The benefit cap is a sucker punch for councils

Cuts to benefits may well be helping the government pay off its overdraft, but they could cost councils the earth. The benefit cap in particular is a sucker punch to councils – the sly punch that comes in and catches you off guard. How so?

Let’s firstly remind ourselves how the benefit cap works. It limits the total amount of benefits that certain families can claim. This is currently set at £500 per week, but the government want to reduce this further to £440 in London, and £385 elsewhere. When a household’s total income hits this limit their housing benefit claim is capped off – even if rents in the area mean they would otherwise be entitled to more support to keep a roof over their head. Lowering the cap will mean support cuts out even in areas with modest rents.

In my last blog I stressed that the cap cumbersomely applies to homeless families living in council run temporary accommodation, just as much as it does to other families. Local councils have a duty to provide emergency accommodation to homelessness families until they can be rehoused. To pay for this, councils can charge households rent – which many low income families can only pay because of help from housing benefit. Capping the housing benefit available means councils will have to accept the hit.

The government is serving up a combination of punches to councils (and there’s a spot of foul play going on too). Firstly, the ‘jab’: the benefit cap is driving demand for council homeless services by making housing unaffordable for those affected. Then comes the ‘low-blow’, as councils lose out because the cap still applies when they house homeless families. Thirdly, the ‘undercut’: councils are already struggling to pay for expensive temporary accommodation in the first place, because the government has limited the money it gives to councils to cover its cost. And finally, the knockout blow: even if a settled home becomes available for a family, councils are unable to move a capped household into it because the cap makes it unaffordable.

Councils are on the ropes. Shelter analysis suggests that 25 London councils combined currently suffer an annual loss of more than £4 million a year from the effect of the benefit cap on families living in temporary accommodation. And this doesn’t account for other costs, such as homelessness administration and the loss of rent from capped households living in social housing. It also doesn’t include the money councils are already having to spend from their general funds, because the budget given to them by the government just isn’t sufficient in meeting the cost of providing temporary accommodation.

The shortfall has been just about manageable to date, but the next round of cuts ushers in a cap that’s in a different class. We looked at three inner and outer London boroughs – Enfield, Tower Hamlets and Hackney. In just one borough (Tower Hamlets) the total number of capped households will increase from 580 to 1600 under the new cap, and the number of capped homeless from 208 to almost 300. The gap caused by the cap will cost the council more than £2 million a year in loss of income to temporary accommodation

Outer London boroughs will not be immune. Under the proposed cap, Enfield would lose £1.6 million a year, more than six times what they lose now. These three boroughs alone will lose at least £5 million a year – and that’s before the Comprehensive Spending Review further squeezes local authority coffers. This is staggering. We don’t yet have the data for the other 30 London councils, or the councils outside of England who will witness an even lower cap than in the capital.

It’s clear that far from saving the taxpayer money, the cap is instead shunting the cost onto councils, who are part funded through council tax payments from local residents.

In the past, the government has suggested that councils can use Discretionary Housing Payments (DHP) to offset the impact of the cap on temporary accommodation. But when we’re looking at losses of £2 million a year through to a single borough’s temporary accommodation budget, then it’s clear there’s only so much that a dwindling pot of DHP can do.

So will the lower cap therefore be the knock-out blow for council homelessness services? The impact of the benefit cap on council finances will certainly worsen: more and more affected households are likely to be made homeless and require temporary accommodation, which councils will find harder and harder to provide. And constrained temporary accommodation budget means an increasing number of families placed in inadequate housing, such as bed and breakfast, or sent miles away from their local area.

We need the government to help councils make it to the next round, and consider exempting homeless households from the benefit cap.