In an ideal world, child benefit would remain universal. But we are not in an ideal world. Cutting it for higher earners makes sense
It seems the most controversial and emotive issues in the forthcoming Budget are regarding the 50p tax rate and the removal of child benefit from higher rate tax payers – both affecting a relatively small proportion of the population.
But whilst the biggest debate around the 50p tax rate is whether to keep it or replace it with a mansion tax for the super rich, the cutting of child benefit from higher rate earners (15% of the taxpaying population) seems to have provoked outrage by those claiming that a household earning £43,000 per year cannot cope without an additional £1000 from the state for their child.
Now, I fully accept the eyebrow-raising anomalies of the proposed measure – that a two working parent household earning £42,000 each will keep child benefit, whereas a one earner household on £43,000 will lose it. But this quirk of our tax system is not new and creates similar oddities in tax credits and income tax payments: we get taxed individually, not as a household.
To remedy this, the government would need to ask individuals about their relationship status and change tax codes accordingly. It would mean whenever two people separated they would need to tell HRMC. Would cohabiting have the same tax code as marriage? What if the couple didn’t share their finances? Or raised children, but not in the same house? In short, it would be complicated, intrusive, and expensive.
The complexity of our tax system is such that if we tried tapering, the savings achieved would be wiped out in administrative costs – the blunt way is the only way, and as such, many feel this is unfair enough to scrap the entire idea. But who is it unfair to?
Most obviously, someone a) earning just over the £42,750 cut off point; b) in a single earning household; and c) with multiple children. But this is a small group of people. 26% of families in the UK have three children or more. 15% of these (approximately) will be higher earners. Of this 15%, just 25% will be earning between the cliff edge of £42,750 and £50,000. So we are already down to 0.57% of child benefit claimants – and we haven’t even taken out the ones who have a partner who works.
CPAG, the organisation leading the charge against the removal of child benefit from top earners, estimates that 8000 families (again, in very specific conditions – a single earner on £43,000 with three children and a mortgage of £197,000) could be pushed just below the poverty line after housing costs as a result of losing their child benefit. But this is just 0.1% of the total number of child benefit claimants. If every tax credit, income tax, benefit means test and public service eligibility criteria had a 0.1% negative impact rate, we’d have a near perfect state administration.
I am not disregarding the impact on this 8000 families, and I can understand why this seems unfair. But is it not more unfair to not take this step? At a time when we are cutting basic services and benefits from families in poverty, is it not more unfair that the wealthiest in society, earning ten to twenty times the income of those who are struggling, should be able to claim money from a dwindling public purse to raise their children?
In an ideal world, child benefit would remain universal. But we are not in an ideal world. The government has pledged to cut £18bn from the welfare bill over the next few years, whether we like it or not. The option of not cutting benefits, but perhaps increasing the tax burden on the wealthy instead, is not on the table.
So whilst it’s tempting to oppose every cut to welfare and to pick apart every reform due to its anomalies, cliff edges and implementation issues, the lesson learnt from the Lords’ thwarted opposition to the Welfare Reform Bill it’s that we cannot turn around the juggernaut of the government cuts agenda – the best we can hope to do is to soften its blows.
It is a case of picking one’s battles. And we have to ask a difficult question – do we focus our efforts on shielding a handful of higher rate taxpayers losing between 2% and 4% of their income at most, or the hundreds of thousands of families in poverty and facing utter destitution as a result of other benefit cuts?
