Would a household have to earn £41,000 to match a family on benefits?

"£41,000: What average working family need to earn to match benefits Labour wants."

Daily Mail, 16 April 2013

"Earn £41,000 to be as well off as a family on welfare."

Daily Express, 16 April 2013 (also in Daily Star)

Two days ago, four London boroughs pioneered a "new course for the welfare state". As part of the Government's changes to welfare brought about through the Welfare Reform Act 2012, these boroughs precede a national rollout of the 'household benefits cap' - a ceiling on the total amount of benefits working age people are able to receive.

It comes about after the Benefit Cap (Housing Benefit) Regulations 2012 - which commenced the benefits cap provisions in the Welfare Reform Act - were laid before Parliament.

The Conservative party appeared to mark the occasion by drawing attention to what 'could have been' if Labour was in charge:

"Working families would have to earn more than £41,000 a year to get the same as many living on state benefits if the Labour Party was in charge of the welfare system, the Tories claimed last night."

The maths

Is this true? The Conservatives confirmed to Full Fact that the figures themselves are actually quite old - from an impact assessment from July last year. The assessment calculated that 56,000 households would lose, on average, £93 a week (this has since been recalculated to 40,000 households). 

The rest of the puzzle involves doing some sums.

The cap itself is set at £350 for a single person with no children and £500 for a family. The higher, family cap amounts to £26,000 per year. So, to earn as much as the average family affected by the cap, a claimant has to earn in the region of £35,000 before income tax and national insurance are taken into account.

The £93 per week loss outlined in the impact assessment amounts to £4,836 per year on average. Without the benefit cap, then, any household affected by the policy (having more than £26,000 a year) would have around £30,836 coming in every year. Sure enough, to earn this much a year in income, a claimant would need to earn around £41,000 before tax.

The rationale

So, the Conservatives' argument goes, since the Labour party opposed the benefit cap in the form it was proposed by the Government, under Labour a claimant would need to earn £41,000 to earn as much as the average household affected by the cap.

This is important to emphasise - we are not dealing with all families claiming benefits, just those who receive more than £26,000 a year (prior to the cap). The DWP states in its impact assessment that the 56,000 accounted for "roughly one per cent of the out-of-work benefit caseload" (so the new 40,000 is even less than this).

The Express headline, conversely, implies that £41,000 is what we'd need to earn to be as well off as "a family on welfare" under Labour. The headline is highly misleading without the acknowledgement that the families in question are actually just the 1% benefits claimants with the highest receipts, and that most households claim considerably less.

But there's also a complication with the Conservatives' claim: Labour did not actually say that it opposed the cap in principle. The Shadow Work and Pensions Secretary, Liam Byrne, made clear during the Commons debate:

"we are in favour of a benefit cap, but we would like one that does not backfire and one that works in practice."

Mr Byrne further advanced in an amendment and to the BBC that an independent body should determine the level of such a cap, and that it should be set "according to the local area" in which someone is resident.

In other words, Labour's stated position by February last year actually suggests a cap may well have existed were the party in power, but would have varied on a regional level (although we can only speculate about this). Unfortunately, since the party wasn't specific about what level the caps would have been set at, it isn't possible to calculate how much people would need to earn to match the highest cohort of benefits recipients.

Conclusion

The Express's headline certainly oversimplifies the story. The £41,000 figure refers to the sum that a family would have to earn to match the income of the top 1% of households with the highest benefit receipts. It certainly isn't the average "family on welfare" implied by the paper.

The £41,000 itself makes mathematical sense, but is based on the assumption that a Labour party in power would not have introduced a benefit cap on the basis that the party voted against the Coalition's proposals. There's evidence to suggest that Labour's position is more nuanced than this, although the lack of detail means that it's difficult to attach any alternative set of costings to its policy in this area.