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Analysis: the overall benefit cap has hit London families hardest

Of the 46,000 households that have been affected by the introduction of the overall benefit cap in April 2013, 21,000 (46%) have been in London. This is due to high housing costs, where a significant proportion of the income received from benefit payments is passed on to the landlord in rent.

Posted on 24 November 2014

Since the introduction of the overall benefit cap in April 2013, around 46,000 workless households across Great Britain have seen their benefit cut as a result. Just over 21,000 (or 46%) were in London. In fact, of the 20 local authorities with the highest number of affected households, only one was outside London - Birmingham. But the high level in London is not because families in the capital are more likely to be workless. Rather, it's because of the high cost of housing.

The overall benefit cap limits the amount of benefit income a workless family can receive to a maximum of £500 per week (or £350 for a single adult). For those affected, the cap is administered by cutting housing benefit component of their income. Housing costs are most families' largest unavoidable expense, particularly in London, so housing benefit can move a family well below the cap to above it.

The graph below shows just how considerable the cut in benefit has been for families in London. 60% of those affected in London have been cut by at least £200 per week, in the Rest of England it is only 5%.

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So what does this cap mean for a workless family living in London's private rented sector? The next graph shows how much money would remain from an income of £500 after paying rent for a three bedroom property. NB: The rent levels used here are for the cheapest quarter of properties, so they reflect below average cost and quality housing. In Kensington & Chelsea and Westminster rents are already over £500 per week, whilst in Camden, Hammersmith & Fulham and Islington only £50 of income would remain.

These rent levels may seem high but they are the reality for most of those affected by the overall benefit cap - 64% of families affected in London contain at least 3 children so 3 bedrooms would be required to prevent overcrowding. In 16 of London's boroughs, if such families paid a rent that was still well below the average they would have less than £200 remaining. This would have to cover all the other costs of every household member - food, fuel, transport, clothes.

benefit cap2.png

In fact the most common family/tenure category affected by the overall benefit cap is single adults with three children living in the private rented sector (3,330 have been capped in London). A single parent with three children is likely to struggle to find the 16 hours of work per week required to no longer be classed as workless and therefore have the cap lifted.

Compared to other policies introduced by the Coalition the overall benefit cap offers only a small saving. This policy has been justified on the principle of "fairness" - that a workless family should not have a higher benefit income than the average person earns from work. But in London benefit payments of £500 per week arise because most of that money is passed on to the landlord in rent. The overall benefit cap directly cuts the benefit payment to claimants but there is no onus on the landlord to charge less rent.

Find out more about benefits and welfare reform in London.