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The Best Way to Cap the Benefits Bill? Tackle Its Underlying Costs

15/07/2013 13:01 BST | Updated 14/09/2013 10:12 BST

The household cap on working-age benefits comes in today for places like York, Harrogate and the East Riding of Yorkshire after starting in London earlier this year. It is being phased in over the rest of the country in two tranches from today, with the final set of local authorities coming online on 12 August. Today's authorities are those where DWP expect 275 or fewer households to be affected, which is a relatively small proportion of the overall claimant population. However, it is likely to have a major effect on those households who do see a sharp drop in their benefits.

The aim of the cap is to ensure that "no workless family can receive more in welfare than median after tax earnings for working households." The cap is set at £500 per week for couples and lone parents (no matter how many children they have) and £350 per week for single adults. People getting Working Tax Credit or Disability Living Allowance are exempt from the cap. Following criticisms about the potentially punitive effect on those who have lost their jobs, claimants who have been in employment for a year or more will have a grace exemption period of 39 weeks before the cap is applied.

Linking the cap with a measure of average earnings ties in with the Coalition government's attempts to maintain perceptions of fairness in the benefits system. The three-year freeze at 1% on the uprating of benefits in general follows the same logic that people on benefits should not get more than people in employment. This, as we've pointed out, ignores the 4.3m working families receiving benefits. It also ignores the way that working-age benefit levels have lost pace with wages over the last 30 years. If benefits had been pegged to earnings in good times as well as bad, then there would be much less poverty now. It would be good to see the commitment to maintaining fairness between the benefits system and the world of wages if and when the UK returns to solid economic growth. Don't hold your breath however.

The other problem with the measure is that a cap set at an arbitrary measure of average earnings doesn't take into account the variety of needs of families receiving benefits. Our Minimum Income Standard research asks the public what they think families like themselves need to have an adequate standard of living.

For a couple with four children, this comes to £740 per week (including an affordable social rent, a luxury that many affected by the cap will not be able to enjoy). On out-of-work benefits, they are already £230 below this if they claim all their entitlements (e.g. child benefit £60, child tax credit £220, Housing Benefit to cover the rent, Council Tax Support and JSA of £113). This is only a tenner above the cap - which points to the lack of affordable housing for families as a major source of costs in the benefits system.

To avoid falling through the safety net and into hardship, support must be provided for families facing the cap to help them decide how to respond. Clearly, benefits alone are not the answer to poverty, but if we want to reduce the benefits bill, we also need to address the underlying drivers of poverty, such as the high cost of housing.