David Cameron says lowering the benefit cap will be the first thing he does if he is re-elected in May, arguing it has succeeded in getting people into work. Has it?
In an interview with the Daily Telegraph, the prime minister said a Conservative government would reduce the current annual limit on what families with children can claim in benefits from £26,000 to £23,000.
“The benefit cap has been a success,” he said. “It’s got a lot of people back into work. People said it would have all sorts of bad consequences – it hasn’t. It’s actually caused a stampede to the job centre.”
Where is the evidence for this “stampede”?
Evidence from the existing cap suggests that about 5 per cent of those affected were in work a year later and would not have been in work in the absence of the cap. Robert Joyce, IFS
The benefit cap was introduced in April 2013. Latest figures published in November 2014 show that more than 51,000 households have been capped since then (nearly half of those in London, where rents are high).
The Department for Work and Pensions (DWP) says the average loss of income was £70 a week (£80 in London, £62 elsewhere).
The department published research in December, which shows that “capped households were more likely to move into employment than similar uncapped households – 19 per cent of capped households were in work after a year compared to 11 per cent for a similar uncapped group, a difference of over seven percentage points”.
The DWP goes on to say that people hit hardest by the cap in cash terms were the most likely to have moved into work, with more than 30 per cent of a sample worse off by £200 or more a week taking up employment within a year.
Almost a quarter of the sample in London were in work after a year, compared with 13 per cent of households whose benefits were below the cap – a difference of 12 percentage points.
For single parents above the cap, more than 16 per cent moved into work, compared with under 10 per cent of those below – a difference of around seven percentage points.
The DWP’s analysis shows there has been a movement from out-of-work benefits to work. It defines “movement into work” as households who have an “open working tax credit claim”.
First, an aside: the main rationale for the benefit cap is saving money/cutting spending. Households moving from one form of benefit to another only save the taxpayer so much, but the DWP argues that it wants the cap to change behaviour and that it is better for people to be in work and claiming benefits than unemployed and doing so.
Second, a note of caution: the DWP says people have to be in work to have an “open working tax credit claim” – the measurement it uses to assess how many people have moved into work after falling foul of the cap.
Robert Joyce, senior research economist at the IFS, told Channel 4 News: "Evidence from the existing cap suggests that about 5 per cent of those affected were in work a year later and would not have been in work in the absence of the cap.
"This is a significant effect, but still means that the large majority of affected claimants did not respond by working, so must have dealt with the reduction in their income in some other way."
But the independent Institute for Fiscal Studies (IFS) is not so sure, saying in its analysis of the DWP’s research that beginning a claim for working tax credit “is not the same thing as moving into paid work. Some people may move into work, but not work enough hours to be entitled to WTC or not take up the WTC to which they become entitled”.
Despite these caveats, few doubt that there are more people in work now as a result of the benefit cap. But a “stampede”?
In the words of the IFS, “the large majority” of people hit by the benefit cap have not moved into work, and “it remains an open question as to how they adjusted to what were, in many cases, very large reductions in their income”.
It says “it would be reasonable to expect” that “some” claimants will move into work when the cap is lowered to £23,000 a year. But the IFS says others are likely to cut back on spending, use savings, build up debts, or rely on family and friends.