Tuesday, 2 April 2013

Better off on benefits? The benefit cap could leave some children living on just £2.20 per day.

I live in Croydon - one of the four London boroughs (the others are Bromley, Enfield and Haringey) that since yesterday is piloting the benefits cap, before the national roll-out on 15 July.

This policy means that no household - no matter how many people live in it, and no matter their situation, can receive more than £26,000 per year in benefits.

The Work & Pensions Secretary, Iain Duncan Smith MP, says: 
"It’s sheer madness that people on benefits can be getting as much as a higher-rate taxpayer earns. We need a welfare state that acts as a safety net and encourages people back to work, not traps them in out-of-work dependency." (reference)
He says this without presenting any evidence, and it is loyally parroted by his backbench MPs - including Croydon Central's Tory MP, who says:

So is it true - and how could it be? Let's try to calculate. Let's start with three variations of a two parent family of three (all figures rounded to nearest £; tax credits figures via HMRC Tax Credits calculator).
Firstly where one parent works and the other doesn't (assume the youngest child is under 3 and the second parent is caring for them). To make work as low paying as possible, let's put that parent on the minimum wage of £6.19 per hour. If they're working a full-time job (37 hours per week). So here is their annual income:

Wage: £11,910
Child Benefit: £2,449
Child Tax Credit: £4,888
Working Tax Credit: £1,404

Total household income: £20,651

Secondly, where both parents work. To make work as low paying as possible, let's put both parents on the minimum wage of £6.19 per hour. One working a full-time job (37 hours per week) and the other part-time (21 hours per week). So here is their annual income:

Wage: £18,669
Child Benefit: £2,449
Child Tax Credit: £4,888
Working Tax Credit: £1,092

Total household income: £27,098

Finally let's have a household where neither parent works. Both are claiming Jobseeker's Allowance:

Wage: £0
JSA: £5,795
Child Benefit: £2,449
Child Tax Credit: £1,228
Working Tax Credit: £0

Total household income: £9,472

So where's the benefit in not working? Really I'm at a loss to find it. What about more unusual households?

Just to give the Daily Mail a chance, let's re-run the out-of-work household with eight children:

Wage: £0
JSA: £5,795
Child Benefit: £5,933
Child Tax Credit: £12,584
Working Tax Credit: £0

Total household income: £24,312

So even with eight children our unemployed household still doesn't reach the benefit cap level - and that's split between ten people - each living on the equivalent of £46.75 per week. That is the reality of our generous benefits system.

Politicians add in what I call 'landlord subsidy' (officially known as housing benefit). This of course does not make the family 'better off'. The transaction is between the state and the private landlord - the family sees none of the money at any point. If rental prices dropped they would see no money, if rental costs rise they see no less.

According to the Rightmove website, the cheapest five-bedroom property (the bare minimum for a family of 10) in Croydon is £1500 pcm or £18,000 p.a.
Added to the total household income that makes £42,312 pa - over the £26,000 benefit cap. So the household income through social security will be capped at £8,000 instead of £24,312 (as the reality is that private landlords won't cut rents and councils can't provide council housing). This means each of the ten people in the house (2 adults and 8 children) will be living on just £15.38 per week or £2.20 per day.

This is the brutal reality of the benefits cap: £2.20 per day to eat, pay the bills, and buy clothes.

This is why the Child Poverty Action Group calculates that an additional 200,000 children will be living in poverty this year, rising to an extra 1 million by 2020.


Tony Benson said...

Rather strangely what has not been pcked up in the hoo-ha about people being better off on benefit than working is that for the first time since the introduction of tax credits some people will soon be much worse off working that they would be living on benefit. Itonically given the policy so-called behind welfare reform it will be the result of the universal credit rules for people who rely on universal credit to pay the mortgage. As under the present system of IS/ESA/JSA while an owner-occupier household is completely out of work they will get some help with the mortgage through the benefit system. With UC though once you start to remunerative work for even a minute this support disappears: instead you have an "earnings disregard" all well and good if you land a decnet full-time job. If however you are forced to take a part time job (as many are by workfare) you will have nothing with which to pay the mortgage: this as a direct result of starting work! Not a hand up or hand out but a sharp shove downwards into homelessness.

Tracey Newman said...

Ok, with your figures for 1 parent working lets deduct first their rent, a average 3 bed housing association house in the south west=£450/month so £5400 a year. Council tax again an approx for this area=£1500. So this family has quite clearly got less that an unemployed family per year even.before you consider free prescriptions, dentist, opticians etc. So it IS often better to.be on benifits (I might add I am a working mum). And im sorry but 8 children!!!! People like this are socially irresponsible. I would love 8 kids, but I only have 2 as thats all I can afford to look after. Something needs to be done to prevent this irresponsible over breeding, and if its tough on people now, at least it should reduce the 'get pregnant as a career option' attitude that is prevailent nowadays.

Andrew said...

@Tracey - but the one working parent family is also likely to be eligible for housing benefit. 93% of new housing benefit claims in the last 2 years have been from households where at least one person is working.

On the 8 kids; I put that not because I advocate anyone having that many - but because papers like the Daily Mail find these highly unusual cases and present them as representative.

But once they are born, I see no good case for impoverishing children because we may disapprove of their parents' choices. That seems a very nasty thing to do.

p.s. I'd like to see any evidence that people "get pregnant as a career option" is prevalent - stats show family size decreasing

Andrew said...

@Tony - thanks for that. I can see Universal Credit having at least some major teething problems, if not failing completely - and not just because of the IT, but because of the anomalies in-built.

All the evidence shows - from UK and across the world - that regardless of the generosity of the welfare system (and the UK's is one of the least generous) people choose to work even if financial benefit is only marginal.

Anonymous said...

Your Tax Credit calculations are way off. You're using weekly figures instead of yearly. Child Tax Credit would be £545-2690 per child per year.

8 children could equal as much as £21520 in Child Tax Credits alone.

Plus you leave out housing benefit.

Anonymous said...

Oh and the maximum number of bedrooms available in the private sector on housing benefit is 4.

Andrew said...

@ Anonymous comment1 thanks re: tax credits - have updated, but figures still comparative for the 3 families so doesn't change the differential

8 children in a household where neither parent works (and so subject to benefit cap) would not get childcare element, and so would get nowhere near £21k

I cover housing benefit in 4th para from end

Andrew said...

@ Anonymous comment2: unless the rules have changed very recently (?) then there is no limit on no. of bedrooms in private sector.

Adrian said...

Tony Benson-indeed,a point I have attempted to highlight on every post on social security I can.AS a receiver of CA I am under no conditionality but worked for some years ,until it was not feasible,however the change has denied us any chance of improving our financial situation.Kafkaesque-faced with continual benefit reductions not in paid work or in paid work as of course there is no way I could work the necessary hours to offset the complete removal of housing support-the GOvernment's suggestion to move -would result in far more cost to the State-the house is heavilly adapted with a bespoke dialysis room.Such things like this I suggest result from policy being structured on ignorance and or misanthropy-I hope the first but fear the second.

Adrian said...

Andrew-"people choose to work even if financial benefit is only marginal".

Under the existing system-despite the propaganda it is, in our case when our circumstances changed I continued to work,despite having no conditionality-only £20 in the end due to being on means tested benefits(largely due to the allowances for disability being no where near enough to offset the real extra costs-that is a different but related debate)but important in trying to maintain link with employment.Although under UC this disregard is improved for me-BUT lessened for many CA receivers it is ripped asunder by the removal of Income support for mortgage interest-this is pernicious because this applies to people with obvious limitations on how many hours they can work-the GOvernment phrase/justification of the removal "unfair to taxpayers to fund houses-you know the rest"-is insulting and rather despicable because carers save the State far more than any support they receive and the arrangement is by far the cheapest arrangement possible.

Anonymous said...

I have two children and would love more but I know we can't afford it. Me and my husband both work I work part time and we both earn £40,000 between us with that we have to pay rent, bills, food everything. I am glad that the benefit cap is happening stop moaning about cutting down on food costs and electricity welcome to the world of the low earner. Also if you are struggling with money only have the number of children you can afford to care for to ensure there overall needs are met

Anonymous said...

Forgot to say that 40,000 is taxed so take home wage is 2.200 a month

Anonymous said...

Tracey is correct. The calculation needs to take into account housing benefit, calculate total income and subtract all outgoings from that. You often find that working people who have to pay equivalent amounts of rent/mortgage, council tax and additional transport costs to and from work) are left with less than benefits claimants. I have two degrees (one a higher degree) and the cap of £350 a month for a single person is more than I earned in take-home pay in a full-time academic post.

Anonymous said...

* cap of £350 a week, I meant.

Anonymous said...


I don't profess to be an expert on the UK welfare system but I do work in social housing and I am aware of the issues surrounding the implementation of welafer reform. I agree that some of the measures will have an adverse impact, especially on larger households. However, I also think that many of the measures are necessary.

What I do not understand with regards to discussions surrounding reductions in benefits is why so many arguments (including your examples above) disregard housing and council tax benefit? If someone asked me how much I earn, my likely response would be £25,000. Not £25,000 minus tax, minus £7,200 rent which goes directly to my landlord via direct debit every month so it doesn't benefit me, minus £1,500 Council tax....

Surely the claimant benefits from having a roof over their head? That is the whole point of housing benefit - the money does come from somewhere and is paid on behalf of the claimant. It counts towards their income. End of story.

Anonymous said...

Also, forgot to add that using the example of a family with 8 children is just ridiculous. The fact that you have used this example for your headline figure of children having to be brought up on £2.20 per day is farcical and devalues your argument.

You say that you have used this example because tabloids are printing stories about sprawling families of scroungers with 8 kids living in luxury. Why not take the time to debunk this myth and create an argument based in reality?

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Anonymous said...

there is no benefit cap on 26 grand as there are exemptions which means if any family member is in receipt of child tax credits the support part of esa ,disability living allowance ,carers allowance ,war and widows pension ,incapacity benefit and a few others that i cant be bothered putting up ,so please stop lying as i would love to be one of these lazy feckless and useless baby breeding families only on 26 grand tax free a year and stop condoning there behaviour

Andrew said...

Anoymous 12/10/13 - there are exemptions, but not for those in receipt of child tax credits, only for those in receipt of working tax credit.

So there will be some families with at least one working adult who still receive more than £26,000 in benefits - and who are not capped...