Getting The Benefit Cap Wrong
By September 2013, when the roll-out of the benefit cap is complete, more than 50,000 low-income families will see their total weekly income reduced to £500 regardless of their assessed needs.
According to the government, the benefit cap has a clear rationale: it will ensure that families claiming out of work benefits and the average working household make decisions about where to live, how many children to have and the like on an equal financial footing.
But where does the £500 figure actually come from?
A recent parliamentary question provides a starting point. As employment minister Mark Hoban explained:
‘Benefit payments will be capped at around the median earnings after tax and national insurance for working families…
… The figures of £500 a week was proposed in 2010 and derived using DWP’s policy simulation model, which uses the Family Resources survey (FRS) as its source of information. Based on data from the 2008-9 FRS and assumptions about future earnings growth, median earnings were projected to 2013-14’.
So far, so good. However, a Freedom of Information request released last week shows the government must have made some dismal earnings projections when they did their calculations back in 2010. Despite sluggish wage growth over the last couple of years, actual net median earnings for 2011-12 (the most recent year available) were £564 a week.
The £500 a week benchmark, then, falls some way short of reality. Rather than deliver parity between poorer families and the average working household, it ensures that those who look to the state for support in times of unemployment, illness and pregnancy could see their benefits capped at well below the point the government ostensibly claims is fair.
But this still isn’t the whole story. By pegging the cap to earnings rather than income, the government ignores the fact that median households have their wages topped up by benefits too. And the amounts are not inconsiderable. In fact, recently released government statistics show that in 2011-12, the average family received £135 a week in benefits in addition to its earnings.
To assert, then, as the government does, that the benefit cap delivers fairness between low- income families and the median is simply untrue. The £500 figure turns out to be wrong on the facts, wrong on the method, and of course, wrong in the way it deliberately impoverishes 50,000-plus families and the 190,000 children that live within them.