Benefit cap on families could backfire on government

One of the most populist proposals in the welfare reform programme is the introduction of a "benefit cap" of £25,000 per year from April 2013, writes Gary Vaux.

One of the most populist proposals in the welfare reform programme is the introduction of a “benefit cap” of £25,000 per year from April 2013, writes Gary Vaux.

The aim is to stop those on benefits receiving more than those earning average incomes. This will be set at £500 per week for couples and families.

An unemployed two-parent family with three children will receive around £310 per week in benefits at 2011 rates, made up of tax credits, child benefit and jobseekers allowance. This means, to avoid the cap, they would need to find somewhere to rent, including council tax, at below £190 per week – possible in social housing; largely impossible across most of the UK for private tenants. Families will either have to move somewhere cheaper or more crowded or use their income for food and fuel to meet the extra housing costs.

The government’s impact assessment suggests that 50,000 households will be affected by this measure and acknowledge it could lead to an increase in arrears, evictions and homelessness.

Local housing allowances

Given that there have already been reforms to local housing allowances designed to ensure people on benefits cannot live in properties ordinary taxpayers cannot afford, this additional reform seems unnecessary.

Research conducted by homelessness charity Shelter shows that in more than a quarter of local authority areas the cap will penalise three-child households. Other points to note include:

● Non-working kinship carers who take in a relative’s child or children to prevent them going into care could be penalised, because their benefit income would rise due to the additional children.

● The cap will apply as soon as someone loses their job, so there is no time for families to adjust or plan.

● It will also apply to those who lose a job due to ill-health and, since the employment and support allowance is slightly higher than jobseekers allowance, will mean they have even less available for their rent.

● Cheaper housing tends to be in areas with fewer jobs.

● It is not clear how workers will be affected, once working tax credit is merged into universal credit.

● The government’s equality impact assessment estimates that 30% of households affected by the cap will be from ethnic minorities.

Just because a measure is populist, doesn’t mean it will be popular. The benefit income cap has all the hallmarks of a policy that could backfire, causing more hardship and headlines than politicians currently realise.

Gary Vaux is head of money advice at Hertfordshire Council. Please send any questions for him to Judy Cooper 

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