Benefit Cap Case Study

Case Studies

We receive a wide range of queries. Some examples include:

  • Can my client get Pension Credit to top-up their State Pension?
  • What happens to Housing Benefit if our tenant goes abroad to visit their daughter?
  • Which partner in a couple should claim to maximise entitlement?
  • My client has just had an accident at work – what help is available?
  • A carer has just gone into hospital, what will happen to her Carer’s Allowance?
  • My client’s son has just been diagnosed with autism. Is there any help with the extra costs the family face?

The Welfare Benefits Unit also provides broader support, assisting those who work with members of the public and advising on complex benefit issues, as shown in the following case studies:

Mr A:

Mr A is a 68 year old man with chronic health problems including heart and neurological disease. He lives with his working adult daughter.

Mr A was overpaid Pension Credit over a period of 8 years due to his daughter being in the household and the Pension Service having no record of this. He was very distressed after a Pension Service Visiting Officer informed him of the overpayment.

Mr A was very anxious whilst also coping with reduced income.  He already had an Individual Voluntary Arrangement to help manage his debts.

The Welfare Benefits Unit were contacted by his Neurology social worker. She forwarded the relevant paper work and we were able to advise quickly and explain how the overpayment had occurred. The outcome was unfortunately correct but Mr A was reassured when he understood more about how the amount would be recovered and was able to contact his IVA adviser who in turn contacted his creditors.

As Mr A now had the correct advice he was able to budget accordingly.

Mr and Mrs P

Mr and Mrs P live in a housing association property with their five children. Mrs P has underlying health problems and is unable to go out to work, however she is not entitled to a disability benefit. Mr P gets seasonal low paid work. They are affected by the Benefit Cap during the times he is out of work. This has a dramatic effect on being able to maintain a stable budget. When work ceases, their income drops and in turn Working Tax Credit stops and as a result they have to pay increased rent. They have rent arrears and a Notice of Seeking Possession has been served.

One of the children has behavioural problems. The family are working with social services due to problems at school. A diagnosis has not yet been made. A housing support worker has been provided to help the family with budgeting. She has successfully helped the family claim a Discretionary Housing Payment which resulted in a short-term award. A claim for Disability Living Allowance for the daughter was unsuccessful.

The Welfare Benefits Unit were able to read through the paperwork, provide template letters for evidence gathering and prepare a submission.

Mr and Mrs P attended the appeal and it was successful. This resulted in an increased income for the family and protection from the Benefit Cap.

Mr S

Mr S lives in a 3-bedroom housing association property. He has long-term medical conditions, literacy and comprehension problems and a chaotic lifestyle. He has been unable to pay the under-occupancy penalty and is in rent arrears.

He was referred through the Single Access Point to an Independent Living Officer (ILO). Her role is to help him access choice-based lettings and manage his budget. She visits once a week. Mr S is asked to leave his paperwork out and over time the ILO regularly has to take action about his benefitst. Examples include assistance with claiming Employment and Support Allowance, help with completing his ESA50 questionnaire and calls made to establish why it was stopped unexpectedly. Assistance was also given in relation to Mr S asking for a mandatory reconsideration.

Mr S claimed Jobseeker’s Allowance whilst waiting for a decision on his Employment and Support Allowance. The ILO noticed that his Claimant Commitment was not manageable (it took no account of his mobility issues or illiteracy).

The ILO received support from the Welfare Benefits Unit with asking for a review of his Claimant Commitment, challenging a sanction decision and appealing the Employment and Support Allowance decision when the review was unsuccessful.

Mr S’s Employment and Support Allowance was reinstated at appeal. He was also successful challenging the sanction decision and altering his Claimant Commitment.

Some of the numbers in the Table on the percentage of affected households in each region after the reform were corrected on the 14th November. The original table is at the bottom of the observation.

A lower cap on the total amount of benefits that households can receive comes into force tomorrow, affecting four times as many households as the previous benefit cap. Like the previous cap it will apply to out-of-work households of working age (with some exemptions, mainly due to disability). The cap will now be £23,000 a year in London and £20,000 elsewhere (there are lower caps for single adults without children set at £15,410 in London and £13,400 elsewhere). This compares to £26,000 nationwide under the previous cap, which has been in place since 2013. In this observation we look at the implications of a lower cap for government spending, the impact on the households affected, and how they might respond.

The previous cap

In 2015–16, the £26,000 cap directly reduced benefit spending by £65 million. 20,000 households are currently affected (as of this August), while 79,000 have been capped at some point since its introduction in Summer 2013. This cap almost exclusively affects families with large numbers of children or very high rents (who are receiving lots of housing benefit), or both: there is almost no other way to be getting so much in benefits. More than half have at least four children. Two-fifths live in London – where rents and Housing Benefit levels are high. Perhaps more surprisingly, half of those households currently affected rent from their local council or a housing association.

The cap does not apply to claimants of Working Tax Credit, providing a strong financial incentive for potentially affected families to do enough hours of paid work to qualify for it: 16 hours per week for lone parents and 24 for couples with children.

The direct effects of lowering the cap

The government’s impact assessment states that ignoring potential behavioural responses, the reduction in the cap will increase the number of families affected to 88,000, and will deliver an additional £100m a year of savings to the exchequer in the long run (with a slightly larger annual saving in the short run). This is less than 1% of the £12 billion of cuts to annual benefit spending planned by the current government during this parliament.

However, for those families who are affected, the impact can be large. Households who are already capped will lose a further £3,000 per year (in London) or £6,000 per year (elsewhere). The government expects those households newly affected by the cap to lose an average of £2,000 a year. In addition, unlike many of the cuts to benefits being implemented during this parliament, the lowering of the cap will result in affected families seeing cash drops in benefit income between one housing benefit payment and the next. This will feel different to real benefit levels falling as cash payments fail to keep pace with inflation, and changes that are being phased in by only applying to new claimants.

The reduction in the cap will also change the profile of the households affected. Most significantly, in large part because the cap will now be lower in the rest of the country than in London, those affected will be more evenly distributed geographically than was previously the case, as shown in Table 1. Under the old cap, 42% of affected households were in London. That figure is expected to fall to 22% under the new cap. The other side of that coin is that the policy will become significantly more important in many regions outside of London: in the North East for example, the number affected will rise from 600 to 4,000 households.

Table 1. Number of households affected by the benefit cap in each region and nation of Great Britain

 

Pre-reform

Post-reform

 

Households

%

Households

%

North East

600

3%

4,000

4%

North West

1,400

7%

9,000

10%

Yorkshire and the Humber

1,200

6%

7,000

8%

West Midlands

1,700

9%

10,000

11%

East Midlands

800

4%

5,000

6%

East

1,400

7%

8,000

9%

London

8,400

42%

19,000

22%

South East

2,100

10%

5,000

6%

South West

900

5%

5,000

6%

Wales

600

3%

4,000

5%

Scotland

800

4%

5,000

6%

Total

20,000

100%

88,000

100%

Source: Pre-reform numbers – authors’ calculations based on August 2016 data from DWP Stat-Xplore. Post-reform numbers – Impact Assessment for the benefit cap

The reduction in the cap also means that its impact will be somewhat less concentrated on households with lots of children. Smaller households will no longer need to have extremely high housing benefit (HB) entitlements to be affected. Take, for example, an out-of-work couple with 2 young children renting in the private sector, where HB awards are themselves subject to caps which vary by local area. It was almost impossible for the previous benefit cap to affect them unless they lived in London, as the total of jobseeker’s allowance, tax credits, child benefit and the applicable HB cap in their area was less than the overall benefit cap everywhere outside of London. The same household could (if their rent is high enough) be affected by the new cap in more than half of local areas across England. For a lone parent with 2 young children the overall cap can now bind in a number of local areas outside of London, including Reading, Basingstoke and Bath – again it was almost impossible to be affected outside of London under the old cap.

Those examples illustrate a broader point. It is possible for the benefit cap to quickly affect many more out-of-work families in an area, once its level falls below the sum of the HB cap in that area for the family type in question and the other (nationally-set) benefit entitlements. Given the existence of these ‘tipping points’, further changes to the level of the cap could again have big effects not just on the number of households capped, but also on the types of households that are capped, in terms of number of children, geography and so on. This highlights one consequence of the approach of simply layering an overall cap on top of the benefits system, rather than addressing the underlying benefit rates (those for HB and child support) which cause the perceived problem: there is a risk of arbitrariness in its effects. It would be sensible for the government to set out a clear vision of which families it thinks receive excessive amounts of benefits and why.

How might people respond?

As discussed in a previous observation, we have fairly robust evidence that about 5% of those affected by the previous cap responded to that cap by moving into work. An even smaller fraction – and only those who lost particularly large amounts of income – moved house in response.

Hence it would be reasonable to expect the further lowering of the cap to result in some increases in employment as people respond to the strengthened financial incentive to be in paid work, and in some of those affected moving to a cheaper home. Another possible response is for households to claim disability benefits in order to become exempt from the cap. Of the 79,000 households who have been capped since its introduction in Summer 2013, 12,000 became exempt due to a disability benefit claim (we do not know how many of those 12,000 would have started a disability claim if the cap did not exist, so this does not reveal the effect of the policy).

However, all this suggests that the majority of those affected will not respond by moving into work, moving house or claiming a disability benefit. For that majority it is an open question how they will adjust to the loss of income. One mitigating factor that is likely to be significant is Discretionary Housing Payments (DHPs): money paid at the discretion of local authorities to help tenants deemed to be struggling to pay their rent. In 2015–16, £25 million of DHPs were allocated specifically to help tenants affected by the benefit cap (offsetting almost 40% of the direct £65 million saving from the cap). About 40% of those affected by the benefits cap so far have successfully applied for DHPs. These DHPs look likely to play a key role in mitigating the impact of the cuts on some of the families affected - whilst rendering the net fiscal savings from the cap all the more trivial.

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Original Table 1.

 

Households

%

Households

%

North East

600

3%

4,000

4%

North West

1,400

7%

9,000

10%

Yorkshire and the Humber

1,200

6%

7,000

8%

West Midlands

1,700

9%

10,000

6%

East Midlands

800

4%

5,000

11%

East

1,400

7%

8,000

9%

London

8,400

42%

19,000

22%

South East

2,100

10%

11,000

13%

South West

900

5%

5,000

6%

Wales

600

3%

4,000

6%

Scotland

800

4%

5,000

5%

Total

20,000

100%

88,000

100%

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