The Benefit Cap

Published 20 July 2015

This briefing 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).

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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.

Aims

The benefit cap was one of the Coalition Government’s welfare reform measures aimed at deficit reduction. The key aims were to:

  • increase incentives to work;
  • introduce greater fairness into the welfare system between those on out-of-work benefits and taxpayers in employment; and
  • make financial savings and incentivise behaviours that reduce long-term dependency on benefits.

Numbers affected

Between its introduction and February 2015, 58.7 thousand 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/or lived in a high rent area. The majority of the affected households lived in London (45%).  The Coalition Government declared the policy a success on the basis that 22,000 of the affected households “have moved into work, reduced their Housing Benefit claim or [are] no longer claiming Housing Benefit at all.”

Lowering the cap threshold

A commitment to reduce the cap from £26,000 to £23,000 (£440 per week for familes with children) 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 have been included in the Welfare Reform and Work Bill 2015-16.  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 the wide public support it attracts. 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].

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 (rents of 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.

Commons Briefing papers SN06294

Author: Wendy Wilson

Topics: Housing, Housing benefits, Working age benefits, Social rented housing, Benefits policy, Private rented housing

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