The benefit cap Contents

Conclusions and recommendations

Does the benefit cap incentivise work?

1.We can understand the principle of imposing the benefit cap on claimants who are able to work but choosing not to do so. But the vast majority (82%) of households affected by the cap have been assessed, by the Department itself, as not being required to look for work—often because they have an illness or disability or are caring for very young children. Few of these claimants will be comforted by the Minister’s flippant suggestions that they simply move house, renegotiate their rent or even take a lodger. In reality, they are left with no way to escape the cap. (Paragraph 35)

2.The Government made the case for the cap to Parliament on the grounds that it was meant for those who should be able to go to work. But it is now applying the cap to people who have been told by its own Jobcentres that they do not have to look for work, and who face major barriers to doing so. A policy aimed at people who could work but were choosing not to is now being applied to single mothers with newborn babies and people with serious health conditions. This cannot be what was intended and does not reflect the Government’s stated intentions. (Paragraph 36)

3.We recommend that the Department return to the original aims of its policy and apply the cap only to claimants who it expects to be actively looking for work. Specifically, in addition to existing exemptions, the cap should only apply to claimants who are either:

4.The Department’s own evaluation clearly shows that just 4.7% of households moved into work because of the original benefit cap (£26,000). Despite this small impact, Ministers have repeatedly sought to over-claim the cap’s effectiveness as a work incentive by quoting the total number of people who have moved off the cap and into work—even in the face of clear warnings from the UK Statistics Authority. The Government should be fully transparent about the impact of the cap on moving claimants into work. It must make it clear that while some capped households move into work because of the cap, the vast majority would have found work anyway. (Paragraph 47)

5.In arguing that the cap is effective in getting people into work, the Department has relied heavily on the relative increase (41%) in capped households moving into work, compared to non-capped households. That is certainly a more impressive figure than the absolute increase of just 4.7%. But for most people, the distinction is difficult to grasp. The Government should take care that its use of statistics does not inadvertently mislead the public into thinking that the cap is doing better at getting people into work than it really is. (Paragraph 48)

6.We recommend that when referring to the cap’s effectiveness as a work incentive, the Department should no longer:

a) cite the total number of people who have moved off the cap and into work as evidence of the cap’s effectiveness, since the majority would have moved into work anyway; or

b) cite the relative increase (41%) in capped households moving into work without also making clear that the absolute increase is just 4.7%. (Paragraph 49)

Is the benefit cap fair?

7.We are not convinced by the Government’s argument that the cap restores fairness to the benefit system. Families in work were already better off than similar families who were out of work, even without the cap. Furthermore, the Government sets the cap by referring to earned income, without taking into account the additional benefits that in work families can receive. This means that, when the cap is in place, differences in income between capped claimants and similar families in-work earning the cap limit can amount to tens of thousands of pounds. The greater the number of children in a family, the more pronounced these differences become—from a difference of £12,000 for a single parent with 3 children (a third of capped households), rising to £22,000 for a single parent with five children (5% of capped households). Comparing only part of the income of an in-work household with all of the income of a capped household is not fair. The result of this is that the benefit cap is set far too low. (Paragraph 57)

8.We recommend that the Government increases the current cap limits, by taking account of in-work benefits as well as earnings when calculating the limits. It should also ensure that cap levels are uprated in line with inflation. (Paragraph 58)

9.The Department decides whether people are entitled to benefits, and how much it thinks they need to live on. It is therefore inevitable that the benefit cap, which takes some of that money away, leaves many families without enough money to meet even their basic needs. Parents are left making impossible choices: whether to pay their rent, feed their children or heat their homes. Many experience stress and anxiety because of mounting debt and insecurity; we even heard cases of relationships breaking down and in some cases families losing their homes. Bluntly, the Government’s policy is plunging families into hardship—but it is only just beginning to consider the impact. It last looked at this in 2014 when the cap was set at £26,000. Its next evaluation of the impact of the cap will be published in spring 2019—more than two years after the lower cap was introduced. Given the backdrop of various caps and freezes to benefits and tax credits since 2010, which mean that even without the cap, benefit claimants have been significantly left behind—real incomes of out-of-work households will have reduced by at least 5.7% by 2020 compared to a 19.6% increase in average earnings—a competent Department must surely recognise that assessing the impact of the cap every 5 years is unacceptable. (Paragraph 71)

10.In order to ensure that families do not face hardship because of the cap, the Department should:

11.We stand by our predecessor Committee’s conclusion in 2014 that capped claimants in temporary accommodation are immediately put at a disadvantage: they are placed in expensive accommodation over which they have no choice. We do not agree with the Government’s argument that the cap should continue to apply to these households simply because it maintains pressure on local authorities to find a long-term solution. It is clearly not the claimant’s fault that their accommodation is significantly more expensive, so it seems ludicrous to apply the cap in these circumstances. (Paragraph 75)

12.We recommend that the Government immediately exempts all claimants in temporary accommodation from the benefit cap. (Paragraph 76)

13.Where a UC claimant’s rent goes directly to their landlord, they can find that the benefit cap leaves them with nothing. This is because their rent is paid in full to their landlord and the cap deduction is taken from their living costs. Removing the direct payment merely puts claimants in the position of being able to make the difficult choice between paying their rent or buying essentials—like food for themselves and their children. However, it is imperative that claimants are made aware that if their direct payment remains in place they could be left with nothing. (Paragraph 81)

14.Until the introduction of Universal Credit, because of practical limitations, only Housing Benefit could be capped. Under Universal Credit it is not only a household’s housing costs that can be reduced, but its whole UC award. That means that the cap can cut far deeper into the entirety of a household’s income—including even money intended for children. The little money that these households have left can then be further reduced by deductions to their UC awards, which can include the repayment of Advances necessary to tide people over during the five- week wait for their first UC payment. The Government says simply that this is how the cap is supposed to work, but the risk that it leaves even more families facing severe hardship is obvious. Due to the delayed roll out, the number of capped households on Universal Credit so far is small, but it is rising. Already we are hearing the appalling effects of families being left with so little, including—in extreme but real instances—children being taken into care because of neglect. Given the Minister’s indication that the proportion of households on Housing Benefit who should have been capped beyond their housing costs was around 10%, we estimate that any additional savings from applying the policy as intended under Universal Credit would not be substantial. (Paragraph 82)

15.We recommend that the Department ring-fence elements of UC to ensure that claimants are not left without money for food. Specifically, the cap should not be applied to the following elements of a claimant’s UC award:

In response to this report the Government should also provide an estimate of how many people it expects to be capped via Universal Credit and how many people it expects to be capped via Housing Benefit, once UC is fully rolled out. (Paragraph 83)

16.Courts have already found that the interaction between how frequently people are paid and when they receive their UC award can lead to unfair financial losses for claimants. In the context of the benefit cap, the alignment of a claimant’s payday and UC assessment period can mean that people who are earning enough to escape the cap are capped anyway. It is wholly unacceptable that going to work, as the Department wants and encourages people to do, can leave people suffering significant financial losses simply because of a fundamentally flawed administrative process. Worse still, the Department does not even know who has been affected. This is clearly not how the cap was intended to work and requires an urgent solution. (Paragraph 89)

17.We recommend that the Department urgently finds a solution to ensure claimants are not unfairly capped because of the alignment of their payday and UC assessment period. It should identify all cases where the cap has been applied incorrectly and ensure claimants are fully compensated before September 2019. The Department should write to the Committee with an update of progress each month. (Paragraph 90)

18.The Department has relied on Discretionary Housing Payments (DHPs) as the panacea for claimants who struggle to adapt to the cap. But the fact that this support is discretionary means that households can be subject to a ‘postcode lottery’, finding themselves at the mercy of their local council’s policies and decisions which in turn depend on the size of their budgets and competing pressures for funding. Since the Department has little understanding of how different local authorities use DHPs, it cannot know whether its key safeguard is working effectively for capped claimants and their families. The reality is that while DHPs work as a necessary sticking plaster for some families, many families are not getting the consistent support they need. This can be a particular problem in areas with high housing costs, where DHP allocations are more likely to be rationed. (Paragraph 96)

19.We recommend that the Department complete a full review of Discretionary Housing Payments to understand how different local authorities approach the provision of DHPs for capped claimants. It should also evaluate how effective DHPs have been as a support for claimants who struggle to adjust to the cap, by looking at individual claimants’ experiences. The Department should use the information from this review to produce clearer and more directive guidance to local authorities about the provision of DHPs so that they act more effectively as a safeguard. If the Department refuses to carry out this review, we will invite the National Audit Office to carry out a value for money study of DHPs and their use by different local authorities in mitigating the impact of welfare reforms. (Paragraph 97)

Financial savings

20.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. (Paragraph 113)

21.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. (Paragraph 114)

22.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. (Paragraph 117)

23.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. (Paragraph 118)

24.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. (Paragraph 125)

25.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 for this surplus. (Paragraph 126)

Conclusion

26.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. (Paragraph 127)

27.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. (Paragraph 128)

28.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. (Paragraph 129)

29.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. (Paragraph 130)

30.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. (Paragraph 131)





Published: 12 March 2019