Support for housing costs in the reformed welfare system - Work and Pensions Committee Contents

4  The Benefit Cap

92. The Welfare Reform Act 2012 provided for a cap on total household benefits. The cap limits the total benefit a household can receive to £500 per week for a family and £350 per week for a single person with no children. The difference between a claimant's total benefit and the Cap level is subtracted from Housing Benefit, or from support for housing costs under Universal Credit. The Cap was initially piloted in four London boroughs from April 2013 and was then implemented in all local authority areas in Great Britain between July and September 2013. (It is due to be implemented in spring 2014 in Northern Ireland).[96]

93. The Government's stated intentions for implementing the cap are to improve working incentives for those on benefits, to deliver fiscal savings, and to ensure workless households do not receive more in benefits than the average working household. DWP estimated that by 2015 around 40,000 households would be impacted by the Benefit Cap, and that the Government will have saved £470 million (in current value).[97]

94. Exemptions apply to those in employment for 16 hours per week (or equivalent earnings at the minimum wage), those in receipt of certain disability benefits, and people over State Pension Age. Exemptions also apply to those living in supported housing schemes with "exempt accommodation" status; this is dealt with in detail in Chapter 5.

95. The Government plans to review the Benefit Cap's first year of operation and publish the results this autumn.[98]

The impact of the Benefit Cap on affected tenants

96. As of January 2014, 38,600 households had been affected by the Cap. Those most likely to be capped were families with several children, and those who live in high rent areas or expensive accommodation (such as temporary accommodation). Almost half of all capped households, 47%, were in London. Of households subject to the Cap in January 2014: 60% contained between one and four children and 36% contained five or more children. 59% were single-parent households with children.[99]

97. Witnesses expressed concerns regarding the large proportion of income that affected households were losing. The average loss differed between different areas. In Newcastle, the average loss among the 56 affected households was £48pw, with six households losing in excess of £100pw (reducing their Housing Benefit to less than 50p weekly). Z2K, a London-based charity, found that tenants were losing between £5 and £500pw, with an average loss of £91pw. According to the DWP, 22% of all capped households are losing more than £100 per week as of January 2014.[100]

98. The Chartered Institute of Housing, and Haringey Council, were concerned that reductions in income arising from the Cap could lead to poverty for affected claimants. They were particularly concerned about the effect the Cap could have on levels of child poverty.[101] The Children's Society provided calculations, illustrating the way in which the Cap might affect the poverty level of families in private rented housing under Universal Credit:

Table 3: Disposable income after cap applied for out of work couple with average private rental sector rent for relevant property sizes[102]
Average PRS rental prices Disposable income after cap applied Poverty line (after housing costs deducted)
1 child £146 £196 £272
2 children £175 £261 £367
3 children £175 £325 £413
4 children £236 £264 £508
5 children £236 £264 £553
6 children £236 £264 £649

The Cap and relocation of affected tenants

99. Witnesses told us that some tenants affected by the Benefit Cap were being made homeless as a result of accruing unmanageable levels of arrears. Yvette Burgess of the Coalition of Care and Support Providers in Scotland said that placing homeless people in the private sector had become more difficult and expensive for local authorities because the Benefit Cap had reduced the range of affordable properties. The London Borough of Brent said that it was having to look "further afield" for affordable accommodation. However, moving people out of London could cause increases in rents in other areas: according to Z2K, private sector rents were starting to go up in areas such as Enfield where inner-London based local authorities were placing people.[103]

100. There is evidence that some private sector landlords have specifically been evicting or ending tenancies of people on Housing Benefit because of fears they might be affected by the Cap. The London Borough of Brent reported that evictions of private sector tenants due to the Benefit Cap were causing an increase in homelessness. Joanna Kennedy of Z2K said that currently around 18% of private sector landlords were renting to tenants on Housing Benefit, while two years ago the proportion was closer to a third. She cited a survey which found that "57% of landlords actively said that they would not take Housing Benefit tenants".[104]

The Benefit Cap, disabled people and carers

101. Claimants of most disability benefits are exempt from the Cap (DLA/PIP, Attendance Allowance, Industrial Injuries Benefits and equivalent payments made as part of a war disablement pension or the Armed Forces Compensation Scheme; and the Support Component of ESA).[105] Carers UK was concerned that Carers Allowance was not included in the benefits which provided exemption. It explained that many carers would be protected from the Cap if they were caring for a disabled partner or child, but that those caring for a disabled adult who was not their partner (often an adult son or daughter) would not be exempt from the Cap, because carers in this position are not considered to be part of the same "household" as the disabled person, for benefit purposes.[106] There are also situations where the carer may live in their own home but receive Carers Allowance for a relative living elsewhere. They might be affected by the Benefit Cap due to a high private rent and/or the number of children in their own household, but be unable to enter employment due to being a carer. Moving to a cheaper property, even if available, might be impossible due to caring responsibilities.

102. Carers UK cited Government estimates that around 5,000 carers are likely to be affected by the Cap and lose, on average, £105pw. It argued that this goes against the main rationale for the policy, of improving work incentives: carers eligible for Carers Allowance provide care of 35 hours or more per week, the equivalent of a full-time job, so would not be expected to seek work. It pointed out that, although the Government had stated that it was not the intention of the policy to push carers into work, it may have that effect. It also highlighted that the policy was intended to affect those who do not "contribute to society", whereas carers contribute an average of £18,000pa in unpaid care. It recommended that the Government exempt carers from the Benefit Cap.[107] Government figures have since been revised down and it estimates that fewer households in total will be capped and therefore, fewer than 5,000 carers.[108]

103. The Government recognised that the interaction between Carers Allowance and the Cap could result in "difficult cases". However, Lord Freud's view was that this could be addressed through transitional protection (Discretionary Housing Payments (DHPs)) for an extended period. [109] When pressed on why an exemption could not be made to carers, he said:

    [...] it is very hard to produce exemptions that capture the group that you really want to help without capturing a very wide group, and that is why the discretionary housing payment strategy is designed to focus in on the real areas of need.[110]

104. However, Carers UK argued that many carers were finding it difficult to access DHPs because of "insufficient guidance and funding from central Government" .[111]

105. Following our questions to Ministers about a possible exemption for carers, the Government provided us with its rationale for not adopting this approach. It said that, for the Cap to apply in the households we have described, "the carer will have significant levels of benefit that are nothing to do with their caring responsibilities or the needs of the disabled person". It reiterated its view that DHPs were the most appropriate means of mitigating hardship.[112]

106. We are concerned that the Benefit Cap is having an adverse impact on people with disabilities and their carers in cases where the carer is resident in the same household but is not considered part of the same household as the disabled person for benefit purposes. This would typically occur where a person is the carer for an adult son or daughter, or for a parent. Carers who live separately from the person for whom they receive Carers Allowance may also be adversely affected by the Cap. DWP now estimates that fewer than 5,000 carers are affected by the Cap. However, we disagree with the Government's view that Discretionary Housing Payments are the most appropriate way of addressing these issues. DHPs cannot act as an effective long-term mitigation because they are intended to be temporary and not all carers in this situation are considered to be eligible. We recommend that the Government exempt all recipients of Carers Allowance in such circumstances from the Benefit Cap. If the number of carers affected is as low as DWP estimates, then the cost of exemption will be commensurately low.

Temporary accommodation and the Benefit Cap

107. Households which are accepted as homeless by the local authority are often placed in temporary accommodation while the LA attempts to find more permanent accommodation for them. Temporary accommodation used to house statutorily homeless families is usually more expensive than other forms of rented housing and often falls outside the definition of exempt accommodation for the purposes of the Benefit Cap. In Haringey, in August 2013, 43% of capped households lived in temporary accommodation.[113]

108. New Charter Housing Trust explained that because "the duty to secure temporary accommodation under homelessness legislation is an absolute, there are occasions where placement in higher cost accommodation is unavoidable where no other suitable accommodation is available." The negative impact of the Benefit Cap was borne by the claimants, who had no choice about living in higher cost temporary accommodation, and by local authorities who frequently had to continue to cover the extra costs because there was nowhere cheaper available.[114]

109. CoSLA argued that the provision of temporary accommodation is a key element of homelessness prevention and that it is reasonable that temporary accommodation is more expensive than permanent placements because of the extra resources involved and the short-term nature of the placements. It emphasised that tenants do not have a choice about what type of temporary accommodation they are placed in and recommended that all temporary accommodation should be exempt from the Benefit Cap.[115] Paul Anderson of Homeless Link told us that the increase in the number of people in temporary accommodation and B&Bs over the last few years, particularly in London, has meant that local authorities have had to spend a large portion of their own funding, including through DHPs, on filling the rent shortfalls for homeless households in temporary accommodation.[116]

110. Local authorities often have no option but to use more expensive temporary accommodation to house homeless households. These households often then fall within the scope of the Benefit Cap. We recommend that the Government exempt households in temporary accommodation from the Benefit Cap because these claimants have no choice about where they are housed and few options for reducing their housing costs. Moreover, local authorities often then have to fund the difference between the capped benefit paid and the rent due, and so there is likely to be no overall saving in public funds from the inclusion of these claimants in temporary accommodation within the scope of the Cap.

Savings arising from the Benefit Cap

111. DWP originally estimated that around 40,000 households would be affected by the Cap, and that the Government would save £470 million (in present value) by 2015.[117] However, research by Riverside Housing Group and the University of York estimated that the Government's savings were likely to be reduced by a third because people in temporary accommodation affected by the Cap were moving into housing in the PRS which was relatively expensive. Carol Matthews of Riverside told us that, as a result: "we are seeing that those savings, even on a moderate basis, are down by one third based on our experience over eight months."[118]

112. Gavin Smart of the Chartered Institute of Housing elaborated on the ways in which the Benefit Cap may result in savings in some budgets but cost more in others:

    On the face of it, the benefit cap was saving Haringey about £60,000 a week in terms of benefit expenditure. That is only about 1.2% of their total benefits bill. However, if you then look at the fact that people are receiving discretionary housing payments and the amount of time and money being invested either by the council or by their landlords in terms of support and advice services, it is clear that there was an element of cost coming in through the backdoor and/or cost shunting to other organisations. The savings are not as great as one might imagine.[119]

113. We assess transitional protection measures, including DHPs, in Chapter 7.

The Cap and incentives to work

114. As we have noted, one of the Government's stated intentions for introducing the Benefit Cap was to "improve working incentives for those on benefits". The Government is confident that the Cap is providing people with a "strong incentive to work". It stated in December 2013, that around 19,000 people who were potentially affected by the Benefit Cap have moved into work. The latest official Benefit Cap statistics, published in March 2014 (covering the period to the end of January 2014), showed that just over 4,200 households who were previously capped were now exempt due to an open Working Tax Credit claim.[120] However, moving into employment is only one of the reasons for ceasing to be affected by the Cap. On our visit to Luton, one of the local housing providers told us that a number of the 28 households which had been identified as potentially affected by the Cap had subsequently been found to be eligible for previously unclaimed Disability Living Allowance, which took them out of the scope of the Cap.

115. It should be noted that it is not possible from the available data to come to conclusions about the proportion of claimants who might have entered or increased work regardless of the Cap. Some witnesses did report that some affected tenants had been able to avoid the Cap by moving into work. The London Borough of Brent reported that 40% of potentially affected families with which it had contact were helped to move into work. However, several witnesses stressed that, while local councils, housing providers and support organisations were doing their best to help affected tenants to enter work, for many people work was simply not an option, because of, for example, language barriers, skills barriers, or family commitments. Z2K estimated that only around a third of those affected by the Cap were capable of work. It also referred to DWP research which showed that some of those affected by the Cap who moved into work would have done so anyway.[121]

96   DWP, Impact Assessment- Benefit Cap (Housing Benefit) Regulations 2012: Impact assessment for the benefit cap, July 2012 Back

97   DWP, Impact Assessment- Housing Benefit: Under occupation of social housing, June 2012 Back

98   DWP (HCT92), section 7 Back

99   DWP Benefit Cap-households capped and off flows, data to January 2014, GB February 2014 Back

100   Newcastle City Council (HCT 48) para 5; Zacchaeus 2000 Trust (HCT 35) para 17; DWP Benefit Cap-households capped and off flows, data to January 2014, GB February 2014, Oral evidence taken on 29 January 2014, Q375 Back

101   Chartered Institute of Housing, Haringey Council, Experiences and effects of the benefit cap in Haringey, October 2013 Back

102   The Children's Society (HCT 80) section 2, Figure 5 Back

103   Oral evidence taken on 18 December 2014, Q197; Oral evidence taken on 29 January 2014, Qq398, 449 Back

104   Chartered Institute of Housing (HCT 63) paras 1.8 and 1.27; Industrial Communities Alliance (HCT 21); Oral evidence taken on 06 November 2014, Q34; Oral evidence taken on 18 December 2014, Qq 186-189; Oral evidence taken on 29 January 2014, Q452 Back

105   House of Commons Library Standard Note, The Household Benefit Cap, SN/SP/6294, June 2013 Back

106   Oral evidence taken on 15 January 2014, Q309 Back

107   Oral evidence taken on 15 January 2014, Q309; Carers UK (HCT 76) para 1.2 Back

108   DWP (HCT92) section 6 Back

109   Oral evidence taken on 12 February 2014, Qq487-489 Back

110   Oral evidence taken on 12 February 2014, Q493 Back

111   Carers UK (HCT 76) para 1.2 Back

112   DWP (HCT92) section 7 Back

113   CIH, Haringey Council, Experiences and effects of the benefit cap in Haringey, October 2013, page 11 Back

114   New Charter Housing Trust (HCT 06) para 4.1 Back

115   Convention of Scottish local Authorities (HCT 53) paras 27-33 Back

116   Oral evidence taken on 15 January 2014, Qq325-327 Back

117   DWP, Impact Assessment- Benefit Cap (Housing Benefit) Regulations 2012: Impact assessment for the benefit cap, July 2012 Back

118   Oral evidence taken on 04 December 2013, Q88 Back

119   Oral evidence taken on 04 December 2013, Q77 Back

120   DWP, Benefit Cap (Housing Benefit) Regulations 2012: Impact assessment for the benefit cap, July 2012; DWP Press Release: Benefit cap successfully in place nationwide, 27 September 2013; DWP Press Release: Benefit cap: 19,000 potentially capped into work , 9 December 2013; DWP Benefit Cap-households capped and off flows, data to January 2014, GB February 2014 Back

121   Citizens Advice (HCT 77) para 2.7, Placeshapers (HCT 24) para 5.3, Oral evidence taken on 18 December 2014, Qq185, 201; Oral evidence taken on 29 January 2014, Q402 Back

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Prepared 2 April 2014