The cut
We will introduce a limit on the total amount of benefits any one family can receive. Unless they have disabilities to cope with, no family should get more from living on benefits than the average family gets from going out to work.
George Osborne, speech to Conservative party conference, October 4 2010
The background
This morning, on the BBC Today programme, the Chancellor George Osborne announced that higher rate taxpayers would lose Child Benefit from 2013, saving the government £1bn a year. In his speech at the Conservative conference this afternoon, Mr Osborne made another dramatic cut – capping benefit claims.
The analysis
The Treasury says the benefits cap will be £500 a week – £26,000 a year. This is the estimated median earned income after tax and national insurance for working families in 2013, the year the cap comes into effect.
Median means in the middle. In a list of family incomes, £26,000 is right in the middle.
The cap will apply to combined income from Jobseeker’s Allowance, Income Support, Employment Support Allowance, Housing Benefit, Council Tax Benefit, Child Benefit, Child Tax Credit, Carer’s Allowance and Industrial Injuries Disablement Benefit.
People claiming working tax credit will not be affected. Nor will one-off benefits (such as social fund loans) and non-cash benefits (such as free school meals).
Because of the extra costs disabled people face, all households with a Disability Living Allowance claimant will be exempted. So will war widows.
The cap will initially be implemented by local authorities.
The Treasury says it will affect tens of thousands of families (journalists at the Conservative conference were told 50,000), saving hundreds of millions of pounds a year.
The cap will apply throughout the UK, regardless of rental costs, and will not take into account how many children live in a household.
The Coalition Government’s emergency Budget in June set a maximum rent of £400 a week (£20,800 a year) that could be covered by housing benefit. This will be introduced in April 2011.
The housing charity Shelter told CutsCheck the cap would affect big families living in expensive parts of the country, like London.
It said the government was relying on private landlords dropping their rents to make housing more affordable in these areas, but it didn’t believe this would happen.
It said the cap was likely to lead to people leaving areas they were born and brought up.
The verdict
This was a controversial announcement and will have a big effect on benefit claimants with children who are living in expensive parts of the country. Some will be forced to move to cheaper areas, which could mean uprooting children from their schools and parents from their families and friends.
As a cut, it’s sizeable – saving the government hundreds of millions of pounds a year – but not as dramatic as the effect the policy will have on 50,000 families.
