The Benefit Cap: Did it cause a "rush" to the job centre?

30 January 2015

"What it did was create a rush to the job centre and people getting work"—David Cameron in the Telegraph, 26/01/2015

The Prime Minister has pledged to lower the benefit cap to £23,000 a year if he is re-elected, saying that the current £26,000 cap has boosted employment.

While it's true that a number of households that had their benefits capped have since moved into work, it's hard to tell whether or not this happened because they had their benefits capped.

How the cap works

The benefit cap is a limit on the amount of benefits a working age household can receive. The cap is set at £500 a week for couples or people with children living with them, and at £350 a week for single people without children living with them. It applies to income from benefits such as child benefit, jobseeker's allowance and housing benefit.

It works through reducing housing benefit or universal credit, so households not claiming those aren't capped.

Similarly, people who find work (or are already working) and claim working tax credit aren't capped. Neither are those on disability benefits.

The numbers

As of August 2014, 51,000 households had had their benefits capped since the policy was introduced in April 2013.

"Of those that have left the cap, 40% have [found work]"—David Cameron on the Today Programme, 27/01/2015

24,000 households have moved off the cap, 10,000 of them (the 40% we think the Prime Minister was referring to here) because they're now claiming a working tax credit.

The Department for Work and Pensions has previously been reprimanded by the UK Statistics Authority for suggesting that all of these households had a member move into employment because their benefits were capped.

Because not everyone who works can claim a working tax credit, some people who move into work won't be picked up by this measure, and some people who were already in work may qualify. However, even as far as working tax credit claims are an accurate measure of changes in employment, it's hard to say what caused these households to move into work.

Employment has risen over the past year as the economy has continued to recover from the recession, and we would expect households to flow into and out of the cap as they move in and out of employment anyway.

To try and get an idea of how the benefit cap has influenced households, we can look at different groups that were claiming at a specific time.

Of the 42,000 households getting more than £500 per week in benefits in May 2013, about 2,000 had someone in the house get a job over the following 12 months in response to the cap.

This isn't all the households that had someone get a job in response to the cap since it was announced; it's one group observed over 12 months, and not all of these households actually had their benefit capped. In addition, some households may have reduced their benefit claims before May 2013 in reaction to the prospect of the cap.

As the Institute for Fiscal Studies put it, "... the large majority of affected claimants responded neither by moving into work nor by moving house".

The people affected

Most households hit by the cap fall into two groups: those with lots of children, and those who live in high rent areas.

  • In August 2014, 59% of those affected had between 1 and 4 children, and 36% had 5 children or more.
  • 61% of those affected are single parent households.
  • One in five of those affected were capped by over £100 a week

From April 2013 to August 2014, almost half the households capped were in London, partly because the benefit cap was introduced in London first. Only two of the top 20 local authorities by the number of households affected were outside London (Birmingham and Manchester).

The assessment

So is the cap working?

The cap has had a small effect on the number of claimants.

In terms of savings, the policy reduced the benefits bill for the 27,000 families that were capped in late 2013 by about £100 million. The IFS say that the current benefit cap will save less than £200 million in 2015/16.

To put this figure into context, total spending on housing benefits alone in 2015—16 is forecast to be £26 billion.

But part of the policy is that no one should get more in benefits than the median working family receives in net earnings. From this point of view, a number of people have certainly had their income from benefits reduced.

However, the majority of those capped haven't found work, and haven't moved to cheaper accommodation. The IFS says that: "For this majority, it remains an open question as to how they adjusted to what were, in many cases, very large reductions in their income".

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