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. Sensible
Pauline, we get that kind of argument all too frequently.
If you have a child, and then for whatever reason your situation changes; 1 of you loses their job, or whatever, then what?
And Mouse, Cameron himself admitted that people on £44000 are not ‘the super rich.’ Is it fair that a household where both parents work and get £40000 each (a combined income of £80000) get their Child Benefit, but a household with only 1 person working and an income of £44000 does not?
I have to say, I think it is interesting that this policy seems to be a departure from the right’s traditional view of the family; man works, woman looks after household.
We could better close the deficit by clamping down on tax avoidence, increasing the bank levy and helping the economy to grow.
That is a better idea than this approach, which has caused trouble in Osborne’s own exempler; Ireland.
Fat Bloke on Tour
Mr Mouse
Any update on the many members of your extended family who work in the public sector, how many are currently waiting to find out if they have been deemed surplus to requirements by the dog boilers of the ConDemNation?
Regarding the issue being discussed, two points:
Universal benefits are an integral part of the welfare state.
Welfare state = Everybody involved, everybody gains at some level.
Take out the universal element and you are left with the Workhouse, the Poor law and the Parish.
Dave the Rave and Sniffy talk about Economics 1930 style now we are looking at Welfare 1830 style. They have destroyed in 150 days what took a century to build. High productivity dog boilers is the only way to describe them.
Second point if the need for money was so great and I dispute that contention then would njot have been fairer to target all 40% tax payers and not just their children?
That brings the big question to the fore, why are we targetting children for £1bill, why aren’t they looking at taking money and benefits away from pensioners who pay higher rate tax?
Either they are and they are not brave enough to announce it first or they are not because they fear the electoral backlash. Both suggest that the top of the Tory party is populated by shitebags.
Finally as noted earlier what about those who can work around the system, people who generate considerable income outwith the PAYE framework?
Non doms – Hat tip to Trixie.
Self employed plumbers – Cash that will do nicely!
Dividend junkies – Where does corporation tax fit into this?
Personal Service Companies – Contractors winning again?
Consequently this is just the first step, a softening up exercise before the real work begins.
Anon E Mouse
Fat Bloke on Tour – (My younger daughter is having her hours cut at the local council but that’s from Alistair Darling since like the rest of us no one knows until 20th October what the cuts are – thanks for asking though)
Your line “Welfare state = Everybody involved, everybody gains at some level” – rubbish. Everybody pays for it at some level and the state are employed to administer it.
So my oppo pays tax for Child Benefit to be given to his wife. Nuts.
And so all the (usual) waffle aside from you it is fair to conclude that you indeed think it is OK to take the Tesco shelf stackers money to give to Eric Clapton.
True colours for once FBoT…
Sensible – “We could better close the deficit by clamping down on tax avoidence, increasing the bank levy and helping the economy to grow.”
Why can’t we do both? This isn’t a Labour government you know…
Paul Keeley
RT @LucyBloot: Some interesting thoughts about the child benefit cut: http://bit.ly/9JaBq4 & http://bit.ly/9iZjlb. All I know is that #D …
Rosie
https://www.leftfootforward.org/2010/10/george-osbornes-child-benefit-cuts-will-hit-the-poor-hardest-in-the-long-run/ #Childbenefitcut