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”
Jo C
RT @leftfootfwd: Child Benefit cuts will hit the poor hardest in the long run http://bit.ly/cLYeYw
Fat Bloke on Tour
Mr Mouse
As always your reply sounds more like a cry for help than a detailed political argument.
Consequently please stick to my main point, take universal benefits out of the welfare state and what are you left with?
The workhouse, the Poor Law and the Parish.
We have been here before and it didn’t work.
Consequently is that you want welfare policy to be?
Child benefit should be universal.
No matter the circumstances having a child means extra expense.
Consequently this is only a softening up exercise for the slash and burn stuff to come.
Finally when will you stop all this pretence that at some point in the dim and distant past you voted Labour?
Love your last comment about helping the economy to grow, you really are having a laugh if you think we are on the cusp of some great private sector led national re-birth.
More like Dave the Rave will turn out to be the Grocer Mk2 as his bottle crashes due to the mess his economic illiteracy leaves the country in.
One thing that never ceases to surprise me is the fact that an economic crisis and a climate for cuts brings out the worst in people. It is a case of every man for themselves to a chorus of kitchen table economics, homespun philosophy aka greed and delight in the suffering of others plus a fear that makes people turn on their neighbour rather than aim their ire at those who have both caused the problems and benefitted from the solutions.
Anon E Mouse
Fat Bloke on Tour – I’m working and you tend to write essays so addressing your points is not easy.
Told you I voted for that winner Tony Blair – not your “Gordon Brown” useless version of the party – and I’m not alone. Ed Miliband articulated many of the points I have been making on this blog for months.
I would also wager that in May when Labour had it’s second worst election result ever and lost over 5 million voters, most of the people in the South East were Blair supporters.
You are living pre Ed Miliband FBoT – you really need to move on. The policies you claim are OK have just been hammered by the electorate – you are fighting the last election that was comprehensively rejected by the voters.
Regarding the economy I find that line amusing also but I didn’t make it. That’s why it’s in quotation marks and it’s from one of Labour’s biggest supporters on this blog, Mr.Sensible – read the whole page please.
At least we both agree about the delusional ideas for deficit reduction by Labour activists. Told you we’d be friends FBoT…
So you do think it’s right to use the shelf stacker’s taxes to give benefits to Eric Clapton then because cutting through all your waffle I still fail to see a criticism of that position…
Harry
This looks a good deal for the welfare of people. The child benefit scheme when cut brings the poor people to a pathetic situation. Only the poor will be the sufferers now…….
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[…] tipping over £44,000 of income there is not a single extra penny of benefit they can earn from the next £2,970 they earn. All will be absorbed in tax, NI, and lost child benefit. […]