The benefit cap: this changes everything

The Welfare Reform and Work Bill will have its second reading this evening. One of the major components of the bill is a provision to lower the benefit cap.

The benefit cap restricts the amount of benefits that families who aren’t working can claim. Currently, a family not eligible for Working Tax Credits can claim a maximum of £26,000 a year in benefits. The bill will slash this total to just £20,000 for families outside of London and to £23,000 a year for families in London.

We have a keen interest in the benefit cap. Housing benefit is included in the cap and is cut to ensure that households do not breach the limit. Although housing costs vary widely across the country – a challenge the housing benefit system itself deals with admirably – the benefit cap imposes a crude limit that applies from Teesside to Torquay.  The high cost of housing across much of the country is the reason that many families find themselves affected by the cap.  An unworkable benefit cap can have a major and crude impact on a low income family’s ability to afford their home.

So far, the current (26k) cap has mainly affected larger families that live in areas with a lack of affordable homes. More than four out of five (81%) currently capped households in England are families with three or more children. Half of capped families are in London.

The new cap changes everything. £20,000 may sounds like a reasonable amount of money for a family to meet all of their immediate needs. But housing costs are so high across the country that many families will struggle to cover even essential costs, like housing, from this total.

And due to high housing costs the cap has moved far beyond its original intent. We’re fully aware that the cap was popular with the public when they thought it was targeting atypical high claims. But soon friends and neighbours across the country could be affected.

We looked at the impact of lowering the benefit cap on three small, couple-families who are currently out of work and are renting a home from a private landlord in the cheapest third of the market.

Families with one child

At the moment, very small families with just one child are only hit by the benefit cap in parts of inner London such as Westminster and Islington.

Under the proposed changes, families with just one child will have their housing benefit cut across the capital. They will also struggle to avoid the cap in areas including Guildford, Brighton, Reading and even Oxford

 

Families with two young children sharing a room

Currently, families with two children who can share a room – that is a family of four living in a two bedroom home – are only hit by the cap in parts of London.

Under the proposed changes, families with two children, sharing a room will have their housing benefit cut in over half (58%) of areas in England. Not only is the whole of London off limits but major cities such as Leeds, Manchester and Birmingham; large towns including Northampton, Plymouth and Luton and rural areas like Taunton and Yeovil.

 

Edit: This map shows the places where a family with two children, living in a two bedroom home would be hit by the current, and proposed benefit cap.

benefit cap 3

Source: The Guardian using Shelter analysis

Families with two older children

Currently, families with two older children (who would be in need of a larger three-bedroom home to avoid overcrowding) are only capped in one in eight areas of the country, all of which are in London or the Home Counties.

Under the proposed changes, these families would have their benefits capped in over three quarters of areas. These include areas not considered to have unaffordable housing including Coventry, Liverpool, Ipswich and Peterborough.

 

What will happen to these families? Some will manage to find work. Others will have to make major sacrifices to keep a roof over their head. All of the benefits included in the cap are means tested to some degree. So even small losses will cut into the incomes of families who do not have anywhere else to turn.

And some families will lose substantial amounts. Our family with just two children sharing a room would see their benefits reduced by more than £50 a week in one in six areas and more than £100 a week in 1 in 12 areas. This introduces a postcode lottery to the safety net – in some areas support will be available, in others it will be arbitrarily denied.

There are very few sustainable options for these families if they struggle to find work. With so many areas hit by the cap, moving to a more affordable area becomes hard to do. We know from experience that many families have to rely on unsustainable forms of income like temporary help from their council through discretionary housing payments, payday loans or by building up rent arrears.

Some families might try and save money through overcrowding into a much a smaller home. But shockingly, in a third of areas, a family of four (two adults two children) would not have enough housing benefit to even rent a one bedroom flat. Again, this is not just in expensive postcodes. But in Bristol, Harlow or Milton Keynes.

There will also be profound consequences for local authorities trying to house homeless families. With whole areas of the country off limits to small families it becomes almost impossible for them to meet their duty to rehouse families in need. This could leave thousands more families stuck in temporary accommodation, at great expense to tax payers

Shelter believe that a working safety net that prevents people losing their homes isn’t at odds with encouraging people to increase their earnings or improve their circumstances. But reducing the benefit cap, and introducing a lower non-London limit risks exporting the pressures felt by families in London to councils across the country. We’re concerned that the additional squeeze on households will increase the risk of homelessness. And at the very least we’ll be seeking changes to ensure that local authorities can support families when the worst happens as a result of these reforms.

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