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The benefit cap - Report Overview

This is a House of Commons Committee report with recommendations to the Government. The Government has two months to respond.

Author: Work and Pensions Committee

Date Published: 12 March 2019

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Benefit cap overview

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.  It limits the total amount a household can receive in benefits to £20,000 per year for families outside London and £23,000 per year for families in London. The Government justifies this financial shock to families by saying that it achieves three aims: encouraging more people into work; restoring "fairness" to the benefit system, by ensuring a non-working family does not receive more in benefits than a working family gets from going to work; and making financial savings.

However, nearly six years after it was introduced, the cap's performance against all three aims is disappointing at best. The claim of “fairness” does not hold, as 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, and not any of the additional costs created by the cap. 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. 

The Committee understands the principle of imposing the benefit cap on people who are able to work but are choosing not to.  But applying the cap to people who face significant barriers to work is having unintended consequences and causing unacceptable hardship and difficulties for many families.   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. 

Video: The benefit cap - Sally's story

Who should be subject to the benefit cap?

The Government told Parliament that the cap was meant for people who could work, but were choosing not to. But in fact the majority of people who are affected by the cap have been assessed by the DWP as not being required to look for work, usually because they are lone parents with young children or have an illness or disability. 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, who face significant barriers to finding work. This cannot be what was intended.

The Government has suggested that people could escape the cap in other ways: by moving house, renegotiating their rent or even taking a lodger. These options are, at best, unrealistic. In reality, these households are left with no way to escape the cap.

The Committee is calling on the Government to:

  • Apply the benefit cap only to people who are expected to be looking for work (people who are claiming JSA and people who are claiming UC and in the “All work-related” activity group).

Does the benefit cap encourage people to find work?

The benefit cap is designed to encourage people to find work: the main way that households can escape from it is by getting a job or increasing their working hours. But the evidence shows that only a small proportion (5%) of capped households move into work because of the cap. A slightly greater proportion move into work but would have done so anyway, and the vast majority do not move into work at all. Despite these findings—taken from the Government's own evaluation—Ministers have repeatedly over-claimed the cap's effectiveness as a work incentive and have relied on statistics that risk making the public think that the cap is more effective than it is. Its claims have twice drawn criticism from the UK Statistics Authority.

The Committee is calling on the Government to:

  • Be more careful when using statistics about how effective the benefit cap is at getting people into work, so that it doesn't confuse the public. The Government's own evaluation found that only 5% of capped households moved into work because of the cap.

Is the benefit cap fair?

The Government argues that the benefit cap restores "fairness" to the benefit system. It says that this is because 4 in 10 people who are working earn the same amount as the cap, or less. But this doesn't count the extra income that people who are working get through in-work benefits, like Child Benefit and Housing Benefit. Once the cap is applied, the differences in income between people who are in work and people who are out-of-work can be up to tens of thousands of pounds.

The Committee is calling on the Government to:

  • Look again at the cap limits,  and include the income in-work families receive from benefits in its calculations.
  • Increase cap levels in line with inflation.

Impact on people who can't escape the cap

The cap works by taking away some of the money that the Department has calculated that people need to live on.  Even without the cap, families on benefits have been left behind: because of the freeze on working-age benefits, income has reduced compared to the cost of living. It is therefore not surprising that the benefit cap often leaves people without enough money to meet their basic needs. As a result, many families face unspeakable hardship and are left with the impossible choices of deciding, for example, whether to pay their rent and not have enough to feed their children, or to feed their children and risk losing their homes. 

Video: The benefit cap - Emma's story

The Committee is calling on the Government to:

  • Do more to monitor the impact of the cap, including by finding out whether capped households are building up rent arrears, getting into debt, or going without essentials such as adequate food or heating;
  • Regularly collect feedback from local authorities and organisations who support claimants, and use this information to ensure that an adequate safety net exists.

Temporary accommodation

People who are classed as homeless are placed in temporary accommodation by their local council. Temporary accommodation can be very expensive, and people have no choice about where they are housed. The high costs of temporary housing can mean that claimants have their benefits capped, through no fault of their own.

The Government has argued that applying the cap to people in temporary accommodation keeps the pressure on local authorities to find them a long term solution. We cannot agree with that argument.  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.

The Committee is calling on the Government to:

  • Immediately exempt claimants in temporary accommodation from the cap.

Video: The benefit cap - Jo's story

Universal Credit claimants

Before Universal Credit was introduced, a household could only have their Housing Benefit capped. Under Universal Credit, however, the cap can be applied not just to a household's housing costs but to its whole Universal Credit award.  This means that the benefit cap can eat deeper into a household's whole income, including money intended for children. The little money that these households have left can be even 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 risk that this leaves even more families facing severe hardship is obvious.

The Government says that this is how the cap is supposed to work. But we don't believe that it meant to push families into even greater hardship.

The Committee is calling on the Government to:

  • Protect some elements of Universal Credit from the benefit cap, to make sure that the household's basic needs can still be met. This should include a claimant's standard allowance as well as elements for children and disabled people.

Universal Credit assessment periods

Courts have already found that the interaction between how frequently people are paid and when they receive their Universal Credit award can lead to unfair financial losses for claimants. The way that someone's paydays and their Universal Credit assessment period work together can mean that people who are earning enough to escape the cap are capped anyway. That can leave them suffering significant financial losses—purely because of a flawed administrative process. This is clearly not how the cap was intended to work.

The Committee is calling on the Government to:

  • Urgently find a solution to make sure that 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 that claimants are fully compensated.

Discretionary Housing Payments as a safety net

The Department provides funding for Discretionary Housing Payments to local councils to help people who are struggling under the benefit 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. DHPs are often awarded for only short periods of time, leaving a great amount of uncertainty for households and landlords, and do not provide the consistent support that many families need.

The Department has little understanding of how different local authorities are using DHPs, so 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.

The Committee is calling on the Government to:

  • Complete a full review of local authorities' policies and the different approaches to the provision of DHPs for capped claimants;
  • Evaluate how effective DHPs have been as a support for claimants by looking at individual experiences, and produce clearer and more directive guidance to local authorities about the provision of DHPs so that they act more effectively as a safeguard.

Financial savings

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. 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 the costs of DHPs, including administrative 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 Committee is calling on the Government to:

  • Conduct a full cost benefit analysis of the benefit cap, including the costs of Discretionary Housing Benefits. It should also seek to identify other 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.

Data sharing

The work that many local authorities are doing—often at the expense of their own resources—to identify and support capped households is  vital to help families mitigate 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 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.

The Committee is calling on the Government to:

  • As an urgent priority, ensure that local authorities have the UC data they need to continue to support capped households.

Discretionary Housing Payments: funding for local authorities

The Government expects local councils to support capped households who struggle financially by using 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, which puts pressure on their budgets and diverts funds from services that would be used elsewhere. At the same time, there are other local authorities that seem to have funding going spare.

The Committee is calling on the Government to:

  • Work with local government to review the way it calculates individual local authority DHP allocations, so that local authorities have the funding they need to prevent hardship.

Personal stories

We heard from people who had suffered hardship under the benefit cap. See their stories.

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