FRINGE BENEFITS Fringe benefits
The benefits cap for working-age families is being rolled out across the country. What will the policy achieve, apart from reducing state benefit payments to about 40,000 families with many children and/or high housing costs, and is it the most effective approach? By Robert Joyce
A
N ELEMENT OF the government’s welfare reform programme that has received much attention is the benefits cap for working-age families. The cap is being rolled out across the country at the time of writing, and is set at £350 per week for childless single people and £500 per week for other families. It will not apply to recipients of certain disability benefits or Working Tax Credit, or to families with earned income exceeding £430 per week. Despite the hype, this is a policy that will affect relatively few families – 40,000, according to the latest government estimate – and consequently will save the government little money: about £185 million per year. To put this in context, other cuts to welfare during the fiscal consolidation are affecting millions of working-age benefit recipients, and will amount to more than £20 billion per year of reduced spending by the end of this parliament. But many of those who are affected by the benefits cap will lose substantial amounts: an estimated average of about £90 per week, or almost £5,000 per year.
How could families be in receipt of more than £500 per week in benefits? Put simply, they must have either a large number of children or high housing costs (or both). A couple with four children and no private income would be entitled to about £393 per week in Jobseeker’s Allowance, Child Benefit and Child Tax Credit. If they paid rent of £107 per week or more (plausible rent levels for those who rent privately or are in social housing
“
Many of those who are affected by the benefits cap will lose substantial amounts
The best-targeted response
would surely be to change the specific benefit rates
in London), a Housing Benefit claim to cover this would mean that they hit the cap. A smaller family could also be affected by the
”
cap if they live in a particularly high-rent area such as London and consequently claim lots of Housing Benefit (for example, a three-bedroom household who rent privately in the highest-rent areas can cover rent of up to £340 per week via Housing Benefit). The Government’s Impact Assessment estimated that 69 per cent of affected families have at least three children, and 54 per cent live in Greater London. What will the policy achieve, apart from reducing state benefit payments to about 40,000 families with lots of children and/or high housing costs? The Government has said that it hopes there will be two forms of behavioural response: families may move to cheaper accommodation to reduce their housing costs, and/or take up paid work because their out-of-work benefit entitlement will have been reduced. A third possible form of behavioural response is in fertility rates, since the cap will effectively reduce state financial support for some large families. If this were the main intended impact, though, one would expect to see the policy affecting only new claimants of child-contingent benefits. A fourth possible behavioural impact is for
fewer people to cohabit, since the benefits cap is to apply at the family level, and hence living apart could split benefits across families and reduce (or even eliminate) the reduction in benefits resulting from the cap. This ‘couple penalty’ is presumably
14 SOCIETY NOW AUTUMN 2013
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