The reduced benefit cap will cost the taxpayer 30 times more than it saves!

The reduced benefit cap will cost the taxpayer 30 times more than it saves!

Conservatives say the £20,000 benefit cap will save the national taxpayer £100 million in 2016. Yet they do not tell you it will cost the local taxpayer £3,000 million more.  That is why it will cost 30 times more than it saves as the Treasury may well save this £100 million per year figure but local councils will have to pay out at least £3 billion more for its homeless impact alone.

The budget saw the overall benefit cap figure reduce from £26,000 per year to £20,000 per year outside of London.  In weekly terms £26,000 is £500 per week and £20,000 is £384.62 per week.

This means from April 2016 all benefit households subject to the cap will be able to receive £115.38 per week less; and, very significantly indeed, the way the benefit cap works is to reduce housing benefit in the first instance, which in doing so raises the spectre of eviction and homelessness.

Here is what this means and by illustration I use the Metropolitan Borough of Wirral.

Wirral is where the ferry across the Mersey goes to and has the constituencies of Frank Field MP and the constituency of formerly Esther McVey both of whom are known for the views on that crass Americanism called welfare – what we used to call social security.

Wirral in rent terms is a low rent area in the North West with typical rent levels as below:

  • 3 bed social rent house is £93 per week
  • 3 bed affordable rent house is £116 per week
  • 3 bed privately rented house is £145 per week

The couple with 3 children receive £333.94 per week in social security / welfare and so they also receive a maximum of £166.06 per week in housing benefit.  This is the £500.00 current cap less £333.94.

As you can see this maximum £166.06 per week in housing benefit means their rent on a 3 or 4 bed property can be paid in full and they are NOT affected by the current benefit cap of £500 per week as they can afford all the rented options in the bullet points above.

Yet in April 2016 the overall cap reduces to £384.62 per week which after they still receive the £333.94 in social security / income leaves them just £50.68 as the maximum housing benefit they will get towards rent, hence:

  • 3 bed social rent house is £93 per week  – a shortfall of £42.32 pw / £2201 pa
  • 3 bed affordable rent house is £116 per week – a shortfall of £55.32 pw / £2877 pa
  • 3 bed privately rented house is £145 per week – a shortfall of £94.32 pw / £4905 pa

That level of housing benefit shortfall inevitably means all 2 Parent 3 Child households will not be able to pay these amounts and they will be evicted and made homeless  – if they are not exempt from the benefit cap.

I have housing benefit data from a Freedom Of Information request of Wirral which reveals that there are currently 583 households of 2P3C and of working age claiming housing benefit.  Unless they are exempt from the benefit cap (or find work that pays enough to live which given the cuts to Child Tax Credit and Working Tax Credit is unlikely) then all will be evicted made homeless and cost MBC Wirral a fortune in temporary homeless costs.

These 583 households are of working age so all potentially liable for the benefit cap.  These are figures after taking away the exempt pensioner.

The Family Resources Survey (FRS) published at the end of June 2015 and which the DWP uses extensively as the core basis of impacts, informs that 17% of social tenants receive DLA or PIP so they will not be affected.  The FRS says 5% of private tenants receive DLA or PIP and the FOI request breaks down the 583 working age 2P3C households by tenure so we see 286 being in the SRS and 297 being in the PRS.

I have crunched the numbers of all of the other exempting welfare benefits and applied these national figures to Wirral HB tenants to arrive at the likely number of 2P3C households who are NOT exempt and highly likely to be evicted.

Additionally, there are also 308 households of 1 Parent 4 Children (1P4C) and a further 245 households in the 2P4C group and a further 239 with 5 or more children who also make up the maximum number of households affected before exemptions applied

Additionally the I Parent with 3 Children will have a £2,791 per year shortfall if privately renting a 3 bed and the 2 Parent 2 Child household a £1,463 per year shortfall if renting privately so the numbers of such households in those groups of working age have also been computed using the same methodology.  

Note too my figure also assume that the current LHA received also covers the current rent and there is no existing housing benefit (LHA) shortfall to add to these figures for private tenants. If there are current shortfalls which is likely then the shortfalls stated above are under estimates.

Also note the 1P4C household will get £25.23 as their maximum housing benefit entitlement and the couple with 4 children will not get a penny in housing benefit and will lose £16.52 from their JSA or ESA as well.  The couple with 5 children who today receive up to £31.66 per week in housing benefit will get no housing benefit and lose a further £83.72 per week of their JSA or ESA on top.

To cut to the chase this suggests that 411 social tenant households will be evicted and made homeless in 2016/17 and 1,270 private tenants will be making a total of 1,711 households of working age will become the cost responsibility of MBC Wirral in 2016/17.  Current 2015 figures show 62 households.

This will be over 5000 children homeless in Wirral next year as the average number of children in these 1711 households will be over 3 per household.


Cost to Wirral MBC?

Extremely difficult to say and estimate.  Yet here is an example of how the costs will work.

The couple with 3 children (2P3C) household qualify for £50.68 per week in housing benefit so if the cost of accommodating them for Wirral is £150.68 per week then Wirral receive £50.68 per week back from central government and Wirral has to pay the other £100 per week.

£100 per week cost to 1,7111 families is an additional cost of £8.89 million per year to MBC Wirral.

Wirral cannot escape this cost and their housing duties under the 1996 Housing Act and subsequent guidance and legal precedence means they have no choice but to rehouse these families.

That then raises the question …

What will Wirral have to cut in order to pay for this £8.89 million added cost?

Will this means all libraries have to close? Will refuse collection go to every 3 weeks rather than every week and so on you get the picture.  Yet this also means that council tax for all Wirral residents will increase and less services will be delivered than each previous year.

The benefit cap reduction costs the local taxpayer far more in tax while Osborne, IDS and the rest are saying it costs less and deliberately and knowing deceiving the public.  The benefit cap and other welfare reforms to housing benefit (bedroom tax, LHA cap etc) have to date cost the national taxpayer £1 billion more per year according to the IFS think tank – Yes that is a cost increase and the caps have not saved a penny to the taxpayer and now the Conservatives are forcing that additional cost and a much higher additional cost of around £3 billion per year onto the local taxpayer! Sneaky!

IF Wirral are forced to use B&B hotels to accommodate this huge increase in homeless families will they be putting the couple with 3 children in two rooms at a Travelodge at a negotiated £40 per room per night or a weekly cost of £560 meaning they have to find over £500 per 2 Parent 3 Child family per week from local budgets?

That would take the added cost up to £45 million per year – and just for accommodation and without the cost of homeless assessments and other administrative cost.

No it won’t be anywhere near as high as that £45 million, although the £8.89 million is a very low figure and it is likely to be more than that in a full year so Wirral MBC and every other local council is going to have a massive increase in homeless accommodation cost which is a massive transfer of cost and risk from central to local government.

Wirral MBC are having a meeting tonight with their spending plans laid out for the next few years and we must assume that tens of thousands spent developing these plans is wasted and now these spending plans all need a major revision to include the cost of homelessness that the benefit cap reduction has just dumped on the Metropolitan Borough Council of Wirral – and every local authority in the country.

Hmm, I wonder if the ruling Labour Council in Wirral will be asking their Labour MPs one simple question…

What the fu*k are you doing supporting the reduction in the benefit cap?

Why not ask Frank Field MP – after all he is the new chair of the Welfare and Pensions Committee and the former head of the CHILD POVERTY Action Group and the benefit cap reduction will see 750,000 Children made homeless nationally and in poverty by any definition of that term.


PS – To avoid any misunderstanding at all the 1,711 households figure for Wirral is AFTER a generous number of the total affected have been discounted due to the receipt of exempt welfare benefits such as DLA etc

11 thoughts on “The reduced benefit cap will cost the taxpayer 30 times more than it saves!

  1. Hi Joe,
    I contacted Alison McGovern asking for data on the number of people who applied for DHP, the number who were successful and the number refused and reason why. Her assistant contacted the HoC library who got back to her with 2 attachments. Can you give me an email address and I will forward the email on to you with the attachments if you are interested.

    1. Pam I gave a presentation vin Oct 2012 saying benefit cap far worse than bedroom tax. Policy is horrendous yet supported by Labour too so nobody is scrutinising it as ALL fearful of saying austerity just may be wrong

      1. It’s disgraceful! I can’t understand why Labour are not jumping on this, like they have with the bedroom tax! I keep sending them the facts on the Benefit Cap and how it will cost MORE – nobody is listening!

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