Lowering the benefits cap makes least well-off poorer

27th Jan 2015

Cutting benefits for the least well-off doesn’t help people move into work – evidence shows it just makes them poorer, says Helen Barnard.

As the 100-day countdown to the general election begins, David Cameron has today announced that the benefit cap would be cut from £26,000 to £23,000 if the Conservatives win.

The PM said he is determined to ensure benefits are not seen as a “lifestyle choice”, and also proposed to scrap housing benefit for 18 to 21-year-olds. The Government estimates that around 100,000 jobless households could see their incomes squeezed.

However, research by the Institute of Fiscal Studies (IFS) suggests that benefit capping changes very few “lifestyle choices” – it simply makes people in poverty poorer. A study published by the IFS last month, that was carried out for the Department for Work and Pensions (DWP), shows that a large majority of people who experienced benefit capping as a result of 2013’s welfare reforms neither moved into work nor moved house – the intentions of the reforms. Many experienced very large reductions in income.

The research also 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 the reforms were fully rolled out in later 2013. That is less than one per cent of working-age families receiving housing benefit. But the average loss was £70 per week per family.

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.

David Cameron today pledged that the newly-proposed cuts would fund apprenticeships for three million school-leavers. JRF welcomes moves to improve Britain’s low-paid, low-skilled jobs market. It’s clearly better to help people get decent jobs from the moment they leave school or college, as there is evidence that pushing unemployed people into poor-quality work can reduce their chances of getting better jobs later, meaning that they remain dependent on in-work benefits.

But we have always questioned the rationale for the benefit caps. If the goal of the policy is to tackle the high benefits bill and get people into work, politicians should tackle the underlying causes – providing more affordable housing, ensuring cities deliver growth that benefits everyone and increasing the number of better-paid jobs with prospects, so people don’t have to rely on in-work benefits to reach an acceptable standard of living.

Benefit capping makes a false comparison between in-work and out-of-work households, ignoring the considerable benefits received by those working on low incomes. Scrapping housing benefit for under 21s – a significant announcement that has gained less prominence today – could compound all this for a generation already feeling the effects of the economic downturn and lead to a sharp rise in homelessness among young people, as we’ve previously written about.

Research strongly suggests that today’s announcement is an example of a policy that delivers headlines but not the intended results, and makes Britain’s least well-off families even poorer.