127.The Department for Work and Pensions decides whether people are entitled to benefits and how much they need to live on. The benefit cap overrides this system and takes some of this necessary support away. The Government justifies this financial shock to families by saying that it achieves three aims: encouraging more people to work; restoring “fairness” to the benefit system, and making financial savings. Nearly six years after it was introduced, the cap’s performance against all three aims is disappointing at best.
128.The Government claims that the cap restores fairness between people who are out of work and people who are working. But this claim does not stand up to scrutiny: the cap fails to account for the benefits that in-work families can receive—leaving them substantially better off. In any case, families in work were already better off than similar families who were out of work, even without the cap. Nor is it clear that the cap is saving money, as even the small amount the Department claims to have saved—just 0.1% of the total welfare bill—includes only the money it takes from households’ benefit income. It hands back a significant proportion of these savings to local authorities to support capped claimants, mainly through Discretionary Housing Payments. In part, it is simply transferring costs from one budget to another. Finally, while a small percentage of claimants—just 4.7%—move into work because of the cap, the reality is that the vast majority do not. This comes as little surprise: most people who are capped have already been assessed by the Department itself as not being required to seek work, because they face major barriers to doing so.
129.Meanwhile, we are hearing harrowing stories from all over the country of people going hungry, parents struggling to feed their children, families shivering in their homes because they can’t afford heating, and tenants building up crippling rent arrears. The Government must now look at the impact of the benefit cap in the round and consider whether, in its current form, it is achieving what it set out to do. If the cap is really intended to encourage people into work and restore fairness to the system, it should only be applied to people who are expected to be looking for work.
130.We recognise that, taken together, our recommendations would reduce the savings made by the benefit cap. In the absence of a full cost-benefit analysis of the kind we have recommended, it is difficult to assess precisely what the costs of our proposals might be. Applying the cap only to those who are expected to find work would remove about 80% of currently capped households from the cap. That would of course reduce the direct savings to central government—but it would also reduce the costs of this policy, by reducing the need for Discretionary Housing Payments and other support provided by local authorities and the wider welfare system as a result of the hardship the cap creates. Overall, the evidence suggests that the cost to the public purse might well be negligible—but the positive impact for people escaping the cap would be immense.
131.It is now time for a full audit of this policy. The Government must look carefully at both the financial and the human costs of the cap in its current form, and weigh these in the balance. If it is found wanting, the Government must commit to radical change—and quickly.
Published: 12 March 2019