The benefits cap explained

Bishops in the Lords led the opposition to the coalition’s plans to restrict how much benefit a workless household can receive in benefits, but the government says it has public opinion on its side.

What is the government doing?

The government plans to introduce a cap on the maximum amount a household can claim in benefits from 2013. The cap is £26,000 a year, equivalent to £500 a week after tax (the average family wage) for people with children.

Why is it doing this?

It is part of the government’s £81bn austerity programme of spending cuts and tax increases. Work and Pensions Secretary Iain Duncan Smith, says it will save the taxpayer about £600m.

The government argues that it is unfair that people who are not in work should receive more in benefits than the £35,000 a year before tax earned by an average family.

It says that working people can only live in homes they can afford, and it is wrong that people out of work should not have to make similar calculations when they are looking for a home to rent in the private or social sector.

What we will not see, we will not accept, is any kind of Kosovo-style social cleansing. London Mayor Boris Johnson

What is wrong with that?

Critics say some people on benefits will not be able to afford to live in their homes any longer because housing benefit will not cover their rent in expensive parts of the country like London and the south east.

They say these people will be made homeless as a result. The suggestion is not that they will be thrown on to the street, but that they will have to be rehoused in temporary accommodation that could be more expensive than their current rent.

It is also argued that the £26,000 cap takes no account of how many children there are in a family.

Will some people on benefits have to move home?

Employment Minister Chris Grayling says yes and it is right that they do so.

In October 2010, the Conservative London mayor, Boris Johnson, said he did not want to see poorer people forced out of the capital.

“What we will not see, we will not accept, is any kind of Kosovo-style social cleansing. You are not going to see on my watch thousands of families being evicted from the place where they have been living and have put down roots,” he said.

After being criticised by government ministers, he backed down, but said London had “specific needs, due to the exceptional way in which the housing market works in the capital, and it is my job as mayor to make the government aware of these”.

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How many people could be affected?

The Department of Work and Pensions says 67,000 households will have their benefits reduced in 2013-14, losing £83 a week on average, while 75,000 will see a reduction in 2014-15.

The department says its policies will have most effect on large families living in areas where rents are high. Its modelling assumes 54 per cent of those affected live in London, while under 5 per cent are in Scotland and under 3 per cent in Wales.

In July 2011, a leaked letter from Communities Secretary Eric Pickles’ private office to Number 10 said the cost of temporary accommodation would mean that instead of reaping savings for taxpayers, the policy would end up costing them more.

It said 20,000 people could be affected by the change and suggested that the impact would be “substantially” reduced if the government excluded child benefit from the cap.

It added that families with four children would be able to continue to live “in most parts of the country outside London and the south east”.

Research for London Councils, which represents 33 local authorities, has estimated that changes to the welfare system, including the cap, will lead to 133,000 households being unable to afford their rent because of the high cost of housing in the capital. This equates to 20 per cent of the total number of workless households.

The analysis, carried out by Navigant Consulting, found that the average loss for households affected by the cap would be £105 week. A couple without children would be £58 a week worse off, while a couple with children would lose £117.

Excluding child benefit from the cap would mean that 17,338 households would be able to continue to afford to pay their rent, according to the research, and a London-weighted cap, taking account of housing costs, would mean 37,600 households would not lose out.

How much is child benefit worth to people with children?

The government pays £20.30 a week for the eldest child and £13.40 for every additional child. So families with two children receive £33.70 a week, those with three children £47.10, and so on.

Who wants child benefit excluded from the cap?

The Bishop of Ripon and Leeds, the Rt Rev John Packer, has tabled a Lords amendment calling for child benefit to be excluded. He has the support of other Church of England bishops and some Liberal Democrat peers.

Former Lib Dem leader Lord (Paddy) Ashdown has said he intends to vote against the govenment in the Lords.

Why is the government opposed?

It says that excluding child benefit would encourage people to have more children.

Where does Labour stand?

It says it is in favour of a cap in principle, but is concerned that the government’s legislation, as it stands at the moment, could increase homelessness and it would be wrong for councils to have to pick up the bill.

The government says it has public opinion on its side. Is that true?

Yes, according to the pollsters YouGov. It has found that more than two thirds of people believe the cap should be set at under £20,000 – £6,000 below the government’s plans – regardless of how many children are involved. Nearly one in five backed the £26,000 limit, while only one in 10 said a maximum amount was wrong.

In November 2010, a YouGov/Channel 4 News survey showed that 58 per cent of people thought the government should cut benefits further or had got the balance about right.