From 7th November the new benefit cap rates will start rolling out across the country. It is one of the biggest of the many large changes introduced by the Welfare Reform and Work Act 2015 and will affect many more households than the previous benefit cap.
The benefit cap, which applies to households that are not working sufficient hours or are not disabled, will be reduced from £26,000 per year to £20,000 (£23,000 in London). Only households that receive Housing Benefit or Universal Credit are affected, but the majority of other benefits they receive are added to their HB or UC to get to the cap figure.
The key benefits that push entitlements towards the cap rate are child tax credit and housing benefit. These two benefits have the greatest potential to award large sums of money, meaning households with high rents or multiple children are most likely to be affected. The cut in the rate means that households with relatively modest rents and with just two or three children are now likely to be hit by the cap
Under these new rules, any out of work household with four children is likely to be affected by the benefit cap. Most households with three children are likely to be affected too and many with just two children will also lose out.
A couple with four children claiming jobseeker’s allowance, child tax credit and child benefit are currently entitled to around £20,850 per year. This puts them over the cap outside London immediately. Any housing benefit they would otherwise be entitled to will be limited to just 50p per week, no matter what their rent is. Under the current rules they could receive up to £100 per week in housing benefit. They will lose this from November.
A couple with three children claiming jobseeker’s allowance, child tax credit and child benefit are currently entitled to around £17,400 per year. This puts them quite close to the outside London cap, without any other benefits being included. If they also receive housing benefit, the maximum they can receive and not be above the cap is about £50 per week.
In Birmingham, for example, the maximum housing benefit for a three-bedroom property in the private sector is £132 per week. The family with three kids above will see their housing benefit fall from the full £132 now to £50 per week when the new cap kicks in. They will need to find around £70 per week to cover the shortfall in their rent. Their housing benefit will be less than half the amount it is now.
This means that nearly all families with three children in the private rented sector and most in the social rented sector will be affected by benefit cap. They may still get some help, but it will be much reduced.
Couples with two children will be able to receive around £115 per week in housing benefit and still come in under the cap. Many rents on two and three bedroom properties are substantially higher than this, though, meaning shortfalls for many.
In London, the cap rate is higher but rents are often significantly higher too. The current maximum housing benefit for a three-bedroom property in north west London is £303 per week. The maximum the three child family we discussed earlier could receive in London is £108 – almost a £200 shortfall compared to the £70 shortfall in Birmingham. Now, the full £303 puts them over the existing benefit cap too, but it still represents around a further £50 per week cut even if they have been capped already.
This is a major change for a lot of people and the amounts they will lose are substantial. Households outside London may have their benefits cut by up to £6,000 per year. That’s £115 per week for people on out of work benefits.
The only realistic way to get out of this is to find work. Workers are exempt from the cap. The Government recently announced record employment figures. They will need to help a lot more people into work if they are going to avoid thousands of families losing out on thousands of pounds in benefits.
Turquoise Training and Consultancy provide training to the public, private and charity sectors. We specialise in taking the complex detail of the welfare benefits system and making it easily understandable. Take a look at our Training pages for more information and to book a course now.