The government’s proposals to means-test for Child Benefit has been met with fierce criticism across the political spectrum. Thomas Cawston of Reform argues that by doing the right thing in the wrong way the government is damaging the credibility of means-testing, and suggests that abolishing Child Benefit entirely and increasing existing child tax credits would achieve fairer results and greater savings.
The coalition government has proposed breaking with decades of tradition by introducing means-testing the Child Benefit. This universal benefit is expensive, costing around £12 billion a year, and in an age of austerity is described by some, as Martin Narey, former Chief Executive of Barnardos, put it, “an unaffordable luxury.” The Government has proposed to means-test by withdrawing the benefit from any family with a 40p rate taxpayer.
Yet in recent weeks, the government’s plans to means-test the Child Benefit were thrown into doubt. The Prime Minister hinted that “We always said we would look at the way it’s implemented and that remains the case” and Jeremy Hunt has said “We are looking at ways to make it fairer.” Shortly thereafter the Chancellor insisted that the cut would go ahead but added “We haven’t set out how we’re going to implement that and we’re going to do that in the next few months.” The key concern is that while a family with one parent earning £42,475 will lose the benefit, a family where both parents had incomes of £21,237 each would not. By doing the right thing in the wrong way the Government risk bringing the whole idea of mean-testing universal benefits into disrepute.
The government was right to propose reforms to universal benefits. It is not possible to deal with the deficit without having a go at the big budgets, and welfare is the biggest. The Government spends almost twice as much on welfare as on the National Health Service. Reform’s analysis of benefit expenditure, based on Office for National Statistics data the effects of taxes and benefits of household income has shown that around £31.8 billion was spent in 2009 on providing benefits to the UK’s middle classes. Using this date we calculated the benefit expenditure for households above a conservative threshold, which varied according to household size and composition.
As well as the Child Benefit, other universal benefits are poorly targeted and offer poor value:
| Percentage of spending to households above income threshold (1998-99) | Percentage of spending to households above income threshold (2008-09) | |
| Maternity pay | 68 | 78 |
| Child Benefit | 32 | 43 |
| Disability Living Allowance | 22 | 33 |
| Retirement Pension | 16 | 24 |
| Housing Benefit | 4 | 11 |
| Student Support | 40 | 22 |
There is now a growing chorus of support for means-testing these benefits. At the end of last year Nick Clegg said, “We should be asking millionaire pensioners to perhaps make a little sacrifice on their free TV licence or their free bus passes.” Saga has enlisted the support of Sir Bruce Forsyth and Sir David Jason in its campaign to encourage wealthy pensioners to donate their winter fuel allowance to those more in need. Martin Narey has argued that the case for means testing child benefits is “economically and morally overwhelming.”
Despite the support for the principle of means-testing these benefits, the government’s approach to cutting the Child Benefit is flawed. Instead of removing the benefit for families with higher-rate taxpayers, a much better approach would be to abolish child benefit entirely and increase the value of the existing child tax credit for poorer families. This would remove the anomalies in the current proposals without establishing a new means-testing system. Scrapping the Child Benefit would save £12 billion, £5 billion of which could be reissued through the Child Tax Credit for families on lower incomes. This would save £7 billion a year as opposed to the £1 billion a year that the Government’s policy would save.
The government is right to address the flaws in its original policy. However, its failure to set out a fair and practical approach to reforming the benefit in October 2010 means they have now had to reopen the wider debate on means-testing. This is not the first hint that the policy would be revised. The failure to be decisive has encouraged the opponents of welfare reform. Both the Child Poverty Action Group and The Daily Telegraph have gone as far as to argue for the whole plan to be scrapped.
Some may defend universal benefits as a means of securing support from self-interested voters. However as Sir Roger Douglas, former New Zealand minister of finance, has argued, politicians need to decide what policies are in the interest of the nation before asking how these policies should be sold to the electorate. Otherwise the reform process will begin in a position of compromise.
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Thomas Cawston – Senior Researcher, Reform
Thomas is a Senior Researcher at the independent non-party think tank Reform. He leads Reform’s health research, advocating ideas on how to deliver better value and higher quality health services. Thomas co-authored the Reform reports An NHS for Patients and Fewer hospitals, more competition, as well as Reform’s 2010 Budget Taking the tough choices and 2011 Scorecard. He has appeared on BBC TV and Radio, and written for The Spectator, Mail Online and Telegraph Online
Not benefits that don’t require to be collected, like child benefit. It’s hard to ask single mother working 45 hours a week to come in with ID every week to collect the benefit…
It is a difficult subject for all people concerned i will make a brief comment concerning one point in this article.
My main concern is the issue of both parents working to support their families and if the salary is a certain amount then how can they lower the tax credit amount.
Higher tax payers may feel concerned by the fact that they are paying more tax and by this in essence are in a similar situation because of the tax band they are in.
The low earning families rely on the tax credit award as it stands not with the continuous change in policy and amendments that are being proposed.
The conservative government have made tax credit the brunt of cuts and reductions anyway.
Major floor in your theory – the tax credit system doesnt work.
The system doesnt work for self employed people, or infact people with changing circumstances as it cannot accommodate a change in circumstances. The tax offices takes notifications of changes but it is only at the end of the tax year that the calculation is completed and you find your change in circumstances 6mths previous has resulted in a debt to be paid back in 30 days. Totally unworkable for families.
Lesson Number 1 – When a child arrives careers go out the window, employers arent flexible and the goverment are not supportive with there flexible working law with more holes than swiss cheese. At this point you either cope on one wage or you start the wonderful world or self employment or dead end jobs – these often result in more frequent changes in circumstances. Hence why notification process needs to be free, simple, quick and change calculations.
Lesson Number 2 – When both parents go to work guess what – someone else needs to look after the kids and this is expensive.
Suggestion – Lazy people will take everything they can get and it wont go on the kids so yeah cap child benefit and infact all benefits for anymore than 4 children concieved after April 2013. This would then be a decision to have more kids in knowledge there will be no more money coming to pay for them.
OVERALL – The tax credit system needs major rework.
I attended a think tank meeting with Reform during conference season,. The problem with this exactlty the same with that. It is written with no understanding of the subject. Wealth distribution within households is not the same wealth distribution amongst families. That is why Child Benefit exists. Motherhood is unpaid. Partners are not always safe, willing or able providers. Then after a meeting based on notions of asset based welfare, the replacement of the welfare state with financial advice products and evidence supplied by an Aviva report which described thousands of women being forced out of work, as them choosing to look after their kids, I am wholly unsurprised. Frank Field is one of your isn’t he? Starve mothers into chastity to tackle poverty caused by the gender pay gap and the inability of the rest of our economy to accomodate motherhood. It wouldn’t be so bad if you wonks were actually bright, or understood the subjects you write about outside politics.