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Does the Cap fit? An Analysis of the Impact of Welfare Reform in London

  • By London Councils

A research report commissioned by London Councils

Introduction

The Government is planning fundamental reform of the welfare benefits system in order to simplify the existing system and improve work incentives. The cornerstone of these reforms is the introduction of the Universal Credit, from 2013.

The Universal Credit will integrate many current benefit entitlements including jobseekers allowance, housing benefit, child benefit and the child tax credit into a single benefit. The sum of these benefits for an individual or household is the total credit to which they are entitled.

As part of these proposals, the government has announced that under the Universal Credit a fixed cap on total benefits for workless households will be set. It is currently expected that the cap will be set at £350 for single person households and £500 for all others, based on UK median earnings. Where a household’s combined living cost benefits and housing benefit exceeds the cap their benefit entitlement will be reduced to the cap. The UC cap does not, however, apply to working households.

As a region London has relatively high levels of unemployment and housing costs are considerably higher than in the rest of Britain. London Councils has commissioned this study in order to examine the nature and scale of impacts on housing affordability that may result from the introduction of the Universal Credit Cap (the ‘UC cap’).

This study provides an analysis of the scale and degree of housing unaffordability that may result from the Universal Credit Cap. It also considers the options available to households as a result and the potential impact on selected local government services. It does not, however, seek to predict how households will respond or what level of household movement may result.

This research follows on from a previous study commissioned by London Councils into the impact in London of restrictions to the Local Housing Allowance. These LHA caps will limit housing benefit to the cheapest 30% of properties in a defined area, and impose fixed cash limits for different-sized properties. There have, to date, been a number of research studies into the impact of UC but none has focussed on the impact on London.

Read the full report for all the data and analysis