This House of Commons Library briefing paper explains how the household benefit cap operates and considers evidence of its impact to date. It goes on to consider the Government's intention to reduce the cap from £26,000 to £20,000 per year (£23,000 in London).Jump to full report >>
As part of the October 2010 Spending Review the Coalition Government announced an intention to cap total household benefits at £500 per week for a family (£26,000 per year) and £350 per week (£18,200 per year) for a single person with no children. Households with income from benefits in excess of these caps experience a reduction in their Housing Benefit entitlement.
Measures to introduce the cap were included in sections 96 and 97 of the Welfare Reform Act 2012 and the Benefit Cap (Housing Benefit) Regulations 2012. Implementation was somewhat delayed but it was fully rolled out by September 2013. Provision for a benefit cap has also been included in the Universal Credit Regulations 2013.
The benefit cap was one of the Coalition Government’s welfare reform measures aimed at deficit reduction. The key aims were to:
Between its introduction and November 2015, 69,900 households experienced a reduction in their Housing Benefit as a result of the cap. As expected, most of the affected households were larger families and those living in a high rent area. The majority of the affected households lived in London (45%). The Government has declared the policy a success on the basis that around 31,000 of the affected households “have moved into work, reduced their Housing Benefit claim or no longer claim Housing Benefit.”
A commitment to reduce the cap from £26,000 to £23,000 was included in the Conservative Party’s 2015 Manifesto after being initially announced as part of a package of measures aimed at funding three million apprenticeships during the Party’s 2014 Conference. The Summer Budget 2015 confirmed the Government’s intention to reduce the cap for families to £23,000 in London (£15,410 for single people) and £20,000 (£13,400 for single people) outside the capital.
Measures to implement the lowering of the threshold are included in the Welfare Reform and Work Bill 2015-16. The Impact Assessment published with the Bill in July 2015 estimated that 120,000 households could be affected by the reduced benefit cap levels in the implementation year of 2016/17.
In February 2016 the Government published Benefit cap: planning estimates of number of households in scope for lower benefit cap levels and Data tables: Estimates of the number of households in scope for the new benefit cap in 2016/17 by local authority. The estimated number of households in scope for the new cap in 2016/17 by local authority are presented in nine bandwidth categories in order to reflect uncertainty around the numbers affected. The local authorities of Birmingham and Brent (London) are identified as potentially having the highest number of affected claimants.
In addition to emphasising the number of households no longer affected by the cap as an indication of its success in incentivising work, the Government has referred to wide public support for the cap. Detailed information on the Bill’s provisions can be found in section 4 of Library Briefing Paper 07252, Welfare Reform and Work Bill [Bill 51 of 2015-16]. Information on amendments tabled during the Bill’s Committee Stages in the Commons can be found in Library Briefing Paper 07352, Welfare Reform and Work Bill 2015-16 Committee Stage Report.
Social landlords, whose tenants are heavily reliant on Housing Benefit to meet their rent commitments, are concerned that a lower benefit cap will render a substantial number of their homes, particularly those let on affordable rents (up to 80% of market levels), unaffordable in London and the south east. In turn, they argue that an insecure rental stream could have implications for attracting private funding for the development of new affordable housing.
The new thresholds are expected to launch from autumn 2016 with roll-out completed by 2017.
Commons Briefing papers SN06294
Author: Wendy Wilson