Better off on benefits? The benefit cap could leave some children living on just £2.20 per day.

I live in Croydon - one of the four London boroughs (the others are Bromley, Enfield and Haringey) that since yesterday is piloting the benefits cap, before the national roll-out on 15 July.

This policy means that no household - no matter how many people live in it, and no matter their situation, can receive more than £26,000 per year in benefits.

The Work & Pensions Secretary, Iain Duncan Smith MP, says: 

"It’s sheer madness that people on benefits can be getting as much as a higher-rate taxpayer earns. We need a welfare state that acts as a safety net and encourages people back to work, not traps them in out-of-work dependency." (reference)

He says this without presenting any evidence, and it is loyally parroted by his backbench MPs - including Croydon Central's Tory MP, who says:

.@insidecroydon But on this issue I often meet constituents who are fed up paying for others to have a better lifestyle than themselves
— Gavin Barwell MP (@GavinBarwellMP) April 1, 2013

So is it true - and how could it be? Let's try to calculate. Let's start with three variations of a two parent family of three (all figures rounded to nearest £; tax credits figures via HMRC Tax Credits calculator).

Firstly where one parent works and the other doesn't (assume the youngest child is under 3 and the second parent is caring for them). To make work as low paying as possible, let's put that parent on the minimum wage of £6.19 per hour. If they're working a full-time job (37 hours per week). So here is their annual income:

Wage: £11,910

Child Benefit: £2,449

Child Tax Credit: £4,888

Working Tax Credit: £1,404

Total household income: £20,651

Secondly, where both parents work. To make work as low paying as possible, let's put both parents on the minimum wage of £6.19 per hour. One working a full-time job (37 hours per week) and the other part-time (21 hours per week). So here is their annual income:

Wage: £18,669

Child Benefit: £2,449

Child Tax Credit: £4,888

Working Tax Credit: £1,092

Total household income: £27,098

Finally let's have a household where neither parent works. Both are claiming Jobseeker's Allowance:

Wage: £0

JSA: £5,795

Child Benefit: £2,449

Child Tax Credit: £1,228

Working Tax Credit: £0

Total household income: £9,472

So where's the benefit in not working? Really I'm at a loss to find it. What about more unusual households?

Just to give the Daily Mail a chance, let's re-run the out-of-work household with eight children:

Wage: £0

JSA: £5,795

Child Benefit: £5,933

Child Tax Credit: £12,584

Working Tax Credit: £0

Total household income: £24,312

So even with eight children our unemployed household still doesn't reach the benefit cap level - and that's split between ten people - each living on the equivalent of £46.75 per week. That is the reality of our generous benefits system.

Politicians add in what I call 'landlord subsidy' (officially known as housing benefit). This of course does not make the family 'better off'. The transaction is between the state and the private landlord - the family sees none of the money at any point. If rental prices dropped they would see no money, if rental costs rise they see no less.

According to the Rightmove website, the cheapest five-bedroom property (the bare minimum for a family of 10) in Croydon is £1500 pcm or £18,000 p.a.

Added to the total household income that makes £42,312 pa - over the £26,000 benefit cap. So the household income through social security will be capped at £8,000 instead of £24,312 (as the reality is that private landlords won't cut rents and councils can't provide council housing). This means each of the ten people in the house (2 adults and 8 children) will be living on just £15.38 per week or £2.20 per day.

This is the brutal reality of the benefits cap: £2.20 per day to eat, pay the bills, and buy clothes.

This is why the Child Poverty Action Group calculates that an additional 200,000 children will be living in poverty this year, rising to an extra 1 million by 2020.

So much for 'family values' ... Tories make families £1000 worse off this year

The sharpest set of social security cuts come into force tomorrow, 1 April. There's a comprehensive look at those changes here.

But one thing that has gone under-remarked is how hard the Tories are hitting families in the budget cuts. In year one, they abolished the sure start maternity grant which gave £500 to low income families having a baby.

They also abolished the Health in Pregnancy grant which gave £190 to pregnant women to help with living healthily during pregnancy.

Once baby is born then parents will be entitled to maternity and paternity allowance. But the annual uprating due to occur on 1 April is capped at 1%. So it increasesonly to £136.78 instead of £139.92 if it had been uprated by RPI inflation. So for a couple taking 39 weeks maternity allowance and 2 weeks paternity allowance, the government is in real terms taking away nearly £130.

Child benefit was until January this year a universal benefit - a gift from society to parents to help with the additional cost of bringing up the next generation. That ended if either parent has an income of over £50,000. But even for those who are not high earners, the government has it in for you.

For the past three years, child benefit has been frozen at £20.30 (for the first child) and £13.40 (for all subsequent children). If these had been uprated by RPI inflation for the last three years then from tomorrow the new rates would be £23.01 and £15.19.

So a family with one child will be £141 worse off this year, and a family with two children £234 worse off.

This of course is all before any calculation including the benefits cap; capped rates of jobseeker's allowance, employment and support allowance, tax credits and other benefits; extra liability for council tax; bedroom tax; reduced local housing allowance, etc

A low income family having their first child will be at least £961 worse off this year due to the benefit changes made by this government.

It's little wonder that the Child Poverty Action Group calculates that an additional 200,000 Children will be living in poverty this year, rising to an extra 1 million by 2020.

Child Poverty in the UK

A report by the Office for National Statistics showed yesterday what we all know: the Government's attempts to tackle child poverty are failing.

And they're failing for a very simple reason: New Labour has failed to tackle child poverty because it has refused to address inequality and the distribution of wealth.

As a spokesperson from the ONS said: "the data suggests that the most significant influence on children's experiences growing up is likely to be income deprivation".

There's some very simple things the Government could do: raise the minimum wage, make the tax system more progressive, increase JSA and other benefits, restore trade union rights to increase bargaining power and stop undercutting through agencies.


The Morning Star rightly prioritises this story on its front page today.

According to the OECD, the "the gap between rich and poor is still greater in the UK than in three quarters of OECD countries". The OECD also reveals that "child poverty rates are still above the levels recorded in the mid-1980s".

That is shocking - children in the UK are more likely to be in poverty today than at the height of Thatcherism

Child poverty increases for second year running

Last week it was announced that child poverty increased by 100,000 in the last year. In the past two years, according to the Government's own figures, child poverty has increased by 300,000. When Labour came to power it promised to "end child poverty within a generation" – by 2020 - and to halve it by 2010.

After 11 years of New Labour, there are still 3.9 million children living in poverty. The Government is still to succeed in making a one-quarter cut in child poverty, which it had aimed to do by 2005. Three years on and things are going into reverse.

The LEAP Red Papers of March 2008 contain a feature on child poverty (page 16) written in advance of the latest release of figures.

It shows how just by increasing child benefit by £14 per week for the eldest child, child poverty would be reduced by 400,000 - meeting the Government's one-quarter cut target immediately. This is the equivalent of raising corporation tax by just 3.5% - which would still be a lower rate than it was in 1997, since New Labour has cut corporation tax from 33% in 1997 to 28% this year.

Of course there are others way too - increasing the minimum wage by more than inflation being one. The other feature in the LEAP March 2008 Red Papers was on inflation and pay (page 12). It showed that this year's increase in the National Minimum Wage (to come into force in October 2008) was just 3.8% - when inflation is 4.3%.

The public sector pay cap - affecting many low paid workers in local government and the civil service - will also hinder future child poverty targets. And as we know, public sector pay has no effect on inflation - so it won't solve our economic problems either.

If New Labour wants to have any chance of saving itself, it should look to these two flagship policies from its first term: the national minimum wage and cutting child poverty. Re-concentrating on those policies might be a good idea for a party floundering at the moment.

Meanwhile, new London Mayor Boris Johnson has his first RMT industrial action on the London Underground as cleaners paid just over £5.50 per hour campaign the London living wage of £7.20 - which Ken promised to introduce as he brought contracts back when Metronet collapsed. Find out how you can support their campaign. Bear in mind that the minimum wage of £5.52 equates to just £10,764 per year full-time. Try living on that in London.