28 January 2012

Benefits: To Cap or not to Cap

Is it right that a small minority of people should receive more in benefits than the average income in the UK? Is it right that children might be plunged into poverty and even homelessness because a parent has lost their job and benefits will not cover their housing?

These are just two of many arguments swirling around the government’s proposal to place a cap of £26,000 on the benefits any family can receive. Why, they argue, should hard earned taxpayers money go to supporting those who choose not to work?

Let’s deal with a couple of important facts before I plunge into the thick of the controversy. First the number of families involved is just 67,000, meaning this is hardly the most widespread of problems. Secondly this is not about tackling the government budget deficit: the saving expected is around £290 million, which is less than 0.25% of this year’s deficit - no this is about sending a message that welfare doesn’t pay.

But is that message of any relevance? A key argument made by Iain Duncan Smith, the Work and Pensions Secretary, in favour of the cap is that it will play a positive role in getting people back to work and enable them to avoid being trapped in benefit dependency. In a world of full employment it could be argued that this has some relevance, but with nearly 2.7 million people unemployed, the idea that these people can just go and get a job if they are given the incentive to do so is plainly ridiculous.

So let’s look at the two factors which lead to some families receiving such large benefit payments; the number of children they have and their housing costs - not wholly independent factors clearly as the first will influence the second. The child benefit system has supported families having children and helped prevent much child poverty over the years. It could also be seen as state support for the idea of having children and it would surely be wrong to punish those who have reacted accordingly and expect the benefit to be available throughout their children’s upbringing.

I have to ask the question though, is this what the state should be encouraging in an already overpopulated island such as ours? While fully supporting the right of everyone to have a couple of children and receive state help to raise them, I do not believe that should extend beyond a second child. Obviously you cannot cut such benefits retrospectively (though actually that is what this proposal effectively does) but an announcement that there will be no child benefit for any third or subsequent children born after the start of 2013 would be entirely fair in my opinion. Coupling the savings from this with increasing the payments for the first two children could reduce rather than increase child poverty.

Even more important than the number of children involved though, is that at the root of the payment of high absolute levels of benefit, is the excessively high cost of housing. The idea that these benefit recipients are living the high life off other people’s taxes is nonsense, because a large part of their money goes straight out to finance their housing. And if we follow the money, rather than being obsessed with the benefit issue, then another story altogether emerges, because the chances are that those hard-earned taxes are ending up in the pockets of landlords who own large numbers of houses and are themselves multi-millionaires. Now that really is a scandal.

Only today The Independent highlights that one landlord, Victor Tchenguiz, plans to sell a portfolio of 250,000 houses which he owns. That astonishingly, means that one man owns 1% of the entire housing stock in the UK. The speculation in housing which has driven prices, and thus rents, to their currently unsustainable levels was not just a key factor in the economic collapse which we are still suffering from, but is also at the heart of this issue.

Why then does the government do nothing to tackle this issue? The only measure we have seen proposed is to open up land previously protected from development to new housing. This delights the developers, but does little to address the underlying shortage of supply. Before Christmas Channel 4 ran an excellent series of programmes entitled The Great British Property Scandal, which highlighted that there are a million empty homes in the UK. Renovate those and bring them back into the market and you could have a real impact on homelessness and maybe also help to bring down the excessive level of rents and those high benefit payments too.


  1. Thanks Mark, this is the sort of rational analysis which is conspicuously absent from mainstream media and properly deflects the 'blame' from excessive welfare payments to excessive housing costs. You'd think opposition MPs would be arming themselves with such arguments as well, but the lack of joined-up thinking appears to be a Westminster-wide problem, alas.

  2. "The speculation in housing which has driven prices, and thus rents, to their currently unsustainable levels [is] at the heart of this issue"

    I'd be interested to be pointed to some analysis of the relationship between property values and rents, and the way in which market forces might create such a relationship.

    However - whether the landlord pockets all the rent himself or hands most of it straight over to the bank by way of mortgage interest - the outcome is a constant transfer of money from taxpayers (as benefit payments) to those at the top of the financial pyramid. Hence, bringing the Taxpayers Alliance and other "libertarian" groups into (the 99%) accord with the Occupy movement for example?

  3. Here's an interesting (loosely associated) article: http://bit.ly/zo9keH