The Lords will today vote on the coalition's plans to impose a new £26,000 annual limit on the amount that households can receive in benefits – the equivalent of £500 a week. The plan is expected to save the government £270m towards its annual target of cutting £18bn from the welfare bill. Iain Duncan Smith defended the plans this morning saying they would make the system fairer for low-income working families whose taxes may pay for other families to be better off and that higher benefit payments could disincentivise work. Its critics, led by the Bishops and senior Liberal Democrats in the Lords, say that it will unfairly penalise families as the cap is the same regardless of how many children there are in a household and that it will disproportionately affect those in the south where rents are higher.

The claim

Iain Duncan Smith told Radio 4's Today programme today (audio):



We don't believe there will be an increase in child poverty because many of the assumptions being made by some of the Bishops and others is that absolutely nothing happens, in other words no one changes their circumstances. The reality is that first of all the capping at £35,000 before tax and £26,000 after actually means that we're going to work with families to make sure that they will find a way out and they will find a way out by going back to work. We're releasing today a series of the impact assessments, those will be for public gaze later on today. Our department does not believe you can directly apportion poverty to this particular measure. We just don't believe that that is going to happen. The reality is that [at] £26,000 a year it's very difficult to believe that families will be plunged into poverty.

I'm going to look at the evidence available and ask whether this is a fair claim to make. Do you have any evidence of experience of this that might help? Get in touch below the line, email me at polly.curtis@guardian.co.uk or tweet @pollycurtis

Analysis

A report in the Observer yesterday cited a leaked government memo suggesting that 100,000 children would be pushed below the poverty line as a result of the cap. Poverty was "defined as homes where the income is below 60% of the median household income for families of a similar size". I've checked this out and while I can't reveal the sources, I'm assured that they are caste-iron. The fact that the Department for Work and Pensions acknowledged that the evidence existed, but insisted that it was not "safe" for publication, is also confirmation that the work was done even though it is now disputed.

Tim Leunig, chief economist at the liberal thinktank Centre Forum, explains the impact of the cut here using specific worse case scenarios very powerfully. He writes:

The worst hit, of course, are large families in the south-east, where rents are higher. Even in Tolworth, described by the Evening Standard as the "scrag end of Kingston borough", a four bedroom house will give you little change from £400 a week. Cutting housing benefit to £100 a week – which is broadly what the cap means if you have four children – makes life impossible. After rent, council tax and utilities, a family with four children would have 62p per person per day to live on. That is physically impossible.

Duncan Smith's argument is that these situations won't arise because people will change their behaviour – either by moving somewhere cheaper, getting a job or both.

However, Eric Pickles, the communities secretary, has warned that the cap could force 20,000 families to become homeless and that this could undermine any savings made by the cap. A leaked letter from Pickles's office last year said: "In fact we think it is likely that the policy as it stands will generate a net cost."

Duncan Smith also dismissed this saying that the definition of homelessness used in government and by the authorities was families living in inadequate accommodation with children forced to share bedrooms rather than actually being on the street. He said this was "very misleading".

Nobody will be made homelessness as a result of this. This is about fairness to the taxpayer and fairness to those were are trapped... Nobody, and I can guarantee this, no one will be made homeless in public view.



However, that does seem to be a suggestion that people will be required to live in more cramped conditions as a result of this.

Duncan Smith said that people would be helped into work by other reforms introducing the universal credit, reassessment of people with disabilities and the Work Programme. However, this relies on there being jobs available to them. This report from the Institute of Public Policy Research last week suggested across the country there are four people chasing every vacancy and in some areas of the country there is a jobseeker to vacancy rate of 20:1.

Separate independent research has identified the welfare cap as having a direct impact on child poverty. This report by the Institute for Fiscal Studies for the Family and Parenting Institute in January suggested that taken together coalition policies could tip 500,000 children into poverty by 2015, identifying 100,000 children in larger families who are particularly vulnerable to the benefit cap.

For all family types relative poverty rates fall in 2011–12 before increasing from then on. Poverty rates for larger families change by the largest magnitude over this period, presumably because these families are more highly concentrated around the poverty line, meaning that small changes in their incomes or the poverty line moves larger numbers of them into and out of poverty. Absolute poverty rates increase significantly in 2013–14 before stabilising thereafter. This increase is concentrated among households with four or more children (100,000 of the overall increase in absolute child poverty of 500,000 comes from this group despite less than 10% of children living in households with four or more children): as we can see from Table 2.3, these families see their incomes fall by the most in this year also. This is likely to be driven by the imposition of a cap on the total amount of benefits that can be received at £500 per week: as we shall see in section 3, this particularly affects large families.

There is quite extensive evidence to suggest that some children will be tipped below the poverty line as a result of the introduction of the benefits cap and that larger families and those in the south and city centres where rents are highest will be most negatively affected. Claims that any effect would be ameliorated by people changing their behaviour for example by moving house seems to be an implicit acknowledgement that people will be expected to live in cramped conditions. Claims that the "workshy" might get a job are limited in reality by the lack of jobs available.

However, the DWP is going to publish its impact assessments later today which Duncan Smith seems confident will show a different picture. I will update this blog shortly when I've had sight of those.

The DWP has just published the impact assessment here (pdf). I'm looking at it now and will update shortly.

My colleague Patrick Butler who is live blogging the welfare debate through the day here has written a good summary of the main points in the impact assesssment. He writes:

The Department for Work and Pensions assumes that the policy will save up to £515m over the four years from 2013 (on best estimates) So who will be affected? The impact assessment states: a. Larger than average, in the most part with three or more children, and thereby receiving larger than average Child Tax Credit payments and Child Benefit payments; or b. situated in high-rent areas, and thereby receiving large Housing Benefit payments; or c. both of these factors combined. In geographical terms the vast majority of households affected are in greater London (54%), followed by the south east (9%), and the north west (6%). It lists those local authorities where over 1,000 people will be affected by the cap. They are: Barnet, Birmingham, Brent, Camden, City of Westminster, Croydon, Ealing, Enfield, Hackney, Hammersmith & Fulham, Haringey, Harrow, Islington, Kensington & Chelsea, Newham, Redbridge, Tower Hamlets, Wandsworth Scotland and Wales will account for 3,000 and 2,000 families respectively, the bulk of them in the cities of Edinburgh, Glasgow and Cardiff. How much will these 67,000 households lose? The impact assessment estimates that: • 45% will lose up to £50 a week (in 2013-14)

• 26% will lose between £50 and £100

• 12% will lose between £100 and £150 a week

• 17% will lose more than £150 a week So, that's more families affected than expected, the bulk of them in London and the south east where housing benefit payments are highest. Larger families - meaning families with three or more children - will be disproportionately affected.

It's clear that although we know that an estimation was made of the impact of child poverty and leaked accounts put that as high as 100,000 additional children below the poverty line, it has not been included. I've been speaking with some data experts and my collegues on the Guardian datablog to see if there is a way of modelling the effect ourselves. But it is looking very tricky.

I've also just been speaking with Sam Royston, a policy adviser at the Children's Society which has been campaigning heavily on this issue, who said:

They could have worked out the impact on child poverty but it's not in there. From this you can't work out how many would be pushed into poverty because they have not given the breakdown of family size and income in details. This is obviously going to have an impact on children, I would suggest child poverty was an important part of the impact assessment and it has not been done. They have revised upwards the number of households affected from 50,000 to 67,000; the number of children have been revised up from 210,000 to 220,000. The key thing is that the main impact of this is on children, not on adults. For a policy targeted at non working adults to impact on children seems like a very badly targeted policy. Child benefit is paid for children's needs, not the parents' needs. It is extremely important to remove that form the cap. Even after it's removed from higher rate taxpayers a household could get upward of £80,000 and still get child benefit. By comparison this is saying that those on benefits would lose child benefit. The £275m savings as a proportion of the £192bn spent on welfare payments in 2010 is tiny. It's 0.1% of the welfare bill. Reducing child benefit would reduce the savings by 100m 0.05% of the budget. This is a tiny amendment. This is not deficit reduction plan destroying.

I've just been speaking with Robert Joyce at the Institute for Fiscal Studies who carries out independent analysis of the impacts of government's tax and welfare reforms. I wondered whether he could help us model the impact of the new benefit cap on the number of children in poverty. He said that he couldn't and that he believed that the government's claim that the assessment of the impact was "not safe" was fair:

The data that's used to estimate the effects of welfare changes is basically a sample of households. Roughly speaking each household we have data on represents about 1000 households in the population. If they think 67,000 households are affected we would only have a sample of a few dozen households in the data to work with. So it's difficult to say anything robust based on that.

Joyce confirmed that it was extremely likely that some households that were above the poverty line would move below it as a result of these changes but he gives quite compelling - and slightly disturbing - reason as to why that might not actually be a huge number.

Out of 67,000 it seems very likely that some are above the poverty line and some will move below it. My gut feeling is that it might not have large impacts on headline numbers. A lot of people who are receiving benefits may well already be in poverty. If they have a lot of children once you've adjusted income for family size despite the fact that they receive more than £500 a week it's perfectly possible they were already in poverty. This will just push them further. It would be a small impact relative to changes in poverty that you might ordinarily see from year to year and relative to the changes you will see from the broader reforms. This will almost certainly be small compared to what else is going on. We've forecasted poverty up to 2015. From 2013 onwards we estimated that the combined effect of all of the coalition government's reforms would be to increase child poverty by 300,000 children.

He also described the cap as "arbitrary".

What they are doing from an economic point of view doesn't quite make sense. If they are really worried about particular families receiving huge amount of benefit it comes down to either a small number with a lot of children or people with particularly high housing costs. If that's what they are worried about then it would make more sense to target those issues more generally rather than applying essentially an arbitrary cap. It's not obvious to me that the maximum should be related to average earnings. From an economic point of view it is very arbitrary. If you choose to apply an arbitrary number as a cap on benefits then you are applying the same cap to families in very different circumstances. You are not accounting for the very large differences in circumstances across households.

Daniel Boffey, the Observer's policy editor who has been closely following this debate, has just emailed me this summary of where he believes the debate has now got to:

The argument has basically come down to those who want the cap to be based on average earnings (the government) and those who want it based on income (the Bishops). If you base it on average earnings you ignore that the average family earning £26,000 a year also receives child benefit for each of their children. The government's proposed cap ignores how many children are in a family. It is irrelevant. The Bishops say the size of a family should not be irrelevant in welfare decisions. They believe a humane state should take the size of a family into account and look to protect children in large families, for example where people have taken on the children of others, for whatever reason.

Below the line, the comments are dominated by a debate about whether £26,000 is a reasonable income. I thought the figure needs a little context. It is very roughly equivalent to average household England, but how does it compare with the poverty thresholds? The headline measure for child poverty is a household with an income that is 60% of the median household income. But this is equivalised for family size. The following are the different thresholds for different types of households, provided by Child Poverty Action Group from the official figures. These show that in fact a family with five children can have an income well in excess of £30,000 and still be classed as in poverty.

My colleague James Ball has also been looking at these and he points out that by this measure most households with more than four children currently have poverty thresholds above the £26,000 cap, meaning that any of these larger families, will lose money taking them below the poverty line. He writes:

Data from the Department of Work and Pensions here shows that in 2009/10 this threshold was around £12,900 per year for a couple with no children, before housing costs. The government assigns different cost to children over 14 as under – so for a family with one child aged 5 and another aged 14, the income poverty line was £19,700. Additional children each add a fixed cost (dependent on age), which suggests that for a couple with four children, the 2009/10 poverty line was £26,500. This has serious implications for a proposed cap on all benefits of £26,000: it suggests any family on benefits with two adults and four or more children would move below the poverty line. This is consistent with the figures in the government's impact assessment, which suggests large families will be hardest hit. The assessment suggests the changes will impact 90,000 adults and 220,000 children – 2.4 children per adult.



CPAG pointed out when they provided that table that it doesn't take into account regional differences. Because that first table includes housing costs as the benefit cap will, it doesn't take into account that in London rents are much higher. It's also important to remember the point made by the IFS above that we don't know whether people in these family groups are below the poverty line already, so it's not clear whether they will be moved below the poverty line, or just further into poverty.

The impact assessment report also includes the following table, which reveals the proportion of the 67,000 households affected by this cap that have different numbers of children. It shows that just under half have four or more children – a total of around 33,000. If there are four children in each of these households that's a total of 132,000 children out of the 220,000 living in homes that will either move below the poverty line, or are already below it and will move even further into poverty.

There are huge caveats to these figures – for example many more children in London and other high rent areas could be affected even more. The government also insists that people will move house and get jobs to avoid falling into poverty. But this does suggest that the government's own estimates of 100,000 might not be so extreme.

Verdict

The work and pensions secretary Iain Duncan Smith insisted today that capping household benefits at £26,000 won't increase child poverty. He told the BBC: "The reality is that [at] £26,000 a year it's very difficult to believe that families will be plunged into poverty."

However, figures compiled by the Guardian suggest that the cap will in one move tip nearly every out-of-work family with more than four children who aren't already in poverty below the line. Those who are already below the poverty threshold – defined as 60% of median household income – will be forced even further into hardship and 132,000 children could be affected in total.

The government has carried out its own assessments of the impact of the benefits cap on child poverty concluding that it could increase by somewhere in the region of 100,000 children. These were leaked but not published because the Department of Work and Pensions described them as "not safe".

When it published an impact assessment yesterday, there was no mention of the poverty impact revealing only that 67,000 households would be affected by the cap – 1% of the total claiming benefits. Some 45% will lose up to £30 a week, 26% between £50 and £100, 12% £100 and £150 and 17% more than £150 a week.

But separately, the government also publishes household income revealing the poverty thresholds. These thresholds are adjusted for households with different numbers of people. Households with more dependent children have higher thresholds reflecting their greater needs.

Any non-working family with four children, at least two of whom are over 14 or older, is considered in poverty once their household income falls below £26,566. By imposing a benefits cap below that, the government will "plunge" children in these families into poverty if they weren't already. A family with five teenagers are considered to be in poverty if their income dips below £34,174.

The government's impact assessment of the plans revealed that 49% of the 67,000 affected families have four or more children, so a total of around 33,000 including at least 132,000 children will either move below the poverty line or be further impoverished by the plans.

These figures don't take into account housing costs, so in reality a family living in London paying twice a family in Sunderland, which has the lowest rents in the country, will feel the cuts far more acutely.

Robert Joyce, an economist at the Institute for Fiscal Studies, said: "Out of 67,000 it seems very likely that some are above the poverty line and some will move below it. My gut feeling is that it might not have large impacts on headline numbers. A lot of people who are receiving benefits may well already be in poverty... This will just push them further.

"This [effect on child poverty] will almost certainly be small compared to what else is going on... we estimated that the combined effect of all of the coalition government's reforms would be to increase child poverty by 300,000 children."

Sam Royston, a policy adviser at the Children's Society which has been campaigning heavily on this issue, said: "For a policy targeted at non working adults to impact on children seems like a very badly targeted policy. The £275m savings as a proportion of the £192bn spent on welfare payments in 2010 is tiny."

Duncan Smith also admitted the savings were small. However, politically the move carries far greater weight. A YouGov poll shows that 76% of the public are in favour of the benefits cap, including 69% of Labour voters.

Duncan Smith and his department insist that families would not be pushed further into poverty by the measures but would be incentivised to find work or move to cheaper accommodation. But with four unemployed people currently chasing every vacancy and rents at record levels in London, it's hard to see this as the guaranteed solution for each of those 33,000 households that are likely to be considered below the poverty line as a result of these reforms.

I put the main findings from this blog to the DWP and in a statement a spokesman pointed out that the £26,000 figure is the equivalent of a £35,000 salary before tax:

The benefit cap delivers the equivalent of a salary of £35,000 a year - this is not poverty and it is an insult to those on that salary to suggest they are poor. Just about everyone accepts that work is the best route to a better future for most people, rather than a life on benefits and the benefit cap sits alongside our other welfare reforms such as the Universal Credit which will lift 350,000 children and 550,000 adults out of poverty.

Some readers below the line had questioned Duncan Smith's assertion that families could be defined as homeless just because children were forced to share a bedroom, rather than actually being on the street. This bugged me too but I'm afraid I didn't have the time to go back and look at this one point. But FullFact.org did here and they concluded that while he could be technically right in a number of extreme cases but not in a wider general sense. Shelter, the homelessness website which Duncan Smith said used the same definition, said:

Only the most severe overcrowding, such as people sleeping in kitchens, could be potentially considered by local authorities as homeless under the statutory definition. This would not include two children sharing a room.

As @brituser points out below the line: