Will the cap fit for children in poverty?

3rd Feb 2012

What does the Welfare Reform Bill mean for child poverty in the UK?

As the dust begins to settle on the Welfare Reform Bill, we're left wondering what this means for child poverty.

Many of the measures that will lead to more children living in poverty by 2013-14, according to a report from the Institute for Fiscal Studies, have been announced in Budgets and Spending Reviews rather than in the Bill itself. These include freezes in Child Benefit and levels of Working Tax Credit, and the decision to uprate benefits by the Consumer Price Index, rather than the Retail Price Index.

But perhaps the most contentious proposal in the Bill, the 'benefit cap' that will impose a £26,000 limit on the annual receipt of benefits received by out-of-work families, has often been debated in terms of its impact on the poorest children.

For proponents of the cap, and as Chris Grayling argued in the House of Commons, the proposal embodies the idea that out-of-work families should not receive more in benefits than the 'average' family earns through wages. This, as Conservative peers suggested in the House of Lords, will help to tackle the 'poverty of aspiration' that they argue leaves too many families out of work, and in poverty.

For the cap's opponents, the proposal fails to recognise that nearly all families would already be better off in work than claiming out-of-work benefits, due to the impact of in-work subsidies, including tax credits. They say it risks increasing family homelessness, with knock-on effects on the wellbeing of children in families that are affected.

The debate has made much of the distinction between 'in work' and 'out of work' families, with the cap clearly applying only to the latter. But what has been less discussed on either side of the debate is that these two groups are often made up of the same people – just at different points in time.

The impact assessment for the cap shows that the largest group of those affected, those on Jobseeker's Allowance, have mostly been out of work for less than a year. And JRF research has clearly shown the 'low pay no pay' cycle that still affects many families; while chronic poverty only affects 10 per cent of the poor population, and 3 per cent of the population as a whole, poverty at some point affects 30 per cent of the population.

The 2011 Monitoring Poverty and Social Exclusion report for JRF showed that over half of all children living in poverty now have at least one parent in work: whether or not the benefit cap proves an incentive for more parents to move into employment, it's clear that this won't be enough on its own to tackle poverty.