Capped in the New Year

Post date: 
22 December 2020

COVID-19 has led to a doubling in the number of households affected by the benefit cap, from 79,000 in February 2020 to 170,000 in August 2020. The grace period gives claimants nine months’ exemption from the cap, starting from when their earnings first fall below the threshold, if in the previous 12 months they have earned over £604 in every month. COVID-19 has meant that hundreds of thousands of households’ earnings have fallen below the threshold. Some did not have a strong work history and were capped immediately, and some were able to find enough earnings to move above the cap. However, many households are stuck in limbo, where they are not yet capped due to the grace period, but are unable to find work as jobs are so scarce. Our new analysis finds that:

  • 35,000 households will be capped in the New Year, as their grace period expired this month. 27,000 (77 per cent) of these are households with children.
  • A further 41,000 households will be capped in the first few months of 2021, as their grace period expires from January to March.
  • Households with children are set to lose on average £62 per week.
  • CPAG is calling for the removal of the benefit cap – doing so would pull 50,000 children out of poverty, a further 100,000 children out of deep poverty (below 50 per cent of median income) and 150,000 out of very deep poverty (below 40 per cent of median income)

The logic behind the grace period has two big caveats. Firstly, the earnings requirement is unnecessarily restrictive. There are lots of flows in and out of work, particularly at the bottom of the labour market. People may only be able to find seasonal jobs, or parents may not work over school holidays as childcare costs cancel out their earnings. Secondly, when jobs are scarce, people are much less likely to be able to find employment during those nine months, regardless of their strong work history.

This briefing was updated on 22 December.