The benefit cap is not working – cutting it further is not the answer

11th August 2014

The benefit cap has always been a solution looking for a problem, and today’s headlinessuggest that Policy Exchange want to widen that search.

The cap isn’t cutting benefit spending. The latest government figures suggest that the cap has reduced welfare spending (excluding pensions) by around 0.08%. Policy Exchange’s proposals would save the same again. Both of these figures are so far within the margin of error for forecasting as to be basically meaningless. And even these savings are likely to be over-stated, as money taken away in benefits is often replaced with discretionary housing support (funds that will all but run out next year).

Nor does the cap seem to be leading to more families finding work or moving home: the same government data shows that as many new households become subject to the cap as leave it each month (although you wouldn’t guess that from the press release).

The cap is, however, having a huge impact on those households subject to it, and the 100,000 children who live in them. We have done extensive research on the cap, interviewing those affected both before and after its implementation in London and the South East. We’ve found that the overwhelming response of families has been to cut back, to go without (on food and heating), to run up debts and – often – to fall back on discretionary support from the public purse or charities and faith groups. Many have looked for work, far fewer have found it – not surprising, given that two thirds of families affected are headed by lone parents, many with pre-school children.

Where parents have found work, it’s often been no mean feat – with older children left looking after younger ones, and parents taking anything going if it adds up to enough to re-start their benefits. Indeed our work for Brent Council has shown that where households do successfully escape the cap, their income from benefits increases – by on average £200 per week. Again this isn’t surprising, given that the cap is being driven mainly by sky-high rents rather than ‘out of work’ benefits.

The cap, then, isn’t about jobs or finance. It’s about ‘fairness’. As the Chancellor put it, announcing the cap (much to DWP’s surprise) at the Conservative Conference in 2010:

“A maximum limit on benefits for those out of work, set at the level that the average working family earns. Money to families who need it – but not more money than families who go out to work. That is what the British people mean by fair – and we will be the first Government in history to bring it about.”

It looks like Policy Exchange will propose to extend this further, and the Conservative Party may yet go further still (with some reports that they may propose a cap of £350 per week).  Neither, though, are talking about a cap set in line with regional earnings – of course they’re not, given that average earnings in London are £650 a week, and just 2,200 households affected by the cap receive more than this.

Perhaps wrongly, I had expected better from Policy Exchange. Only last week they described the £13 billion over-spend on welfare in this Parliament as “an understandable error inherent in producing forecasts in a period of economic uncertainty.”  Yet today, they propose a £100 million potential saving as if it is a serious contribution to reducing the deficit.

The sad fact is that policy wonks like us fixating on the benefit cap does nothing to fix public finances, nor to get people back into work. Meanwhile the cap continues to cause uncertainty, distress and hardship for 27,000 families and 100,000 children. We can surely do better than this. As Policy Exchange put it last week, what we really need is “a sensible debate about the future options.” And as we’ve said before, that should start with a hard look at how we can fix our broken housing market, and improve how we support those furthest from work.