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It represents one of the Coalition’s flagship policies, with polls indicating it is an extremely popular policy amongst the general public. Yet when considering its likely impact on cities, there are three important factors to note:
First, the impact of the benefit cap will vary significantly between different cities.In total, DWP has estimated that up to 40,000 households will be affected by the cap(compared with 4.1 million households estimated to be affected by the Benefits Uprating Bill). But because it is being set nationally at £26,000, without any flex to reflect the cost of living in particular places, the vast majority of these households will be located in just a few cities, with around half estimated to live in London. In other cities the impact will be more limited, with other aspects of the Government’s benefit reforms likely to be more significant.
Second, the benefit cap is unlikely to encourage large numbers of people back to work. Many UK cities, such as Hull, Middlesbrough and Birmingham face the challenge of stubbornly high unemployment, and with the latest labour market stats showing an increase in unemployment nationally, it is right to focus on how we can get more people back into work. However, research suggests that while these kinds of welfare sanctions may be successful in getting people off benefits, this may be because they drop out of the system altogether, rather than moving into sustainable employment. Our analysis has consistently highlighted that the only way to tackle unemployment over the long term is to empower cities to improve levels of educational attainment and other skills in their area.
Third, the benefit cap does nothing to change the fundamental factors driving up the cost of welfare across the country. For example, housing benefit payments represent the second largest proportion of welfare spending in the UK, and have risen dramatically over the past thirty years to around £23bn in 2011/12. They tend to be largest in those cities such as London, Oxford and Cambridge, where house prices and rental rates have increased sharply over the past twenty years. This means that more people in these cities require financial support to find a home, and that the cost of this support is also increasing. Simply capping the total amount of benefits that working-age people can receive will not tackle this issue. Rather, the only way to significantly reduce the cost of housing benefit to the state is to increase the supply of new housing in such places to levels required to meet demand, and lower the cost of owning or renting property.
The benefit cap is only one part of a much wider package of welfare reforms. It is undoubtedly a significant policy politically, and stands to have a big impact for some households in a small number of UK cities. But a benefit cap alone will not encourage large numbers of unemployed people back to work, or meaningfully reduce the cost of welfare to the state. To achieve those aims, we must instead focus on policies that support the fundamental drivers of economic growth in our cities.
Director of Communications and Development
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