The benefits cap: a few people got jobs (for now) or moved house; the majority just got poorer

The benefits cap is getting more people into work, says new research. Helen Barnard asks whether this is all good news.

The much-maligned benefits cap has been back in the news today, with the publication of new research on its impact since being fully rolled out in late 2013.

Iain Duncan Smith and Mark Harper have been claiming victory over those who predicted that it would have no impact apart from increasing food bank use. Mindful of the scepticism encouraged by the earlier misuse of statistics about benefits claims, the Department for Work and Pensions took the precaution of asking the Institute of Fiscal Studies (IFS) to peer review the benefit cap research and advise on the methods. The IFS has released its own statement of key findings. So what does the evidence say?

The new research confirms that all the families affected have either a large number of children or high rents, and often both. About 27,000 families were affected once it was fully rolled out in later 2013. That is less than one per cent of working-age families receiving housing benefit. Their benefit income was reduced by a total of about £100 million per year. Half of those capped in November 2013 lost at least £46 per week. Some lost much more than this so the average loss was £70 per week.

The IFS confirms that the analysis suggests around 2,000 families who were claiming benefits in May 2013 had someone move into paid work 12 months later in response to the cap. This is measured by how many started to claim Working Tax Credit so it’s possible that some of those affected by the cap might already have been working but not claiming Working Tax Credit and others might have started working but not enough to claim Working Tax Credit or have not chosen to claim. The research also suggests that a small number of households moved house, but only where they lost at least £200 a week, and not all of those.

The IFS concludes that the large majority of affected claimants neither got work nor moved house. These households will have had to absorb reductions in their income (very large for many of them) by cutting spending, getting into debt and/or running down savings. Any further lowering of the cap (as suggested at the Conservative party conference) might be expected to result in some claimants moving into work, but few moving house.

We have always questioned the rationale for the benefits cap (as has the IFS). The policy does nothing to tackle the causes of the rising benefit bill – a lack of affordable housing and too many low-paid jobs. It makes a false comparison between in-work and out-of-work households, ignoring the considerable benefits received by those working on low incomes. It also ignores the differing needs of families of different sizes.

Even where the cap does result in small numbers of people moving into work, if that work is low paid, insecure and unconnected to a ladder to better-paid work, it may not result in much improvement either in their living standards or in the cost to the country. In fact, there is evidence that pushing people into poor-quality work can reduce their chances of getting more stable, better-paid work later, meaning that they remain dependent on in-work benefits and are more likely to become unemployed again.

Based on the evidence so far, if the benefit cap was lowered the majority of people affected wouldn’t get work or move house – they would just get poorer.