Child Benefit cuts will hit the poor hardest in the long run

In the long run, the cuts to Child Benefit announced today will hit the poorest hardest, as the principle of universal benefits is eroded, argues Nicola Smith.

The UK has provided universal benefits for children for just over 64 years. But today George Osborne has announced the end of universal Child Benefit, an essential source of financial support which provides families with a secure and constant source of income as they bring up their children. Today’s announcement is at odds with the then shadow Chancellor’s speech to the Tory party conference a year ago, in which he said: “We will preserve Child Benefit.”

It also breaks campaign promises made by both the Conservatives and the Liberal Democrats, resulting in a large tax rise for any family where one household member is a higher rate taxpayer. Child Benefit is not taxed, so for affected families with one child this is a loss of £1,055.60 a year, and for larger families there will be an additional £696.80 penalty per child annually.

These cuts will be felt by families up and down the country – the loss of income is significant. But of even greater concern is the step that this cut marks towards the residualisation of the welfare state. Universal benefits are essential to the welfare state’s existence. As post-war UK welfare developed, Richard Titmuss argued in favour of universalism, maintaining that ‘services for the poor will always be poor services’.

This still holds true – as the Fabians have comprehensively shown:

“… both the coverage of welfare policy and the distributive principle underpinning it are crucial in shaping attitudes to welfare… policies with narrow coverage divide the population into groups, who may then think about their interests and identities in terms of ‘them’ and ‘us’, whereas policies with wide coverage align interests and identities so that we are ‘in this together’.”

Their research has found that welfare institutions that are focused only on the poorest do less well at reducing poverty than “broadly based systems which aim to reflect a shared sense of citizenship across society”.

This makes intuitive sense. Once middle and higher earners are completely excluded from state welfare the generosity of the system begins to deteriorate as political pressure for its maintenance reduces. This is not an argument against welfare spending on the poorest – those in the lowest income deciles already receive significantly more in welfare than those with higher incomes (and arguably should receive far higher payments) – but a strong case against the complete withdrawal of state support from those higher up the income scale.

Universal systems are also (as pensions minister Steve Webb understands) the best and most efficient means to promote benefit take amongst all households – including those in greatest need. Professor John Hills makes the case well:

“A consequence of means-testing can be that stigamized services or benefits fail to reach all of their targets because of lack of take-up by those entitled. Targeting by means-testing can be efficient in one sense – achieving the result that only those who are the prime focus of the policy benefit – but inefficient in another, if those who are the intended beneficiaries miss out.”

Means testing increases complexity, stigma and confusion. While take up rates for Child Benefit are currently close to 100 per cent, rates for means tested benefits are therefore far lower. In future years, as a result of the Chancellor’s announcement, we can expect these take up rates to fall, with poverty rates consequently increasing. Last year the Government’s Child Poverty Unit concluded:

“There are 400,000 children living in poverty as a result of families not claiming all the benefits and tax credits to which they are entitled.”

There are also many unanswered questions about how the new arrangements will actually work. While today’s announcement has been billed as a measure that avoids means testing, the reality is that this system will inevitably be more complex – any restriction in entitlement is by definition a means test.

At present Child Benefit is paid directly into the bank account of the nominated carer, and employment and other details about other family members are not required. As a minimum a longer form, requiring recipients to provide details of all earners in their households, will now be involved. Fraud levels can also be expected to rise, as can administration costs, payment delays and levels of public misunderstanding.

It is also far from clear how parents will be expected to react if their incomes change – a particular benefit of Child Benefit is that it provides security when incomes fluctuate. Income changes in particular raise the possibility of overpayments and underpayments – of the sort that the Conservatives and Liberal Democrats, while in opposition, were always keen to criticise when they occurred in the tax credit system.

If lower income parents receive a pay rise will they now be expected to report to the Revenue so that their Child Benefit can be cut? And if someone’s household income falls how quickly will the Revenue be able to make their child benefit available? What will this mean for separated couples, where one parent retains primary caring responsibility but receives maintenance payments from a higher rate taxpayer?

There are also important unanswered questions about women’s pension rights, as Child Benefit claims entitle women caring for children, while their partners work, to have National Insurance contributions and credits paid into their state pension account.

As well as complicating a universal system, this means test will have differential impacts among households depending on how many people work and their particular individual earning levels. A household with one earner paying higher rate tax, and another who is not in work, will lose their Child Benefit. In contrast, a household with two earners on £43,000 will still receive it.

Households with incomes above £80,000 will receive the benefit, while those with incomes just over £44,000 will have their benefit cut. And for all of the recent talk of work incentives, the taper rate for Child Benefit will be 100 per cent – it may well make more economic sense for some households, particularly larger families, to reduce their hours rather than move just over the income tax band and experience a tax rise of several thousand pounds a year.

We also know that far greater cuts for middle income families are on the way – despite all of the positive spin around Universal Credit, reports suggest that the rate at which the benefit will be withdrawn once a member of the household enters employment (the ‘taper’) will be around 65p in the pound.

This is more generous than the rate at which some benefits are withdrawn – for example once a household has an earned income Housing Benefit is withdrawn at a rate of 85p in the pound – but far less generous than others, specifically Tax Credits which are currently withdrawn at a rate of 39p in the pound. This will inevitably mean  that many families who currently receive Tax Credits are going to see further significant income cuts.

Today’s announcement is extremely bad news for working families – both those who will no longer receive Child Benefit and those who will now inevitably see the value of their benefits and Tax Credits fall in the future as the principle of universal welfare in the UK is further eroded.

UPDATE 17.30:

The Institute for Fiscal Studies, Channel 4’s Cuts Check and the ippr think tank all add their pennies worth on the cuts with some worrying reading for the Government.

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126 Responses to “Child Benefit cuts will hit the poor hardest in the long run”

  1. Claire Hazelgrove

    RT @leftfootfwd: Child Benefit cuts will hit the poor hardest in the long run: http://bit.ly/bqGbBb

  2. Duncan Weldon

    RT @leftfootfwd: Child Benefit cuts will hit the poor hardest in the long run: http://bit.ly/bqGbBb

  3. DEWA Project

    RT @leftfootfwd: Child Benefit cuts will hit the poor hardest in the long run: http://bit.ly/bqGbBb

  4. Shamik Das

    Child Benefit cuts will hit the poor hardest in the long run: http://bit.ly/bqGbBb explains the TUC's Nicola Smith on @leftfootfwd

  5. Edward T.Rifle

    RT @leftfootfwd: Child Benefit cuts will hit the poor hardest in the long run http://bit.ly/bqGbBb

  6. Ellie Gellard

    RT @leftfootfwd Child Benefit cuts will hit the poor hardest in the long run: http://bit.ly/bqGbBb

  7. Alec Speight

    RT @BevaniteEllie: RT @leftfootfwd Child Benefit cuts will hit the poor hardest in the long run: http://bit.ly/bqGbBb

  8. Luke Bozier

    A tad patronising to 'the poor' RT @leftfootfwd Child Benefit cuts will hit the poor hardest in the long run: http://bit.ly/bqGbBb

  9. Brian Moylan

    RT @BevaniteEllie: RT @leftfootfwd Child Benefit cuts will hit the poor hardest in the long run: http://bit.ly/bqGbBb

  10. Penny B

    RT @leftfootfwd Child Benefit cuts will hit the poor hardest in the long run: http://bit.ly/bqGbBb

  11. paulstpancras

    RT @SamuelLabour: RT @BevaniteEllie: RT @leftfootfwd Child Benefit cuts will hit the poor hardest in the long run: http://bit.ly/bqGbBb

  12. Mark Everden

    Good analysis of why cutting Child Benefit has much wider implications http://bit.ly/9iZjlb

  13. Barry

    RT @leftfootfwd: Child Benefit cuts will hit the poor hardest in the long run http://bit.ly/bqGbBb

  14. Rosie

    RT @paulstpancras: RT @SamuelLabour: RT @BevaniteEllie: RT @leftfootfwd Child Benefit cuts will hit the poor hardest in the long run: http://bit.ly/bqGbBb

  15. Douglas Boyd

    Apparently we're not all in it together after all http://bit.ly/bqGbBb What a difference a year makes! #cpc10 #Osbourne

  16. Carl sat

    RT @leftfootfwd: Child Benefit cuts will hit the poor hardest in the long run http://bit.ly/9iZjlb

  17. Abhijeet Ahluwalia

    RT @leftfootfwd: Child Benefit cuts will hit the poor hardest in the long run: http://bit.ly/bqGbBb

  18. Louise Miles

    Higher rate tax payers are not the poor RT @BevaniteEllie: RT @leftfootfwd Child Benefit cuts will hit the poor hardest http://bit.ly/bqGbBb

  19. Maria Harvey

    RT @leftfootfwd: Child Benefit cuts will hit the poor hardest in the long run http://bit.ly/9iZjlb

  20. Natalya

    Great article by @leftfootfwd on impact of ConDem plans for cutting Child Benefit http://tinyurl.com/24ulgua

  21. Mehdi Hasan

    RT @abelardinelli: RT @leftfootfwd Child Benefit cuts will hit the poor hardest in the long run: http://bit.ly/bqGbBb

  22. Ashley Bullard

    RT @bourgeoisrebel: Apparently we're not all in it together after all http://bit.ly/bqGbBb What a difference a year makes! #cpc10 #Osbourne

  23. Helen W

    Well worth reading – RT @leftfootfwd: Child Benefit cuts will hit the poor hardest in the long run: http://bit.ly/bqGbBb

  24. Ian Davies

    RT @bourgeoisrebel: Apparently we're not all in it together after all http://bit.ly/bqGbBb What a difference a year makes! #cpc10 #Osbourne

  25. Angela Pateman

    RT @leftfootfwd: Child Benefit cuts will hit the poor hardest in the long run http://bit.ly/9iZjlb

  26. Penny Goring

    Rt @paulstpancras RT @SamuelLabour: RT @leftfootfwd Child Benefit cuts will hit the poor hardest in the long run: http://bit.ly/bqGbBb

  27. bashmore

    This is a spot on analysis once again RT @leftfootfwd: Child Benefit cuts will hit the poor hardest in the long run: http://bit.ly/bqGbBb

  28. liliana dmitrovic

    RT @leftfootfwd: Child Benefit cuts will hit the poor hardest in the long run: http://bit.ly/bqGbBb

  29. Lynne Lake

    RT @yokelbear: Good analysis of why cutting Child Benefit has much wider implications http://bit.ly/9iZjlb

  30. Jill Hayward

    RT @abelardinelli: RT @leftfootfwd Child Benefit cuts will hit the poor hardest in the long run: http://bit.ly/bqGbBb

  31. Thomas Hughes

    A good article looking at the wider implications of the Child Benefit cuts http://bit.ly/9iZjlb

  32. Jack Stone

    Child Benefit cuts will hit the poor hardest in the long run | Left Foot Forward – http://goo.gl/U4c9

  33. Kelvin Blake

    RT @leftfootfwd: Child Benefit cuts will hit the poor hardest in the long run http://bit.ly/9iZjlb

  34. Red Ed

    All salaries should come straight to central government and then reasonable allowances can be given out to all. A simple system that reduces fraud, is easy to administer and ensures fairness for everyone.

  35. Steve Rooney

    RT @leftfootfwd: Child Benefit cuts will hit the poor hardest in the long run: http://bit.ly/bqGbBb

  36. Derek Thomas

    RT @estebanrooney: RT @leftfootfwd: Child Benefit cuts will hit the poor hardest in the long run: http://bit.ly/bqGbBb

  37. Sarah Morrison

    RT @leftfootfwd Child Benefit cuts will hit the poor hardest in the long run: http://bit.ly/bqGbBb

  38. Polly Worthington

    RT @BevaniteEllie: RT @leftfootfwd Child Benefit cuts will hit the poor hardest in the long run: http://bit.ly/bqGbBb

  39. Pete Kennedy-Chapman

    RT @KelvinBlake: RT @leftfootfwd: Child Benefit cuts will hit the poor hardest in the long run http://bit.ly/9iZjlb

  40. Cuts in child benefit will hit the poorest in the longer-term | ToUChstone blog: A public policy blog from the TUC

    […] have a post up on Left Foot Forward looking at the impacts that today’s Child Benefit cuts will have for universal welfare in the […]

  41. eduardosuarez

    RT @BevaniteEllie: RT @leftfootfwd Child Benefit cuts will hit the poor hardest in the long run: http://bit.ly/bqGbBb

  42. Neil O'Brien

    Cutting Child Benefit for the richest will hit the poor hardest, says left foot fwd. Errrr… http://bit.ly/9iZjlb

  43. Christian Wilcox ( ctg )

    Erm, the poor get to keep their child benefits…

    So it’s the middle classes that will lose income. And the rich will stay rich.

    Nope, I simply do not understand what you are talking about. If anything this ‘middle-classes getting benefits’ stuff has allowed said middle classes to borrow far too much on their mortgages in the last housing boom-bust. Maybe they should have thought twice? Or haggled for a better deal?

    Prices are low now, and at 1 Trillion under that’s that. The poor will stay poor, so will need support from teh govt. Just how it is. The middle classes are on higher incomes, so should think about being less wasteful. Rather than trying to milk the system. The market is usually half rigged in the first place, so I do not see any argument involving market forces as even remotely relevant.

    Losing a grand a year when you bring in 45k pa combined is not a biggy. Losing it at 15k pa total is a huge deal. And if you only bring in 31k pa combined as the wife stays at home then it may well be that the wife might want to get a part time job. Which could be an extra 7 grand per year. Taking you up to 38k pa combined. Rather than the benefit supported 32.5k pa you’re on.#

    I’ve seen too many stories of people saying ‘I’ve got loads of kids so it’s easier and more profitable to not work and let the state carry me.’ It gets on my wick, as 32.5k pa combined is more than some people can dream of. And 38k pa definitely is.

    If you can’t run a tight ship why did you start a family in teh first place?

  44. bedminsterbugbear

    There's a strong case for benefit universality – @leftfootfwd http://bit.ly/9iZjlb – but claiming £44k's a tight family budget is dubious

  45. Nicola Smith

    Hi Christian. The argument is that once we move away from the principle of universal welfare we are more likely to see benefits and services that are provided only to the poorest residulised and cut in future years. As the Fabian’s research has shown, countries where welfare is means tested provide the poorest with far less support than they receive in countries where there are also universal payments.

    Best, Nicola

  46. Sally Gimson

    RT @leftfootfwd: Child Benefit cuts will hit the poor hardest in the long run: http://bit.ly/bqGbBb

  47. Fat Bloke on Tour

    As always the devile will be in the detail but the headlines don’t look good.

    Has anything been said about the elephant in the room?

    2 x £40K vs 1 x £50K?
    One family will keep their FA money one will not?
    2 children and you are looking at £150 per month loss net.
    That is £3K pa earned income.

    Big hit for anyone struggling at the moment.
    The dogboilers will be waiting for a tidal wave of rage to attack universal benefits. They have given up trying to be subtle, all they want is the public opinion to slaughter the benefits for the poor.

    Dog boiling at its finest.
    Dave the Rave as a compassionate / Red Tory?
    Right who fell for that one?
    Grauniad leader writers, BBC, Lib Dem muppets …

    Add in the loss of the tax credits and Sniffy really has taken the hatchet to the folk on twice full time earnings.

    Q+D raid on the welfare state.
    They really are starting to get up to speed.
    Maggies looks like an amatuer compared to this lot.

  48. The end of universal benefits? « The Wandering Hedgehog

    […] 4 Oct “Services for the poor will always be poor services” – Richard Titmuss, quoted at Left Foot Forward. […]

  49. Rupert Read

    Well done, Nicola!
    My piece here – http://rupertsread.blogspot.com/2010/10/why-not-remove-child-benefit-from-rich.html – was thinking along the same lines.

  50. Andy Walker

    RT: @BevaniteEllie fantastic piece by @leftfootfwd – sacrificing universal nature of benefits has huge implications http://bit.ly/bqGbBb

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