Why the benefit cap will COST £billions and not save a penny

Anyone care to read a rational argument why the proposed £290m benefit cap saving will end up costing the government up to £8.34 billion more per year?

Let’s start with a few facts which I have blogged about previously:

1.  75% of the new HB claimants since the election are working – 127,000 of the 170,000

2. The £290m proposed saving is 0.15% of the £192 billion per year welfare bill

3. It is only HB that is to be cut no other benefit such as unemployed benefits (JSA/IS) or sick benefits (ESA) is going to be cut or capped.  This is reaffirmed below

Section 3 on page 5 of the impact assessment says:

Initially the intention is that that cap will be delivered by Local Authorities through Housing Benefit payments. Ultimately it will be administered as part of the new Universal Credit system. Before the introduction of Universal Credit, this cap will apply to the combined income from the main out of work benefits, Housing Benefit, and other benefits such as Child Benefit, Child Tax Credit and Carer’s Allowance.”

What the above tells us is that it will be HB departments who make the initial cuts and this means that the HB departments must have full detail of every welfare benefit the claimant gets, and every other benefit the claimant could get!  This is from 2013 and before Universal Credit comes into play.  The overall benefit cap or OBC is part of Universal Credit.

The ‘every other benefit the claimant COULD receive is very significant as section 4 page 5 of the impact assessment says:

Households entitled to Working Tax Credit will be exempt from the cap. This policy is intended to encourage claimants to move into work or increase the hours they work; it will increase the incentive for people to find employment, because once they are in receipt of WTC their benefits will no longer be subject to the cap, furthermore they will also gain from earning once they enter work. Conversely, were recipients of Working Tax Credit to be among those affected by the cap, this would reduce incentives to work.”

My earlier point above says that 75% of the new HB claimants since the election are working means (a) that if 75% of them are entitled to HB they will be likely entitled to Working Tax Credit (WTC), and possibly Child Tax Credit (CTC) and possibly child care payments and; (b) that HB departments will have to assess these claimants for WTC.

If HB officers dont assess each working claimant for WTC and CTC then each individual decision must be wrong and must be open to appeal, review and ultimately legal challenge.

Just as I have blogged previously that the DWP know that up to £6.7bn per year of HB goes unclaimed it should surprise the reader that up to £8.04bn per year of WTC and CTC goes unclaimed according to 2007/08 figures and the latest figures I could see for 2008/09 have this at £8.24bn.  And for 2009/10 the non take-up rate becomes £8.34bn if we look at the table on page 13 which I reproduce below.

Expenditure (£m)

Lower £U/C

Central £U/C

Upper £U/C




















This table reveals that up to £8.34bn of WTC & CTC go unclaimed and remember that is the known figure.  The NTUR% figure is the percentage rate of non take up NTU rate.

The impact assessment says that HB departments need to assess every person for all benefits in receipt and those not in receipt which could be claimed.  Simply HB departments MUST have to assess every working HB claimant who is not in receipt of WTC and CTC for those benefits to see whether they are and whether they then become exempt from the overall benefit cap.

With 75% of new HB claimants working and eligible to claim HB a very high proportion of these will be eligible for WTC and CTC.  If just 3.5% of them are eligible for WTC and/or CTC and are currently not claiming those benefits then the increase in WTC/CTC will be £292million and that will wipe out any of the savings the cap is said to produce.

Given that the NTUR is in the range of 11.4% to 19.47% it’s a given that more than 3.5% of those working and claiming HB will be eligible but not in receipt of WTC and/or CTC.  This means that the benefit cap won’t produce any saving whatsoever.

This immoral policy as many see it will in fact cost the public purse far more.  This is the same economic and financial argument I used previously to show that Universal Credit can’t work using the non-take up of HB.  Even in theory Universal Credit and the overall benefit cap which is part of UC can’t work as its one-stop assessment of what benefit is being claimed and what could be claimed means it considers and assumes a full 100% take-up rate of all benefits!

The argument above is rationale and the cost figures use official DWP documents.  I stumbled across the argument as it is similar to previous ones about the non take-up rate (NTUR) of Housing Benefit.  My argument simply looks at the process HB departments must take first, ie what is being claimed and what could be claimed, and this is the same process that the Universal Credit officers will have to take.

My plans for today’s blog had been why the regional overall benefit cap that Labour are seemingly arguing is wrong; and further that a better proposition would be a reduced national one taking out all rent or HB costs.  All other benefits than HB are at national rates and HB is the only regionalised one after all.  That would have exposed again that HB is the only benefit to be cut and also of the need for regulating the excess rent levels of the unregulated private sector landlords.  That latter point builds again upon a much earlier blog from last year which shows the cost of not regulating to be in excess of £2.3billion per year.

Yet the above argument shows that the cap won’t produce any savings at all and will cost the public purse billions of pounds each year.  It is a much stronger argument though of course we still need to regulate against the excesses of the PSLs!




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