Labour should oppose the Welfare Cap, which doesn’t protect those in greatest need

The welfare cap is a regressive measure which hits the poor hardest.

As announced in last week’s Budget, the government’s cap on welfare spending is set to be £119.5 billion in 2015/16, increasing to £126.7 billion by 2018/19.

Most of the spending which falls under the Welfare Cap is made up of the State Pensions (£80 billion), Tax Credits (£25 billion) and Housing Benefit (£23 billion). Significantly, Jobseeker’s Allowance (JSA) and the Housing Benefit that gets paid automatically to JSA claimants are not part of the cap.

The coalition has introduced the cap and Labour is expected to support the measure in the House of Commons today, with only a handful of Labour MPs expected to rebel.

However the problem with the cap is that, according to credible analysis, governments will struggle to stay within the cap due to the nature of the benefits which fall within it.

This will mean, therefore, that those who receive benefits that fall under the cap will likely see cuts to their benefits at some point in the future.

The big question, then, is whether the potential cuts will hit those who can most afford to take them rather than those who are struggling. The evidence suggests that this won’t happen under the Welfare Cap.

In fact, as the excellent Chris Goulden of the Joseph Rowntree Foundation (JRF) has pointed out, there is more spending on the richest households that is not in the welfare cap than is within the cap, and vice versa with the poorest households.

In other words, if you are poor the benefits you receive are more likely to be within the cap than if you are well off, as the graph shows:

Welfare capj

The graph demonstrates, in Goulden’s words, that for the richest households:

there is more spending that is not in the welfare cap (albeit virtually all State Pension) than is within the cap. Overall, 30 per cent of spending from within the welfare cap is on the richest half of society but 40 per cent of the protected spend.”

On the other hand, for the poorest tenth the average annual incomes from benefits are £1,081 from tax credits, £874 from Housing Benefit and £509 from Pension Credit.

This means that, in using the Welfare Cap to protect things like the State Pension for the rich but not the Pension Credit (which predominantly helps the poor), the chancellor is once again doing “more for those who already have, and not those on low incomes and most in need of help”, as Goulden puts it.

The Welfare Cap may be politically difficult for Labour to oppose, but that doesn’t change the fact that it is a regressive measure which hits the poor hardest.

4 Responses to “Labour should oppose the Welfare Cap, which doesn’t protect those in greatest need”

  1. GO

    “Most of the spending which falls under the Welfare Cap is made up of the State Pensions (£80 billion)”

    No; the State Pension *doesn’t* fall under the cap. This is exactly why “there is more spending on the richest households that is not in the welfare cap than is within the cap, and vice versa with the poorest households”. As Chris Goulden points out, that spending on the richest households is “virtually all State Pension”.
    I think Labour have spotted an opportunity here to reframe the debate around welfare so that we start talking about the root causes of high welfare spending – e.g. low wages and high rents. There’s the potential for them to turn this round on the Tories: “oh, so you oppose a Living Wage/rent control/letting councils borrow to build affordable housing? Well, how would *you* keep welfare spending under the cap, then?”
    Point taken about the risk that cuts to individuals’ benefits might be necessary at some point (although won’t the switch to a flat-rate universal pension help considerably on that score by effectively taking Pension Credit spending out from under the cap?) But it’s not necessarily a bad thing that Labour are putting themselves under pressure to tackle these root problems so that it doesn’t come to that.

  2. Chris Kitcher

    Lets have an MP’s cap. It should be based on the principle that it decreases by the amount inflation increases depending upon the number of lies told by them.

  3. Selohesra

    You could have reduced MPs by not blocking fewer & fairer boundary changes – unfortunately Labour preferred self interest and maintaining their electoral bias in the current constituencies . we dont need 650 MPs especially those that rartely turn uop for work anyway

  4. Chris Kitcher

    I agree completely with a reduction in the number of MP’s however I also think that the gravy train they are on through both salaries, expenses and e]rent seeking for chums should be stopped and reduced in the future. Hence a reducing cap on their costs.

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