New benefit cap
Debra White looks at the lowered cap and how it will change the profile of affected claimants
This article was originally published in the January/February 2017 issue of Adviser magazine and was correct at the date of publishing.
There are 2 changes being implemented:
1. Amending the benefit cap to £23,000 per annum (£442.31 per week) for couples and families with children and to £15,410 (£296.35 per week) for single people in Greater London. For those living outside Greater London, the figure reduces significantly to £20,000 per annum (£384.62 per week) for couples and families with children and to £13,400 (£257.69 per week) for single people.(1)
2. Adding exemptions to those which already exist so that the benefit cap no longer applies to those claimants who are receiving Carer’s Allowance, the underlying entitlement to Carer’s Allowance or a Carer Element within Universal Credit or Guardians Allowance. Existing capped claimants of these benefits had the cap removed on 7 November.(2)
For households already subject to the previous benefit cap of £26,000 (£500 per week) for couples and families with children and £18,200 (£350 per week) for single people regardless of where they live, the new lower cap was applied on 7 November. However, those newly affected by the lower benefit cap will see a phased introduction depending on which local authority they come under. This is to allow the DWP to undertake a manual check of benefit awards and exemptions and is expected to be completed over a 12-week period between 7 November and the end of January 2017. Those local authorities with the lowest number of new claims will be processed towards the beginning of the 12-week period and those with the highest volumes towards the end.
For those claimants on Universal Credit, the cap will apply on the first day of the next assessment period following 7 November if the first day of the assessment period of that award is not 7 November.
The DWP advises that claimants who moved to avoid being affected by the application of the initial cap in 2013 and who are now subject to the new cap will be offered a voluntary 40-minute intervention which is for claimants to have additional time with a work coach to improve their work readiness or to seek work. At this interview the DWP will also consider any additional support that may be available to the claimant, such as discretionary housing payments, and will signpost to the local authority accordingly.(3)
Numbers affected
It is estimated that 88,000 households could be affected by the cap in the implementation year of 2016/17. Of these, 64,000 are additional to the cases prior to 7 November. The average loss of benefits per household is expected to be £60 per week.(4)
A total of £870 million in Discretionary Housing Payments over 5 years (from 2016/17) is being made available to local authorities to help with the shortfall of benefits.
The previous caps mainly affected those living in high rent areas and those with larger families (see Box 1), but the lowering of the cap will make the effects significantly more widespread.
New impacts
The Chartered Institute of Housing has studied the potential effects in their report, ‘The likely Impact of the overall Benefit Cap’, published in November 2016. This report demonstrates that the lowering of the cap will both greatly increase the numbers of households affected and extend its impact to smaller families and across all parts of Britain. This study includes the following results:
116,000 families with up to four children will be affected with a total of 319,000 children living in those households.
In London, even though the cap is set £3,000 higher than elsewhere in the country, this is still not sufficient to compensate for the higher cost of housing. The result is that in London, the cap will even extend to 6,000 single-child families.
Even in areas with the cheapest housing, the North East and Wales, there are more than 12,000 one-to-four-child households affected.
Many three-child families will face substantial shortfalls - for example, those that rent privately stand to lose more than £100 per week in half of all local authority areas if they are a couple or a quarter of all areas if they are a lone parent.
Even council tenants with three children will face losses of more than £25 per week in 98% of local authority areas if they are a couple, although this falls to 20% of areas if they are a lone parent.
In the private rented sector, many two-child families will also face significant shortfalls in the more expensive parts of the country. These will exceed £25 per week in 40% of local authority areas for couples and in 20% for lone parents.
Consequences of the lowered cap
The government has said the original benefit cap had achieved its aim of moving people into work, stating that 41% of people who were affected by the cap had opened working tax credit claims (as meeting the qualifying criteria for this benefit allows claimants to be exempt).
‘Those who would be impacted by the cap are 41% more likely to go into work than a similar group who fall just below the cap’s level, but this trend didn’t exist before the cap was in place - indeed those with higher weekly benefit used to be less likely to move into work’.(5)
However, research by the Institute of Fiscal Studies (IFS) says it is disingenuous to claim the 41% went into work directly due to the cap. A study of claimants moving off benefits between May 2010 and May 2013 demonstrated a substantial number moving onto working tax credit prior to the cap being introduced and their studies showed that only 5% of claimants moved onto working tax credits as a direct result of the cap since the other 36% would have done so anyway.(6)
A new briefing from the IFS, ‘A tighter benefit cap’ released on 6 November 2016 stated that fewer than 5% of claimants moved house because of the cap and that these were only those who lost particularly large sums of money, whereas 12,000 of the 79,000 previously capped claimed a disability benefit which lead to exemption.
Citizens Advice has made some predictions concerning the impacts of the new cap based on evidence from when the previous cap was introduced.(7) It finds that around 3 in 5 will stop being affected by the cap due to a change in circumstances and around a quarter by opening a tax credits claim. Just over a third will struggle with essential living costs and two in five will be in rent arrears a year after the introduction of the lowered cap.
However, the new types of families that will be affected by the new cap (smaller families in high-rent areas, more large families in low-rent areas) may have different behavioural responses than those currently affected. For example, while very few have moved house as a response to the £26,000 cap, the proportion may be higher for the lower cap, depending on the amount and level of funding available through Discretionary Housing Payments to help people stay in their current homes.
Conclusion
Due to the significantly larger numbers of families affected by the lowered cap, combined with it now affecting small families and many more outside London, the impact will be significant both in terms of child poverty and debt accumulation. Hopefully, the change in claimant profile will lead to a softening of public attitude towards claimants affected and see a rise in campaigning to demonstrate the hardship caused by this policy.
The Child Poverty Action Group (CPAG) is looking for claimants on Universal Credit who are affected by the cap, either before or after the November reduction, and who’d be willing to be part of a CPAG legal challenge.
Impact of the benefit cap
79,000 households have had their benefit capped between 15 April 2013, when the original benefit cap was introduced in August 2016. Of these, 59,000 households are no longer capped. Of the 59,000 no longer capped 23,000 are exempt due to an open working tax credit claim.
44% of capped households have been in London. Only two of the top 20 local authorities with the highest cumulative number of capped households are outside London. 67% of capped households are one-parent families of which 78% had a child under five. 60% of capped households had between one to four children and 35% had five or more children.
DWP Benefit Cap Data to August 2016 Published 3 November 2016
Example case study
Example: Couple with three children and the parents claiming Jobseekers Allowance.
Income £114.85 Jobseekers Allowance, £48.10 Child Benefit, £170.87 Child Tax Credits. Total £333.82 per week.
New cap of £384.62 per week outside London leaving £50.80 per week for housing costs.
Some examples of the three-bedroom local housing allowance rates given as weekly amounts: Brighton and Hove £230.28, Coventry £128.18, Manchester £133.32 and Swansea £115.07.
It is clear from these examples how serious the shortfalls will be even if the family can find a house within the local housing allowance. It is also clear that £50.80 per week for rent is not enough to cover housing association or council properties either.
Debra White is a member of the Adviser editorial board and works as an adviser for Swansea Neath Port Talbot Citizens Advice.
Endnotes
1. The Welfare Reform and Work Act 2016 (Commencement №3) Regulations 2016 (SI.№910/2016) commence sections 8 and 9 of the Welfare Reform and Work Act 2016
2. The Benefit Cap (Housing Benefit and Universal Credit) (Amendment) Regulations 2016 (SI.№909/2016)
3. HB Circular A10/2016
4. Welfare Reform and Work Act: Impact Assessment for the benefit cap. August 2016. Page 2
5. https://www.gov.uk/government/news/people-are-moving-intowork-as-a-result-of-the-benefitcap 15.12.14
6. Institute for Fiscal Studies Coping with the cap? 15.12.14
7. Lowering the benefit cap-citizens Impact assessment 24.07.15
