Why child benefit must be removed from the benefit cap

Sam Royston explains why child benefit must be removed from the government's proposed benefits cap.

 

Dr Sam Royston is the poverty and early years policy adviser for the Children’s Society

On Monday afternoon the House of Lords will discuss the government’s plans to cap household benefit entitlement for out of work households so that the amount received in benefits cannot exceed average weekly wages for working households. The cap is expected to be set at around £500 per week for couples and lone parent households.

The Government’s equality impact assessment (pdf) estimates that 50,000 households will be affected by the planned cap on household benefit entitlement. The average loss resulting from the cap will be around £93 per week of household income, and 7,500 households will lose more than £150 per week.

Analysis from The Children’s Society (pdf) reveals that children are disproportionately affected by these proposals. 210,000 children will be affected by the cap, compared to 70,000 adults. This means that 75 per cent of those affected are children, making them nine times more likely than adults to be affected. Only one in 556 adults are affected, but one in 64 children stand to lose out.

Based on analysis from the Department of Communities and Local Government, it is estimated that more than 80,000 children could be made homeless as a result of the policy.

One of the first amendments to be discussed on this issue is the option promoted by bishop John Packer to remove child benefit from the benefit cap for the purposes of calculating household income against the cap.

The government plans to include a number of key benefits in the calculation of benefit receipt calculated against the benefit cap. These include payments paid for the support of children in the household, including child benefit and child tax credits (or the child additions within universal credit). There are clear reasons to remove child benefit from household income for the purposes of the cap:

Child benefit is a non means tested benefit paid to all households with children.

Child benefit is a non means tested benefit paid to both non-working and working families, as such it would be fair to ignore child benefit for the purpose of calculating benefit income against the benefit cap.

Currently all households with children are entitled to receive child benefit at a rate of £20.30 per week for the oldest child, and £13.40 per week for each additional child.

From 2013, families with a higher rate taxpayer will no longer be entitled to child benefit. However (based on current tax thresholds), this means that some households earning in excess of £80,000 per year will continue to be entitled to receive child benefit.

The impact of this is shown in the example below:

A first child born to a two earner couple with a combined  household income of £80,000 would be entitled to receive financial state support of £1059 each year through Child Benefit.

A child born to an out of work couple with no income other than benefits, three other children and housing costs of £189 per week, would receive no welfare support.

It is not reasonable that children born into small families with earnings in excess of £80,000 per year receive child benefit, whilst children born into larger families with benefit income of £26,000 per year do not.

Child benefit is paid to assist with the costs of children.

The intention of the benefit cap is to promote fairness between working and non-working households. It may be seen as unfair for adults who are not working, to receive more in benefit support than families who are in work receive in pay.

However, child benefit is not paid for the needs of adults but of children in the family. Children do not make the employment choices of their parents, and should not be held responsible for these choices. Including child benefit, paid to support the needs of children, in household income against the cap, is to hold children responsible for these choices, and to penalise them accordingly.

This amendment represents a compromise position between children in larger families receiving full current levels of state support, and receiving none at all.

This amendment would represent a compromise position between the cap as it is currently proposed, whilst maintaining the principle of the cap. At present a child born into a family with benefit income in excess of £500 per week would receive £62.40 per week in benefit support (a combination of child benefit and child tax credits). Under the benefit cap, the child would receive no financial state support.

The proposal to remove child benefit from the cap would mean that the family received £13.40 per week on account of this child. The amendment would limit the level of additional support paid to families on account of each additional child, without eradicating it in its entirety.

Something must be done to limit the dispropotionate impact of the benefit cap on children.  The Government have suggested that removing child benefit from capped benefits would remove 40-50 per cent of households (20-25,000 families) from the benefit cap. This is a modest compromise which we hope will be acceptable to the House of Lords when they come to discuss this issue on Monday.

See also:

Exposed: The six myths of IDS’s benefits capShamik Das, January 23rd 2012

• Children’s commissioner slams welfare bill – Alex Hern, January 11th 2012

• Five reasons to oppose the welfare bill – Daniel Elton, December 12th 2011

• Cameron’s benefit cap rewards family break-up – Sam Royston, September 5th 2011

• Pickles letter to Cameron reveals inconvenient truth on benefits cap – Pete Challis, July 3rd 2011

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