From the TUC

The Benefit Cap’s Shaky Foundations

08 Aug 2013, by Guest in Society & Welfare

The benefit cap is totemic of welfare reform and a policy from which the government is unlikely to retreat, even though the DWP’s own figures (discussed yesterday in Richard’s post) show that the biggest losers are children in poor families. But is the basis of the benefit cap as secure as the government thinks?

Last week we posted a blog on Touchstone about a recent Freedom of Information request we’d made to establish the level of net median earnings for working households in the UK.

It wasn’t some arcane request. According to section 96 of the Welfare Reform Act 2012, the benefit cap must be set ‘by reference to the estimated average earnings’ of a working household. So the figures we got back to our FoI request should have had a close – albeit perhaps not perfect – relation to the £500 a week figure at which the cap has been set for 2013/14.

In fact, as we reported last week, net median earnings for working households in 2011/12 (the latest year available) turned out to be £564 a week. That’s a pretty big difference – almost 13 per cent – so how could such a disparity be explained? We had to find out.

The starting point was the government’s own account of the way it arrived at the £500 figure. As employment minister Mark Hoban disclosed in a recent parliamentary question:

The figures of £500 a week was proposed in 2010 … [it] 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.

Given this, our initial hunch was that the government had simply made some dismal assumptions about future earnings growth in 2010 and as a result, actual average earnings had overshot the projected figure by some degree. Yet when has the government ever under-estimated growth? It all seemed a bit strange – the investigation continued.

With the help of New Policy Institute, we took a look at the 2008/9 FRS data to see which numbers the government had used at the outset. Here, we were in for another surprise: the net average earnings of a working household in 2008/9 were £548 per week.

The FoI response did point to another possible explanation, however: that the government had used the net median earnings of all households as its reference point, including those that were not earning which would depress the average considerably. In 2008/9, this figure turns out to be £483 a week, a much more plausible basis from which to reach £500 a week once earnings growth was factored in.

While we can’t know for sure whether this was the method used or not, one thing is clear: the £500 a week figure bore little relation to the earnings of the average working family in 2008, let alone five years later in 2013. So, we have a benefit cap which was sold to parliament and the public on the grounds that it would equalise benefit income with average earnings – but it actually turns out to do no such thing …

3 Responses to The Benefit Cap’s Shaky Foundations

  1. Henry
    Aug 9th 2013, 7:50 am

    I am assuming that a household with no earnings is wealthy enough to live on independent means, or are there other categories of ‘non-earning households’?

  2. Misrepresenting social security cuts | Social Policy
    Aug 13th 2013, 9:44 pm

    […] the TUC has reported figures for the benefit cap which show that the cap has not been set at the average […]

  3. Phil Culmer
    Sep 6th 2013, 9:18 pm

    “…unlikely to retreat…even though…”

    I think you mean “…unlikely to retreat…particularly because…”