The benefit cap Contents

1Introduction

History of the cap

1.As part of the October 2010 Spending Review, the Coalition Government announced plans to restrict the total benefits paid to most people of working age. The cap would limit the total amount of money a household could receive to the average earned income of a working household’s take-home pay. This equated to £500 per week (£26,000 per year) for a family and £350 per week (£18,200 per year) for a single person with no children. The cap was part of a wider series of welfare reforms aimed at making the system “fairer and more affordable”.1 The Government said that the key aims of the cap were to:

The cap was first introduced across the UK between April and September 2013.

2.A commitment to reduce the cap from £26,000 to £23,000 was included in the Conservative Party’s 2015 Manifesto. The Summer Budget 2015 confirmed the Government’s intention to reduce the cap for families to £23,000 in London (£15,410 for single people) and £20,000 (£13,400 for single people) in the rest of the UK. The new, lower cap levels were applied to all households that were already capped on 7 November 2016 and were then rolled out across the UK to newly affected households between November 2016 and January 2017.2

Original cap

Rationale

3.The policy was introduced to Parliament with an emphasis on fairness: the Government argued that no out of work family should receive more in benefits than the average working family earns. The then Secretary of State for Work and Pensions, Rt. Hon Iain Duncan-Smith, said:

The principle is that people who are unemployed and on benefits should not be receiving more than average earnings. It is a matter of fairness, so that those who are working hard and paying their taxes do not feel that someone else will benefit more by not playing a full part in society.3

He also said explicitly that the cap was intended to apply to people who could go to work:

If the hon. Lady had looked at what the cap covers, she would know that those on tax credit will be exempt, as will those on DLA, widows and others who are in difficulties. The cap is about those who we believe should be able to go to work but are not doing so.4

The Department reiterated the aim of fairness in its written evidence. It said:

The Government considers that the cap imposes a reasonable limit on the amount of welfare benefits an out-of-work household should receive; in the Government’s view, this restores fairness between working households and taxpayers and those in receipt of out of work benefits.5

Who was affected?

4.Between the 2013 cap’s introduction and November 2016, 84,000 households had their benefits capped at some point. Almost all households affected by the cap (94%) had dependant children.6 The cap affected mainly single parents and larger families. Single parents are more likely to be affected by the cap because they are less likely to be in employment than parents in a couple, particularly when they have young children.7 Of the households affected, 56% were single parents, of whom 96% were women; and over three quarters (77%) of all households affected had three or more children. There was a disproportionate impact on households in London. Almost half (44%) of all capped households were located in the capital. In November 2016, just before the lower cap was introduced, 20,000 households had their benefits capped.8

Lower cap

Rationale

5.In its August 2016 impact assessment of the lower cap, the Government argued that the original cap had been successful in getting people into work and that the lower cap was designed to “strengthen” work incentives for those on benefits and help in “tackling the deficit”. It said:

The objective of the policy change is to build on the successes of the existing benefit cap, as shown by evaluation evidence. We will do this by restricting the total amount of benefits that a household can receive to £20,000 in Great Britain and £23,000 in Greater London (and 67% of these levels for single people without children). By doing this the policy will:

1. Further improve work incentives for those on benefits

2. Promote even greater fairness between those on out of work benefits and tax payers in employment (who largely support the current benefit cap), whist providing support to the most vulnerable

3. Further reduce benefit expenditure and continue to help tackle the financial deficit.9

Who is affected?

6.The Government’s August 2016 impact assessment estimated that around 88,000 claimants would be affected by the lower benefit cap once it was fully implemented—64,000 of whom would be newly affected. It said that the new tiered approach, with a cap of £23,000 in London and £20,000 in the rest of the UK, would more evenly distribute its effect across the country. Under the original cap around 40% of capped households were in London, but this was expected to fall to 22% under the lower cap.10

7.Following the rollout of the lower cap, the number of households affected by the cap more than trebled. As of November 2018 (the latest data available), 53,000 households were capped under Housing Benefit and 9,800 under Universal Credit (UC). The vast majority of those who had their Housing Benefit capped (79%) were capped only because of the introduction of the lower cap levels. Figure 1 shows the number of households that had their benefits capped at each month from its introduction to November 2018.11

Figure 1: Capped households at each month from April 2013 to November 2018

Source: Department for Work and Pensions: Benefit cap quarterly statistics to November 2018

8.The lower cap did result in a more even distribution of households affected by the cap across the UK, with the proportion of households affected in London down to 24% in November 2018, compared to 40% before the lower cap was implemented.12 DWP’s statistics for November 2018 show that the majority of households who had their Housing Benefit capped were still largely single parents (74%), of whom 96% were women. Similarly, the cap was still mainly affecting larger families. In November 2018, three quarters of capped households had three or more children.13

Applying the cap

9.Whether a household’s benefit income exceeds the cap is determined by adding together the ‘included’ benefits that an individual, their partner and any dependant children are entitled to. It does not include the benefits of non-dependants, such as adult children or friends who live with the claimant. The figure below shows which benefits are included when calculating if a household’s benefits exceed the cap:

Figure 2: Benefits included in cap calculations

Source: GOV.UK, Department for Work and Pensions (BEC0023)

Until November 2016, Carer’s Allowance and Guardian’s Allowance were included in the cap calculations. Since then, households including someone entitled to one of these elements, or to the carer element in UC, have been exempt from the cap.

Housing Benefit vs UC

10.The cap operates by applying deductions to a household’s benefits. The way in which this is done depends on the whether the household receives Housing Benefit or UC. For Housing Benefit claimants, the cap is administered by local authorities who reduce the amount of Housing Benefit the claimant receives. The Department explained that it had taken the initial approach of reducing only a claimant’s Housing Benefit because of the practical difficulties of reducing their total income under legacy benefits.14 For claimants on UC, reductions are applied to their total UC award. Of the 220,000 households that have been capped at some point between the cap’s introduction and November 2018, the majority (91%) were capped via their Housing Benefit, while just 9% were capped via their UC award.15 The number of households who are capped via UC will increase as more people move onto the benefit.

Exemptions

11.There are some circumstances in which the cap does not apply. The full list of exemptions is set out in the figure below. In its written evidence, the Department explained that the main reasons for exemptions are:

Figure 3: Exemptions from the benefit cap

Source: GOV.UK

Grace period

12.If a claimant or their partner was in work consistently for the last 12 months, there is a ‘grace period’ during which the benefit cap is not applied. The grace period lasts for 39 weeks for Housing Benefit claimants and 9 months for UC claimants.

Our inquiry

13.We initially began our inquiry into the benefit cap in February 2017, following concerns about how the cap was working in practice and the impact it was having on claimants. Our initial inquiry could not continue because of the 2017 General Election. We re-launched the inquiry in September 2018.

14.We would like to thank everyone who provided both written and oral evidence to the Committee. We are grateful in particular to Sally, Emma, Paula and Jo who shared their personal experiences of the cap so candidly. Their evidence was invaluable to our inquiry.


1 HM Treasury, Summer Budget 2015, HC 264, July 2015

2 Department for Work and Pensions, “Benefit Cap: number of households capped to November 2018”, February 2019

3 HC Deb, 9 March 2011, col 889, [Commons Chamber]

4 HC Deb, 15 June 2011, col 882, [Commons Chamber]

5 Department for Work and Pensions (BEC0023)

6 Department for Work and Pensions, ‘Benefit cap: number of households capped to November 2016’, February 2017

7 Office for National Statistics, ‘Families and the Labour market, England: 2018, accessed 6 March 2019

8 Department for Work and Pensions, ‘Benefit cap: number of households capped to November 2016, February 2017

9 Department for Work and Pensions, “DWP Welfare Reform and Work Act: impact assessment for the benefit cap, 25 August 2016

10 Ibid.

11 Department for Work and Pensions, “Benefit cap quarterly statistics: GB households capped to November 2018”, February 2019

12 Ibid.

13 Department for Work and Pensions, Stat-Xplore; Benefit cap tables, accessed February 2019

14 Q192

15 Department for Work and Pensions; “Benefit cap quarterly statistics: GB households capped to November 2018”, February 2019

16 Department for Work and Pensions (BEC0023)




Published: 12 March 2019