Benefits capped

Capped Welfare benefits

From today, April 15th, a benefit cap of £500 per week for couples and lone parents, and £350 a week for single adults will be introduced in four London boroughs - Croydon, Bromley, Haringey and Enfield. Other local authorities will implement the cap from July 15th, with all authorities introducing the scheme by September. The aim of the cap is to set a maximum welfare payments equivalent of the average weekly wage in the UK. According to the DWP, the cap will limit the personal incomes of some 40,000 households, and save some £110 m, down from initial estimates of £275m a year. As well as reduce the welfare bill, the aim of the cap is to provide a clear incentive for welfare claimants to seek work, and accept jobs at lower wages, thereby have a positive supply-side effect on the UK economy.

The introduction of the cap follows a series of high profile media cases involving families who have received benefits well above the average wage rate. According to Mr Ian Duncan-Smith, Minister for Work and Pensions, the days of ‘outrageous’ claims are ‘now over’. It is true that, since 2007, out-of-work benefits have risen at a significantly greater rate than earnings.  However, the savings (estimated at around £83 per week for those affected) are modest in terms of the total welfare bill (at around £170bn) , and the estimated number affected has been revised downwards to around 40,000 people. The impact will, of course, be greater when taking inflation into account.

It is not unsurprising that welfare benefits have increased in recent years as unemployment has risen and growth has been non-existent - the Chancellor, Mr Osborne, accepts that rising benefits play a significant part in the process of automatic stabilisation, without which the UK economy would have fallen deeper into recession. The £500 per week cap would, in theory, reduce the stabilisation effect of progressive welfare benefits and taxation, which provide fiscal boost as a time of falling national income - however, with such a small number affected, the cap is unlikely either to achieve its target objective, or to cause serious damage to automatic fiscal boost. One wonders, then, what all the fuss is about unless, of course, you are one of those now 'on the cap' in Croydon, Bromley, Haringey and Enfield.


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