How the benefit cap drives homelessness

As its name implies, the benefit cap limits the total amount of benefits that a household can receive. It applies to people of “working age” (between 16 and 66) who receive Housing Benefit or Universal Credit, and who are either not working or earning very little (less than what someone would earn working 16 hours a week on minimum wage). Some people are exempt from the cap, such as those receiving disability benefits or who are caring for people with disabilities.

The cap is set at different levels depending on whether someone lives in London or not. Since April 2023, benefits have been capped to approximately £25,000 per year for couples or single parents in London and £22,000 for those outside London (with lower rates for single adults not living with children).

The cap was initially set at £500 per week (or £26,000 per year), but this was reduced in November 2016, which led to a spike in numbers (from 20,000 to 66,000 households).

There was another large jump following the COVID-19 pandemic, where numbers increased from 79,000 households in February 2020, to 154,000 in May 2020. This happened because benefits were temporarily boosted to support people during the pandemic, but the benefit cap actually remained at the same level during this time. As more people claimed Universal Credit during the pandemic, the number of households continued to increase, reaching a peak of 200,000 households in February 2021. Once the temporary boost to benefits was withdrawn, the number went down to 120,000 in November 2021.

In April 2023, the benefit cap level was raised by just over 10%, leading to another drop in the number of households affected (to 86,000). However, the cap has remained at this level despite benefits increasing to reflect inflation, meaning that lots of people have not been able to reap the rewards of this benefit increase. The data showed that in May 2024, the number of households whose benefits were capped had risen to 123,000. At the end of October 2024, Secretary of State for Work and Pensions Liz Kendall confirmed that the cap would be held at the same level until 2026.

The cap is currently lower than it was initially set in 2013, despite the fact that rents and the overall cost of living are far higher than they were then. With housing costs constantly rising, it has become increasingly difficult for people affected by it to afford almost any kind of housing.

The graph below compares the change in the benefit cap over time nominally (ie how many pounds the cap is set at) and adjusted for inflation (using data from the Consumer Prices Index):

As a report from earlier this year by Shelter, Women’s Aid and the Child Poverty Action Group argued, the cap “drives homelessness” and has “a disproportionate impact on survivors of domestic abuse and on children”.

It not only pushes people into homelessness, but also acts as a barrier for people making their way back to secure housing. It is a particularly significant problem in London, because costs are so much higher than in the rest of the country (and the slightly higher London cap is not enough to make up for this).

Even when the government takes steps meant to improve housing affordability for people on low incomes, such as un-freezing Local Housing Allowance (LHA) rates, the benefit cap means that lots of people who need this kind of support the most are not helped by it.

Other issues are caused by the fact that more money can be made from renting to people who are exempt from the cap. Here is what one of our caseworkers, Caroline, described a couple of months ago in our Quarterly Frontline Snapshot: "A lot of the private rented accommodation that is available is listed as ‘uncapped’, which means that people are expected to pay from their personal disability allowance or additional benefits. Often, these properties have not been adapted for the extra needs that an older person or someone with disabilities has, and so it's become another way for landlords to charge higher rents without providing a better service.”