More for my own purpose than anything, I just wanted to get a few thoughts down on the Child Benefit fiasco. I claim no originality at all in what follows.
The principle of the move on Child Benefit – that better-off people shouldn’t get the same benefit as less well-off people – is the right one, and is one that I agree with.
This isn’t to say that all universal benefits are wrong. Just this one.
But though the principle is right, the means George Osborne is using to make the cut are wrong. Using the higher rate of tax on an individual’s income as the means by which to determine a cut on a household’s income is not fair. To take the extreme example: a family with a stay-at-home parent and one earning £45K will have the benefit cut, whilst a family with two working parents each earning £43K won’t.
That’s not a fair proposal.
Osborne’s reasoning for introducing the limit in the way he has is to avoid assessing joint family incomes through
a new complex, costly and intrusive means test that would spread right up the income distribution.
That is, he’s substituting fairness for administrative convenience.
It’s also ironic, because he has no problem introducing a complex, costly and intrusive medical test that will prevent people from claiming Disability Living Allowance, in order to address what he perceives to be a fraud rate that isn’t actually there (more on this here).
And it also ignores that fact, as the Institute for Fiscal Studies has pointed out, that the tax credit system already provides an administrative means by which families with children are means-tested.
The funny element of this, if there is one, is that the Tories are considering compensating some of the child benefit loss for couples (i.e. not single parents) who lose out through recognising marriage in the tax system. The only problems with this are that:
- The potential benefit – £150 – doesn’t equate to the loss of child benefit for those affected – at least £1055 per year
- The costs of introducing the marriage tax break – £1bn – are the same as the savings from the child benefit change – £1bn
- A marriage tax break would only cover married couples, not those co-habiting or single parents
- A marriage tax break would also cover people without children.
It’s all a nonsense.
And yet the principle is right.
Osborne should have piggy-backed on the existing means-testing system for child tax credits and set a household limit of circa £50K (roughly twice the mean wage) for the benefit to be removed. It would cover most of the people hit by his existing proposal but take out some of those at the margins, generate more savings by covering more people, and actually meet his and David Cameron’s claim for fairness.
Such a proposal would make the move on Child Benefit both tougher and fairer.