Reducing the benefit cap: Potential impact

Roll out of the new, reduced household benefit cap starts today, lowering the threshold to £20,000 in Great Britain and £23,000 in London.

The benefit cap was first introduced in 2012 by the Coalition Government, limiting the total amount of money an out-of-work household could receive in benefits to £26,000. The main aim of the reform was to incentivise workless households to find employment, as the cap doesn’t affect working families. The new lowered tiered benefit cap builds on this underlying principle, whilst trying to account for regional difference in housing costs.

How does the cap work?

The benefit cap applies only to households with people aged between 16 and 64 who are out-of-work benefit claimants.  Once a household exceeds the benefit cap, the amount of money above the limit gets deducted from their benefit award (usually from Housing Benefit). Pensioners and claimants of sickness and disability benefits are exempt from the cap.

Who will be affected?

The Department of Work and Pensions (DWP) published an Impact Assessment, detailing the number and characteristics of affected households potentially affected by the new, lower cap. It estimates around 88,000 households will be affected by the new benefit cap if they don’t take up work. (This includes 64,000 newly affected households, together with those already affected by the current cap). This is 4 times higher than the number of households currently affected (around 22,000).

66% of the potentially affected claimants are single females, according to the assessment, the majority of which are lone parents. Differences based on ethnicity, religion and sexual preference weren’t established due to unavailability of reliable data.

How are affected households distributed across the country?

DWP suggests the new tiered benefit cap will recognise differences in housing costs in London compared to the rest of Great Britain, resulting in a more equal distribution of affected households across the country.

number-of-houses-affected-by-region

Under the previous benefit cap 44% of affected households were in London, followed by the South East (13%) and the West Midlands (12%). This indicates that the previous single-tier cap had a disproportional impact on local authorities with high housing costs, inevitably causing capped households to be concentrated in London.

Under the new two-tiered benefit cap, 22% of affected households are expected to be in London. The number of affected households will more than quadruple in all regions bar London, meaning affected households will be more evenly distributed across the country.

All the same, London will remain the most affected region with around 10,400 more households subject to the cap.

How does this look across Britain?

161107-benefit-cap-maps

The two maps show the number of households affected by the previous and the new, lower cap by local authority. Note estimates for the new, lower cap do not account for potential behavioural changes (i.e., people moving into work in reaction to being subject to the cap when out of work). Note figures for the new, lower cap include households already affected by the £26,000 cap. DWP’s impact assessment provides estimates for 2016-17, based on November 2015 caseload data, for the average number of households that might be affected once the new, lower cap is rolled out across all regions.

There are two key differences between the maps.

First, the maps show an overall increase in the number of affected households across Great Britain. Most local authorities currently with 1 to 50 capped cases are estimated to have 50 to 200 cases under the new, lower cap. Moreover, under the new, lower cap over 800 households are expected to be affected in multiple local authorities.

Second, London is no longer the only place with high numbers of households affected, as the areas in dark blue are much more dispersed across Great Britain. Birmingham, for example, is the local authority with the highest number of affected households under the new benefit cap (3,900), far ahead of the local authorities in London. Leeds (1,100), Glasgow (1,000) and Cardiff (1,000) are among the top 10 local authorities with the highest number of affected households, alongside London.

How could we analyse this data further?

It should be noted that the maps above show only the absolute number of affected households. We might expect local authorities with bigger populations to have a higher number of capped cases. When expressed as a proportion of workless households, the rank of the top 10 local authorities changes considerably. When ranked to account for population size, Brent local authority tops the list and Birmingham local authority falls out of the top ten.

Is further information available?

Further information will be published in the upcoming update of our House of Commons Library briefing paper, The Benefit Cap.

Picture credit: Innis House, East Street, by Nico Hogg; Creative Commons Attribution 2.0 Generic (CC by 2.0)