The Benefit Cap

As part of the October 2010 Spending Review the Coalition Government announced an intention to cap total household benefits at £500 per week for a family (£26,000 per year) and £350 per week (£18,200 per year) for a single person with no children. Households with income from benefits in excess of these caps would experience a reduction in their Housing Benefit entitlement.

Measures to introduce the cap were included in sections 96 and 97 of the Welfare Reform Act 2012 and the Benefit Cap (Housing Benefit) Regulations 2012. Implementation was somewhat delayed but it was fully rolled out by September 2013.  Provision for a benefit cap was also included in the Universal Credit Regulations 2013.

Aims

The benefit cap was one of the Coalition Government’s welfare reform measures aimed at deficit reduction. The key aims were to:

• increase incentives to work;
• introduce greater fairness into the welfare system between those on out-of-work benefits and taxpayers in employment; and
• Make financial savings and incentivise behaviours that reduce long-term dependency on benefits.

Numbers affected

Between its introduction and August 2016, 79,000 households experienced a reduction in their Housing Benefit as a result of the cap. As expected, most of the affected households were larger families and those living in high rent areas – 44% were in London. Of those affected by the cap since its introduction, 59,000 (75%) were no longer capped at August 2016.  Of this group, 23,000 had started claiming Working Tax Credit, 14,000 had stopped claiming Housing Benefit or were in receipt of reduced Housing Benefit, and 12,000 had claimed another benefit that exempted them from the cap.

Lowering the cap threshold

A commitment to reduce the cap from £26,000 to £23,000 was included in the Conservative Party’s 2015 Manifesto after being initially announced as part of a package of measures aimed at funding three million apprenticeships during the Party’s 2014 Conference. Summer Budget 2015 confirmed the Government’s intention to reduce the cap for families to £23,000 in London (£15,410 for single people) and £20,000 (£13,400 for single people) outside the capital.

Measures to implement the lowering of the threshold were in the Welfare Reform and Work Act 2016. In addition to emphasising the number of households no longer affected by the cap as an indication of its success in incentivising work, the Government has referred to wide public support for the cap. Detailed information on the Bill’s provisions can be found in section 4 of Library Briefing Paper 07252, Welfare Reform and Work Bill [Bill 51 of 2015-16]. Information on amendments tabled during the Bill’s Committee Stages in the Commons can be found in Library Briefing Paper 07352, Welfare Reform and Work Bill 2015-16 Committee Stage Report.

Impact of the lower cap

An updated Impact Assessment published in August 2016 estimates that, in the absence of any “behavioural response” from claimants, 88,000 households will be affected by the benefit cap when the reductions take effect, compared with around 20,000 under the previous policy. Around a third of the affected households are expected to be in London or the South East, although the cap will also – for the first time – begin to affect substantial numbers of households in other parts of Great Britain.  Outside London, Birmingham is the local authority with the highest number of affected households under the new benefit cap (3,900), followed by Manchester (1,200), Leeds (1,100), Cardiff and Glasgow (around 1,000 households each).

The average (mean) reduction in benefit is estimated at around £60 a week, assuming no behavioural response from those affected. Modelling suggests that around two-thirds of claimants likely to have their benefit reduced will be single females, and that 61% of claimants will be female lone parents.  The Government states that if households respond in a similar way to those affected by the previous cap, “we might expect to see those impacted by the cap being 41% more likely to go into work than a similar group who fall just below the cap’s level.”   The Institute for Fiscal Studies observes however that the evidence suggests that only around 5% of those affected by the introduction of the previous cap responded by moving into work.

Social landlords, whose tenants are heavily reliant on Housing Benefit to meet their rent commitments, are concerned that a lower benefit cap will render a substantial number of their homes, particularly those let on affordable rents, unaffordable in London and the South East.  In turn, they argue that an insecure rental stream could have implications for attracting private funding for the development of new affordable housing.

Implementation

Households affected by the benefit cap reductions will have their claims reassessed over a 12 week period starting from 7 November 2016. The Department for Work and Pensions wrote to potentially affected claimants between 19 and 30 September, to inform them that they could be subject to the cap (Universal Credit claimants were to be notified separately, either face to face, by letter or online).

Northern Ireland

The benefit cap was not introduced in Northern Ireland until 31 May 2016.  Starting from 7 November 2016, the cap in Northern Ireland will be reduced to the same rates applicable in Great Britain (outside London).  The same rules apply in Northern Ireland as in Great Britain, but a system of Supplementary Payments will mitigate the impact of the benefit cap in Northern Ireland for families with children, at least until 31 March 2020.