Are the benefit cap savings dwarfed by the sums paid to the wealthy?

"The savings from the cap are very small — £270m. Yet we spend £53bn on welfare payments to people earning above average incomes."

The Guardian, 23 January 2012

After peers handed the Government a defeat in the House of Lords yesterday over its plans to cap benefit payments at £26,000 per year for each household receiving them, welfare reform again found itself on several newspaper front pages this morning. The Daily Mail, for example, branded the result an "insult to every working family".

However an article in the Guardian yesterday seemed to suggest that the issue might have been taken out of proportion. One columnist claimed that a £26,000 per household benefit cap would save just £270 million, while £53 billion is handed out to people earning more than the national average. So how accurate are these statements?

£270 million

The £270 million figure can be measured against Department for Work and Pensions (DWP) research.

The Impact Assessment (IA) completed ahead of the Bill gave figures on potential savings over the current Parliament.

The IA calculates that the 67,000 families which currently receive more than £26,000 per year will lose an average of £83 each annually, which by 2013/14 would amount to a saving to the public purse of some £290 million.

While the Guardian's figure is very close to this official estimate, there is nevertheless a £20 million difference. It is not clear how the lower figure was arrived at, but other outlets have used £290 million to describe the savings from the cap.

It is also worth noting that £290 million figure is not the last word in potential savings, and the IA goes on to estimate that £330 million, £275 million and £303 million could be saved over the following three years.

£53 billion

The claim that £53 billion is given in benefits to the richest half of the population proved harder to pin down. The Guardian cites a Telegraph article from June 2010 as its source, while the Telegraph itself points towards Office for National Statistics (ONS) data (although the link provided no longer works.

According to the Telegraph article, 32 per cent of benefits went to those in the top half of the income distribution, totalling £53 billion.

However we were able to contact Neil O'Brien, the author of the Telegraph column and Director of the think tank Policy Exchange, and he kindly provided Full Fact with the precise data he had used to make his calculation.

The source was a report by the ONS, released on June 10, 2010, which recorded the division of benefit payments along wealth lines.

Benefits paid to people above average income, 2008/09

 Source: ONS. The effects of taxes and benefits on household income, 2008/2009, Table 14.

As the spreadsheet above details, 32 per cent of cash benefits were paid to those with above average incomes (cell O46), which accounts for £53 billion of theotal benefits bill (cell T46).

The analysis does provide a second estimate for the sums given to those with above average incomes: £41.1 billion. While this represents the total identifiable spend based on the sample used for the ONS research, the £53 billion is the figure spent on those earning more than the national average and applied to recorded DWP benefit expenditure.

So while the Guardian's claim is based upon sound research, it is worth pointing out that it is now a little dated, looking as it does at the 2008/09 financial year. Since this point, benefit expenditure has increased, and the true sum handed out to those with above average incomes could now be even larger.

Conclusion

According to the estimates found by Full Fact, the Guardian may have slightly underestimated the sum expected to be saved through the benefit cap, should it pass into law. The DWP actually places this saving at £290 million, rather than the £270 million quoted.

The second claim — that 32 per cent of benefit payments, or £53 billion, is paid to those in the upper half of income distribution — appears to be based on official ONS data, which if anything is likely to underestimate the present reality.