Tuesday, 5 October 2010

Has George Osborne Gone Far Enough?

Now we know.  The coalition government is going to stop child benefit for any family in which one parent is a higher rate tax payer.  That means that a family with one parent earning £44,000 or more will be worse off by £1.055.60 a year for their first child and £696.80 for others, (£20.30 and £13.40 respectively a week).

Because of the anomalies involved there has been much talk about 'loss of income' and the effect this will have upon the Iain Duncan Smith agenda of helping families.

Can child benefit be considered a 'loss of income'?

The Family Allowance was introduced in 1945 and was fully replaced by Child Benefit in 1979. Initially there was no allowance for the first child and it was only given to the second and subsequent children.  As we know this has been amended over the years and of 15 countries studied, the UK is unique in paying a premium for the first child.  Four of the countries, including the USA, do not have universal Child Benefit although the USA provides comparatively high levels of assistance to low income families.  Norway, on the other hand, represents the reverse of this position with high levels of support and low levels of means-tested support.

Just over half (55%) of children eligible are first children for whom the higher benefit is paid and the government is paying benefit for 12.7 million children. (1996 figures).
The whole idea of George Osborne's new policy is to save money.  Wouldn't it have been fairer to abolish the higher payment for the first child and slightly raise the payment for all children?

To exclude those who earn over £44,000 creates many anomalies as other commentators have stated today.

Let us remember Beveridge's arguments in favour of family allowances.  They are just as relevant today in many ways as they were in 1945, although I'm sure Beveridge never dreamt that the UK would be paying for the children of other EU countries - most of whom have never set foot in Britain - if a parent decides to come here.

It is unreasonable to seek to guarantee a subsistence level income during periods of
unemployment or disability without also ensuring sufficient income during periods of
earning. In spite of wage increases, unemployment, disability and large families were
the main indicators of poverty, the last of these because wages do not reflect the size
of an earner’s family.

It is dangerous to allow benefit during unemployment or disability to exceed earnings
during work. The gap between income during earning and during interruption of
earning cannot be kept large for people with large families “except either by making
their benefit in unemployment and disability inadequate, or by giving allowances for
children in time of earning and non-earning alike.”

Children’s allowances can help to restore the birth rate and act as a signal of the

national interest in children. “Children’s allowances should be regarded both as a
help to parents in meeting their responsibilities, and as an acceptance of new
responsibilities by the community.” 


John said...

I am a simpleton re govt sources of income. However, as Osborne and Co seem happy that the middle and higher income groups will lose out why not leave the low/zero income people out and raise all he needs from all the middle and higher earners irrespective of whether they currently receive child's allowances.
Also, we do not seem to hear what will happen any thing that is 'cut back' as part of the debt recovery being reinstated once the economy is well back on its feet.

JRB said...

Whatever George Osborne brings to the post as Chancellor, common sense and logic are certainly not his strong points.

His announcement of stopping child benefit for higher tax earners was bound to cause furore, especially amongst the Tory faithful.

If he is serious on making such cuts, there is a simple and perfectly fair means of ensuring a balanced system – the two words that any politician dare not speak – ‘means test.’

Quiet_Man said...

"Has George Osborne Gone Far Enough?"

Probably not.

As for means tests, you just replace on bureaucracy for another. It would cost far more to means test child benefit than to simply put a cap on those who earn over a certain amount.
It's a simple uncomplicated solution, no wonder people hate it.

Apogee said...

A great many people are trying to support a family on the minimum wage plus whatever benefits are available to them.This is closer to 12 K than 25 K. By the time you reach 40 K loss of benefits is not a great problem.
I doubt the original plan was ever intended to be as massively generous as it has become.
Simplify the whole tax/benefits system and eradicate fraud and waste would make huge difference to the cost, get rid of tax credits and introduce an honest basic wage and tax from that point and there would also be savings due to a simpler way of running the system.
And make the tax system honest instead of a lawyers benefit on the one hand and a crooks benefit on the other. Too many parasites in the system for it to ever work properly, it needs replacing with an honest system,now. But will it ever be allowed to happen?

Idle Pen Pusher said...

Is it a loss of income? Yes. But I know what you mean...

RMcGeddon said...

It might have been easier to have introduced a system where child benefit is only eligible for the first two children.
If parents want more children then they would have to consider the consequences to their lifestyle. At the moment there's no reason to stop having children even if both parents are unemployed and uninterested in working. In fact the larger the family then the larger the house and benefits cheque that can be recieved. It also favours the ethnic communities like Roma and muslim families who tend to have 5 or 6 children compared to the more usual two children of the indigenous population.
Listening to someone on Radio 2 moaning about having her child benefits stopped while earning £44K a year doesn't cut it with me. If they can't manage to support their children on this wage then I've got a good suggestion for them.
Don't have kids. Millions of single people are paying for it and no we don't need your kids to support us in old age. Our population is rising to 70 million so there will be plenty of peole to wipe our arses and pay our pensions in old age so don't worry about it. But thanks for your concern.

subrosa said...

I'm sure that's what the labour party would have liked to have done John, but it's too risky. I would baulk at working just to pay for some people to have endless children.

subrosa said...

I would agree with you John, but the excuse is that means-testing is an administrative nightmare. Time they got rid of all these tax credits then.

subrosa said...

QM won't implementing this mean more bureaucracy? All the admin which will have to be done to check our annual incomes etc. could well be as costly as means-testing.

subrosa said...

All I've heard about is 'simpler' Apogee, but I haven't seen any signs of that as yet. Possibly all windmills and no wind.

subrosa said...

Thanks for the link IPP. Glad you know what I mean. :)

subrosa said...

That's been said to me by a couple of folk today RM and yes, I would go down that road. There would be the usual left-wingers who shout that would restrict families. I say let families take responsibility for their children. Thirty years ago I knew many women who had just one or maybe two children but wanted more. They knew they couldn't afford more so took the conscious decision to stop.

Joe Public said...

There's always the "Red-Ed solution" & well-off fathers keep their name off the birth certificate.

subrosa said...

You know Joe, when I was researching this post, I thought this will harm these families who are honest.

Anonymous said...

A little sentence in the Beveridge quote struck me as interesting:

""Children’s allowances can help to restore the birth rate.....""

So we see that there was an underlying problem at the time with the birth rate. I would say that there is no such problem at this time, and so no need to 'encourage' women to have children, and so no need to 'fund' children. Thus, one can take a much more hard-headed look at what the benefit is for.

To discuss this matter properly would take hours, of course, so it make sense in this blog merely to mention just one facet. For myself, that facet is the arbitrary cut off at 44K. I would have thought that a taper would be more fair. After all, a taper of sorts is used when people on benefits who have savings are assumed to receiving a far higher interest rate on their savings than possibly be the case.

subrosa said...

Ah Junican, I was wondering when someone would notice that. Good for you.

Of course in 1945, with so many men killed in the war, the government wanted to encourage the next generation.

I would agree a taper is a better solution but that gets the government into a means-testing situation and they don't want that.

Anonymous said...

Well, thank you for your compliment, Subrosa.

But I am not quite sure that we mean the same thing by 'taper'. My thought does not mean 'means-testing'. It could mean, for example, that when a person reaches the magic number of 44K, for every pound in excess of that figure, that person loses, say,
25p of the child benefit, until the benefit is exhausted. There is nothing odd about that system - it has been used many times.

But in my opinion the whole idea is a bit of temporary cop out. It is not dissimilar to the NuLab manifesto pledge to allow smoking in wet led pubs - an intentional smokescreen. The coalition have given themselves two parliaments (10 years, possibly) to effect this change. No... 10 years to change the whole system! I can certainly see the introduction of a computerised system designed to have every recipient of benefits, wages, salaries, pensions on the system. This idea of limiting child allowances suggests to me that it is just a trial. The really important thing is Duncan Smith's idea of 'a universal credit'. One should think of this 'universal credit' as something in the nature of 'tax relief' by another name. Can you see it? Instead of individual benefits, anyone who is not earning gets a sum of money, equivalent to tax relief, credited to their bank account - provided that they do not have income from other sources. In other words, in order to claim, say, 'jobseekers allowance', you would have to complete the equivalent of a tax return.

We see these ideas implied. We do not see them described for public consumption in clear terms.

I think that the ideas are already pretty fully thought through. What is holding back politicians (or rather their masters in the EU and the civil service) is whether or not they can get away with it politically.

I am not quite sure about whether I personally agree with these ideas. There are many complexities (like how do you deal with the likes of Abu Hamza, who shoots off to the Lebanon leaving his wife and nine children behind). I suppose that we shall have to wait and see.

subrosa said...

Looking at this from another angle Junican, isn't what Osborne has presently proposed a form of mean-testing? The HMRC will gather the data for these parents who earn over £44,000, send the info to the DSS (or whatever it's called these days) and they will delete it.

Yes I can see this as the beginning of a radical change and 'universal credit' is perhaps the most apt name at present.

I'm quite sure this change is well down the road to being implemented but Cameron is clever, insofar as he's using the softly softly approach.

Your remark has made me rethink my previous one about means testing. The government didn't want the bureaucracy of means testing they say. Could it be that's because they know everyone will have to complete a tax return?

I can see the black market suddenly soar, more 'single parent' families and, like Ed Miliband, far less fathers named on children's birth certificates.

But you're right. This is all at the behest of the EU. I've been reading quite a bit about EU powers recently. Hope to get around to posting the links for everyone soon.

Anonymous said...

Means test to me means: how much is your property worth? How much savings do you have? Do you have any valuable paintings, jewellery etc? In many ways, we are already along that road (think of old people sometimes having to sell their homes when they move into nursing homes).

But I suspect that there is a long way to go as yet before the legislation required gets anywhere near parliament.

subrosa said...

We're well on the way to that Junican. Wait until the EU starts pushing for it.

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