The benefit cap Contents

4Financial savings

98.The Department says that one of the benefit cap’s aims is to:

Secure the economic well-being of the country by reducing spending on benefits and encouraging positive behavioural changes.134

Expected savings

99.The Treasury originally forecast that the cap would save £270 million a year (from 2014–15 onwards) once fully implemented. This estimate was revised down in the 2013 Budget to £185 million a year.135 In addition to these savings, it forecast that the lower benefit cap would save a further £155 million a year in 2017–18, falling to £110 million by 2020–21. Projected savings up until 2018–19 are shown in figure 10 below.136

Figure 10: Projected savings from the Benefit cap

Source: 2013 Budget, DWP Impact Assessment for the benefit cap, August 2016.

How much has it saved?

100.The Department claims the cap has met its aim of securing financial savings. In oral evidence, the Minister argued, “we have clearly secured that objective because last year [2017/18], without taking into account any form of behavioural changes, we saved £190 million.”137 However, these savings equate to just under two thirds (64%) of the £295 million of savings forecast for 2017–18. It is likely that this is because the number of households affected by the cap is now around 63,000 instead of the 88,000 the Department originally projected in its August 2016 impact assessment.138

Full picture of savings

101.Witnesses drew attention to the fact that these savings are “minuscule” in the context of overall cuts to welfare.139 Carl Emmerson, of the IFS, explained that by 2020 welfare reforms implemented since 2010—which includes the four-year benefit freeze, cuts to Housing Benefit, the introduction of Universal Credit and the introduction of the two child limit—will reduce benefit spending by around £40 billion a year.140 Savings of around £200 million a year from the benefit cap therefore represent less than 1% of these savings; or barely a rounding error (0.1%) of the overall welfare bill of £177 billion.141

102.In written evidence, the Department explained that the savings it reports include neither any savings to the taxpayer as a result of behaviour changes (for example, people moving into work) nor the costs of Discretionary Housing Payments and administrative funding that it provides to local authorities to “support the delivery of the cap”.142

103.In 2018–19, the Department allocated £60 million of DHP funding for Local Authorities in Great Britain to support capped households, and £8 million to fund benefit cap administration costs and other ‘new burdens’ incurred by local authorities in operating the cap. Assuming the savings in 2018–19 are of a similar level to 2017–18 (£190 million), this would mean that including these additional costs would bring savings down by over a third, to around £130 million. The IFS has previously commented that the provision of DHPs as a mitigating feature for vulnerable households renders the “net fiscal savings from the cap all the more trivial”.143

104.Organisations such as Policy in Practice argued that, if the costs that local authorities and the welfare system incur as a result of the cap are taken into account, the annual savings of around £200 million a year could probably be offset.144 CPAG told us that, together with the costs of the funding that the Department provides to local authorities, the cap’s impact on child poverty could render the long-term financial savings “negligible”.145

105.The Department confirmed that it has not carried out a full cost benefit analysis of the cap.146 Despite this, it told us that the costs of DHPs and administrative funding provided to local authorities are “far outweighed by the total fiscal savings from the benefit cap”, and that it was “not aware of any knock-on effects on other public spending as a result of the benefit cap being introduced”.147 Given the concerns raised by stakeholders in the advice and welfare sector—including local authorities and organisations supporting claimants—about the additional pressures the cap is placing on the wider welfare system, it is clear that the Department has not sought to identify these costs or engaged stakeholders in making this statement.

Additional costs to local authorities

Additional Resource

106.Policy in Practice described the vital role that local authorities play in supporting vulnerable claimants. It said:

Local authorities are often left “plugging the gap” created by benefit rules and necessarily provide a safety net for their most vulnerable and disadvantaged residents, albeit with ever shrinking and limited resources.148

107.Local authorities told us that, while the cap was introduced to secure financial savings for central government, they have had to dedicate significant resources to “mitigate the negative impact of the policy”.149 We heard from local authorities who were putting a tremendous amount of effort into targeting and supporting residents affected by the cap. All of the local authorities who spoke to us had put in place specially designated teams to proactively reach out to households affected by the cap (as well as by other welfare reforms).150

108.Newcastle City Council explained that it took the initial “proactive” approach of helping families to reduce their financial expenditure. This included helping claimants to reduce debt repayments, working with water providers to reduce a household’s bills and negotiating with high cost credit agencies on behalf of claimants to return household goods and replace them with goods from its “supporting independence scheme”.151 Several local authorities stressed the importance of providing households with “stability”, before they could even begin to talk to claimants about seeking employment.152

109.Witnesses from local authorities raised concerns about the sustainability of the support they are providing in the long-term and highlighted that it is not a ‘statutory’ service.153 Several authorities said that they were using their own funds or seeking additional funding from other schemes to help households affected by the cap. Mark Fowler, Director of Community Solutions at the London Borough of Barking and Dagenham, explained that, while the council plans to continue using its own funds, “there are additional pressures coming into local authorities”.154 Likewise, Claire Horton of Newcastle City Council said:

If the money did run out for a particular approach, we would have to think about how we would do that with existing resources. That would mean we might not be able to help competing groups of residents who have other needs.155

110.Despite the work they are doing, we heard that local authorities are still seeing some “absolutely desperate circumstances”. Mark Fowler highlighted that the losses some families face are “quite dramatic” and said, “no matter what you put in place to try to work with people with their finances, there is only a certain level of impact you are going to have”.156 It is important to note that, while we heard from a handful of local authorities which are doing great work, there are over 400 local authorities in the UK and not all local authorities will be taking such a proactive approach.

Data sharing

111.Local authorities explained that it is the data on capped households—available to them through the Housing Benefit system—which allows them proactively to target capped households who may need support.157 We heard that they are not able to access this data for households on Universal Credit, because the Department will not share it with them. Witnesses said this leaves authorities “blind” to who is capped under UC.158 Graham Bourne, Head of Revenue and Benefits for Brighton Council, said that this forces local authorities to be “reactive rather than proactive, which is no way to deal with hardship”.159 Mark Fowler told us that 22% of the people who are being capped across London are now UC claimants and stressed that “regardless of how good the support is in the services, those people are more exposed than they would have been”.160

112.In oral evidence, the Minister said he felt the point of data sharing with consent is an “absolute no-brainer” and referred to an example where this was working for ex-offenders. He told us he planned to raise the issue with the Secretary of State as a priority.161 However, in correspondence following the session the Minister said:

The Department is committed to explore options with the SSAC in response to the SSAC’s report on the draft of the UC (Managed Migration) Regulations 2018 and will publish a report on its joint conclusions.162

He did not say when this report would be published.

113.The work that many local authorities are doing—often at the expense of their own resources—to identify and support capped households is a vital tool in mitigating some of the hardship the cap creates. To date, local authorities have been able to target capped households and offer support using Housing Benefit data which indicates which households are subject to the cap. Local authorities told us that they cannot do this for Universal Credit because the Department does not provide them with the equivalent UC data. It is unacceptable that the Department is effectively hindering local authorities’ efforts to provide the support that capped households on UC so desperately need. This places households on UC at a significant disadvantage compared to those on legacy benefits.

114.We recommend that the Department makes it an urgent priority to ensure that local authorities have the UC data they need to continue to support capped households. It should publish its report on data sharing by July 2019 and ensure that improved data sharing processes are in place by September 2019.

Temporary Accommodation

115.We heard that including households in temporary accommodation in the cap has a “huge” impact on local authority budgets.163 Some evidence to our inquiry described how families unable to cover their rental shortfalls were losing their homes and being moved into temporary accommodation as a result.164 Shelter Scotland explained that local authorities are often “forced to pick up the tab” if claimants cannot afford their rent, either through arrears or by providing DHPs.165 London Councils explained that councils in London were having difficulties finding affordable housing for capped claimants, increasing the pressure on their emergency accommodation budgets.166

Wider costs

116.Several organisations highlighted that the stress of the cap has led to an increased demand and pressure on mental health services.167 Brighton and Hove City Council pointed out that families failing to eat or heat their homes sufficiently will also lead to a knock-on cost for public health services.168

117.The Department has repeatedly claimed that the benefit cap is saving money. Its claimed savings of £190 million a year are just 1% of the savings expected from the welfare reforms implemented since 2010, and a mere 0.1% of the total welfare bill. But even these relatively small savings are likely to be an overestimate. Recognising that the cap creates hardship, the Department gives back a significant portion of the money it takes from claimants by providing funding for Discretionary Housing Payments to local councils, to help them support capped claimants. This circular process of transferring public money from one budget to another—while a straightforward administrative issue for the Department—fails to consider the huge impact on families, who are left relying on less stable support; the Department does not even include these costs in its figures. Nor does it consider the increased costs to local authorities through temporary accommodation, or the wider costs that hardship created by the cap may have on other public services. The Government cannot have it both ways: if this support for claimants is a key safeguard, it ought to be reflected in calculations of any savings.

118.In the interest of transparency, we recommend that the Department conducts a full cost benefit analysis of its benefit cap policy to determine how much it really saves. This analysis should include the cost of Discretionary Housing Payments and administrative funding it provides to local authorities. It should seek to identify any additional costs to local authorities—for example, as a result of rent arrears—and to identify the costs to the wider welfare system which are the result of hardship caused by the cap.

Discretionary Housing Payments: funding for local authorities

119.The DWP allocates DHP funding to local authorities across England and Wales. DHPs for Scotland were devolved from 1 April 2017, under the Scotland Act 2016. In addition to small amounts of “core funding”, local authorities receive specific allocations intended to address the effects of Housing Benefit reforms. This includes funding to help families who struggle to adjust to the benefit cap, as well as funding for specific allocations to address the effects of Local Housing Allowance reforms and the removal of the spare room subsidy.169 A breakdown of the Government’s total DHP funding for 2017–18 is set out in the table below:

Table 3: Central Government DHP allocations 2017–18, England and Wales

Element

£millions

Core

18

Local Housing Allowance

27

Removal of spare room subsidy

54

Benefit Cap

67.5

Total

166

Source: DWP 2017–18 Discretionary Housing Payment Statistics, July 2018

120.The Department argued that statistics on the use of DHPs suggest that “local authorities are adequately resourced for the purposes of implementing the DHP scheme and mitigating hardship.” It stated that, in 2017–18, local authorities spent £163.7 million of the £166 million allocated to them (99% of the total allocation). It also noted that the majority (66%) of local authorities spent less than their full-year allocation. Local authorities reported that 28% of their spending on DHPs related to support for capped households. However, the Department told us that this is likely to be an underestimate, as a further 32% of spending (just under £44m) was recorded by local authorities as being for a ‘combination of welfare reforms’ or ‘not for welfare reforms’.170

121.While it is true that 99% of the amount allocated to local authorities was spent on providing DHPs to households in need, not all of the money spent came from the funding provided. Reporting the proportion spent in this way masks the significant variation in DHP expenditure across local authorities as well as the fact that many local authorities used money from their own budgets to top up their DHP funds (DWP guidance states that each local authority’s total DHP budget can be up to two and a half times the contribution from central Government). The map below shows the variation in local authority DHP expenditure across England and Wales.

Figure 11: Percentage of Central Government DHP allocation spent by local authority, April 2017-March 2018

Source: DWP 2017–18 Discretionary Housing Payment Statistics, July 2018

122.Furthermore, while 66% (229) of local authorities underspent their DHP allocation, 29% (101) of local authorities spent more than their allocation. The average overspend for each local authority (£63,000) was much larger than the average underspend (£38,000), as shown in the table below.171

Table 4: DHP amount over/under-spent 2017–18

No. of local authorities

Total amount (£)

Average amount (£)

DHP overspend (England & Wales)

101

£6,317,758

£62,552

DHP underspend (England & Wales)

229

£8,583,766

£37,484

Exact spend count

17

Source: DWP Discretionary Housing Payment Statistics

123.We heard from several local authorities that the DHP funding the Department provides is not sufficient. Mark Fowler said that in the past three financial years London boroughs spent £7 million on DHPs out of their own general funds in addition to their central government allocation. He noted that if this money had not been used to support capped claimants, it could have been spent on other local government services.172 Cambridge Council, which overspent on both its total DHP allocation and its benefit cap allocation, told us that providing support was vital in order to prevent households from moving “endlessly between homelessness, rehousing and eviction and homelessness again”.173 London Councils said that DHP funding is “in dire need of review”.174

124.The Local Government Association said there are some concerns that certain councils are underspending their allocations and work needs to be done to understand the various reasons for this. However, it also argued that the variation in expenditure means that “the allocation formula needs to be reviewed to ensure that it more accurately reflects the local need”.175

125.The Government expects local authorities to support capped households who struggle financially with the funding it provides through Discretionary Housing Payments. However, it is clear that a significant proportion of local authorities are having to top-up this funding, putting pressure on their budgets and diverting funds from services that would be used elsewhere. At the same time, there are other local authorities that seem to have funding going spare.

126.We recommend that the Department works with local government to review its methodology for individual local authority DHP allocations so that local authorities have the funding they need to prevent hardship. Where there is surplus DHP funding that has not been spent towards the end of the year, local authorities who have spent up to or over their allocations should be able to apply for additional funds from this surplus.


134 Department for Work and Pensions (BEC0023)

135 HM Treasury, Budget 2013, HC 1033, March 2013

136 Department for Work and Pensions, “Welfare Reform and Work Act: impact assessment for the benefit cap”, August 2016

137 Q142

138 Department for Work and Pensions, “Welfare Reform and Work Act: impact assessment for the benefit cap”, August 2016

139 Q22

140 Q21

141 National Audit Office, Departmental Overview -Department for Work and Pensions; The NAO describes the total welfare bill of £177.2 billion as £177 billion in its Departmental overview

142 Department for Work and Pensions (BEC0023)

143 Institute for Fiscal Studies, A tighter benefit cap, accessed 6 March 2019

144 Q22

145 Child Poverty Action Group (BEC0022)

147 Department for Work and Pensions (BEC0023)

148 Policy in Practice (BEC006)

149 Newcastle City Council and Your Homes Newcastle (BEC0020)

150 Q96, Q100, Q105

151 Newcastle City Council and Your Homes Newcastle (BEC0020)

152 See for example Newcastle City Council and Your Homes Newcastle (BEC0020), Brighton and Hove City Council (BEC0021)

153 Q107

154 Ibid.

155 Ibid.

156 Q100

157 See for example London Councils (BEC0018)

158 Q139

159 Q140

160 Q138

161 Q217

163 Shelter Scotland (BEC0013)

164 See for example London Councils (BEC0018)

165 Shelter Scotland (BEC0013)

166 London Councils (BEC0018)

167 See for example London Councils (BEC0018), Stonewater (BEC0014)

168 Brighton and Hove City Council (BEC0021)

170 Department for Work and Pensions (BEC0023)

172 Q110

173 Cambridge Council (BEC0034)

174 London Councils (BEC0018)

175 The Local Government Association (BEC0026)




Published: 12 March 2019