit vexed by this. He cant understand why people have kids they cant afford. He didnt.
@Douglas McLellan, so what about the children? Because that is the fundamental issue here, it is not about the state supporting people not prepared to work, it is about the state not abandoning children to abject poverty, and all the later social problems that that entails.
On the one hand we have a government that on one hand professes to think of the children when trying to justify the censorship of various media, and on the other cares little for children reduced to living in poverty. Priorities are hopelessly, selfishly, wrong.
@g The direct and unavoidable consequence of thinking about the children is a run-away welfare bill. We have to consider both short term and long term solutions to this problem. And long term we have to create a mindset that people only have kids when they can afford them.
Short term solutions are a problem. But we do need to state what welfare is for. Is it a safety net for prevent homelessness and starvation or is it a replacement of a working income. Look at the language in the post – a family being 33% worse for being unemployed is deemed a bad thing. The state picking up 2/3rds of a families bill for not working is not a bad thing by any stretch.
@Douglas McLellan
And long term we have to create a mindset that people only have kids when they can afford them.
That would require a massive rethinking of reproductive rights which would put the UK at odds with various binding international treaties.
Parents have a basic human right to determine freely and responsibly the number and the spacing of their children.
Could you explain how you see it working without breaching the above UN phrasing?
Not having children when you cannot afford them is the ‘responsibly’ part of “Parents have a basic human right to determine freely and responsibly the number and the spacing of their children.”
@g
Steady. I was nowhere near advocating any changes to reproductive rights. You are one the fast track to Goodwins law there my friend. Try to do better than that.
If people want to to have lots of kids then there should be nothing to stop them from doing so.
However, we have to ask why people want to have kids when they cant afford to look after them. My parents and many of their generation made choices based on what they could afford as opposed to what the state would give them. What was wrong with that approach?
@Douglas McLellan
So you want people only to have children when they can afford them, but don’t support the state encouraging this situation?
In what way does this opinion differ from the status quo? I can’t see that it does, therefore your point is mere wishful thinking and doesn’t address the fundamental issue of the state’s obligation to children whose parents cannot afford to provide them with an acceptable minimum standard of upbringing because of a lack of money.
What is truly scary is that Tim doesn’t see that the entire premise of this piece is wrong. Firstly someone with an income of £26k shouldnt be paying 20% of it in tax. Secondly we should not be paying someone £16k a year to live in Central London. Are we really saying to poor taxpayers in the rest of the UK that they should be paying for this (hypothetical) family to live in the most desirable and expensive parts not only of the UK , but of the world.
@g
It is possible for a government to change peoples mind about how they live and what they aspire to without legislating against the activities it is trying to discourage. This takes time ( a generation or two) and I’ve seen no government attempt this with regard to unaffordable parenthood.
The number of children born into poverty is rising. I see nothing wrong in thinking that this is a bad thing. I see nothing wrong with trying to encourage people to get themselves out of poverty before having children. Yes, the state must provide support for children in poverty and it always should.
Although I find it interesting that an acceptable minimum standard is measured in financial terms only.
The article has demonstrated neatly its initial point that the DWP claim that the cap is needed so that people on benefits do not get more than those earning an average amount is incorrect.
There isn’t then much discussion as to how the benefits system should work. What should benefits aim to do? If a system allows someone on average (not minimum wage – average) earnings to more than double their after-tax salary I would suggest that the system is not equitable (to all other taxpayers) and absolutely not sustainable.
Despite the attempt to make an irrefutable statement at the end of the article, I’ll stick my neck out and say that yes, I think that unemployed people with large families should be poorer than they currently are because they are currently being unjustly rewarded.
In the meantime, I hope they find work as soon as possible, and that employment continues to grow.
I believe I’ve read that the £26k cap will hit 20% of claimants. I would bet that 20% of claimants don’t have 4 children, 1 parent unemployed and live in Central London. Having grown up with a lone parent on benefits, I can tell you as a fact that handouts to make the poor richer doesn’t bring any benefits to the kids, other than to show them that welfare is a good way to live.
This limit will resonate with people, it resonates with me. Why should my taxes be used to subsidise a family so they can live some where I can’t afford to?
@Douglas McLellan
The number of children born into poverty is rising.
Actually it’s been falling during Labour’s time in power. It is predicted to rise now though.
http://www.jrf.org.uk/child-poverty
I see nothing wrong in thinking that this is a bad thing. I see nothing wrong with trying to encourage people to get themselves out of poverty before having children. Yes, the state must provide support for children in poverty and it always should.
I can’t disagree with the sentiments here, but cutting benefits to couples with children, expecting them to move home, with all the disruption that entails, and the lack of suitable work where they live is not going to make things better.
@Simon McGrath
we should not be paying someone £16k a year to live in Central London.
Why not? What about all the cleaners, shop workers and others on minimum wage or just above who work in the centre of London? If you turn their commute into over an hour each way by forcing them out of central parts of London then then may not find it affordable to work because of time and cost constraints….
@g
I kind of meant since I was born (I’m 34) but I take the point about recent falls and future rises. The recent changes have been as a result of simply increasing benefits. The problem with this approach is that it doesnt change behaviour, encourages children now to be like their parents and live of benefits rather than see the benefits of behaving well at school, studying hard and getting a job.
Have moved house several times growing up I can say with a high degree of confidence that it is not the trauma many make it out to be.
How long then is a suitable commute? Is it fair that £16k was given to a family in London so they didnt need an hours commute but my 60-90min long commute into Edinburgh was not long enough to get me housing benefit so I could live in Edinburgh? Subsdised transport for low income families would be fairer.
@Tommy
“I believe I’ve read that the £26k cap will hit 20% of claimants.”
Five seconds with Google would tell you that you’re either misremembering or you’ve been reading someone thorougly misinformed. The benefit cap is projected by the government to affect “around 50,000 households” – that’s maybe 2% of unemployed claimants.
Incidentally, whilst even this article repeats the claim that the limit is to be “£26,000 a year”, the actual formulation is that “household benefit payments will be capped on the basis of median earnings after tax for working households” – which is expected to be about £500 a week by April 2013, when the rule comes in, but is currently £479 a week (jabout £24,900 a year)
@g
Take a second look at the UN phrasing that “Parents have a basic human right to determine freely and responsibly the number and the spacing of their children.” If you are going to make a decision “responsibly”, then it’s pretty obvious that money is an important factor. Douglas’s comments do not breach the UN’s wording, it reinforces them. You’re reinforcing the right wing stereotype that human rights are expensive indulgences for irresponsible people.
@Tim
Your argument is that a cap means thinking poor people with large families should be poorer. That’s an empty, populist, holier-than-thou argument I don’t have much sympathy more. Its corollary is that we should always seek to spend more on poor, large families. I don’t believe in ratchet-based attitudes to expenditure; they reinforce the stereotype of the left being incapable of financial management. Every time I wonder why this country has largely voted in conservative governments, I look at this kind of self-aggrandising moral piety and understand.
I’m confident that many people would say that the state shouldn’t be obliged to pay for people to live in Central London, one of the most expensive places on Planet Earth. And here you are calling them c**ts. Lovely.
There are substantive arguments to be made that the cap is wrong, or that there are grounds for exceptions, or that benefits relating to children should be considered separately, etc. Try making them instead of royally pissing off people whose support you rely on to actually make a difference instead of just talking about it.
@Malcolm without remembering where I heard 20% then I’ll have to accept your source. I stand corrected!
@Douglas/g can we be very careful before bandying about phrases such as poverty? No one in Britain experiences poverty; unless you define poverty as having to make do with a 32″ TV and a Wii.
@Tommy.
Agreed. Perhaps it should be relative poverty within in the UK. And the definition of poverty in the UK for children does include not being able to have friends round for dinner or a weeks holiday.
The idea that ‘no-one in Britain experiences poverty’ is complacent, dangerous nonsense. What about our thousands of homeless for a start?
Nobody experiences poverty in the UK?
Tell that to the sick and disabled people (as well as pensioners) who have to choose between heating and food in the winter months. People who genuinely think there is no poverty in the UK must lead such safe and sheltered lives in their ivory towers. I am appalled that anyone can be ignorant enough to believe this.
This choice is not made in most countries on the Continent because they treat their sick/disabled/pensioners with more respect than we do in the UK. For a start many of them are inclined to take care of their elderly instead of selfishly sending them off to a home.
People shold be free to have as many children as they like so long as they do not ask the state to pay for their upkeep. With regard to the £26k. People moving out of London to less expensive areas ( maybe even THE NORTH) will benefit the area they move to as well as the tax payer.
“Why should my taxes be used to subsidise a family so they can live some where I can’t afford to?”
That’s a fair question, to which the answer quite often should be that the subsidy is not justified. It would probably not, for example, be justified for a family which freely chose to move into a high-cost area. It would often not be justified for a long-term unemployed family in a high-cost area.
But what about the people who work in unstable jobs with a high rate of hire and fire? If you temporarily lose your job, do you have to uproot your family from London to somewhere nice and cheap and totally jobless in the north-east? Or would it be better if the State supported you until your next job, so that the pool of low-paid labour in places like Central London did not catastrophically dry up?
The Coalition would be quite justified in subjecting anyone on benefits over £26K to a rigorous review and operating a cap in the right circumstances. But that wouldn’t get the applause from the Daily Mail readership. So instead, our wonderful Coalition have done the populist, unfair and destructive thing, and gone for an absolute cap for all cases.
It sounds tough. It wins votes. What else is the Liberal Democrat Party for, pray?
Having to move to a completely different area at a time when there is already significant negative life events is very damaging for people’s mental health.
Yellow Bird, having to pay taxes so that other people can be paid thousands to live in central London is very damaging for my blood pressure. And probably a lot of other peoples.
I am surprised that anyone can write “Having grown up with a lone parent on benefits, I can tell you as a fact that handouts to make the poor richer doesn’t bring any benefits to the kids, other than to show them that welfare is a good way to live.” My mum was a single parent – my dad walked out, and disappeared – and she had a minimum wage job. We were poor – but we would have been much poorer without benefits. They were useful – they paid for things like school uniform, and other basics of life. I wish they had been more generous, which is why, now I am affluent I am willing to pay taxes so that fewer kids are brought up in poverty. And even more willing to pay taxes to ensure that they get the education that will transform their lives.
Remember, this cap will not just hit “the feckless” but those workers in London who see the breadwinner disappear, because the lose their job, their caring responsibilities increase, they walk out on their family, they fall ill, or they die. Is it bad to want to limit the financial hit that kids take when any of these happen to a working parent?
So how far do you need to move out of Central London to see a significant decrease in housing costs? Willesden? Watford? Slough? Chelmsford?
The problem with this idea is that it cuts both ways. Flip the sense of it around and you get:
“The only grounds to oppose the £26,000 cap is believing that people with an income higher than 50% of the others in the country are more deserving of benefits than those living below the poverty line”
(I can’t say I really support it either way around)
Not that far. Try Harringay or Tooting.
Reading this article and some of the responses to it shows me just how far the Lib Dems have moved along the political spectrum recently
Just one question to those who advocate moving out of central London, Just how much would the min wage have to increase to encourage non-skilled workers to commute into London?
one more thing, if it is to become the norm for those on benefits with families to be ‘encouraged’ to move, it is tacit acceptance that interrupting a child’s education, especially during an exam year, and the resulting effect this will have on the child’s future is worth it if it means saving a few bob.
hmm, how very Liberal
I fully agree with what Tim has written and I am pleased to see this as well.
These figures are not produced by a random number generator. They take into account the circumstances of that person and family.
There is a mood in the country that benefit “scroungers” need to be punished. However this is a time of high unemployment and employers will only choose the best candidates. Some people through no fault of their own are not going to get employed. The danger with punishing those who dodge the system is that you punish others who are trying their best.
Although we are a poorer country today, we are rich enough not to allow people to suffer destitution. The great Liberal economist JK Galbraith warned about private affluence, public squalor.
That should not be allowed to happen under the watch of a Coalition government with Lib Dem participation.
crewegwyn wrote
So how far do you need to move out of Central London to see a significant decrease in housing costs? Willesden? Watford? Slough? Chelmsford?
Andrew Suffield wrote
Not that far. Try Harringay or Tooting.
So what are we talking about here? concentrated ghettos of the low payed within the M25? why not go the whole hog and fence them in while we’re at it only to let them out to clean the streets and to serve in McDonalds. mind you it would encourage social mobility, after all no one would want to stay there.
@Geoffrey “There is a mood in the country that benefit “scroungers” need to be punished.”
Can you really not see the difference between not wanting to pay someone 16k a year to live in one of the most expensive places in the world and attacking “scroungers”. One of the reasons why the benefit changes are so popular is because of the abuse the last govt allowed on housing benefits. Do you really think it right t to tax poor people in Sheffield so other people can live in Chelsea?
You’re still looking at a living level of benefits, rather than a living wage. Benefits need to be controlled, and most should be seen as a temporary fix, ie between jobs. If people want to live in central London and have large families, great, I wish them well and look forward to seeing them pay their own way. I don’t enjoy paying for their lifetsyle choice.
However, if we were truly a green and fair party we’d admit the unspeakable – families with children should pay more tax, not less, and large families should pay more still. It’s all based on consumption and damage to the planet.
“Do you really think it right t to tax poor people in Sheffield so other people can live in Chelsea?”
I can see the appeal of that argument, but the trouble is the arbitrary boundaries it involves. Why London and Sheffield, particularly? Why should people in Sheffield have to subsidise other people living in an expensive district in Manchester? It may not be as expensive as London, but it’s a damn sight more expensive than many parts of the UK. Ultimately, the only way to eliminate all such instances of unfairness from the system would be to insist that everyone on benefits should move to the cheapest location in the UK. Wishaw might get a bit crowded.
Nice article, by the way, Tim – wish you wrote more for LDV.
@ Simon
Thanks for clearing up the whole ‘mood in the country that benefit “scroungers” need to be punished’ myth.
So it’s got nothing to do with the tabloid newspapers and their right wing propaganda? nor has it to do with the landlords who charge these ridiculous rents?
It’s all the fault of the low waged needing somewhere to live close to their workplace because they can not afford to commute on the min wage, the majority of unemployed finding it nearly impossible to find work atm oh! and lets not to forget the disabled, who are they kidding uh?
well thanks again for clearing that up for me…. and to think I was going to buy the Daily Mail for an explanation, all I needed to do was to read the LDV instead, silly me.
But, can you answer me this, who will fulfil all those those menial, min wage jobs in central London once the current crop of ‘scroungers’ have been forced too move out? I know it’s a silly question but you seem too know all the answers ….
@Catherine – not sure i get your point. I can’t believe you really think that it is ok to tax poor people so that other people can live in very expensive and desirable areas?
@Nige – er, where did i say ?. I havent used the phrase ‘scroungers’ and i object strongly to your attributing it to me.
Rents like so many other things are a function of supply and demand. Demand has gone up because more people are living alone and several mission more people have moved here in recent years. Supply is pretty fixed.
If you were rightly that no-one could do these jobs without subsidies from other people then it would have an excellent effect – employers would have to raise wages
perhaps rather than subsididisng housing we should give poor working people free bus tickets?
@Simon – my point was just that virtually whichever way you organise the benefits system, people will always be subsidising other people to live in more expensive areas than they live in themselves. The only way to avoid that is to require everyone on housing benefit to relocate to the cheapest property on offer in the whole country. Setting an arbitrary cap won’t get rid of the effect you’re describing.
Currently I believe Lanarkshire is the cheapest property area in the UK, so anyone living in, say, Wishaw will automatically (if they pay tax) be subsidising other people to live on housing benefit in more expensive areas – London, Glasgow, Manchester, wherever – because everywhere is more expensive than Wishaw. I agree it’s unfair but this cap will do nothing to address the situation.
As an addendum, perhaps I’m wrong to say the cap will do *nothing* to address the situation. It may ameliorate it if it produces the desired effect of driving down rents in expensive areas. But as long as there’s significant regional variation in rents (which will probably be forever) the ‘unfair subsidy’ effect will persist no matter how the benefits system is set up.
On paper, the strategic arguments do have some appeal (decrease benefits –> drive down rents / drive up wages –> businesses move to cheaper areas). But even if that works (and I’m sceptical of whether it would turn out as planned) it would still mean forcing families to move to a different area where it will probably be harder to find work, potentially condemning them to longer unemployment while we wait and hope the removal of a relatively small number of benefit-dependent people from central London will trigger sufficient market forces to make rents affordable again or force employers to increase salaries (which in turn might cause them to offer fewer jobs). Doesn’t sound very fair to me.
I like the idea of free bus passes though – or other subsidised public transport. For anyone moving out of central London the sheer cost of daily travel to a likely workplace could make employment less financially attractive than staying on benefits, especially with the current mix of fuel price rises and train / tube fare hikes.
Well done Tim and a few others in this post. The venom posted by others is frightening to see. If any one can think a very large familiy (900 have over 8 children on benefits can live anywhere on 25K they should stop reading the daily mail . Now to pre-empt the cat calls of why did they have 9 children ..hey guys I agree its not a sensible life choice in most cases ….. But to punish children to the extent that families will be split apart is bigoted Tory nonsense that no Liberal democrat would dare to mutter prior to the coalition .
I have a lot of sympathy that we shouldn’t be effectively penalising children for their parents daft decisions.
But quite frankly the numbers tell the tale. As ‘Mouse’ says above, your ‘average’ family pays £5,000 of tax and receives £27,000 in benefits! This is totally financially unsustainable. And that’s the median family, god alone knows what the ratio is for those on lower wages.
And who is paying for all this? A tiny super-rich elite who also pay sky-high taxes?
None of this is sustainable or beneficial in the long term unfortunately. We can’t just keep hiking taxes and benefits, we desperately need to address the underlying issues that cause these problems. What kind of ridiculous situation are we having when we’re paying rich private landlords up to £20,000 a year per house of taxpayers money, rather than taking steps to tackle the existence of sky-high rents, like properly taxing property thus driving down property and rent prices. Not to mention cutting taxes on low earners, rather than taking their money, shuffling it around and then possibly giving it back to them.
The introduction of a cap undoubtedly will cause a lot of difficulty though for many families. Are there not possible solutions to this though. Could the cap not be phased in over 5 years or so. Say brought in initially at £36,000 and then reduced by £2,000 a year until it reaches the average income. That would give families valuable time to adjust and anticipate the coming changes and thus do something about it.
Just to clarify – this is not particularly about people living in Kensington alone – we have already stopped paying Kensington rents under a different policy, and I support that. My figures are only around £400 a year different if I had housed my family in a private flat on the Aylesbury estate in South London, and about £500 a year different if they lived in Tolworth, “the scrag end of Kingston Borough” (as the Evening Standard once called it). What is at stake here is not the right of the unemployed to live in Millionaires Row, it is whether people who lose their jobs and have large families should be allowed to live ANYWHERE in London.
Imagine a bus driver with 4 kids who loses their job. They live in a modest house in a relatively cheap part of London. They have worked for 20 years. Their income will fall pretty dramatically under the current system, and I understand, accept and support that basic premise that people who find work should be better off than those who don’t, even though there is a lot of luck in life.
But under the new system they will get so little housing benefit that the nearest place to London I can find for them to live is Merthyr Tydfil. Did we really go into politics to force bus drivers who lose their jobs to move their families hundreds of miles, disrupting their children’s education?
The starting point has to be that those who have children must pay for them.
The trouble is that for too many years the benefits system has rewarded child production. In my opinion, a sensible approach would be to limit benefits of any kind to the first two children for new and existing claimants, the latter to get transitional relief weaning them off the benefit over two or three years.
I also agree with the benefits cap. In my view, Lib Dems would be better to cast their critical eye on the appalling way the sick and disabled are currently being shoehorned into work that isn’t there.
@nige
“who will fulfil all those those menial, min wage jobs in central London once the current crop of ‘scroungers’ have been forced too move out?”
If a min wage job only exists in an area where it requires a housing subsidy then the employer might actually be forced to pay more than the minimum wage if the subsidy is removed, or they may consider creating a higher value, higher wage job in its’ place to maintain similar profitability – I’m not particularly interested in perpetuating ‘menial, min wage jobs’ just for the sake of it without considering better alternatives first, and I don’t think the automatic assumption of a drive to the bottom does you any favours.
But then we’re not actually talking about those on minimum wages, we’re talking about those who recieve more than the median income in benefits alone (who may or may not be on the minimum wage, but are just as likely to be unemployed as have a large income).
If you’re earning the median income on the minimum wage, then you’re obviously prepared to accept reduced conditions (such as excessive hours) – and if that’s simply to stay in a high-value location, then your own unhealthy actions are reducing any advantage in living there and distorting the market for everyone in doing so.
And if you’re unemployed and recieving a median income on welfare then there are clearly some exceptional circumstances to qualify you, though there may be scope to tighten up on some of these.
Nevertheless the benefits cap does have some advantages in attempting to remove market distortions, but it does not address what are the unsupportable areas of generosity in the welfare state or how they should be adjusted, nor is it a silver bullet for the decades of laissez faire and corrupt urban planning with regard to housing or the irresponsible attitudes cultivated by generations of inadequate education.
Talking of which, at the very least we should be grateful to be debating the issue out in the open so we can start to get a grip on the principles of fairness and how they work in practise – much better than letting problems build up and fester for fear of upsetting diverse client groups as previous governments have done!
But sadly welfare discussions rarely treat all sides equally: perhaps we should also introduce the suggestion of a qualifying limit on welfare in addition to a cap – shouldn’t those earning £50k+ or £100k+ be disqualified from claiming benefits to ensure limited funds are directed where most needed?
Hard cases make bad law. Why always London and four childen, Tim? Does your argument run with any other city and/or number of dependents?
I have to agree with @Catherine, @Tim Leunig and particularly @John Fraser. I find it hard to believe if we went back two years there’d be quite so much open support for a policy of this type which will punish the poor and louse up local economies.
While the terminology of the ‘scrounger’ may not be embraced it appears that contributors have different archtypes for benefit recipients in mind. @Tim Leunig points out the effect on and upheaval for the working family losing employment (presumably we’d agree the ‘deserving’ poor) while others have in mind the feckless breeders of the underclass who need to be stopped (presumably the ‘undeserving’ poor in these terms).
In such a poor economic context, with significant and sometimes desperate competition for every job, it is hardly realistic to think capping benefit is going to lead to employers deciding to pay more. It is rather more the case that they are going to be able to offer more parttime work on poor terms, in the confident knowledge that a govt seeking to drive people into work – any work – will provide a ready supply of cheap labour.
The indications from the first months of the new LHA regime are that, contrary to govt expectations that landlords will drop their rents because assistance has been reduced, rents are increasing rapidly and landlords are seeking to switch away from letting to people who are reliant on benefit. So rather than disciplining landlords it is further impoverishing the already poor. Precisely as critics anticipated.
It’s obvious that would happen if one stops thinking in terms of the simplistic idealisations of textbook economics.
The £26k cap is designed to punish the poor (sorry, ‘make work pay’). It seems very likely it will succeed.
Surely it would be desirable if the benefit bill were lower, but targetting the symptom rather than the cause isn’t the way to go.
Contraception is available free to all families; and it’s paid for by the state.
The most my husband earned was £15,000 a year – and that was running his own business, providing employment for others and a service to the community. My top salary was £8,000 a year. Even at our most affluent we earned less than the figure Tom Leunig is quoting. Out of that we paid tax and National Insurance to pay for people with large families living in London. I’m not bitter about it, simply pointing it out. Our book shop has now gone bust in January this year after thirty seven years – and the shop itself being 112 years old. My husband has already taken two temporary jobs since January and has another lined up for the summer. I’ve also done a temporary job in between; he’s 64 and I’m 67. There are jobs available.
When we were really struggling, when our children were at school, I applied for free school dinners for them. Didn’t get them – we were deemed to be “well off” or “trying to cheat the system” or something because we owned our own business.
It really IS time to rebalance the economy in favour of those who are working and those who are willing to live somewhere less expensive if they can’t work. Many working people would love to live somewhere posher and work less hard.
@ Alex
“The indications from the first months of the new LHA regime are that, contrary to govt expectations that landlords will drop their rents because assistance has been reduced, rents are increasing rapidly and landlords are seeking to switch away from letting to people who are reliant on benefit. So rather than disciplining landlords it is further impoverishing the already poor. Precisely as critics anticipated. ”
I would be very interested in looking into these indications, it is counter intuitive (and counter to economic theory) that this would happen – can you point me to where these indications are set out.
Thanks.
@ Tim
“But under the new system they will get so little housing benefit that the nearest place to London I can find for them to live is Merthyr Tydfil.”
I’m not at all sure what you mean by “the nearest place to London I can find for them to live”? Can you explain your methodology?
Merthyr is 169 miles from London. Barnsley in Yorkshire is 173 miles and a lot easier to get to, so are all parts of the Midlands all the way up to South Yorkshire much more expensive than Merthyr? Or are you really trying to tell us that people on median pay can’t afford 4 children in more than half the country? If so the problem is much more intractable than you are indicating.
Don Lawrence cuts to the quick of the problem.
If we’re really saying that the situation of wages and prices in this country is so skewed that the only way it is possible to raise a family in half the country is a massive state subsidy, then we have a vast structural problem that we must engage with immediately.
Just throwing never ending state money at it is not an option.
Better way to reduce the benefits bill would be i) to increase the supply of social housing, which is more affordable; and ii) to bring back the Fair Rent Tribunal.
I am a pensioner and I pay a little tax on my pension. My pension is nothing like £26,000 a year sadly but of course I get my free Bus Pass (not a lot of use with so few buses), free prescriptions etc. I don’t actually mind paying Tax, it is part of the price of living here. I do mind that some people are not paying all the tax they should, I do mind the fact that my taxes are subsidising employers who are underpaying their workers in order to ensure their salaries and profits continue to rise. I do mind that succesive Governments have allowed the economy to shrink to such an extent that too many of our citizens are now out of work and may never work in their lifetime. Please don’t tell me their are loads of jobs out there, I know it’s not true. It’s a good job our citizens are so compliant otherwise ‘Madam guillotine would be doing serious work in our towns.
@Don Lawrence:
I am in pre-moderation all the time here so you’ll probably never see this (as a post from me yesterday is still “awaiting moderatrion”, but here’s a story where landlords are lowering the amount of people on housing benefit they will accept, instead of reducing rents:
http://www.property118.com/index.php/landlords-forced-out-of-housing-benefit-market/9090/
90% of all private landlords say they will cut the amount of places they give to those on Housing Benefit over the next 18 months. Anyone who thought the private sector would simply reduce their rents out of kindness is naive in the extreme. These by-to-let landlords are one of the reasons housing is in such demand and so high, but as usual, it is the sick/disabled/unemployed who face the burden and not the (usually) well-off landlords themselves.
Quelle surprise.
“Hard cases make bad law. Why always London and four childen, Tim? Does your argument run with any other city and/or number of dependents?”
This cap, by definition, affects only the hard cases, those who live in expensive areas and have several dependents. If you make a law that only impinges on a minority of cases, you had better make it a law that treats that minority of cases sensibly.
@Don Lawrence – a survey published by the National Landlords Association earlier this week pointed to both these findings (rent up, aim to get out of LHA sector). It was reported in Inside Housing and I think it was mentioned in Parliament. There’s a regional rent series due for publication tomorrow that indicates rents up in all but two regions.
It’s only against economic theory if you think that the market is heavily segmented and landlords have to let to LHA recipients. But it isn’t. Demand from other households is strong, while supply is not really expanding. So rents will rise.
I would much prefer to see a cap on the rent which landlords can charge.
2 comments – the £26k cap is achieved by cutting housing benefit – it ends up at about £115 a week. The closest 4 bed places (1 room for the parents, [email protected] for the two oldest, and 1 between the two youngest – hardly indulgent) I could find to London for that was Merthyr and Sheffield, which (as you say) are about 170 miles away. Neither is exactly brimming with job opportunities. You can find the full details here: http://www.prospectmagazine.co.uk/2010/11/against-coalition-welfare-reform/
The evidence is that rents are going up and people are getting out of lending to people on HB. Before, lending to an HB tenant meant a guaranteed market rent, now that it doesn’t you might as well spruce up the place and let it to a private client.
We already cap the amount a landlord can charge, in that HB is limited by family size. If you limited the actual rent, most landlords would sell their properties, and then poorer people would be stumped, as they would not be able to get a mortgage.
£26k is very little if you are a 6 person household paying a market rent in London or most of the South East, even if you live in a cheap part of town. For people with moderately large families, there is no longer a decent safety net if you lose your job.
I’ve a lot of sympathy with Judith’s comments. Surely most Liberal Democrats can at least support the aim of this policy and consider that someone without work may simply be living in too expensive an area of the country.
To get this into perspective, I was surprised to hear someone who phoned in to a programme on Radio4 declare himself upset and quite bewildered that his one bedroom flat in Little Venice ( a very desirable part of London adjacent to the Regent’s Park canal) would only merit a newly capped local housing allowance £250 a week from April this year. Perhaps a move to Willesden wouldn’t be so hard if you’re not working.
@Tim, I don’t think I’ve made myself clear. I don’t mean a cap on LHA, I mean a cap on the rent considered fair to charge ANY tenants, whether working, claiming or both. I am proposing much more radical action against landlords. There used to be a Fair Rent Tribunal, which anyone, whether they claimed HB or paid all the rent themselves, could apply to, and which had legally enforceable powers. It was abolished in 1986 under the Thatcher government. We have seen the balance of power between landlords and tenants changed massively in the landlords’ favour in my adult lifetime.
YB – yes I understood what you were saying , and my reply was “If you limited the actual rent, most landlords would sell their properties, and then poorer people would be stumped, as they would not be able to get a mortgage.” Rent control is why so many landlords sold their properties in the post way era. We need to allow more houses to be built – then they will become cheaper, in line with supply and demand.
Well, what’s your solution then? Guaranteed money and housing for anybody who pumps out four kids in four years? I can see that ending badly.
Capping benefits isn’t a particularly good idea, but we’ve run out of money and something is going to have to give. I don’t have a better idea. I’d back one if I could see one, but in 65 comments I’m not seeing one realistic proposal. I think that if it comes down to a choice between benefits going to the huge family in London or the small one who can’t afford to live even in a cheap part of the country, relocating the former family is the least bad option on the table. At least that way everybody gets to eat.
(I do have one idea, I just think it’s worse: laws limiting reproduction to sustainable levels, whatever those are. Urgh. I hope it never gets bad enough that we have to do that)
@Tim – And what happens if these landlords start selling their properties again as a result of the introduction of rent controls?
You will have achieved your aim for tenants, at least in the short term, without having to rely on a much longer term, and much needed, I grant you, housebuilding programme.
“The evidence is that rents are going up and people are getting out of lending to people on HB. Before, lending to an HB tenant meant a guaranteed market rent, now that it doesn’t you might as well spruce up the place and let it to a private client.
We already cap the amount a landlord can charge, in that HB is limited by family size. If you limited the actual rent, most landlords would sell their properties, and then poorer people would be stumped, as they would not be able to get a mortgage.”
The real problem is a structural shortage of housing, which is why rents are so high. If the government can’t sort out the planning system this will persist. Its extremely difficult for a person to buy a plot of land to build their own house on – why? Its getting to the point where we may have to build whole new towns like after WW2. At the end of the day though, I don’t support the idea of putting up a family of 6 with no workers in central London any more than a cabinet member on 6 figures should have a council flat in central London.
In case you didn’t understand my point, rents would go down and property would become cheaper. But it won’t happen because virtually everyone involved in property votes Conservative.
I think Tim you have overlooked an underlying madness of the current system in your example:
What you are basically saying that it is okay for someone to earn £26,000 (‘average’ wage) and (due to specific circumstances you give) get an additional £27,250 in benefits (ie. £22,000 of other peoples tax and NI contributions), to give a net income of £48,000.
So to maintain this lifestyle without benefits; the working person above would need to be earning £72,000 gross (this assumes the withdrawal of child benefit for an single earner earning more than £44,000 gross, which is part of the same package of reforms as the benefits cap).
So here we have the madness, we the taxpayer are massively subsidising a family to live well beyond their means, for what economic benefit? However, before we get into a slanging match over benefits we should also take time to consider just what does the average wage really represent? and what is its relationship to a ‘living’ wage? and hence at what level benefits should be set.
Finally, you might also like to take into consideration that a family with a single wage of £72,000 is more likely to own their own home and hence if they loss their job they would not be entitled to housing benefit and so would see their net income fall by £31,000 a year. What is interesting is that I don’t see any one on the political stage championing the needs of families with a single higher earner, even though as your figures illustrate their standard of living can be very similar to someone on the average wage…
Frankly I am appalled at some of the contributions to this thread. Truly it seems that the most pernicious bits of Thatcher’s “no such thing as society” and the “me first” generation, have become hard wired in the collective consciousness somewhat. Not that I am in anyway advocating there existed a “golden age” of community care in the past. The idea that the kids of large families should be in some way “punished” for the reproductive carelessness/irresponsibility of their parents, by ensuring they live in poverty is immoral and as a Lib Dem, not something I would like to be complicit with. Kids are to some extent the responsibility of society as a whole, not the narrow bit of the economic geography they happen to find themselves in. I suppose that not having kids myself (choice) means I should be resentful of my tax bill because others get something from the system I don’t?. Nonsense. This mendacious one size fits all policy will not do what it claims it will. (And don’t forget the automatic 10% cut in benefit, originally proposed in this process after a year – just pure Tory vindictiveness). Solutions don’t work if they only address one part of the “problem”. Without addressing the wider issues of actually building adequate levels of social housing in the first place and really going after the tax avoiders (as well as the benefit cheats), this will never achieve what it claims on the tin. Well done Tim for pointing it out.
Roland – I am completely aware of the madness of the system. That said, you overstate the case a little. Someone on £72k almost certainly lives in a nicer part of town, and in a nicer house: housing benefit recipients are limited to the cheapest 30% of houses, less in inner London. In addition, the £72k earner may well have bought their house 10+ years ago, in which case their housing costs will be lower, as their mortgage will be based on house prices 10+ years ago. They may also have paid off a good chunk of the mortgage – in which case they will have relatively small outgoings. Finally, mortgage interest rates are pretty low at the moment, so their mortgage is probably low for that reason as well. And they are building up an asset. So when their kids leave home, and the mortgage is paid off this couple will be very well off indeed. The £72k family probably have a better pension as well. Whereas the family I am talking about will not be – their income will go down as soon as the kids leave. And they will not be allowed to stay in the family house – housing benefit only covers the “correct” number of bedroom, so that when the kids leave, you have to move house. (I am not saying that this is wrong, only to point out that over a lifetime the person on £72k will be much better off)
The system is ultimately mad because of the cost of housing in the SE. If housing costs were lower, benefit levels could be lower for the unemployed and the employed, without making them worse off. Because benefits taper away, this would also mean millions escape the benefits system altogether. To my mind allowing more houses to be built – of pretty much any type – is the key policy that Britain needs to pursue in the short run. (Improving education is the key long term policy). If mortgage costs were lower we should also return to covering at least some mortgage payments for people who become unemployed. I have advocated that elsewhere.
But in the short run making a limited number of large families who lose their jobs dramatically poorer has no appeal to me whatsoever.
Tim
Tim
@Tim,
I think if you compare Sheffield with Merthyr you will find
a) Sheffield is closer to London (OK only 3 miles; 166m vs 169m, but also about about a 5% shorter time by Car, and a hour quicker by train.
b) Worklessness in Sheffield is much lower than in Merthyr – so why do you say “Neither is exactly brimming with job opportunities.”
Although I am a great fan on South Wales, Merthyr is a small town with the most intractable problems of the lot. Sheffield is a major city with two football teams, a University, and still some industry that doesn’t depend on government handouts.
So why did you say Merthyr rather than Sheffield? I think we should be told.
Don: Both are far enough away that kids would have to change school, etc, and neither are within commuting distance. The area of outer London where I live has 70.1% employed, compared with Sheffield at 65.9% and Merthyr at 64.1%. So yes, moving to Sheffield would probably be a better bet, but my point remains that the proposed benefit change would cause huge upheaval and reduce people’s opportunities to find work.
Tim – Your response as you painted a suitable picture of a family to contrast with your original thumbnail of a household, made me smile.
Yes I largely agree with your fundamental assessment that someone earning £72,000 is more likely to be over 40 and have: a mortgaged property (in a nicer part of the borough), pension (consisting of multiple private sector funds acrrued over several employments) and hence have the opportunity to enjoy the benefits these bring. The rest is pure conjecture about people’s lifestyles and I’m sure we can pick many scenario’s to suit a particular position and viewpoint.
Looking at your example household with a single wage of £26,000, here we can be even less precise, at this wage level we could be talking about a recent graduate – hence a family with parents in their early 20’s, through to a family with parents in their 50’s. So even more so here, we can pick and choose scenarios to suit our purposes.
However, after this I do not agree with you that it isn’t appropriate to cap benefits, taking the notional households from our discussions:
Employed:
£26K + in-work Benefits net income (no cap): £48,000 (with cap): £47,000
£72K with no in-work benefits net income (cap irrelevant): £48,000
£61K Self-employed with no in-work benefits (cap irrelevant): £48,000
Loss of work (out-of-work benefits entitlement):
(previously £26K + Benefits) (no cap): £32,800 (with cap): £26,000
(previously £72K no benefits) (no cap): £17,000 (with cap): £17,000
Self-Employed no work or (previously employed with savings over £6K) (no cap): £11,000 (with cap): £11,000
We can see the household “on benefits” and employed with be made slightly worse off by the cap. However if they loose their job, whilst they will still be significantly worst off than previously, they will still be significantly better off than the household that was previously financially self-supporting.
So I agree with you when you say “making a limited number of large families who lose their jobs dramatically poorer has no appeal to me whatsoever.”, albeit I interpret the words differently. Perhaps to make the system fairer, we should make £26,000 a universal out-of-work benefit? it certainly would be cheaper to administer.
R
The point, surely, is that circumstances alter cases and the benefits system should address each case on its merits. There are circumstances where benefit payments above £26,000 can be fully justified.
An arbitrary benefit cap panders to the worst instincts of right wing columnists. Who, by the way, view £26,000 as a starting figure in a Dutch auction. Benefits lower than average wage today…half average wage tomorrow.