The welfare cap doesn’t fit
Most of the noise and fury in the media over the Government’s announcements about welfare changes has been directed at the impact of unfair cuts to child benefit on higher earning families. However, it is some of the poorest families on out of work benefits who will be most severely affected by welfare cuts effected through caps on welfare payments for out of work families.
Last week the Chancellor announced that benefit payments would be capped at £26,000 per year (or £500 per week) for out of work households, with only families entitled to Disability Living Allowance, and War Widows Pension exempt. Treasury figures estimate that these caps would affect 50,000 families. Family Action’s research report “The cap doesn’t fit”, shows that the caps would particularly affect large families and those living in London. Contrary to Government intentions to promote stable relationships, the caps will also introduce a substantial couple penalty into the benefits system.
For instance, an unemployed couple with five children, paying rent of £200 per week, and council tax of £20 per week are currently entitled to around £628 per week in benefits and tax credits. This family will lose £128 per week (31`% of their disposable income) when the cap is introduced. But the couple penalty the welfare cap would introduce into the system is stark. For instance, for our service users above, were the household headed by a Lone Parent they would be entitled to £591 per week, and whilst they will still lose out (by £91 per week, or 25% of their disposable income), they will lose considerably less than the equivalent couple household.
The impact of the benefit cap would be particularly great when two out of work Lone Parents form a couple household. As separate Lone Parents with 2 children each, and rent of £200 each (and council tax of £20), their benefit income would be £418 for each household – safely below the housing benefit cap. As a couple with four children and a rent of £300 per week (and council tax £20) their total income would be around £670 – this would put them £170 over the proposed cap, and they would therefore lose more than nearly £9000 per year compared to now. This change is so substantial that it would be likely to prevent many Lone parents from entering relationships (particularly with other Lone Parents).
In cases where they decide not to cohabit because of the financial implications, this would also lose the Treasury money, since for each couple like the one above that decides to stay apart so as to avoid the welfare cap, instead of paying out £670 per week to one couple, benefits of £418 per week will be paid to two Lone Parent households – a total additional benefit bill of £166 per week, costing the Treasury an additional £8800 per year if the couple decide to stay apart.
The proposed welfare caps would also have a profound impact on households with one earner who loses their job.
Take for example a couple with 4 children, rent of £300 per week and council tax of £20 per week. One of the parents works 30 hours per week and earns £200. Their current income after housing cost is £444 per week. If they lost their job, through no fault of their own, their household income would currently reduce to £350 per week after housing costs – a loss of £94 per week (21% of their disposable income).
If they lost their job after the introduction of the welfare caps, their income after housing costs would reduce to £180 per week – a loss of £264 (or 60% of their disposable income) compared to their income in work. The introduction of welfare caps would lose this hard working family £170 per week compared to their current out of work income.
Such a substantial loss of income could prove unmanageable for this family. In some circumstances they may end up losing their home as they are no longer able to afford the rent, potentially making it harder for them to re-enter the Labour Market.
Family Action works with vulnerable families in the home, providing early intervention services that strengthen families, assisting them to take more responsibility for their lives, parent their children well, build a stable home, and where appropriate, help them to move into employment. These changes would make this job harder. And it is couples who will be hardest hit as a result of these changes – which doesn’t chime with a Government that champions marriage and stable communities built on stable relationships.
The caps will disincentivise stable couple relationships and force many families, particularly in London to move, creating instability and crisis for many vulnerable families. If Government Ministers really believe it’s their job to make wedding bells ring these measures need a rethink.