Capping benefits in the past: the Wage Stop

The Benefit Cap was announced in Britain in 2010 as a means of restricting unemployed households’ benefit income. Initially, it was linked to a proportion of average earnings. The cap was reduced in value in the 2015 Summer Budget to an arbitrary figure and has not been increased in value since. It is tempting to think of the restricting benefit income as being something unique in Britain to the ‘decade of austerity’, but it is not. If anything, the years between the mid-1970s and the introduction of the Benefit Cap were unusual in that the British state had no means of limiting the benefit income of individual households.

Here, the focus is upon an historical means of limiting benefit income via the Wage Stop. It was introduced in 1935 as central feature in the development of Unemployment Assistance. This was a new benefit for unemployed people replacing public assistance (1930s poor relief) and forms of unemployment benefit developed to relieve the inter-war unemployment crisis. The Wage Stop operated for four decades and limited the benefit income of unemployed people to the amount they might expect to earn when in employment. This was to be calculated with reference the wages they had previously earned in their ‘usual’ occupation.

The Wage Stop was framed by principles that were outlined a century earlier in the 1834 Poor Law Commission report and which were written into the Poor Law Amendment Act 1834. These were, that the position of the pauper (someone receiving poor relief) should be ‘less eligible’ (worse) than that of the poorest ‘independent’ labourer and that poor relief should not be payable to people in full time employment. Both were concerned with work incentives – to ensure that unemployed people had an incentive to take a job and that they had an incentive to work harder once they were in work.

While it was often denied that the aim of the Wage Stop was to incentivise work, the second of these principles was reinterpreted to suggest that the Wage Stop provided equity between people in and out of work. Because people who were in full time low paid work could not receive assistance benefits, so the argument went, it would be inequitable to pay them more than those wages when unemployed.

From the outset the Wage Stop was difficult to administer and, particularly towards its end, was controversial. The difficulties included establishing the wage-level at which benefit income should be limited. Officials comparing local wages to earnings declared by claimants, for instance, created suspicions that unemployed people inflated their previous wages to increase the benefit level at which they might be wage-stopped (although there was also evidence wage levels were under-reported). Women and disabled people were more likely to be wage-stopped because they were lower paid than men and non-disabled people. And estimating the level of wages that long-term unemployed people might earn on their return to work was problematic. This was often related to changes in circumstances. So, for instance, should a person who had not worked for five years and had last been a ‘Green-Grocer’s lad’ when not married be wage-stopped at his previous wage or what he might be expected to earn if he secured work as a labourer?

A second major difficulty related to the fact that while social assistance represented the minimum upon which the state said people should be paid when unemployed, the Wage Stop drove people’s incomes below that level just because they earned less than their assessed assistance needs. This raised the issue of the hardship it caused. Administrators had the discretion to not apply the Wage Stop or to reduce its effects by not fully applying it. But it was recognised that hardship was caused by its application. Providing that it did not cause ‘real’, ‘acute’ or ‘serious’ hardship this was deemed acceptable.

A third and related difficulty was concerned with the types of household affected by the Wage Stop. Unsurprisingly, it disproportionately affected those with children. Unpublished figures from the late 1950s, for instance, demonstrated the vast majority (70%) of unemployed fathers who had four or more children were wage-stopped; 51% with four children, 30% with three and 14 percent of those fathers with two children were also wage-stopped.

Underpinning these issues was the problem of low wages. The Wage Stop reflected wage levels. The consequence was that the hardship that low pay brought to households was reproduced in policy that was supposed to relieve poverty. It was recognised in the early years of the Wage Stop, for example, that its application might lead to malnutrition, but such potentialities were accepted on the basis that the situation would be little better if the applicant was in employment. Afterall, wage income would not be higher than wage-stopped benefit income.

The Wage Stop was abolished in 1975. It followed a decade of campaigning by the Child Poverty Action Group (a role that it has also taken on with regard to the Benefit Cap). The government Minister (Labour MP, Brian O’Malley) who pushed for its abolition argued that there were strong moral arguments for doing so, for instance, that protecting social assistance from potential ‘abuse’ should not fall upon the poorest families. However, this argument was both hedged by his concern that if abolished the government would be accused of incentivising ‘scrounging’ and took place in the context of the declining use of the Wage Stop (15% of unemployment assistance recipients were wage-stopped in 1970 and 2.7% in 1974) due to changes to the way in which wages were estimated for its purposes (a standard wage was adopted in 1967 for claimants for whom it was not possible to estimate their earnings) and the introduction in 1971 of a new benefit specifically for low paid workers (Family Income Supplement).

In social security terms, the Wage Stop existed for a lengthy period. It represented continuity in the post-WWII welfare state of ideas that framed the poor law. And, as such, it embodied a fundamental concern in poverty relief for unemployed people – that in providing such relief there is a danger of disincentivising people from taking employment. In this sense, the Wage Stop was similar to the Benefit Cap. It was also different, most notably in the way in which it was related to individual circumstances by focusing upon the wages workers might be expected to earn and the potential mitigation of its application through discretionary adjustments. In this regard, the Benefit Cap is worse than the Wage Stop. The level at which it is applied is arbitrary and the discretionary ability to mitigate it does not exist.

Chris Grover works in the Department of Sociology, Lancaster University. He is interested in social security policy and has written widely on disability benefits, social security for low paid workers and 'emergency' social security support. He has recently written an article on restricting benefit income that be found here (paywall) or here (no paywall).