The benefits cap is popular - but it isn't right

The government’s proposed £26,000 cap on benefits for those out of work applies irrespective of circumstances and the family’s history. It will hit two groups: those with very large families, wherever they live, and people with three children or more in private rented accommodation in London and some of the south east.

It is easy to say that people should not have children if they cannot afford them. Applying a benefits cap retrospectively, to children who already exist, makes no sense as a policy of deterrence. If you want to disincentivise the poor from having children, the cap should apply to children as yet unconceived.

We do not know whether ‘conception deterrence’ works. To find out we should look at whether either the number of children born to parents on benefits rose when benefits were more generous. Then we would know whether economics enters people’s decision to conceive.

The second affected group are those with three children, who rent privately, and who lose their jobs, particularly if they are in London. These are people with reasonable work histories, who have never been in sufficient need to qualify for social housing. Equally they are not sufficiently affluent for a mortgage. This group includes many manual workers and people with relatively low skills. Think of the people who work for removals companies, and lose their jobs in the recession, because of the fall in house sales.

After rent, council tax, and utilities, someone with 4 children living in Tolworth, the cheapest part of Kingston, will have to live on 62p per day. That has to cover everything: food, school uniform, loo paper, the lot. It is clearly impossible to live on this. If you change the family circumstances a little, you can change the 62p figure – either up or down. But it is broadly accurate for a large number of those affected.

It seems strange to say to someone who has worked for 15 years, that on their first day out of work they will be plunged into poverty. Nor can we assume that they will have savings of any amount. The IFS record that 50% of people in Britain have less than £1000 in savings, and economic theory – income smoothing – argues that people with children should not save at that point in their lifecycle.

This group is surely part of the ‘Tory working class coalition’ that the party needs to command a majority. To tell them that they must either move to a one or two bedroom flat, be cold, or move to Merthyr Tydfil – where their employment prospects are much worse – makes no sense, socially, politically, or economically. At very least a grace period, of say six months, or even a year given the current state of the job market, would make sense.

It is sensible to cap individual parts of the benefit system – such as constraining where people can live. But to set an overall cap, irrespective of your history or circumstances, saves little, and will cause considerable hardship in a fairly arbitrary manner. The cap is popular, but it isn’t right, and may well become less popular once the effects become apparent.

Tim Leunig also discusses the benefit cap for the Guardian here.