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.
126 Responses to “Child Benefit cuts will hit the poor hardest in the long run”
Mr Jabberwock
Opposing this reform just looks daft. Nowhere in the article do you explain how removing a benefit to a £44K income family hurts the poor. Your argument that services that are not universal are poor services is a reasoned argument. But child benefit is not a service, it is not an institution, it is a payment.
Your argument that this is bad because what happens if your income changes is tenuous. There is no reason why you should not be able to claim child benefit whatever your income, simply it can be claimed back from you in tax if you have a high enough income come the end of the year – so you keep claiming it unless you are certain that your income is over the higher rate tax band. Not a single extra form required to claim child benefit.Simple
Opposing this change can only be idealogical.
Nicola Smith
Dear Mr Jabberwock,
The argument about services applies to benefit payments – when there are no universal payments the levels of other payments (that are only received by the poorest) are far easier for Governments to cut – we know this happens, if you want to see all of the evidence read The Solidarity Society published by the Fabians.
I agree with you that if the policy is introduced it would give families more protection to continue to claim the benefit and then have it claimed back at tax rate of 100 per cent, so their tax could reduce if their income fell, but this is not what the Chancellor is proposing – he is on record today encouraging families where one adult pays higher rate tax to stop claiming all together. And there are still complications – what about when a family gets divorced and one parent with no income is suddenly left with no child benefit and no pay? What if a parent is self-employed and their business goes bust but their tax is only calculated annually? What if a higher earning family member moves onto long-term sickness payments or maternity pay – will Child Benefit be paid to these households if they are still registered for benefit payments, but not if they have ceased to claim altogther, or will they not recieve them as their salaries still place them in the higher rate? This is a new means test, and it will inevitably increase admin costs, confusion, over/under payments and less income security for families.
Best
Nicola
idle pen pusher
If cutting benefits for those earning over £44k hurts the poor hardest, presumably increasing benefit payments to those earning over £44k would benefit the poor most?
Nicola Smith
Dear Idle Pen Pusher
No it would not, but it is the case that the residulisation of welfare will hurt the poor in the longer-term – as is demonstrated by evidence from around the world. I am arguing against removing all universal benefits from higher earners, not in favour of increasing benefits for higher earners at the expense of poorer households.
Best
Nicola
Fat Bloke on Tour
Once the link to universal benefits is broken it can only be a matter of time to the the return of the Poor House and indentured servitude.
We had a welfare state that involved everybody, what Sniffy is planning is dog boiler heaven, marginalise the middle class / income element of society and then he can go after the poor with that special Bullingdon hatchet of his.
Top notch politics, slake the anger of the middle class with the blood of the feckless poor. So good that you wonder why Dave the Rave necver mentioned it defore the election.