The benefit cap must be abolished
The benefit cap (not to be confused with the two-child limit) was the subject of a recent oral question from me in the Lords. The cap limits the total amount of universal credit and housing benefit that can be received by households earning less than the equivalent of 16 hours weekly earnings at the national living wage, with a few exemptions.
It was introduced in 2013 with the aim of encouraging people into paid work (an aim which the evidence suggests has had little success) and in the name of ‘fairness’ as between the earnings of families in paid work (ignoring the benefits they receive) and benefits received out of work. Despite the emphasis on work incentives the cap applies to lone parents with very young children who are not even required to seek work. Indeed, of the 123,000 subject to the cap at the last count in May 2024 (a 61 per cent increase over the previous quarter), seven out of ten were lone parents. Over half of these had a child aged under five, including a quarter (22,000) with a child aged under two. In total, 302,000 children are living in capped households.
The level was then reduced in 2016 when it was paid at different rates in and outside London. Other than a single inflation uprating in 2023 the level has been frozen since and disappointingly the new government chose not to raise it in the Budget. The Child Poverty Action Group calculates that had the rates been uprated in line with inflation since the cap’s introduction it would be £820 a month higher in London and £1,080 outside London today.
Together with the two child limit the cap means that for those affected their benefit entitlement is detached from their officially determined needs, resulting in considerable hardship. As such, the two policies have been identified as key drivers of the increase in child poverty, particularly among racially minoritised families. Although the two child limit affects more children, the cap has been instrumental in pushing many children into deep poverty.
As a result, if the two child limit were abolished without also scrapping the cap, the Institute for Fiscal Studies warns that ‘many of the children deepest in poverty would benefit less…and households already capped would not gain at all’. This, the Resolution Foundation points out, ‘would significantly blunt the poverty-reducing effect of scrapping the two-child limit’.
In addition to being incompatible with the government’s ambition to reduce child poverty, the benefit cap undermines its aims with regard to homelessness and domestic abuse. Homelessness charities are clear that the cap contributes to homelessness by making family homes unaffordable particularly for larger families in the London area. Recent research by the Centre for the Analysis of Social Exclusion found that ‘the housing market is simply too expensive in almost all parts of the country for capped households to find cheaper accommodation’, which was another of the policy’s original objectives. The result, another study concluded, is ‘state-imposed hardship’.
Lack of affordable housing – increasingly also in the social housing sector – can mean benefit claimants are stuck in temporary accommodation, with damaging physical and mental health effects. It also creates problems for local authorities trying to meet their legal duties towards homeless people.
One group particularly badly affected is survivors of domestic abuse. The benefit cap can undermine their attempts to leave a perpetrator or can mean they are stuck in a refuge or other temporary accommodation, unable to afford private rents. Alternatively it can drive them back to their abuser if they cannot afford to provide for their children. At the same time, domestic abuse survivors face particular hurdles in trying to avoid the cap through finding paid work.
It was disappointing that the benefit cap, together with the two child limit, were not even mentioned in the Budget as there is a strong case for them to be abandoned as soon as possible. As the New Economics Foundation has argued, this case is not just moral but also economic, as abolition would mean more money spent in deprived areas, reduced pressure on services and, as well as enhanced childhoods, improved longer term life chances for children.
Baroness Ruth Lister is the former Director of the Child Poverty Action Group and currently its Hon President; Emeritus Professor of Social Policy, Loughborough University and Labour peer.
