The idea that people out of work should not get more in benefits than those in work seems intrinsically fair. But in practice the benefits cap has many flaws
Today, the 'benefits cap' begins its trial. The cap, which is set so that no one out of work can claim in benefits more than the average income means in practice that couples and single parents can’t receive more than £500 per week in benefits, and £350 for single people.
It has been one of the most popular moves in the government’s arsenal of welfare policies. No one wants to see people who are out of work better off than those in work. Using the average wage as the limit of a benefits claim is intuitively fair, straightforward and popular with the public. But, as with most welfare reforms, many of which are being rolled out or piloted this month, the devil is in the detail.
For a start, the cap does not vary based on the number of children one has. So a parent with two children, and a parent with five, must manage with the same financial restrictions. Now, there are those who say that families who rely on benefits should not have children they cannot afford, and should (like working parents) limit their families based on the knowledge they have a limited income, rather than rely on the state to keep paying for their every increasing brood.
The counter arguments to this are fairly self-explanatory – with some very rare anomalies, such as the Philpotts, most families do not have children running into double figures with no expectation of being able to support them. A couple in work may well have four or five children, only to find unexpected redundancy leaves them, for a time, relying on the state. Should we take potential economic downturns into account when we plan our families?
Finally, can we justifiably make a generation of children poorer on the off-chance that we persuade theirs and other parents not to have further children? As Eric Pickles’ office concluded, the blanket application of the cap would turn out to cost more in means testing and homelessness than it saved, asking IDS to exclude child benefit from the cap to ease the effects on large families.
Even if one feels it fair not to vary the cap according to size of family, the second flaw is more insurmountable: the cap is not regionally variable. Regardless of whether one lives in central London or rural Cumbria, the cap is fixed – ignoring the vast differences in the costs of living.
The largest difference is, of course, housing costs, and the most important problem with the cap is that it includes housing benefit. Housing benefit is not 'income' – it is the payment of rent which goes directly to a person’s landlord and cannot be spent for any other purpose. Now, a family who has been given a private rented flat in London at, say, £350 per week – will be allocated £350 per week in housing benefit, sent direct to the landlord.
That person will not see a penny of this £350, but it will nonetheless count as “income” and the cap of £500 will include this amount, leaving them with perhaps £150 a week to live on and support their children. So those with the highest rents will be left with the least to live on – which is likely to be a common problem in the four London pilot areas.
The direct payment of housing benefit under Universal Credit means housing benefit will become part of a person’s monthly benefits income – given to the individual to pay their landlord, rather than going to the landlord directly. But it remains irrevocably earmarked for rent – the tenant simply becomes the middle man in handing over this cash as soon as they receive it, or face arrears and eviction.
And yet this is exactly what is happening now, as trials for direct payment of housing benefit are finding families are eating into the cash earmarked for rent to pay for food and utility bills. In a world of direct debits, this can be easily and accidentally done.
The cap will exacerbate this situation; those with the highest rents will find their income capped as a result of the extortionate rent their landlord is charging, and will have to live on whatever is left after paying it – or face eviction. It’s an impossible situation.
The concept of not earning more out of work than in work is popular for a reason. It feels like the natural and right order of things. But the inclusion of housing costs into the cap renders the implementation deeply unfair - with landlords always receiving their cut and families having to live on the dwindling amount left over. Again, it seems the root of the increases in housing benefit spending – spiralling rents as a result of a chronic housing shortage – remains unaddressed, while increasingly complex policies are invented to overcome it, at significant human cost.
