Secretary of State for Work and Pensions Iain Duncan Smith
The Benefit Cap: is it worthwhile?
The Department for Work and Pensions has just published their evaluation of the impact of the Benefit Cap in its first year. The Cap is a limit to the maximum amount of working age benefits a family can receive – for families with children, £500 a week (*). How has the policy fared?
The government gave three reasons for introducing the Cap: fairness, encouraging claimants to get jobs and saving money.
Today’s report leads with the benefit’s record on moving people into work. The key claim is that families subject to the Cap “were 4.7 percentage points (41 per cent) more likely to enter employment compared to similar uncapped households.”
That 4.7 percentage points figure is correct and it’s statistically significant (that is, it’s probably not due to chance). The proportions moving into employment are 19 per cent for those subject to the cap and eleven per cent for those who aren’t but a regression analysis, that takes into account a whole series of factors, including the gender of claimants, their benefits and the number of children reduces the gap to 4.7 points. The proportion moving into employment is fairly small, whether people are subject to the cap or not. Between April 2013 and August 2014, 9,600 capped claimants moved into work (and remember that this number includes people who would in any case have got jobs during this period, whether they had been Capped or not).
In addition, very few people have coped by moving to cheaper housing: 14 per cent of capped households moved, compared to 11 per cent of a group just under the Cap. This means that two thirds of capped families haven’t moved into work or moved house.
The conclusion that the Benefit Cap has had a limited impact is reinforced when you look at the objective of contributing to austerity by cutting spending on benefits. In 2014/5, the report estimates that the Cap cut £140 million of annually managed expenditure – about 0.08 per cent. Of course, it’s a large budget, and £140 million is £140 million, but it isn’t going to make a massive difference to DWP total spending.
Now, if your opposition to the Benefit Cap was based on a belief that no one would respond by trying harder to get paid work, today’s report must be pretty devastating. That’s not why I opposed it, however. I’m pretty sure that if you abolished working age benefits altogether a significant number of people would increase their job-seeking efforts and there would be some people who would accept jobs they would previously have turned down. The question is whether all the hardship that would be caused by this is a price worth paying.
Which takes us to the government’s fairness test. Interestingly, on the Today programme this morning Work and Pensions Minister Mark Harper said the research had found no impact on indicators of hardship like use of food banks (from 1:56:00) but the report doesn’t mention food banks, or indeed any indicator of hardship other than whether people have had to move house. The fact that so few people have had to move house so far is important, but the report does mention that 39 per cent have rent arrears and that the Capped claimants who were interviewed in depth “had tight budgets and most of them had some debts”. Most of the claimants who hadn’t moved said that they were already paying the cheapest rents available locally and they seemed to be coping by prioritising rent in their very tight budgets.
According to more detailed statistics also released today, half the capped families lost £46 a week or more. And, as I’ve pointed out before, 73 per cent of the people hit by this policy are children. And remember that these penalties aren’t just being faced by the people who got jobs, but also by the more than two-thirds of capped families who haven’t been able to respond to the Cap by getting a job or moving home.
Is this a reasonable price to pay for a 4.7 percentage point increase in the likelihood of getting a job?
The Institute for Fiscal Studies was called in by DWP to peer-review this research (that’s the sort of thing government departments have to do when nobody believes their statistical claims any more). Their observation on the research highlights the fact that “affected families can lose substantial amounts” and that we still don’t know many things about how they responded to this.
What the quantitative analysis does tell us is that the large majority of affected claimants responded neither by moving into work nor by moving house. For this majority, it remains an open question as to how they adjusted to what were, in many cases, very large reductions in their income.
It isn’t their job to weigh the hardship against the movements into work, and, quite rightly, they don’t.
But when I read this a shiver went up my spine.
* A typo in this post has been corrected – originally I wrote “£500 a month”.