Benefits cap

andy · October 2010

So the various benefits cuts are starting to take shape and it's announced that there's going to be a total benefit cap of £26,000. It's suggested that this most affects people in London, who are going to be forced to move out of places like ours to far distant suburbs. Does anyone know anyone who thinks they would be affected by this? I'm genuinely curious about how this works in practice, both in terms of housing demand, people moving and so on. I'm not interested in people making party political points, I'm just interested in people's practical experience of how the system works.

Arkady · October 2010

I haven't fully engaged with this issue yet, but my first thought is that 26k is more than I currently earn (while not living in the far-flung outer suburbs), and is more than the average wage (last time I checked). On the face of it, not unreasonable. Therefore I too would like to better understand who would be negatively affected by this.

ActionVerb · October 2010

@Arkady - my understanding is that the £26k limit is for a household rather than per person.

lizbet · October 2010

I think it's per family, which is not a large sum to live off in London by any stretch. However, without going into amounts, my household income is more than twice that, and with no dependants, I still cannot afford to buy a 2 bed garden flat in stroud green. So if I wasn't working at all, I am not sure why I would expect to live so centrally.

Mirandola · October 2010

The Evening Standard says there will be a cap of £250 a week for a two-bedroom property, £400 for a four-bed home. Rightmove brings up 1 4-bed and 3 2-beds that would qualify.

ADGS · October 2010

Yeah, I think this is likelier to hit families on benefits, in particular the sort you already see on the tabloid front pages whenever there's a slow day - DOLE MUM'S 12 KIDS BY DIFFERENT DADS or whatever. For whom, to say the least, my heart does not bleed (there should be no subsidy of any kind for children past the first for anyone, barring the happenstance of multiple births). Whether it will affect eg my single parent friend with one kid and a Hackney flat, I don't know, but I would be surprised.

crouchend tiger · October 2010

@lisbet - I agree. The only way I have been able to afford even a one bedroom flat in Stroud Green (ish) is to buy a derelict one, complete with smashed windows, and do it up from scratch myself. And I have been working full time for 10 years without any gaps.

Surely the point of benefits is to make sure people are safe, secure, healthy and warm until they are more able to support themselves - ie. not having a veto over which postcode you live in - but if someone's been employed all their life and then becomes genuinely unable to work long term it seems a bit harsh to turf them out of the area!

I like the sound of the system in Germany (?) where (this may be an oversimplification) the more you work, the more credits you rack up so if something bad happens you'll be better supported by the state - this seems a clever way of making it worth people's while to get a job without removing the welfare state altogether.

And spare me the people who are complaining because one partner earns more than £48k so they've lost their child benefit - I don't pay tax so that they can afford two holidays a year.

Very interesting inversion of normal party political standpoints at the moment...

Siolae · October 2010

@ADGS it is not reasonable to refuse benefits to people who have more than one child because it is not the "fault" of the children. Remove the benefits to punish the adults and the children suffer poverty and deprivation. Equally the reasons why some families claiming benefits have several children are complex and cannot be addressed by the reduction of benefits.

Whilst I am wholeheartedly in favour of both simplifying the benefit system and enabling people to work by ending the current system where you are, in fact, penalised for working, I also feel uneasy about the cap for London. It feels a lot like social engineering as I cannot believe that the disparity in costs has not been considered.

Equally, I am not against the loss of child benefit for those in the upper tax bracket (of which I am one..just) however I am incensed at the idea that this will be ofset for MARRIED COUPLES through a transferable tax allowance. I am a single mum, no one supports me and my kid but me, I have always worked, I saved for 15 years to raise the deposit for a flat and apparently I am to subsidise middle class families who have the luxury of a stay at home partner??!!

crouchend tiger · October 2010

Yes, that is shocking and lunatic. I had hoped that this time round they would be able to accept that it was no longer the 1950s - alas not.

andy · October 2010

So, in general, people's response has been "well if I can get by on £x, then I don't see why I should subsidise someone else to get £x+". Which sounds like the cap at an average wage is smart politics if nothing else. But I'd still be interested to hear reasonable justifications for benefits at those levels, rather than our own straw men about who these recipients are. I was wondering if the household cap might affect multi-generational benefit claimants. So if two parents with an adult child also on benefits might go over the cap, the obvious outcome will be that the kid gets kicked out. @siolae - I think any married allowance is a sop to the press. It won't offset. Losing benefit is worth a couple of thousand, but the married tax allowance is advertised at around £140.

Alex · October 2010

Andy, the FT Westminster blog had a pretty well-informed comment, which I have taken the liberty of pasting below. The cap will affect a surprisingly high number of households. The key is to combine three or more children with reasonably high housing benefit. The previous government made eliminating child poverty a huge focus over more than a decade. But they used a static rather than a dynamic model for this. In practice this meant that workless families with several children needed a very large and ever-increasing amount of money flung at them via benefits in order to ensure the children were not "poor" (on an equivalised basis and using the threshold of 60% of median incomes after housing costs, which is very much a moving target). Far less thought was given to the second-order question of how incentives are changed for various people down the line when making choices about work, family size etc. -------------- [http://blogs.ft.com/westminster/2010/10/live-george-osborne-at-the-tory-conference/#more-62241](From FT blogs:) AB 12.37 Just spoke to Ian Mulheirn of the Social Market Foundation, a former Treasury official who is one of the top experts on all these welfare changes. It sounds like the cap on benefits will be around £500 per week, which amounts to £26,000 a year for the household. This basically means it targets families with three or more children who are claiming a relatively high level of housing benefit (i.e. they are living in a home in outer London). Ian has worked out that the housing benefit claim needs to be around £220 per week, given the other benefits that are available for children and those out of work. This basically means that the cap on benefits is another assault on housing benefit, which took a big hit in the emergency budget. The number of people affected adds up to around 200,000, according to Ian. It seems like this will raise significantly less than £1bn, so it is as much about the symbolism as the savings.

ADGS · October 2010

Siolae - I don't dispute that "the reasons why some families claiming benefits have several children are complex and cannot be addressed by the reduction of benefits". However, any policy which incentivises continued exacerbation of overpopulation should be stopped immediately, and ideally reversed, as a first step. After that we can work on the fine-tuning.

Arkady · October 2010

I agree with ADGS on that limited point.

andy · October 2010

Thanks Alex - interesting blog. Looks like, in practice, it's another swing at housing benefit.

delaware1 · October 2010

Capping at 26k sounds like a fair argument, problem in practive will be that for those families looking for work they will by definiton get moved away from the more proposerous parts of the country and end up in areas with other claimants - reducing the chances of them finding work - assuming they are actually looking.

ADGS · October 2010

Yeah, because on top of the competition, shops and services aren't going to open in those areas because only people on the breadline live there. But an inability to grasp the concept of a vicious circle does seem to be key to Cameronomics.

Amanda · October 2010

I am interested by the idea that we can discuss this without being 'party political' since the cuts are so obviously ideological. Child benefit is the only universal benefit,which means it is the only one that is widely taken up (generally, more benefit is lost in not being claimed than is lost through fraud or error). also everyone forgets that it is a benefit for whoever cares for the children, usually women. Even wealthy households do not necessarily share income fairly ... Before this cut was announced, 70-75% of the burden of these cuts was felt by women. As for housing benefit, the major reason it is so expensive to the Treasury is the runaway house-price (and therefore rent) inflation provoked by the sale of council houses and relaxation of mortgage restrictions in the 1980s. It will hit working households as well as the unemployed and those with disabilities and will make it much harder for people toget back into work if they cannot live in areas that have good public transport or are near their existing networks of friends and relatives. Given that these attacks on the welfare state are being rushed through with so little thought that the government hasn't worked out an accurate way of assessing who to attack (ie child benefit anomalies), it does not look as if the move is an economic one. What is more, it is pandering to the more selfish views of society, quite successfully to judge from some of the comments here. Remember, the children of today will pay your pension tomorrow and will create the world in which you live as an older person.

Ali · October 2010

All those wasted LibDem votes ! I think that the theory that runaway house-price (and therefore rent) is an interesting statement as it may not be necessarily true. If you look at the Economist International House Price index it is based on multipliers of achievable rent as rent can be counted as a return on an investment. It shows in the UK that house prices are away over valued on the returns that rents can actually offer. That infers that it is a little simplistic to say house prices go up, less people can buy so more people, have to rent , up goes rent. Are there any Economist out there who could better explain this ?

Arkady · October 2010

Amanda, I don't think this is as ideological as you suggest, indeed I'm concerned that it’s easy to fall back on routine lines of thought on this issue. For the record I’m not a Tory, and I’m to the left of both Labour and the Lib Dems on many issues. But I don’t have a problem with ceasing to reward people who choose to have lots of children, or ceasing to pay benefits to people who receive more than the average income. I’m a little twitchy about the £44 grand cut-off being for an individual rather than a household, but I’ve seen enough condemnatory studies on the efficiency of means-testing to accept that it would be difficulty to implement it differently. I’m afraid that I can’t accept that it is fair to pay wealthy families child benefit on the off chance that family income might not be shared equally! I rather doubt there are many well-off parents leaving their partner and children to starve. I do agree that we need to rethink our attitude to housing though. Ceasing to act as though we can indefinitely grow the population of the country would be a good start. Maybe ‘Cameronomics’ has considered that trying to lower birth-rates through lowering child benefit will positively impact housing costs in the long term!

twinspark · October 2010

Andy, hat's off for the attempt at collecting views without party politics! I'm with Amanda as after a while politics spills back into the conversation because what we're seeing is all politics and very little to do with economics.

As for the housing market some £5billion was given to London's mayor by the last govt. for him to rebalance the private rented sector with new housing and I doubt if BJ will even come close to spending this during his reign.

I fear that what we're seeing is a ministerial p***ing contest for the biggest cuts and accompanying headlines. Hence the announcements seem to run ahead of full research into cost, impact and implementation.

Arkady · October 2010

Twinspark, you have a tendency to conflate ‘poltics’ and ‘party politics’.

andy · October 2010

The reason to talk about this without a party political line is to try to understand what will really happen. I want to know, in practice, how it will really affect people's lives. And to base that on what we know, rather than speculation, or what we've heard reported. To do this, we have to ignore motives a little bit (ignoring whether it's being done to 'prudently cut the deficit' or 'because they hate the welfare state') because I'm interested in impact and facts rather than rhetoric. For example, I was surprised to hear that for all the talk of swingeing cuts, the 2011 'austerity' budget will be bigger, in real terms, than Brown's election-winning 2005 budget. Do anyone of us know anyone receiving that level of benefit, in total that exceeds that amount?

andy · October 2010

@ali - there aren't enough children of tomorrow to pay for your pension. The dependency ratio won't allow it. So you have three choices: 1. mass immigration to create a young enough labour force to support all the retirees or 2. radical scaling back of pension provision to make pensions smaller, more restricted and available later in life. 3 compulsory savings for pensions. The reality will be a mix of 1, 2 and 3. The only pension provision you can count on is that which you have saved for yourself, and even then I wouldn't bet on the rules changing about getting your hands on it. This isn't party political in any way. It's just raw numbers. There aren't enough people, high enough investment returns, or enough people saving.

Ali · October 2010

Andy not sure where your coming from? I mentioned wasted votes and a theory around how the housing rental market may operate, nothing about pensions! What you say about pensions is probably correct in most Western Countries as well as China, India is one of the exceptions in that it’s “baby boomers” period is just beginning ! Investing to supplement work and state pensions is the way to go and is what I do

andy · October 2010

Sorry! Ali - I meant Amanda!

Ali · October 2010

Okay. I thought Bob Crows reaction to the Hutton report was interesting: “Bob Crow, general secretary of the Rail Maritime and Transport union, said: “The summary of the ConDem pension enforcers' proposals is clear — work longer, pay more and get less. This attack on the people who make this country tick will spark a furious backlash and will drive millions on to the streets in French-style protests to stop the great pensions robbery.”” I think I can remember some time in the past on here that SGR was described as a French Style Boulevard so maybe we have riots coming ! Interestingly Hutton has kind of confirmed that all the nonsense in certain areas of the press before the election is nonsense. It turns out the average public sector pension is circa £7k. I also believe the average pay in the public sector is around £21k. How hard/smartly they actually work for that I know through experience on both sides of the fence is a matter of debate.

sincers · October 2010

Has anyone considered that I might be worst off? I have no kids - no benefit. If I plan to, I'm over the threshold anyway - no benefit. I'm not married either - no future benefit. I've been paying income tax for 20 years and never drawn any benefit. I've been paying into a private pension for 10 years, but by the time I'm due to retire, I'll probably be dead, having worked my ass off for 50 years trying to keep the welfare state afloat. BTW, I've said it before, but Bob Crow is a dick. He'll do his best to bring the country to its knees just to get on telly. If he thinks he can elicit the same kind of support for a general strike that they do on the continent, he's a bigger idiot than he looks. He'll try and do it off the back of the pensions deficit and probably again call for "civil disobedience'. To suggest that his members are the ones responsible for keeping the country running is an insult to the private sector. In fact, I wondered whether Bob Crow himself could be picketed. Surely you just need to lock arms around him every time a camera crew goes near him.

ADGS · October 2010

Bob Crow is indeed a dick, but among the prime reasons for that is how bad he makes unions in general look. The guy's a gift to the Mail, Murdoch &c in terms of how much shit he thinks he can pull, a walking example of an anti-unionist's caricature of a union boss.

crouchend tiger · October 2010

@Amanda, taking into account that means testing is very difficult to do successfully without introducing all kinds of perverse outcomes, I actually think the child benefit cap is quite a progressive measure. Essentially it should redistribute cash from wealthier members of society to poorer people and I can't see anything wrong with that.

Sure, it's a blunt approach, but benefits are supposed to be there to help the poorest, rather than to provide the middle classes with a bit of extra pocket money.

I agree that it's unfortunate that this budget cut will disproportionately affect women (I'm female) but on balance I think it's most important that less well-off people of both sexes will still receive the benefit (after all it's supposed to be for their kids). I'd be very uncomfortable indeed if wealthier women were getting it at the expense of poorer men.

And I'm not making a party political point - in fact I'm the quintessential floating voter.

Anyway, that's my twopenneth for the evening.

Siolae · October 2010

@Crouchend tiger. Whilst in principle I agree with you re the cap on benefit and the distribution of wealth this is not what is going to happen in practice as the cap is going to be on an individual's income and not on household income. This effectively means that single parent households who are just inside the higher tax bracket will lose both child benefit, not to mention the child care element of child tax benefit (which is the only reason I was able to work in the first place and not have to claim benefit after my daughter was born) whilst 2 parent households where both earners are just below the upper tax bracket will not lose any benefit at all. So if you have a combined income of £86000 you are quids in.

sincers · October 2010

I think Ed Miliband showed himself up on Sunday Politics Show saying Millionaires should get child benefit. Following my earlier 'woh is me' post, I found his comment about child tax credit being a 'universal benefit' rather insulting if not naive. I have no kids so its NOT universal. It raises an interesting point about people who never have kids or even people who CANNOT have kids, which surely makes his comments discriminatory. Why should childless adults subsidize everyone else? or is that a stupid way of looking at things?

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