To cap it all

Ruth Lister on Covid’s impact on the already flawed rationale for the government’s benefit rules

One consequence of the Covid-19 crisis has been the exposure of a wider public to just how low social security benefits are. The temporary increase in Universal Credit (to the equivalent of the weekly statutory sick pay rate of £95.85) and local housing allowance was therefore welcome. But not all claimants will be any better off, as they will be caught by the benefit cap.

The cap, which limits the total amount of benefit received by most working-age households, was introduced in 2013 at £26,000 (for families) – the rough equivalent of median net earnings. It was then reduced in 2016, on a tiered basis, to an arbitrary £23,000 within London and £20,000 beyond. It has not been raised since.

79,000 households were affected by the cap in February 2020. They will not gain from the Chancellor’s concession, which will also pull many more into the cap. On the Child Poverty Action Group’s very rough estimates, the numbers could rise by at least 50%. Many of these will be existing claimants. New claimants, who have lost work or earnings, will be protected by a 39 week or nine month grace period (depending on whether the cap is applied to UC or housing benefit) provided they have not had a break in or very low earnings during the previous year.

In today’s labour market, this means a sizeable minority are potentially vulnerable. Citizens Advice give the example of Nikola, a lone mother who was made redundant before the Job Retention Scheme came into effect. Despite plenty of work experience, a break in employment leaves her subject to the cap and therefore left with £300 universal credit a month (after housing costs) with which to support her two children, whom she is currently home-schooling. Nikola has had to resort to a food bank for help.

The Resolution Foundation calculates that couples with two children in three-bedroom houses will now fall foul of the cap in 107 out of 152 local authorities in England and Wales.

A 2019 Work and Pensions Select Committee report cited evidence of the extreme hardship caused by the cap and demolished the official justifications for it. In particular, it disputed claims that the cap is effective in improving work incentives, highlighting how it disproportionately hit households not even required to be actively seeking work – including those caring for very young children.

The same report also challenged the argument that the cap is fair to working families. They were already better off than those out of work and including children’s benefits in the cap but ignoring them in the comparator incomes for working families when setting the cap is far from fair. Moreover, as with the two-child limit, the cap breaks the link between entitlement and need to the detriment of larger and BAME families.

A wide range of organisations including anti-poverty charities, faith leaders and the Institute for Fiscal Studies (IFS) are calling for the cap to be suspended during the crisis. As the IFS point out, the supposed incentive to seek work or reduce housing costs is likely to be even less effective, or indeed ‘potentially harmful’ at present.

The early general election meant the Work and Pensions Secretary was unable to fill a statutory duty to review the cap in each Parliament (taking account of inter alia the state of the labour market). Given the impact of Covid, Theresa Coffey should begin that review as a matter of urgency, and either suspend the cap for the duration of the crisis or – if operationally easier – raise it significantly.

Baroness Ruth Lister of Burtersett is a Labour Peer

Published 13th May 2020

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