Why the benefits cap is wrong

Today parliament votes on a bill to cap increases in benefits and tax credits at 1% for 2014 – 2015 and 2015 – 2016. Previously, benefits rose in line with prices. However the Coalition’s plans means that entitlements including child tax credits, Jobseeker’s Allowance and working tax credits will face real terms cuts.

A report from the Institute of Fiscal Studies shows that 2.5 million households with no members in work will see a loss in income of £215 a year in 2015-2016 and 7 million households where someone is in work will see a loss of an average of £165 a year.

Iain Duncan Smith has tried to justify this decision by claiming that it is justified by need to reduce the deficit and also for the sake of fairness for those who are working. He has said:

“We don’t take this decision lightly, but we have to get this deficit under control or this country will be bankrupt like Greece and like Spain and we’ll have huge borrowing costs.”

“Secondly, we’re trying to do it in a way that is fair to those who are in work, that are paying tax, who are paying the tax for those people on welfare who receive their welfare payments.”

However, the Welfare Secretary’s attempt to build a divide between the working and the unemployed is undermined by the fact that a majority of households hit by the cap have a member working.

Indeed a report by the Resolution Foundation concludes that “The majority of cuts to benefit and tax credits announced in today’s Autumn Statement will fall on working households”.

It is also important to recognise that this benefits cap will have very harmful effects for the poorest in society. As George Eaton writes:

“By raising benefits by 1 per cent, rather than in line with inflation, which stood at 2.2 per cent in September 2012 (the month traditionally used to calculate benefit increases), the coalition will leave the poorest families even more vulnerable to fluctuations in food and energy prices.

“Inflation is expected to be 2.6 per cent in September 2013 and 2.2 per cent in September 2014, meaning that those families affected will have suffered a cumulative loss of four per cent of income by the end of the period. For many, this will mean being forced to choose between heating their homes and feeding their families.”

Matthew Reed, Chief Executive of the Children’s Society argues that:

“From a nurse with two children losing £424 a year by 2015, to the Army second lieutenant with three children losing £552 a year, this will hit children and families from all walks of life.”

“Failure to make sure that benefit rates at the very least reflect rises in the cost of living will deepen inequality and increase poverty.”

The Coalition’s policy may be an attempt to paint Labour as the party of the unemployed, but this is undermined by how such a cap hits working families. Furthermore, people who are struggling to find work in an economy the Conservatives are mismanaging should not be scapegoated.

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