The Benefit Cap


There is now a limit on the total amount of benefit that most people aged 16 to 64 can get. This is called the Benefit Cap and it came into force in 2013. It applies to the total amount that the people in a household get.


What is covered?


The Benefit Cap applies to a household’s combined income from the main out-of-work benefits: 


• Bereavement Allowance;


• Carer’s Allowance;


• Child Benefit;


• Child Tax Credit;


• Employment and Support Allowance (except where people are getting the support component);


• Guardian’s Allowance;


• Housing Benefit;


• Incapacity Benefit;


• Income Support;


• Jobseeker’s Allowance;


• Severe Disablement Allowance; 


• Maternity Allowance; and


• Widowed Parent’s Allowance (or Widowed Mother’s Allowance or Widows Pension received before 9 April 2001).


What is the Benefit Cap level?


The current level of the cap is:


• £500 a week for couples (with or without children living with them);


• £500 a week for single parents whose children live with them; and


• £350 a week for single adults without children, or whose children don’t live with them.


However, as set out in the Welfare Reform and Work Act 2016, the government is further reducing this total by up to £6,000 annually for some claimants. The changes will see different caps introduced for those living inside and outside of London, with households living in the capital entitled to a maximum of £23,000 per year (or £442 per week), as opposed to £20,000 per year (or £385 per week) for those in the rest of the country — both reduced from £26,000. 


The new lower benefit caps will be phased in from autumn 2016.


Exemptions


The following households are exempt from the cap:


Those entitled to: 


• Working Tax Credit.


Those in receipt of:


• Disability Living Allowance;


• Personal Independence Payment (which started to replace Disability Living Allowance from April 2013);


• Attendance Allowance;


• The support component of Employment and Support Allowance; 


• Industrial Injuries Benefits (and equivalent war disablement pensions and payments under the Armed Forces Compensation Scheme);


• War Widow’s and War Widower’s pension; and


• Armed Forces Independence Payment.


Some claimants who have been in employment for 52 weeks or more when they claim benefit will be exempt from the cap for a grace period of up to 39 weeks. 


Where the Benefit Cap would not apply


Claimants will not be capped where someone in the household (claimant, partner or any children they are responsible for and who live with them):


• obtains work and becomes entitled to Working Tax Credit;


• receives one of the benefits that exempt recipients from the cap.


The government says that people could also:


• move to cheaper accommodation or negotiate a rent reduction to one which is more affordable.


Department for Work and Pensions figures show that since the introduction of the Benefit Cap on 15 April 2013 up to November 2015: 


• almost 70,000 households had their Housing Benefit capped; 


• 45% of households affected by the benefit cap were in London; and 


• of the top 20 local authorities with the highest number of households affected by the benefit cap, only three were outside London — Birmingham, Edinburgh and Manchester.


In November 2015, 21,000 thousand households had their Housing Benefit capped and 84% were capped by £100 or less a week. Sixty per cent of capped households had between one and four children and 34% had five or more children — so in total 94% of these households were families with children.


In addition, the government has introduced a welfare cap limiting the total amount it can spend on certain social security benefits in the five years from 2016-17. The cap set by the Treasury in the 2015 autumn statement is £115.2 billion for 2016-17. However, an Office for Budget Responsibility (OBR) assessment showed that relevant welfare spending was expected to breach the cap for the next three years, as a result of the chancellor’s reversal of proposed cuts to Child Tax Credits (see page 6).


Citizens Advice reports that there is evidence that there has been a small positive labour market effect as a result of the £26,000 cap — after a year, those affected are around 5% more likely to be in work with a Working Tax Credit claim than their counterparts who claim out-of-work benefits at an amount just below the cap. However, it says that there are “significant limitations to the benefit cap as a means of moving large numbers of households into work”.


Citizens Advice says that:


• an estimated 150,000 adults and 395,000 children will be affected by the £23,000 cap, including those who are already capped at £26,000;


• families who need four bedrooms to be adequately housed will find that their housing benefit will no longer cover the cost of private sector rent in any part of the country; and


• the cap extends welfare conditionality to households that are usually not expected to work, such as lone parents of very young children.


Meanwhile, the housing charity Shelter pointed out that the benefit cap “imposes a crude limit that applies from Teesside to Torquay”. It says that the high cost of housing across much of the country is the reason that many families find themselves affected by the cap and that “an unworkable benefit cap can have a major and crude impact on a low income family’s ability to afford their home”. The charity warns that the new, lower cap “changes everything” and will mean that many families will struggle to cover even essential costs like housing from this total. 


The charity says that while some families may manage to find work, others will have to make major sacrifices to keep a roof over their head and that the new lower cap will introduce a postcode lottery to the safety net. Some families could see their benefits slashed by more than £100 a week. 


Following a recent court ruling which found the Benefit Cap discriminated unlawfully against disabled people, the government announced in January 2016 that full-time carers of adult relatives would be exempt from the cap.