This blog is based on an article in the Journal of Social Policy. Click here to access the article.
The Household Benefit Cap (HBC) in Britain restricts the amount of benefit income an unemployed household can receive. It was announced in 2010 and reduced in value in the 2015 budget. It is important to understand it because of its contribution to increasing child poverty and forcing people into debt. The Conservatives, who introduced it while in a coalition government with the Liberal Democrats, insist it is necessary both to save money and to reinforce unemployed people’s financial incentive to take waged-work. This should not be surprising, for recent research demonstrates that the idea of restricting benefit income has longevity in Conservative governments, with it be raised as a possible policy in the first Thatcher government elected in 1979.
In 1980 the then Chancellor of Exchequer, Geoffrey Howe, expressed concern that the relative level of benefits for unemployed workers compared to wages meant they were contributing to Britain’s ‘economic trouble.’ This included a shrinking GDP and, more importantly, stagflation, to which it was thought benefit levels were contributing by increasing unemployment and fuelling wage increases. As a consequence, Howe argued limiting benefit income should be considered because, and similar to later sentiments expressed when David Cameron was Prime Minister, that it was ‘offensive to many people to see a man out of work who… is collecting… any reasonable proportion of a national average wage.’
Framed by the competing aims of administrative simplicity and fairness to recipients, officials came up with three options for restricting benefit income: a limit linked to average earnings; a limit linked to household circumstances and a hybrid of the two. The simplest was the first of these, but it was the least fair to recipients. It linked to average earnings benefit income would have no relationship to household need and would be criticised for causing ‘hardship’ (especially in households with children) and as being ‘anti-family.’
The idea of a benefit limit, however, did not have unqualified support in the Thatcher government. Resistance came from the Secretary of State for Social Services, Patrick Jenkin, who was concerned with the politics of such a development. It came just five years after the abolition of the ‘detested’ Wage Stop, and in the midst of a programme of benefit cuts, later described as being the ‘great welfare state chainsaw massacre.’ It also came when cuts were being made to civil servant numbers making its administration potentially difficult, particularly so then it was thought that a benefit limit would be accompanied by a demand for ‘hardship provision.’ In addition, Howe was warned that the Supplementary Benefit Commission would vigorously and publicly oppose the introduction of a benefit limit. Given these arguments, and, on further consideration, a feeling that limiting the benefit income of a relatively small number of recipients would do little to address more fundamental issues with benefit levels, Howe recommended to Margaret Thatcher that a benefit limit should not be pursued.
Three decades later, however, the HBC, linking benefit levels to average earnings, was introduced. This raises the question why the HBC was introduced when a benefit limit was rejected 30 years earlier?
There were many similarities between the two periods – an ideological context broadly framed by neoliberalism; a search for social security savings to contribute to austerity-related savings and a concern with work incentives. There were, however, also differences – for instance, discussions about the benefit limit in 1980 occurred during economic crisis, while the later announcement of the HBC occurred when Britain had returned to (albeit weak) growth following the 2008/09 economic crisis. In the early 1980s the social security system was largely administered by hand compared to digital administration in the 2010s. This meant the imposition of the HBC would not be as staff intensive (and therefore as costly) as it would have been in 1980. Furthermore, the erosion of the value of hardship provision and responsibility for much it being devolved to local authorities meant that concerns of increased pressure for hardship provision had been negated by the 2010s.
Such issues though, only get the analysis so far. It is also important to focus upon changing ideas. Concerns with hardship in 1980 and a lack of concern with it in the 2010s is arguably one of the reasons why the HBC was introduced in the later period. In 1980 there were, even if not for social justice reasons, voices within government warning of the detrimental financial impact upon the poorest people a benefit limit would have. By 2010 such voices were either not present or ignored. In fact, the HBC was seen as being an anti-poverty measure because of its potential to incentivise people to do waged-work, which by 2010 had become defined as the means of addressing poverty. This also denoted a shift in views about where responsibility lie for providing work incentives and tackling poverty – with employers, rather than the state.
The HBC was reduced in the 2015 Summer Budget in a move that separated its relationship to average wages. Simultaneously, the Chancellor of the Exchequer, George Osborne, announced a desire to transform the National Minimum Wage into a (mislabelled) National Living Wage for workers age 25 and over. This, he argued, would help shift Britain ‘from a low wage, high tax, high welfare economy to [a] higher wage, lower tax, lower welfare country.’ This would have a dual effect of both incentivising work by paying higher wages and shifting at least some responsibility for addressing poverty away from the government to employers.
The idea of restricting benefit income has a long history in Britain. Here we have seen that the idea of a benefit limit was rejected in the first Thatcher government, but that the HBC was introduced some three decades later. The main reasons for this are linked to developments in social security policy and changing ideas about the role of social security in preventing economic hardship, and who should have responsibility for work incentives and tackling poverty.
About the author
Chris Grover is Senior Lecturer in Social Policy at Lancaster University