DWP's response to the coronavirus outbreak Contents

5The benefit cap

Background

85.The October 2010 Spending Review set out plans to restrict the total benefits that can be paid to some people of working age.84 This created a ‘benefit cap’ that limited the total amount of money that some households could receive. The maximum amount of benefits that an individual or household can receive depends on several factors., including where they live, whether they are in work, and who they live with. The then-Government said that the aim of the cap was to incentivise people to work, to introduce fairness between those not in work and those in employment, and to disincentivise long-term dependency on out-of-work benefits.85 The cap was introduced in the UK from April 2013, and lowered from November 2016. Table 1 shows the rates at which the cap is currently set.

Table 1: Maximum amount of benefit that can be claimed before the benefit cap is applied

In a couple

Single parents whose children live with them

Single adults

Outside Greater London

£384.62 a week (£20,000 a year)

£384.62 a week (£20,000 a year)

£257.69 a week (£13,400 a year)

Inside Greater London

£442.31 a week (£23,000 a year)

£442.31 a week (£23,000 a year)

£296.35 per week (£15,410 a year)

Source: https://www.gov.uk/benefit-cap/when-youre-not-affected

86.The Department’s own pre-crisis data on the benefit cap, published in May 2020, shows that 310,000 households had been capped at some point between April 2013 and February 2020. In February 2020, 79,000 households were subject to the cap. The same research showed that 7 in 10 households that have had their benefits capped are single parent families, and 93% of total households that were capped include children.86

The benefit cap and Universal Credit uprating

87.On 20 March, the Chancellor announced changes to benefit rates in response to the crisis. The Chancellor announced that the Universal Credit standard allowance would be increased by £1000 a year (or £20 a week) for the next year, and that Local Housing Allowance (LHA) would be increased to cover 30% of markets rents across all geographic areas.87

88.These announcements sit alongside a pre-existing “grace period” from the cap of nine months. This means that people who are newly unemployed (whether as a result of the crisis or otherwise) but were previously earning enough not to be subject to the cap will be exempt from it for nine months.88

89.Organisations we heard from welcomed these announcements. Geoff Fimister, Policy Co-Chair of the Disability Benefits Consortium, a group of charities and disability support organisations, told us that the increases were particularly welcome at a time where households are facing additional costs as a result of the pandemic.89

90.Organisations including the Child Poverty Action Group, Citizens Advice, and Shelter, however, expressed concern that interaction between Universal Credit, LHA and the benefit cap would mean that some households would not benefit from these increases.90 This is because the increase could push households over the maximum amount of benefit that they are able to receive, resulting in their benefits being capped. This would apply to those households whose nine month “grace period” has already expired, or to whom it did not apply (for example, because they had not met the required earnings thresholds in the previous twelve months).91

91.Analysis produced by the Child Poverty Action Group (CPAG) estimates that the increase in the Universal Credit standard rate will see a further 12,500 families who are claiming Universal Credit affected by the cap, with “many more” affected because of the increase in Local Housing Allowance.92 CPAG has argued that, for this reason, “if there was ever a good time to remove the benefit cap, it would be now”.93 Additional analysis carried out by Policy in Practice for the Greater London Authority found that 22,300 existing benefit claimants in London (including legacy benefit claimants) would not see an increase in their income as a result of the new measures introduced from April 2020. This would be either because of the benefit cap, or because they were not eligible for the increases because they were claiming legacy benefits.94

92.The Resolution Foundation explained how important the Government’s Job Retention Scheme has been in preventing faster rises in unemployment.95 Even with the Scheme in place, however, the Department has seen over 2 million new benefit claims since mid-March.96 The Government’s rationale for the benefit cap has been to incentivise people who are unemployed to move into work. The Resolution Foundation explained that current lockdown restrictions and hiring freezes mean that moving into the labour market is now particularly hard.97 Lockdown restrictions have also made it difficult, and at times impossible, for households to reduce their fixed costs by moving house. This may mean that families newly affected by the cap have little chance of offsetting its impact.

93.People who are new to the benefit system are likely to have higher fixed costs (such as higher rents, or mortgages) which they were previously able to pay for with their income from employment. Over a fifth of employees have been moved onto the Job Retention Scheme and because of this have seen a decrease in their income.98 Many of these claimants will be exempt from the cap, because they are within the grace period. The Child Poverty Action group explained, however, that furlough pay at 80% of normal wages may not be sufficient to exempt households from the benefit cap if they have had a gap in employment in the previous 50 weeks (that is, if they do not qualify for the grace period).99 The benefit cap may result in these claimants being unable to cover these costs, leading to more households entering financial hardship.

94.Some people who responded to our survey said that this was the first time they had ever claimed benefits, and that doing so had caused them substantial, unexpected hardship. One told us that:

“As a family with 3 children where both parents normally work we have been left in hardship and needed to use a food bank for the first time ever!”

We also heard that some of these new claimants are being affected by the benefit cap. One person told us that:

“I have been laid off one of my jobs due to COVID19, I am still working as health and social care worker but because I have 3 children and my rent is so expensive, I am benefit capped because I don’t earn enough to avoid the cap.”

Another said:

“I am missing out on the benefit increase during the coronavirus crisis because of the benefit cap. Therefore it doesn’t make a difference to me unless the cap is lifted or the amount is increased”.

Another told us that they were struggling with bills because of the cap:

“I usually earn enough to remove the benefit cap but because my work has shut down my earnings have gone down and now I have been hit with the cap. I have now lost out on nearly £800 of money that would have cover all my bills and food shopping.”

The benefit cap and Local Housing Allowance rates

95.Local Housing Allowance (LHA) rates provide the maximum housing benefit amount that a private tenant is entitled to. This rate is calculated based on geographical location, and how many bedrooms a household needs. Until April 2020, LHA rates had been frozen since 201516.100 Analysis provided by Shelter to our predecessor Committee showed that this had left shortfalls between LHA and rent levels in 92% of England for one bed properties, rising to 97% of the country for a three bed property. Our predecessor Committee therefore recommended that LHA rates be uprated from April 2020 (when the freeze was due to end) to cover at least the lowest 30% of market rents in each area.101 The Department declined to accept this recommendation.102 From April 2020, the Department planned to uprate LHA and other frozen benefits in line with inflation. This meant they would have risen by 1.7%.103

96.On 20 March 2020, the Chancellor announced an additional support fund of nearly £1 billion for people in the private rented sector. This meant that LHA rates would cover at least the bottom 30% of market rents in each geographical area.104 The announcement was welcomed by several housing charities, including Homeless Link, Crisis, and Shelter.105

97.Some households have, however, found that they cannot benefit from the higher LHA rates. This is because the increase in income from the higher housing payment means their benefits are then capped. Research by the Resolution Foundation estimates that a couple with two children in a three-bedroom home will be hit by the benefit cap in 107 out of 152 local areas following the increase in LHA rates.106

Figure 2: <Broad Rental Market Areas (BRMA) in England where a couple with two children in a modest private rented home would have their income reduced by the benefit cap>

Figure 2: : <Broad Rental Market Areas (BRMA) in England where a couple with two children in a modest private rented home would have their income reduced by the benefit cap>

Source: Shelter Blog, ‘The Benefit Cap is undermining the government’s response to coronavirus (Covid-19), 11 May 2020

98.Organisations including Crisis have, therefore, called for the Department to ensure that these important uplifts are not undermined by the benefit cap.107 They told us that, alongside increasing LHA, the Government must also either lift the cap, or increase the amount of money available through Discretionary Housing Payments to households that are newly affected.108 Housing charity Shelter similarly told us that the benefit cap should removed for 12 months, allowing people to receive the full benefit of the support that the Government is making available.109 The anti-poverty charity, Zacchaeus 2000 Trust, also supported the suspension of the cap. They reiterated that moving to cheaper accommodation and looking for (more) work is much more difficult in the current pandemic.110 We heard, overall, that the current design of the cap fails to reflect these difficulties.

The Department’s response

99.In evidence to the Committee on 23 April, we asked the Minister for Employment, Mims Davies MP, how the increased benefit rates would interact with the benefit cap. In response, she described the number of people who are likely to be newly affected by the cap (and therefore unable to benefit from the increases) as being “very small”.111 We subsequently asked the Department to explain how it had made this assessment. Ministers told us that they believe that interaction with the benefit cap will be broadly consistent with previous, pre-crisis and uplift trends, whereby the cap applied to 1.7% of DWP’s overall caseload. The Department also said that there is alternative support available to help those facing severe financial disruption, such as the availability of Discretionary Housing Payments.112

100.In questions following her statement in the House on 4 May, the Secretary of State for Work and Pensions, Rt Hon Dr Thérèse Coffey, said “it is not the Government’s intention to change the current threshold of the benefit cap”.113 This was because “raises [ … ] have happened in terms of housing, changes have been made that should help people”. Dr Coffey was also asked about plans to review the benefit cap when she gave evidence to us on 25 March. She told us then that: “Making a big change to policies like that is not something we are going to rush into right now.”114

101.The Social Security Advisory Committee—DWP’s own independent advisory committee—has expressed concerns to the Department that many claimants will not be able to benefit from increases due to the cap. They said:

We are concerned [ … ] that the full value of that additional support is not benefiting all cases because of the application of the benefit cap, particularly in areas with high rental costs. Claimants would normally have the option to move into paid work or to move home to avoid the impact of the benefit cap, but neither of these are realistic choices for many people at the current time.

SSAC therefore recommended that the Government consider how it can ensure that claimants can benefit from the new financial support measures. They said:

We therefore recommend that the Government considers what action might be possible to ensure that the spirit and intent of the additional package of financial support it has introduced in these challenging times are fully delivered.

102.The Chancellor’s decision to increase Universal Credit payments by £20 a week and to increase LHA rates to the 30th percentile of local market rates is very welcome. But some households will not be able to benefit from these increases. This is because, as a result of the uplifts, they will be hit by the benefit cap. The Child Poverty Action Group Estimates that some 12,500 more families will be affected by the benefit cap because of the increase in the standard allowance, and many more because of the increase in LHA. This comes at a time where many households are seeing increases in costs and decreases in income, and at which opportunities to avoid the cap—by moving house, increasing hours of work or starting a new job—are severely limited by the pandemic.

103.The Department told us that it expects the numbers of people affected by this problem to be “very small”. It based this claim on pre-crisis, pre-uplift trends in benefit cap data. While it is helpful that the Department collects and uses this data, it seems to have little bearing on the current, exceptional situation. We recommend that the Department publish the details of how it arrived at this assessment.

104.We recommend that the Department carry out a full analysis of the numbers and characteristics of households which will be newly subject to the cap as a result of measures taken during the Coronavirus crisis. The Department should also assess the impact of the cap on the financial resilience and likelihood of hardship experienced by these claimants.

The benefit cap and deduction rates

105.The interaction of the benefit cap with the increases to benefit rates can, in some specific circumstances, lead to a decrease in total household income. The Guardian reported an example of a single mother who found herself in that situation.115 She was not able to benefit from the increased rates because of the benefit cap. Instead, DWP increased the deductions that it was taking from her monthly payments. That is because deductions are capped at 30% of the Universal Credit standard allowance—which means that any increase in the standard allowance raises the level of the cap.116 She and her children were left £123 a month worse off than before the increase. The mother’s lawyers, Leigh Day, have filed pre-action papers with the Department to argue that in this case, the benefit cap is breaching the woman’s human rights.117

106.For some, the combination of benefit increases and the cap may actually result in them being worse off, because it increases the amount of deductions that the Department can take from their benefits. We are sure this cannot have been the Department’s intention. We recommend that the Department take steps to ensure that the benefit cap, in combination with increase to benefit rates, does not leave households worse off than they were before the crisis.


84 Spending Review, October 2010, p28

85 The Benefit Cap, House of Commons Library, SN06294, November 2016

86 Department for Work and Pensions, ‘Benefit Cap, Quarterly statistics, 7 May 2020

87 Gov.uk, Speech, Rishi Sunak, 20 March 2020

88 Turn 2 Us, ‘Benefit cap - Am I affected by the benefit cap?’, April 2020. The grace period applies to Universal Credit claimants if they or their partner earned at least the amount they would get for 16 hours per week at National Living Wage for the previous 12 months

89 Q 148 (Geoff Fimister)

90 Child Poverty Action Group (SWP0064), Citizens Advice (SWP0053), Shelter (SWP0073)

92 Child Poverty Action Group (SWP0064)

93 Child Poverty Action Group, ‘Has the government forgotten children during Covid-19?’, May 2020

94 Policy in Practice, ‘New Analysis: benefit capped households set to double’, May 2020

95 Resolution Foundation, The economic effects of coronavirus in the UK, May 2020

96 Department for Work and Pensions, ‘Covid-19 Update’, May 2020

97 Resolution Foundation, The economic effects of coronavirus in the UK, May 2020

98 Office for National Statistics, Coronavirus and the economic impacts on the UK, May 2020

99 Child Poverty Action Group (SWP0064)

101 Work and Pensions Committee, Twenty-Eighth Report of Session 2017–19, Welfare Safety Net, HC 1539, July 2019

102 Work and Pensions Committee, Government Response to the Twenty-Eighth Report, Welfare Safety Net, November 2019

103 Benefits Uprating, House of Commons Library, CBP8806, April 2020

104 Gov.uk, Speech, Rishi Sunak, 20 March 2020

105 Homeless Link (SWP0074), Crisis (SWP0067), Shelter (SWP0073)

107 Crisis (SWP0067)

108 Discretionary Housing Payments can provide extra money for housing when a local council decides that a household require additional help to allow them to meet their housings costs.

109 Shelter (SWP0073)

110 Zacchaeus 2000 Trust (SWP0056)

111 Q90 (Mims Davies)

113 HC Deb, 4 May 2020, col 675WS




Published: 22 June 2020