The Benefit Cap: What you need to know in March 2021

Ashleigh Cheung

Published in

Adviser online

17 min readMar 26, 2021

NOTE: this article has now been updated and replaced in January 2023.

Background

What is the benefit cap?

The benefit cap (“the cap”) was introduced in 2013, by section 96 of the Welfare Reform Act 2012. The cap can be applied to either Universal Credit (UC), or to legacy benefits through the client’s housing benefit (HB) award. However, this article focuses specifically on the cap as it applies to UC.

The cap limits the amount of benefits each household can receive, and is calculated according to the difference between the total amount of benefits one household is entitled to* in a monthly assessment period, and the cap figure that applies. The current cap figure is set out in s8 of the Welfare Reform and Work Act 2016, which reduced the cap’s limit to £1,666.67 per assessment period for families or lone parents (£1,916.67 for those in Greater London), and £1,116.67 for single claimants who are not responsible for a child or qualifying young person (£1,284.17 for those in Greater London)¹.

Assessment periods are used to calculate a household’s earnings and needs for the purposes of UC. The assessment period begins on the date on which the UC claim is first made and lasts for one calendar month, with the UC award paid seven days after each assessment period.

*The benefits taken into account when calculating the cap in relation to UC are:

Child benefit
Employment and support allowance (ESA)
Jobseeker’s allowance
Maternity allowance
Universal credit
Widowed mother’s allowance
Widowed parent’s allowance
Widow’s pension².

There are certain circumstances where client’s housing costs cannot be covered by the housing costs amount under UC. This includes clients in temporary and specified accommodation, as defined in paragraph 3A and 3B of the Universal Credit Regulations 2013 (“the UC Regs 2013”). In such situations, a client may receive both UC and HB, under Regulation 6(8) of the Universal Credit (Transitional Provisions) Regulations 2014. In this case, the amount of HB taken into account is £0, under Regulation 80(2A), UC Regs 2013.

Once the difference between the total amount of benefits received and the cap figure is calculated, the award of UC is reduced by the excess amount, excluding any childcare costs (under Regulation 81, UC Regs 2013). The resulting amount is the total UC award the household may receive for the assessment period.

Example calculation:

Nicola has two children — a son aged 12 and a daughter aged 5. Their rent is £750pcm, and the relevant local housing allowance (LHA) rate is £674.99pcm. She works 8 hours per week and is paid monthly, earning £312pcm.

Her maximum UC is:

£409.89 standard allowance;
£281.24 child element (first child);
£235.83 child element (second child); and
£674.99 housing costs element.

This equals £1,601.96 maximum UC.

Her UC award is first reduced because of her earned income. She gets a work allowance of £292. After factoring in the work allowance, the reduction to the UC award due to earned income is £12.60. This leaves a UC award of £1,589.36.

As her earnings are below the earnings exemption threshold of £604, the benefit cap applies. As she lives outside Greater London, the cap figure that applies is £1,666.67.

The total relevant benefits are:

£151.67 child benefit (£35pw for two children); and
£1,589.36 UC.

This equals £1,741.03 of relevant benefits.

This is £74.36 over the cap. As a result, the UC is reduced by £74.36. Her actual UC award after the cap is applied is £1,515.

Example calculation including childcare amount

Nicola then pays £100pcm for relevant childcare. The childcare element of £85pcm is added to the original maximum UC amount of £1,601.96, giving her a maximum award of £1,686.96.

This amount is reduced by £12.60 due to earnings, leaving Nicola entitled to £1,674.36.

Now, the total relevant benefits are:

£151.67 child benefit (as above); and
£1,674.36 UC.

This equals £1,826.03, which is £159.36 over the cap. However, rather than deducting £159.36, the childcare element of £85 is first taken off. This leaves £74.36 over the cap, which is taken from the UC amount.

The actual payment of UC, after the cap is applied, is £1,600.

Exemptions

Under Regulation 83 of the UC Regs 2013, individuals are exempt from the cap if they are receiving any of the following benefits:

Disability living allowance (“DLA”)
Personal independence payment (“PIP”)
Carer’s allowance or the carer element of UC
The limited capability for work-related activity element of UC
Employment and support allowance which includes the support component
Attendance allowance (“AA”)
Armed forces independence payment (“AFIP”)
A guaranteed income payment or survivor’s guaranteed income payment under the Armed Forces Compensation scheme
Guardian’s allowance
An industrial injuries benefit
A war pension.

In the cases of DLA, PIP, AA, AFIP, and war pension, the client is exempt from the cap if they are entitled to these benefits, but not receiving them whilst in a hospital or care home. The exemption also applies if the child or qualifying young person for whom your client is responsible is receiving DLA, PIP or AFIP.

Additionally, the benefit cap does not apply if the client’s net earnings (or combined earnings in a joint claim) are more than the earnings exemption threshold³. The earnings exemption threshold is equivalent to 16 hours per week at the national living wage (NLW), converted to a monthly amount⁴, and is currently £604 per month⁵.

If their earnings fall below the threshold due to unemployment, or a reduction in pay or working hours, they may benefit from a 9-month grace period before the benefit cap applies⁶. This grace period begins on either:

The first day of the assessment period in which the household’s earnings are less than the earnings exemption threshold⁷; or
The day after paid work ceased prior to any UC award⁸.

The grace period will only apply if, for the 12 months immediately before the unemployment or reduction in earnings, the claimants’ income was equal to or exceeded that stipulated in the earnings exemption threshold⁹.

To establish if the grace period applies for your client, their income should be compared to the threshold for each of the preceding 12 months. The threshold for each month (or assessment period) should be calculated using the NLW in place at the beginning of that period¹⁰. The NLW only applies to those 25 and over, but clients under 25 will still be subject to the same threshold, even though their actual earnings at minimum wage will be lower. The NLW rates increase on 1 April each year, so it’s important to take these changes into account when calculating the threshold.

Grace period example

Your client’s assessment period is from the 10th of each month to the 9th of the following month. Their earnings fall below the threshold in the assessment period running from 10 January to 9 February 2021. They would be entitled to the grace period if their earnings were:

At least £604 in each of the 9 assessment periods from 10 April 2020 to 9 January 2021
At least £569 in each of the 3 assessment periods running from 10 January to 9 April 2020.

If they meet this threshold, their grace period would start on 10 January 2021.

Increased application and significance due to COVID-19

The benefit cap is affecting more households than ever during the COVID-19 pandemic, due to the marked increase in the number of households receiving UC. In March 2020, 2,669,140 households were recorded as receiving UC. This figure rose sharply in April 2020, to 3,757,687 households, and again in May to 4,243,465. The most recent statistics (January 2021) show 5,969,174 households currently receiving UC — an increase of almost double over the course of the pandemic¹¹. This may largely be due to the growing unemployment rate and introduction of furlough, with almost 4 million jobs furloughed as of 31 December 2020¹². Additionally, the cap amount has not increased in line with inflation since the change in November 2016, brought by the Welfare Reform and Work Act (2016), gradually increasing the number of individuals within the cap’s remit. The £20 uplift to the UC standard allowance, in place until September 2021¹³, may also mean more people are affected by the cap.

Additionally, general reductions in working hours and increased childcare obligations mean fewer working households are benefitting from the earnings exemption threshold. On the whole, this means more individuals are potentially subject to the benefit cap, with the number of households seeing their benefits capped increasing by 93% between February 2020 and May 2020¹⁴, and 3.1% of the UC caseload capped in August 2020 (in contrast with 1.8% in February 2020)¹⁵.

These statistics reflect an increased reliance on UC, and in turn, the significant impact of the benefit cap, during the pandemic. This is particularly relevant as the 9-month grace period for those who were furloughed, made redundant, or whose working hours were reduced at the beginning of the pandemic is coming to an end, with the DWP confirming the grace periods of over 340,000 households are due to end between December 2020 and March 2021¹⁶. As such, a greater number of queries relating to the benefit cap’s application might be anticipated at this time, as more households are finding their monthly award capped.

Legal challenges to the benefit cap (so far)

To date, there have been two decisions by the UK Supreme Court on the overall legality of the benefit cap. In both cases, the cap’s compatibility with Article 14 of the European Convention on Human Rights (“ECHR”) (non-discrimination provision) in conjunction with Protocol 1 Article 1 (right to peaceful enjoyment of property) (“A1P1”) were challenged.

In SG v SSWP¹⁷, the claimants argued the cap discriminated between men and women, contrary to the UK’s obligations under the Human Rights Act 1998, and Article 14 of the ECHR with A1P1¹⁸. They argued that the cap primarily affected households in high-cost areas of housing with several children¹⁹. As the majority of non-working households with children are single parent households, and the vast majority of single parents are women (92% in 2011)²⁰, this disproportionately impacted them, amounting to indirect discrimination against women contrary to Article 14, ECH combined with A1P1. It was also argued the cap also affected victims of domestic violence (the majority of whom are women²¹), due to the relatively high cost of temporary accommodation, and consequently, entitlement to “relatively high amounts of housing benefit”²². However, the majority in the Supreme Court concluded this “differential impact” on women was inevitable if the policy were to meet the legitimate aims outlined by the Government²³. Thus the indirect discrimination was not unlawful, as it was proportionate to achieving the legitimate aim.

The current cap under the Welfare Reform and Work Act 2016 was challenged in DA and DS v SSWP²⁴, this time on the grounds of discrimination against lone parents of young children, While the claim in SG centred on violation of Article 14 in conjunction with A1P1, DA and DS focused on Article 14 with Article 8 (right to private and family life). The argument under Article 8 differs from that under A1P1, as in the present case, both the children and lone parents can complain of discrimination “in relation to the enjoyment of their respective rights to respect for their family life under article 8”²⁵. Further, insofar as children claimed violation of their ECHR rights, their rights also had to be considered in light of the United Nations’ Convention on the Rights of the Child (UNCRC)²⁶. Article 3(1) of the UNCRC indicates:

“In all actions concerning children, whether undertaken by public or private social welfare institutions, court of law, administrative authorities or legislative bodies, the best interests of the child shall be a primary consideration.”

Therefore, in considering whether the childrens’ rights under Article 8 of the ECHR had been violated, the court also had to consider whether Parliament had considered the childrens’ best interests when implementing the cap. A decision not made in compliance with Article 3(1), UNCRC, “might well be manifestly unreasonable”²⁷, and therefore violate the ECHR.

However, the legality of the cap was once more upheld by the Supreme Court by a majority of 5–2. The Court considered the obligations under Article 3(1) to have been fulfilled²⁸, as they concluded Parliament and Government had given proper consideration “to the extent to which further exceptions [to the cap] should be enacted, and in particular to the interests of the children potentially affected”²⁹, thus complying with the UNCRC. The majority considered “the Government’s belief that there are better long-term outcomes for children who live in households in which an adult works” to be a reasonable foundation³⁰, particularly “when accompanied by provision for DHPs which are intended on a bespoke basis to address [..] particular hardship which the similarity of treatment may cause”³¹. Thus, it could not be said that the Government’s actions were not manifestly without reasonable foundation, resulting in dismissal of the appeal.

Nevertheless, the strong dissenting opinions issued by Lady Hale and Lord Kerr suggest that further legal challenges to the benefit cap citing ECHR rights could be possible. When considering the justification of the cap, Lady Hale considered it “not suitable to achieving any of its declared aims”³². She stated it did not achieve fairness between those in work and those on benefits, as “those in work will always be better off than those who are not”³³. Additionally, it is ineffective in making financial savings, as any “fiscal savings are very small and liable to be offset by increased costs in other budgets”, such as “discretionary housing payments and the cost of housing and rehousing families made homeless as a result of the cap”³⁴. These reasons led Lady Hale to conclude that “fair balance has not been struck between the interests of the community and the interests of the children concerned and their parents”³⁵, and that the disproportionate impacts on lone parents created by the cap are not justified by the legitimate aims it seeks to achieve.

Child Poverty Action Group (“CPAG”) is currently considering challenging the benefit cap at the European Court of Human Rights in Strasbourg, and are seeking test cases specifically involving families with young children who are impacted by the benefit cap³⁶. The dissenting judgments in both the above cases contribute to the idea that such arguments may succeed before Strasbourg. It is therefore worth referring any clients in this or a similar position to CPAG using the test case referral system³⁷.

Current difficulties

Furlough

As discussed above, furlough has resulted in the benefit cap affecting more households than previously. While charities have campaigned for (at a minimum) suspension of the cap during the pandemic³⁸, and Labour has called for removal of the cap³⁹, the Government have indicated they will not be making any concessions as a result of the pandemic⁴⁰. The DWP’s statement cites measures such as the existing exemptions, the grace period, and discretionary housing payments (DHP) (see below) as counteracting any effects of the cap⁴¹.

Workers paid 4-weekly

The benefit cap can also pose problems for those paid on a 4-weekly cycle, as opposed to monthly. The benefit cap is calculated on the basis of benefits and earnings received within each UC assessment period⁴². However, while there are 12 assessment periods in one year, there are 13 four-week periods. Therefore, those paid 4-weekly will have 11 assessment periods in which they receive 1/13 of their annual salary, and one assessment period in which they receive 2/13 of their annual salary⁴³.

This is problematic regarding the cap as those on the border of the earnings exemption threshold may find themselves subject to the cap for 11 assessment periods, where they may have benefitted from the exemption if paid monthly. This issue was raised in R (Pantellerisco) v SSWP⁴⁴, which also serves as an example of this issue in practice. The claimant in Pantellerisco was paid according to a 4-weekly cycle at the minimum wage, which was £8.21 at the time of the case. The earnings exemption threshold was therefore (£8.21x16)x52/12 = £569.23 per month, equivalent to the claimant’s monthly earnings. However, as her earnings were paid 4-weekly, she only received £525.44 ((£8.21x16)x4) for 11 of 12 assessment periods⁴⁵. This meant the benefit cap applied to her UC award for those 12 assessment periods, as she failed to meet the earnings exemption threshold due to her 4-weekly pay cycle.

The claimants in Pantellerisco argued that:

the combined effect of Reg 54 (outlining the assessment method of earned income) and Reg 82(1)(a) (calculating the earnings exemption threshold), of the UC Regulations 2013 produces an unreasonable and irrational result, and
the UC Regulations 2013 discriminate against UC claimants who are paid 4-weekly as opposed to calendar monthly, breaching Article 14, ECHR in conjunction with A1P1⁴⁶.

A similar claim regarding pay dates was previously successfully argued before the Court of Appeal. In R (Johnson) v SSWP⁴⁷, the claimants argued the calculation of their income for UC purposes did not take into account circumstances where their pay dates fluctuated if their usual payday fell on a weekend or bank holiday (referred to as ‘non-banking day salary shift’)⁴⁸. This meant they would be treated as receiving 2 monthly salary payments in the same assessment period, and none in the next, resulting in inconsistencies in their UC award month-to-month. The claimants argued this caused difficulties when budgeting, causing bank fees and rent arrears. The Court of Appeal found that the DWP’s failure to implement a solution to the challenges faced by UC claimants affected by non-banking day salary shift was irrational in law⁴⁹.

In Pantellerisco, the High Court found the Court of Appeal’s approach in Johnson was “expressly and deliberately confined to the specific problem of ‘non-banking day salary shift”⁵⁰, and not intended to extend to other pay cycles. However, Justice Garnham found the principles identified in Johnson could be applied “with even greater force” to claimants affected by the benefit cap due to being paid four-weekly⁵¹, as these claimants would face this issue for 11 out of 12 months as opposed to for a few months each year. He thus concluded “the earned income calculation is irrational and unlawful in respect of employees paid on a four-weekly basis”⁵². In light of the finding of irrationality, the High Court declined to consider the human rights challenge⁵³.

The Johnson decision led to amendment of Reg 61(6), UC Regs 2013 by the UC (Earned Income) Amendment Regulations 2020 (2020/1138), which now allows the Secretary of State to “treat one of two wage payments received/reported in the same assessment period as earnings in respect of a different assessment period”⁵⁴, in order to “maintain a regular payment pattern”⁵⁵. However, this only applies in relation to claimants paid monthly (i.e. in Johnson circumstances), and not those paid 4-weekly, despite the High Court’s finding in favour of such claimants in Pantellerisco. The Secretary of State has been granted permission to appeal this decision to the Court of Appeal, to be heard in June 2021⁵⁶, meaning any Pantellerisco-like cases will be stayed for the time-being.

Clients who are subject to the benefit cap because of a 4-weekly pay cycle should request mandatory reconsideration of the decision, citing Pantellerisco. CPAG also recommends raising discrimination arguments under Article 14, ECHR in conjunction with A1P1 or Article 8⁵⁷. Successfully advancing the non-discrimination argument would rely on emphasising that there can be no lawful justification for the difference in treatment between those paid 4-weekly and those paid monthly. The finding of irrationality in Pantellerisco supports an argument that there is no justification for such discrepancy in treatment, therefore breaching the ECHR.

The UK Supreme Court recently found in RR v SSWP that “there is nothing unconstitutional about a public authority, court or tribunal disapplying a provision of subordinate legislation which would otherwise result in their acting incompatibly with a Convention right, where this is necessary in order to comply with the HRA”⁵⁸. Subordinate legislation refers to legislation created by executive bodies or Ministers using powers provided by Acts of Parliament (primary legislation). In this case, the UC Regs 2013 are subordinate legislation, created using powers in the Welfare Reform Act 2012. As a result, if Reg 82 (the earnings exemption threshold) is found to be incompatible with the ECHR, a court or tribunal can disapply it, in accordance with its obligations under s6(1), HRA. However, as previously mentioned, most cases will be stayed until Pantellerisco is heard at the Court of Appeal.

Tactical advice

If your client is subject to the benefit cap and struggling financially, there may be steps you can take. Firstly, check to see whether the cap has been applied correctly, and if they are entitled to any exemptions due to receiving certain benefits (see above). You should also conduct a benefit check to see if your client is eligible for benefits such as DLA, PIP or the carers element of UC, in order for them to benefit from exemptions to the cap. Many claimants who are subject to the benefit cap may be eligible for benefits exempting them from the cap but fail to claim them, especially in the case of disability benefits. The full list of such benefits can be found above, or in Reg 83 of the UC Regs 2013.

You may also consider checking to see whether your client may benefit from the grace period under regulation 82, UC Regulations 2013. This is especially if they have recently lost their job or source of income, or have recently been furloughed.

It may also be helpful for the client to apply to their local authority for DHP. They are only eligible for DHPs if they are currently entitled to housing benefit or the housing costs element of UC. DHPs are awarded at the discretion of the local authority. While the combined amount of any housing-related benefit and DHP cannot usually exceed your eligible rent amount, it can in special circumstances, for example to cover rent arrears. Any DHP is not included in the benefit cap, allowing those affected by the cap additional financial assistance.

Finally, clients paid 4-weekly (Pantellerisco look-alike cases) should request a mandatory reconsideration, citing the Pantellerisco High Court decision and raising non-discrimination arguments under Article 14 of the European Convention on Human Rights (as above). A template for request of mandatory reconsideration can be found at the bottom of this page.

Ashleigh Cheung is a paralegal in the Expert Advice team at Citizens Advice.

The information in this article is correct as of the date of publication.

Unfortunately, we are unable to respond to comments left on the medium site — please contact expertadvicesupport@citizensadvice.org.uk if you wish to give feedback on an article.

[1] s96(5A), Welfare Reform Act 2012, as amended by s8(2), Welfare Reform and Work Act 2016

[2] s96(10), Welfare Reform Act 2012, as amended by s8(4), Welfare Reform and Work Act 2016

[3] Reg 82(1)(a), Universal Credit Regulations 2013

[4] Reg 82(1)(a), Universal Credit Regulations 2013

[5] Gov.uk, Benefit cap

[6] Reg 82(2), Universal Credit Regulations 2013

[7] Reg 82(2)(a), Universal Credit Regulations 2013

[8] Reg 82(2)(b), Universal Credit Regulations 2013

[9] Reg 82(3), Universal Credit Regulations 2013

[10] ADM Memo 14/20 — Universal Credit Miscellaneous Amendments 2020

[11] StatXplore, Households on Universal Credit

[12] Rightsnet, Number of employments furloughed under CRJS stood at 3.8 million at 31 December 2020