Ministers say a £26,000 cap on the amount of benefits families can receive will cut the deficit and incentivise people to find work
What is the household benefit cap?
The government is proposing to introduce a £26,000 cap on the total amount of benefits that working-age people in the UK can receive (including job seeker's allowance, housing benefit, child benefit and carer's allowance), limiting it to £500 a week for families, or £350 for childless single adult households. The cap, contained in the welfare reform bill, will be introduced in 2013.
Why is it being introduced?
Ministers argue that the estimated £51m savings to the benefits budget (over three years to 2015) will help reduce the deficit, and incentivise those on benefits to find work. It also argues it will bring an element of fairness into the benefit system by ensuring that workless households will no longer receive more in benefit than the average household income.
Who will it affect?
The government's impact assessment estimates that 67,000 households will be affected by the cap in 2013-14, rising to 75,000 in 2014/15. It will affect 90,000 adults and 220,000 children. Large families (those with three or more children) will be most affected, particularly if they live in high-rent areas on the UK.
Where are the high-rent areas?
Predominantly in Greater London (54%) and the south-east (9%). Eighteen local authorities will see more than 1,000 families affected. Of these, 17 are in greater London. The other is Birmingham.
How much, in cash terms, will affected households lose?
According to the government's impact assessment, they will lose an average £83 a week at the outset in 2013. It also states that:
• 45% will lose up to £50 a week (in 2013-14)
• 26% will lose between £50 and £100
• 12% will lose between £100 and £150 a week
• 17% will lose more than £150 a week
What will be the consequences of these benefit cuts on the families affected?
Critics say this will plunge tens of thousands of children into poverty. According to the Children's Society, 80,000 children will be made homeless as families are forced to move out of private sector rented homes that are no longer affordable. The work and pensions secretary, Iain Duncan Smith, rejects the claims. He told the BBC: "The reality is that [at] £26,000 a year it's very difficult to believe that families will be plunged into poverty."
Is the £26,000 cap fair?
Critics say it is excessively draconian. The Children's Society says the cap confusingly compares non-working household income with average household earnings. Were it to align the former (more fairly) with average household working income – which includes tax credits, and a range of benefits – the cap would be set at £31,500. This would mean thousands of poorer households would not be pitched into poverty by the cap.
Will the bill be amended?
Most critics, including the Labour party, accept the principle of a household benefit cap. But peers are anxious to ameliorate what they see as potentially draconian effects on some of Britain's poorest and most vulnerable families. The Lords will vote on three key amendments:
• to exclude child benefit from the cap calculation (this would roughly halve the number households affected).
• to exclude homeless families living in temporary accommodation from the cap.
• to provide a 26-week "breathing space" to enable families who are pushed over the cap because of unemployment a chance to get back on their feet and find work.
Are any groups of people exempt from the cap?
The following households will be exempt from the cap: families in receipt of working tax credit; families where a member is in receipt of disability living allowance (in future, personal independence payments); war widows and widowers.
Are there any other unintended consequences of the cap?
Housing associations (HAs) say the cap will work against the new investment model for affordable housing. The government has cut capital funding for housing associations by 60%, requiring HAs to borrow more from private sources, and forcing them to set affordable rents for newbuild properties at 80% of local market rental value. According to the National Housing Federation, paying an "affordable rent" in a high value area such as London would push a family receiving benefits over the £500-a-week cap. This will make the building of family-sized social homes in London and parts of the south-east less viable.
Will it affect carers?
Households with carers are likely to contain a DLA recipient, and thus be exempted from the cap. But of the 67,000 households capped in 2013/14, 5,000 are expected to be in receipt of carer's allowance but not DLA. The mean reduction in benefit for these households as a result of the cap is £87 a week, according to the government's impact assessment.