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The Benefit Cap

What is the Benefit Cap?

The total amount of benefits working age people can receive will be set at a maximum limit per week – this is referred to as a cap. It’s different depending on the individual’s situation:

The Government’s aim is to make sure that people out of work don’t earn more than if they were working, in other words, to make work pay. It will also have the effect of reducing the government’s Housing Benefit bill.

All the benefits a household receives, including Job Seeker’s Allowance, Child benefit, Child Tax Credits and Housing benefit are totted up. If the total comes to more than the cap allows, Housing Benefit is reduced so the total income matches the cap level.

When does it come into force?

It’s being introduced in phases, starting from April 2013, starting with the London boroughs of Bromley, Croydon, Enfield and Haringay, and moving into other areas over the summer. The cap should be in place nationwide by the end of September.

How will it affect the Private Rented Sector?

Because the cap will affect Housing Benefit, it’s important for landlords to understand its impact.

Households whose total income from benefits was more than the cap level will see reductions in their Housing Benefit. They’ll be expected to foot the rest of their rental bill themselves (from savings, other benefits, or other income). Unlike the Bedroom Tax (or Social Sector Size Criteria), this element of Welfare Reform will affect tenants in the Private Rented sector, and is therefore anticipated to have an impact on rent arrears (and as a result, on evictions and homelessness).

The Benefit Cap won’t be universally applied

There are exemptions for claimants who are disabled or who have disabled children, and the cap won’t apply to pensioners. The only way to avoid having their housing benefit capped is for claimants to work more hours. If they work enough hours to qualify for Working Tax Credit, they’ll be exempted from the cap. This equates to working a minimum of 16 hours a week for single parents, and 24 hours a week for couples. Single individuals over 25 must work at least 30 hours a week to be exempt. However, if they’ve worked for a year and lose their job through no fault of their own, they’ll be protected for 9 months (39 weeks) before the Benefit Cap kicks in.

If the shortfall is small, landlords may prefer to offer a small rent reduction to affected tenants, rather than have to re-let the property. If it’s large, they may be able to liaise with their tenants about their options, including helping them find work. Ultimately some may have no choice but to find new tenants who can pay their bills.

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