Written evidence from Shelter (BEC0024)

Written evidence received for The Benefit cap inquiry (BNC0039)

Shelter helps millions of people every year struggling with bad housing or homelessness through our advice, support and legal services. And we campaign to make sure that, one day, no one will have to turn to us for help.

We’re here so no one has to fight bad housing or homelessness on their own.

General

1. We oppose the benefit cap because it is an arbitrary cap that does not take into account the high and variable costs of renting a home across the country, and leaves families vulnerable to poverty and homelessness.
2. As a provider of housing advice and support, we have seen first-hand the impossible situation households face due to the benefit cap: unable to move to a cheaper home and unable to find the required hours of work per week.
3. Consequently, we see families in rent arrears facing eviction, and even parents unable to feed themselves and their children, due to the cap. 
4. Officials statistics show more than half of the households affected by the benefit cap are single parents with children below school age[1], who face the most barriers to work, and are consequently recognised by the benefit system as not being active job-seekers.
5. Our recent analysis shows how the cap is now so low, that it would be very difficult for families to avoid it by moving to a cheaper part of the country. Even smaller families living in modest homes would struggle to find somewhere they can afford to live:

         Two-parent families with two young children living in a private rental would be capped in over half of areas in England, including London and cities such as Leeds, Bristol, Manchester and Birmingham.

         Single-parent families with three children would be hit by the cap in every area of England.

6. It is also very difficult for families to avoid the cap even by overcrowding: a three-child one parent family would still be hit by the cap in 92% of the country, even if they overcrowded into a home that was unsuitably small. Even if families overcrowd in an extreme way (all of the family in a room of a shared house), families with four children would be hit by the cap in every area of the country. This shows the untenable position, and total lack of options that the benefit cap offers to affected families.
7. Once homeless, our research shows the cap is preventing families moving on to a permanent home: households in temporary accommodation are four times as likely to be capped than other households, with thousands affected by the cap. This comes at huge cost to local authorities.
8. We recommend the government reviews the benefit cap policy and, at the very least, exempts families who will struggle to move or find work, such as homeless families in temporary accommodation and single parents with very young children.
9. As a minimum, the benefit cap should support households to move into work via the introduction of a taper to allow claimants to recover some of their benefits in exchange for working a small number of hours a week.

Response to specific questions

How have claimants responded to the lower benefit cap?

1.         The DWP has done little to evaluate or address the effects of the cap.

We recommend the government formally monitors the impact of the cap on household debt, child poverty and the impact on education.

2.         Lack of clear evidence on moving into work

Since the introduction of the cap, 49,264 households have moved off the cap as they had made a working tax credit claim (39% of all households no longer capped)[2]. However, it is unclear to what extent the cap was responsible for claimants moving into employment or whether they would have returned to work regardless. A 2014 DWP analysis of off-flows[3] found that capped households were only 4.7 percentage points more likely to flow into employment after a year compared to similar, uncapped households.

3.         Households cutting back on essentials

A government evaluation of the impact of the original (£26,000 pa) cap reported that “most interviewees” felt that they were “getting by but struggling”[4]. It reported people are responding by:

• Buying less food (missing meals once a day and just feeding the children)
• Not paying other bills such as utility bills, or council tax;
• Turning down the heating, or not heating the home;
• Borrowing money from doorstep lenders or bank overdrafts to pay rent or pay off arrears.

DWP found that under the original cap, more than one third of families (35%) spent less on household essentials.[5]

4.         Living in hardship

Four million children (30% of all children) are living in poverty in the UK.[6] Combined with other welfare reforms such as the LHA freeze, the number of children living below accepted levels of poverty could continue to rise as a result of the benefit cap.

5.         Case study: Shelter helped a family in Sheffield who came to Britain as refugees from Syria. Their children are aged six to 11. The father is looking for work and is also attending classes to further improve his language skills. However, the mother has Post Traumatic Stress Disorder and struggles to leave the house, so he has to take the children to school and collect them. The family cannot meet the shortfall in their rent and is suffering hardship as a result.

6.         The courts have concluded that the cap is causing real hardship to families. In his High Court judgment in DA & others, Justice Collins commented that the cap is causing ‘real misery to no good purpose.’[7] In the Court of Appeal, Sir Patrick Elias said: “No one should underestimate the very real hardships caused by the imposition of the cap, and the particular circumstances of the individual claimants in this case bear witness to the harsh circumstances in which they and those similarly placed live, as does detailed evidence from Shelter.”[8]

7.         Tenants not negotiating lower rents

It appears that very few households have responded to the cap by renegotiating their current rent. In 2014, an Ipsos MORI survey for the DWP found that just 1% of households no longer affected by the original cap had been able to negotiate a lower rent with their landlord.[9] In this regard, we can find no evidence to suggest households under the lower cap have been able to negotiate their rents to below the cap. As the lower cap further reduces households housing benefit claims, increasing the gap between rents charged and income available, this may have become even more difficult for households.

What difficulties are claimants experiencing in adjusting to the cap?

8.         We oppose the benefit cap because it is an arbitrary cap that does not take into account the high and variable costs of renting a home across the country, and leaves families vulnerable to poverty and homelessness.

We recommend the government reviews the benefit cap policy and, at the very least, exempts families who will struggle to move or find work, such as homeless families in temporary accommodation and single parents with very young children.

As a minimum, the benefit cap should support households to move into work via the introduction of a taper to allow claimants to recover some of their benefits in exchange for working a small number of hours a week.

9.         As a provider of housing advice and support, we have seen first-hand the impossible situation households face due to the benefit cap: unable to move to a cheaper home and unable to find the required hours of work per week. Consequently, we see families in rent arrears facing eviction, and even parents unable to feed themselves and their children, due to the cap. 

10.      Our recent (unpublished, available to the committee on request) analysis has identified a large number of difficulties faced by claimants in adjusting to the cap. In particular our analysis explored households’ options to bring their housing costs below the cap by moving; and difficulties for families to avoid poverty and hardship.

Difficulties in avoiding the cap by moving

11.      Difficulty moving to a cheaper social home

It is difficult for affected households to avoid the cap by moving to a cheaper social rented home. Social housing is increasingly scarce and difficult to access. There are currently 1.15m households on waiting lists, however only 290,000 social homes became available last year[10]. Almost two-thirds (65%) of people on waiting lists have been waiting for over a year, and 27% for more than five years. Almost two-thirds of local authorities now say it is difficult to access social tenancies even for homeless applicants.[11]

12.      Case study: Shelter helped a council tenant in Dorset with mental health problems who was hit by the cap when her Personal Independence Payments stopped. She could not move to cheaper accommodation because other forms of tenure were more expensive. She struggled to pay her rent and was threatened with eviction. To make rent payments, she stopped eating and her weight reduced to six stone.

13.      Other housing policy changes make social housing a less viable option to reduce costs. During 2015/16, nearly a quarter of all new general needs lettings by housing associations were let at the more expensive, Affordable Rent tenure (where rents are up to 80% of market rates).[12] Even if households can move into a social rented home, this may not bring them under the cap. CIH modelling suggests that nearly 60% of households affected by the lower cap already live in social housing, which is more affordable than the private rental market.  Research by Steve Wilcox found that the money available for housing for a three child family after the cap was applied (£110) ‘would be insufficient to meet an average housing association three-bedroom social rent anywhere in either the Midlands or the south of England, and even in many areas in the north of England[13].

14.      Difficulty moving to a more affordable area

This leaves affected households remaining option to try to move into a cheaper private rented home. A key justification for the cap, given by the SSWP throughout the Parliamentary debates over the Welfare Reform and Work Act 2016, was that individual households could move to a different part of the country to avoid or mitigate the effect of the cap. It was argued that this mimics the choices that working families must make, and promotes fairness between working and non-working families.

15.      Shelter modelling shows that whereas under the previous cap (of £26,000 pa) there were areas of the country where families could (in theory) move to avoid the cap, this is no longer the case for certain families under the revised capped levels (of £23,000 (Greater London) and £20,000 (outside London)).

16.      Our analysis is presented in Tables 1 and 2 and Map 1 below. The tables below show the percentage of areas across England where our illustrative family types would not be able to avoid the cap.

17.      We analysed this by looking at the situation of illustrative families of different sizes, namely households with 2, 3 4 and 5 children, to establish where in England’s 152 BRMA[14] areas their rents would be low enough to avoid the cap. For these purposes we have assumed that households would look to rent at a level permitted by the Local Housing Allowance (LHA) in a home that would have the minimum number of bedrooms needed to not be overcrowded (measured by the bedroom standard).[15] We also assumed that any children are able to share rooms.  Using these assumptions, we were able to compare the impact of the original cap and the revised cap. Our analysis focuses on lone parent families as they are disproportionately affected by the benefit cap, and often face greater barriers avoiding the cap by entering work than couple families.

18.      It is impossible for large lone-parent families to move to avoid the cap

The contrast for lone-parent families can be seen in Table 1 and Map 1 below. These show that it is now effectively impossible for lone-parent families with three or more children to avoid the cap by moving to a more affordable part of the country. This is because the cap is now so low that it is not possible for households to even cover the rent in the cheapest areas of England from the cap amount.

19.      Table 1: Proportion of England where one-parent families would be affected by the benefit cap

20.      Map 1: Areas in England where one-parent families with three children would still be affected by the benefit cap

Previous cap of £26,000                              b) Present cap of £23,000 or £20,000

21.      It is clear from the above that even for a small family of one parent and two children, the effects are significant. Under the original cap, a small family like this living in a two-bedroom flat would have only been caught by the previous benefit cap in central London locations. In theory, this family might have been able to avoid the cap and keep the benefits they are entitled to by moving elsewhere in London. This would have enabled them to stay closer to, if not within, their local area. Children may not have to move schools and the family may not have to lose any informal friendship and social support networks, which could raise employment prospects by providing relief childcare.

22.      The effect of the revised cap is more pervasive even for a small family like this. They would now be unable to avoid the cap in almost a fifth of the country.

23.      Difficulty in avoiding the cap by crowding

Some families may try to avoid the benefit cap by overcrowding into an unsuitably small home in order to pay less in rent. Our analysis shows that even when families do this, they may still struggle to avoid the cap. Table 2 and Map 2 below illustrate how families cannot avoid the cap by overcrowding into a home that has fewer bedrooms than they need (in accordance with the bedroom standard).

24.      Table 2: Proportion of England where one-parent families cannot avoid the cap by overcrowding

25.    To further illustrate just how difficult it is for families to avoid the cap, we also looked at scenarios where families overcrowd to an extreme degree. Even assuming such a drastic behavioural choice (that no family would be able to sustain), families will still struggle to avoid the cap:

• A one-parent, three-child family will still be affected by the cap in over half (57%) of the country even if they tried to overcrowd into a one-bedroom home (i.e. the whole family sleeping in one bedroom).[16]
• A one-parent family with four or more children would still be affected by the cap in 99% of the country even if they overcrowded into one room in a shared house. (See Map 2 below.)
• A one-parent, five-child family would be capped in every area, even if they moved into one room in a shared house.

These are extreme scenarios no family could be expected to live in, but illustrate starkly the lack of choices that the benefit cap presents.

26.      Map 2: Areas in England where a one-parent family with four children could not even avoid the benefit cap by overcrowding into a single room in a shared house

27.    Difficulties for two-parent families

Fewer two-parent families are affected by the revised cap than one parent families. However, they have also inevitably been affected and will find it difficult to avoid the cap by moving. Whereas a two-parent, two-child family would have only been affected by the original cap in 7% of England, they are now affected in 60%. However, it can be easier for two parent families to avoid the cap by one or more of the household working or qualifying for an exemption. The ability of a lone parent family to mitigate in these ways is hampered by their sole responsibilities.

28.      Wider difficulties in finding a new home

The above analysis shows how difficult it would be for families to avoid the cap in a theoretical sense. However, in addition to affordability under the cap, there are wider factors which create further barriers to capped households looking to move finding housing.

29.                               Difficulty in finding a home affordable on Local Housing Allowance Rates

Our analysis assumes that families will be able to find a home at the housing benefit level for their area. The on-going freeze to LHA rates means that there is now a growing gap between actual costs of renting one of the cheaper homes in a given area of the country and what can be rented at LHA rates. As of April 2018, in 95% of BRMAs in England, there is a shortfall between the maximum LHA a household in need of a two-bedroom home can receive, and the cost of renting a two-bedroom home at the cheaper end (measured at the 30th percentile) of the market. In more than half (51%) of areas, this shortfall is more than £50 a month.[17]

30.                               Analysis of Valuation Office Agency (VOA) data shows that these shortfalls mean that in many areas, LHA will cover the cost of renting only the cheapest 5% of homes in an area[18]. The chances of any of these homes being ‘on the market’ and available for rent at the time when families are looking to move is slim.

31.                               Difficulties in finding a landlord willing to let

Even if households can find somewhere they can afford under both the cap, they are likely to struggle to find a landlord willing to let to them. Many landlords are unwilling to let to benefit claimants, let alone those whose benefits are capped, so may struggle to meet the shortfall between their rent and the LHA. Research shows that only a minority of private landlords are willing to let to housing benefit recipients. In 2017, 61% of landlords we surveyed said they bar or prefer not to let to housing benefit claimants. Families may also face additional barriers. Three in 10 landlords say they prefer not to let to families with children.[19] Evidence suggests that Universal Credit (UC) is also making it harder for recipients to find a home: 22% of private landlords surveyed said that the move to UC will make them less likely to rent to benefit claimants.[20]

32.                               Difficulties in affording additional costs of moving

In addition to the above difficulties, upfront costs of renting such as rental deposits, letting agency fees and advance rent payments, can make moving unaffordable. A representative survey of private renters[21] found that more than half (55%) of private tenants were asked to pay rent in advance, while 42% had to pay a deposit and 42% a letting agent fee. More than a quarter (28%) had to pay a fee for credit checks.[22] A follow up representative survey of private renters found that of those who had moved house, average total moving costs were around £1,400, rising to £1,650 for families moving and £1,750 for London renters.[23] The average letting agent fee paid, amongst those that paid them, was £246.[24] In addition, many renters are asked to provide a guarantor, something low-income tenants may struggle with.

33.                               Households may have previously received some help with moving from Local Welfare Assistance Schemes (formerly the centrally administered Social Fund). But a Shelter investigation found that cuts to these schemes have left many low-income private renters without recourse to assistance with the high hidden costs associated with moving.[25]

34.      Even those low-income households who have local authority help to access the private rental market face significant problems with doing so.[26] A survey of 162 English local authorities, found 82% said it was ‘somewhat’ or ‘very difficult’ to help people who same to the council at risk of homelessness to access a new home in the private rental market.[27] This accords with government data, which shows that local authorities had assisted only half the number of households at risk of homelessness to access a rental by incentivising a private landlord in 2015/16 than in 2009/10.[28] This suggests that even state assistance is failing to provide reprieve to low-income households struggling to access the private rental market.

35.      The impact of this on low income households is stark. Where as in 2009/10, only 11% of households were made homeless due to a private rented tenancy ending, in 2016/17, they comprised 32% of households accepted to be homeless by local authorities. Shelter’s research[29], found that the increase is fuelled by families’ inability to find another affordable private rental in the market place.

Difficulties for families to avoid poverty and hardship

36.                               Difficulties for families to avoid poverty and hardship

In order to explore whether families would experience extreme hardship as a result of the cap, we analysed how much money capped families would have left after paying their rent (their residual income) and whether this would leave a family with enough to meet a set of very basic essential family costs. Our methodology is outlined in Annex 1.

37.                               Table 4 and Map 3 below show that there is a large proportion of the country where the cap would leave one-parent families unable to afford even essential family costs (shelter, food, utilities, clothing, transport and personal care items). It would be almost impossible for these families to avoid falling into rent arrears. The impact on children of having to go without food, heating, clothing or personal care items would be devastating.

• A one-parent family of three children would be unable to cover essential living costs in a third of the country.
• A one-parent family with four children would be unable to afford essential living costs in more than 40% of the country.
• A one-parent family with five children would struggle to afford essential living costs in the vast majority of areas.

38.      Table 4: Proportion of England where the cap would leave a one-parent family without enough to cover their rent, and essential family costs:

39.    Map 3: Areas in England where a one-parent family with four children would be unable to afford essential family costs with their residual income after housing costs

Some families with children aged under 4 years, qualify for ‘healthy start’ vouchers. These vouchers can be exchanged for milk, plain fresh and frozen fruit and vegetables, and infant formula milk[30] Families can receive £6.20 a week for each baby aged under one[31] and £3.10 a week for each child aged over one but under four. Even in the unlikely event that all of the children in each household qualified for healthy start vouchers (assuming all children were all under 4), capped families would still be unable to afford basic goods in large parts of the country[32]. For example:

• families with 3 children would still be unable to afford a basket of basic goods in more than one in four areas (26%)
• families with four children more than a third (35%) of the country and families with five children, more than three quarters of the country (76%).

What is the effect on claimants who are not subject to jobsearch conditionality in the benefits they claim?

40.    Our analysis shows that the impact of the benefit cap is not evenly experienced across all household types. Lone parent families with young children appear to be disproportionately affected by the cap:

• lone parent families with at least one child under five are 19 times more likely to be affected by the cap: these families comprise just 3% of all working age households in the UK[33] yet comprise over half (56%) of households affected by the benefit cap.[34]
• lone parent families with at least one child under two are 21 times more likely to be affected: these families comprise just 1% of all working age households in the UK[35] yet comprise 24% of households affected by the benefit cap.[36]

41.     We recommend that households using Universal Credit that would not be in the all work-related requirements group, such as parents of young children, should be exempt if they undertake the work activities required of their particular work group. Households that would be subject to no work-related requirements – e.g. parents of children under one – should be exempt from the cap.

What are the cap’s knock-on effects on other public spending, such as local authority expenditure?

42.      Effects on local authority homelessness and temporary accommodation budgets

If families become homeless due to the cap, they are usually entitled to rehousing by the local housing authority. Initially, they are likely to be offered temporary accommodation (TA). Homeless households in TA are disproportionately affected by the cap. Our FOI research[37] shows that households who have their housing benefit capped are four times more likely to be in TA than those who do not. 6% of capped households in England and 20% in London are in TA, with little prospect of moving to a settled family home.

43.      This has a knock-on effect on housing authorities, which have a duty to accommodate these households, have to make up the shortfall from their own budgets. Councils identified 3,857 households in TA had their benefits capped in February 2017 (once the new cap was introduced). Capped households in TA had their housing benefit reduced by £100.73 a week on average[38]. This amount would ordinarily go to councils to help them to pay for accommodation. This is equivalent to an annual loss to councils of £20,203,268.28. So savings the cap has made to DWP budgets have been transferred to council budgets.

44.      The benefit cap is also affecting the finances of councils who own their own social housing. There is evidence that households affected by the benefit cap are building up rent arrears. Research carried out in early 2017[39] identified 33 councils who were able to quantify the number of their social housing tenants affected by the benefit cap who were in arrears. Across those authorities, almost half (44%) of tenants affected by the benefit cap were in rent arrears. In one area (the London Borough of Greenwich) this was as high as four-fifths (81%) of tenants.

What are the consequences for Discretionary Housing Payments (DHPs) and what impact does the use of DHPs have on behavioural change?

45.      Our analysis suggests that in many areas of the country, households affected by the cap cannot rely on DHPs as a realistic and sustainable safety net to enable them to keep their homes. In some areas, the DHP amounts will only meet a small proportion of the full losses incurred by the benefit cap[40]. It is unrealistic for councils to use their DHP budget to support all families affected by the cap, as well as distribute it amongst others who need the fund due to numerous other welfare reforms, or for other reasons.

46.      Our 2017 research[41] of local authority use of DHPs shows that in 2016/17, many applicants for DHPs were turned down, and the majority of awards were for very short periods and therefore provided an inadequate form of support for households in a potentially long term, and desperate situation with few other options:

• 30% of DHP applications were refused
• 13% of those made by households affected by the benefit cap (one in eight) were refused
• 92% of awards to households affected by the benefit cap were for 26 weeks or less. Over half (53%) of awards to households affected by the benefit cap were for 12 weeks or less.

47.      In November 2017, we analysed a selection of 40 DHP policies from councils throughout England to understand with more precision the types of support that people can and cannot receive through DHPs from local authorities, and the reliability of this as a form of support. This exercise highlighted the short-term nature of DHP awards. 28 polices set a normal maximum time limit for awards. The lengths varied significantly. Five policies reviewed specified a normal maximum of 13 weeks or less. Nine specified a normal maximum of 26 weeks. Of those that detailed a maximum period for an award, only 8 policies stated that these maximums could be exceeded, or awards could be made indefinite in exceptional circumstances.

Annex 1

Impact on family budgets – methodology

To determine the proportion of the country where families would be left without enough residual income to meet their basic needs, we started with the total amount each household would receive under the cap (£20,000 outside of London and £23,000 inside of London). We subtracted housing costs from the total amount of capped benefits to get the sum left over that a family would have to pay for essential family costs. We assumed families would have to cover the cost of a modest home (with a rent at the 30th percentile of the local Private Rented Sector in each area) with the minimum number of bedrooms needed by each family. We chose rents at the 30th percentile because this is point that LHA rates were last fixed at (in 2011). Therefore, this is a fair proxy for where families on benefits could be expected to live, and what their rent costs would be. The money that’s left over, after paying housing costs, is the amount a family has to pay for all other household needs, for example bills, food and other essentials.

We compared this amount with a basket of goods that represent the absolute essentials a family needs to get by, beyond housing costs. We refer to these costs together with rent as “essential family costs”. To work out how much each family would need to afford “essential family costs”, we identified a list of basic goods and used government survey data to calculate the amount of money each hypothetical family type would need in order to purchase this list. Amounts were taken from the Office for National Statistics Living Costs and Food Survey (LCF)[42]. The LCF collects information on spending patterns and the cost of living that reflects actual household budgets across the country.

We included the following categories of expenditure in essential family costs:

•                                  Utilities: electricity and other fuels; water and other service charges
•                                  Food and non-alcoholic drinks
•                                  Personal care items and medical products including toilet paper, soap, baby toiletries, medicines
•                                  Cleaning and maintenance products
•                                  Clothes and footwear
•                                  Transport
•                                  Communications, including phone, post and access online

To calculate the minimum cost of the above items, we used the amount spent on them by the 10% of households with the lowest income in the UK.

As the figures used reflect actual spending of very low-income households and factor in trade-offs and budgeting practices made by low-income households (such as missing meals, choosing to not heat homes or not replacing worn out clothes), these figures therefore show the real bottom line of household spend, rather than the cost of meeting needs. They are therefore not even reflective of an adequate budget for a hypothetical family. It is the amount required for the most basic existence which may include missing meals and slashing of other household costs. This also does not account for important spending to promote children’s welfare and well-being, such as money for school trips, recreational outings and after school clubs. Critically, it gives no room to afford emergencies, such as paying for childcare or travel costs when taking a sick child to the doctors.

The analysis also assumes that annual expenditure can be smoothed across the year with expenditure on different items being a consistent amount each week. In reality, a family may have to pay the cost of a supermarket shop for two weeks of food, pay a utility bill for a three-month period all at once, or buy expensive items such as new winter coats all at once.

Instead, this analysis puts families’ incomes after their benefits are capped into context, and helps us to understand whether the benefit cap would have the extreme impact of affecting a households ability to access items that they cannot live without. An inability to afford these items is likely to lead to rent arrears. Further information about the analysis is available from the Shelter research team.

September 2018