Capped in the New Year | CPAG

Capped in the New Year

Published on: 
22 December 2020
  • 35,000 universal credit claimants who lost earnings to Covid-19 in March 2020 face New Year benefit cap
  • Average benefit losses of £62 per week for households with children
  • 41,000 further households whose grace period ends in the first three months of 2021 will be hit by the cap

An estimated 35,000 households on universal credit (UC) - mostly families (77%) - will have their benefits capped in the New Year because they lost jobs or earnings to Covid-19 in March and their grace period has now expired, new analysis from Child Poverty Action Group (CPAG) finds.* The financial impact of the cap is large - households with children will likely lose on average £62 per week as a result of being capped. ** These households will be the first wave of many, as households who lost earnings later in 2020 (and were unable to find re-employment) will see their grace period expire sometime in 2021. In the first few months of next year, an estimated further 41,000 households will be hit by the benefit cap, when their grace period expires from January to March.

The benefit cap limits the total amount of benefits that non-working and low-earning households can have. UC claimants are exempt from the cap if they earn at least £604 a month (equivalent to working 16 hours a week at the 'national living wage') or if they receive some disability benefits.

The 35,000 households have been protected from being capped since March when coronavirus struck by a nine-month ‘grace period’ designed to give some claimants time to increase their earnings and thus avoid being capped. The grace period exempts claimants from the cap for nine months from when their earnings first fall below the threshold, if in the previous twelve months they have earned over £604 in every month. But for 35,000 households, their grace period runs out this month. They will be capped because their earnings have fallen below the £604 monthly exemption threshold following a job loss, furlough or a cut in working hours caused by coronavirus and their UC entitlement takes them over the cap limit. Yet, in a shrinking jobs market, few could have found a replacement job or increased their working hours in the period since March 2020, so in effect they have had no chance of escaping the cap - no meaningful grace period.

CPAG is calling on the Government to suspend the benefit cap immediately to prevent more families from falling into hardship. Scrapping the cap would lift 100,000 children out of deep poverty (below 50% of median income) and 150,000 out of very deep poverty (below 40% of median income) at a cost of only £500 million - less than the cost of the ‘Eat Out to Help Out’ scheme.***

According to a recent parliamentary answer, at August 2020 160,300 **** UC claimants had a grace period that started in March and will therefore end this month. Of those, CPAG estimates 35,000 will be capped in the New Year because their earnings have dropped below the exemption threshold and their universal credit entitlement is high enough to bring them within scope of the cap. Three in four families who have three or more children and whose grace period ends this month will be capped, CPAG estimates.

Commenting on CPAG’s findings, Chief Executive of the charity Alison Garnham said:

"At the end of a terrible year, there is another nasty surprise for more than thirty thousand households who have lost income to Covid-19 and who will have their benefits capped in the New Year. Many more will follow in their wake as Covid-driven unemployment rises. These families will lose crucial social security support despite the fact that since coronavirus struck they have had no realistic prospect of earning more in order to become exempt from the cap. In effect they have had no escape route from the cap and the oncoming recession is unlikely to leave them any more room for manoeuvre.

“The benefit cap has always been irrational because it takes no account of the number of children in a household so families, especially those in areas where housing costs are high, are disproportionately affected by it. The cap is increasing child poverty and in the context of a coronavirus recession is transparently nonsensical and wrong. At a minimum it should be suspended immediately to prevent the most vulnerable families from being pulled further into poverty.”

The number of households affected by the cap has more than doubled to 170,000 since the start of the pandemic, DWP figures from last month show. Eighty-five per cent of households currently capped are families, more than half of which include a child aged five or younger. Seventeen per cent have a child under 2. *****

Notes to editors:

An embargoed copy of CPAG’s analysis and short briefing on households that will be newly capped is here

Methodology: The estimated number of households (35,000) who are likely to be affected by the benefit cap is calculated by multiplying the given number of grace period households (160,000) by the share of households whose characteristics mean they will likely have high enough entitlement to be capped (22%). This share is calculated by looking at the share of households in Understanding Society who have earnings below the cap but pre-COVID had earnings above the cap, whose characteristics mean that simulated universal credit entitlement is greater than the cap.

The benefit cap restricts total benefit awards (including for housing costs) to £20,000 a year for families outside of London and £23,000 a year for those in London, regardless of the family’s needs. The level of the benefit cap hasn’t been revised since 2016 so the shortfall in the social security support that capped families receive, compared to what they need, has grown accordingly.

The grace period is available to UC claimants who have stopped working or whose income has dropped, are currently earning less than £604.59 per month and in each of the 12 months before they stopped work or their earnings fell, and earned more than the earnings threshold (£569 per month to March 2020, £604.59 from April 2020).

UC claimants are exempt from the benefit cap if they or their partner are receiving UC because of a disability or health condition that prevents them from working, care for someone with a disability, or as a couple earn £604.59 or more a month combined, after tax and NI.

*CPAG’s calculations from https://questions-statements.parliament.uk/written-questions/detail/2020... and Understanding Society. See methodology for more details.

** CPAG’s calculations from Benefit Cap: UC Point-in-time Caseload and Housing Benefit Point-in-time Caseload, Stat-Xplore, Department for Work and Pensions

*** CPAG’s calculations using UKMOD, Family Resource Survey, Understanding Society COVID module; https://www.gov.uk/government/publications/benefit-cap-number-of-househo...

**** https://questions-statements.parliament.uk/written-questions/detail/2020...

*****CPAG’s calculations from Benefit Cap Statistics: Households capped to August 2020, Department for Work and Pensions

Press release amended 22.12.20

CPAG media contact: Jane Ahrends 07816 909302