Has The Benefit Cap Ended ‘Welfare Dependency’?

by richardhutton

As heralded by the Daily Mail:

‘Benefits cap helps 200 a week ‘turn their lives around’ by moving off handouts, says Iain Duncan Smith’

Smith did not quite say this; however, from the outset, his claims rest upon deception. The Mail quotes that “some 200 people a week are ‘turning their lives around’ and moving off welfare due to the benefits cap, Iain Duncan Smith said.” Moving off welfare can only mean no longer being in receipt of benefits. In reality, benefits can be paid to be people in-work. In fact, that’s one of the significant mechanisms behind the benefit cap – once people begin to receive working-tax credit, they are no longer subject to the cap: in other words, they continue to receive benefits as normal precisely because they are working.

The DWP’s official press statement says something which is equally problematic:

“The benefit cap is providing a clear incentive to work, with an average of 200 people every week making the choice to move into work or stop claiming Housing Benefit.”

In fact, the actual proportion of people who have been subject to this cap, and moved into work, constitute a minority. Of the 31,043 households subject to the cap, 40% have at least one member who has begun employment. There is a highly presumptuous claim made about this:

“Latest figures show how thousands of people previously claiming benefits are making the most of almost 700,000 vacancies in the economy and contributing to record levels of employment.”

Needless to say, this is not supported by any evidence; and the figures alone cannot possibly do either of these things. What the actual data says is that:

“31.0 thousand households (56%) who have (previously) been capped are no longer subject to the cap as at November 2014. Of these, 12.5 thousand are exempt with an open Working Tax Credit claim, which is 40% of those no longer subject to the cap. ”

The other 60% had a variety of reasons for no longer being subject to the benefit cap; ranging from being in receipt of an exempt benefit – such as disability living allowance/Personal Independence Payment – to no longer claiming Housing Benefit, having their housing benefit reduced, or their Benefit-income falling below the cap level.

There is some evidence that the benefit cap does encourage people to find employment; but the DWP itself conducted research which indicates how ambiguous any attribution of cause and effect herein really is:

“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 (May 2013 cohort). Even after controlling for a range of observable characteristics (for example, number of children), capped households were 4.7 percentage points (41 per cent) more likely to flow into employment after a year compared to similar uncapped households”

It seems fair to say that a difference of c. 5-8% between these two groupings is minimal; whilst the proportion of people in both cohorts who found employment is itself very low to begin with. (For a more detailed break-down of this, see chapter 8 ‘Impact on employment’). It is unreasonable therefore to suggest that the Benefit Cap is having a significant impact in this respect.

However, this is not the most misleading element of the press release. In fact, what Smith says is more egregious than even the Mail’s paraphrasing:

“Today’s figures show that the cap has led to hundreds of people breaking free from welfare dependency every week, and gaining the financial security and esteem which comes with a job and pay packet.”

The reality is quite the opposite – people are not moving off benefits and into work; they’re moving into work, in order to continue receiving benefits. This demonstrates plainly that benefits are not
an issue of dependency among the unemployed, but one of necessity for people both in work and out of it. It also demonstrates that the benefit system in its own right ensures that work pays.

So, far from supporting the government’s rhetoric on the subject of social security, or vindicating its policy, the benefit cap data flatly contradicts it: benefits are as important to the fabled ‘hardworking taxpayer’ as they are to those whom the self-same people are encouraged to resent. Furthermore, the statistics do not make a compelling link between the cap and gaining employment. If they do have an impact, it is very minor.

This is not the first time that Smith has misled the public, on this subject. The Daily Mail knows this, because it wrote about it previously. It would seem that both parties have very short, selective memories.