Benefit cap 'could hurt couples'

The controversial £26,000 limit on the amount of benefits claimed by a household is called "incoherent" by the Institute for Fiscal Studies (IFS) in an analysis which warns of undesirable consequences.

Key Points

• Government wants £26,000 per household benefits cap

• IFS says proposals are 'incoherent'

• It warns it may encourage spouses and partners to live apart

Ministers have insisted they will press ahead with the cap, overturning a defeat in the House of Lords, but have offered a nine-month grace period for families to find work or move home before the limit is imposed.

About 67,000 households across Britain are expected to lose an average of £83 each week in benefits when the cap, set at £350 a week for childless single people and £500 for others, is implemented in 2013/14, says the IFS.

The move will save £290 million a year from the Government's £18 billion welfare bill, but critics warn it will drive larger families into cheaper accommodation and make areas of cities such as London unaffordable for those claiming benefits.

IFS research economist Robert Joyce says in a paper published today that it would hit all couples with four children and no private income who pay rent of £127 a week or more - a "plausible" level for privately-rented homes or social housing tenants in London.

Smaller families in high-rent areas could also be hit, he says.

The Government believes that the change will encourage families to move to cheaper homes or take up paid work.

'Could encourage partners to live separately'

But Joyce notes that it could also encourage partners to live separately.

"A possible behavioural impact is for fewer people to cohabit, since the benefits cap is to apply at the household level, and hence living apart could split benefits across households and mean that neither is subject to a cap," Joyce writes in the study.

"This 'couple penalty' is presumably something the Government would not be keen on, as it has said that it wishes to reduce couple penalties in the tax and benefit system."

Joyce also questions whether a cap targeting couples with several children or high rent is the right response to concerns about "excessive" benefit payments.

"If the Government thinks the benefit system is giving some families a level of entitlement that is too high, it must believe some benefit rates are inappropriately high," he adds.

"The best-targeted response would surely be to change those benefit rates.

"The apparent simplicity of instead just placing a cap on total benefit receipt might look appealing, and may well be politically expedient.

"But it seems incoherent for a Government to set a system of benefits which it evidently thinks gives some families excessive entitlements, and to then attempt to 'right this wrong' with a cap. If starting from scratch, this is surely not the approach one should want to take."