Conference Day 2: The Child Benefit Anomaly

Every single cut is going to hurt someone.   And nobody likes the ones that hurt them.  I have a daughter and another child on the way.    At conference today we got the news that the Child Benefit of 80ish quid we get each month is going to be stopped.  We’re far from rich but as a top tax-band family we are certainly very comfortable – I couldn’t look anyone in the eye and say that we either need or deserve that money.  It’s one we’ll just take on the chin in good spirit.

I suspect I’ll be in the minority in my acceptance though.  The Government is living its promise to do the right thing rather than the popular thing – and I suspect that this will be wildly unpopular.

One genuine issue that people have been quick to highlight is that there is one group who this will impact more than others:   This is single income families who earn just over the threshold.  They lose the benefit whilst families with a double income of salaries just less than the upper threshold retain the benefit.   In the very worst case example a couple who both earn 43k and so have a family income of £86k will keep the benefit, the single income family earning a fraction more the £44k will lose the benefit.   This anomaly is manifestly not equitable.

That said, people who are getting on some very high horses about this need to take a step back and reflect – this same anomaly has existed for years (including the entire 13 years of Labour rule) in that marginal rates already led to the same unfairness via income tax.  In the exact same examples above the couple with the single income has already been walloped at 40% for every extra pound they bring in, while the double income couple have only been banged for 25%.   I make the point to give context rather than as a justification.  Two wrongs don’t make a right – and obviously this new anomaly adds insult to injury for those people.

The anomaly aside (and by very definition any anomaly is an exception to the norm) George Osborne has still done the right thing.  He was between a rock and a hard place – to correct the anomaly and move to a solution that took total house-hold income/means-testing into the equation would have added an administration nightmare  – more forms, more IT systems, more opportunities for fraud all of which would eat away at the savings to be made – and the savings after all are the whole point of the move.   The solution adopted is pragmatic rather than perfect.  It can be very easily be implemented with existing tax data.  Those people with double incomes  just below the threshold should think of themselves as accidental winners rather than single income families just above it thinking of themselves as targeted losers.  The principle that high income earners do not require welfare support from the state is sound.

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7 Comments

Filed under Center right, Centre Right, Conservative Conference 2010, Economy

7 responses to “Conference Day 2: The Child Benefit Anomaly

  1. The irony is that it is the tory supporters of middle england that are going to be hit hardest by this. Osborne may think he is softening the blow by having this measure only in 2013. By the time the next election comes in 2015, people will have felt the effect of this cut in child benefit very profoundly indeed. More importantly, how can the Chancellor say the new system is fair when it is not based on the total income of a household? A single parent earning around £44000 a year will be hit, whilst two parents who individually each earn less than this but together bring home far more than £44o00 will not be affected. This will alienate the very people that the tories need on side to keep them in power next time.

    • Judith – The example you feel the need to cite: ” A single parent earning around £44000 a year will be hit, whilst two parents who individually each earn less than this but together bring home far more than £44o00 will not be affected.” leads me to conclude you didn’t read a word of the article.

  2. MARCIA BRUSON

    think its very unfair that people who pay top band taxes are now penalised by losing their child benefit when a large number of our communities have spent their whole life making benefit claims their career and living a very good lifestyle from it.it makes my blood boil when i hear them brag about how to claim the maximum and the vast amount of different claims they can make.It,s the same old story,the working class pay while the benefits sysyem just gets better for those who cant be bothered after all they can earn more in benefits than they can in employment and they wont have to worry about their pension.Wish some of our politicians would actually listen to what is really bothering the majority of the working class,I appreciate that there are many people who are on benefits who would much rather work,but there are also many who have no intention s of ever finding emplyment,i am not a tory voter but am very impressed by there effort so far just wish they would go further.

    • Marcia – hopefully today’s announcements re stopping claims for those who wont work (and the Universal Benefit) go some way towards addressing your concerns.

  3. what do you get for working, i think it is strange that the more money you earn the more taxes you pay and the less you get. All children should be paid this benefit as it is fair at the moment and to change it is wrong.
    Also the goverment said they would not touch this benifit, and this is a reason people voted for them
    if they want to get people to vote again for them it
    pays to be honest our dose it as if they told the people they were going to do this i wonder how many would have voted for them

  4. “He was between a rock and a hard place – to correct the anomaly and move to a solution that took total house-hold income/means-testing into the equation would have added an administration nightmare – more forms, more IT systems, more opportunities for fraud all of which would eat away at the savings to be made – and the savings after all are the whole point of the move.”

    How would there be more opportunities for fraud, though?

    Under a family income system of working out child benefit entitlement, there’d be an incentive for all families earning over the threshhold to lie and declare one of the parents as not contributing to the family, though how likely that would be to occur I’m not sure. But under Osborne’s policy (and I can’t believe he’s actually contemplating doing it in this way), any family when one of the earners starts earning over 44,000 will be in a similar position, which would include ones which a family income calculated system wouldn’t target.

    Also, I think there is an additional alternative to that of more forms to administer — you could make child benefit payable in equal halves to both parents, regardless of what happens afterwards. That would be hugely controversial, though.

    • “But under Osborne’s policy , any family when one of the earners starts earning over 44,000 will be in a similar position, which would include ones which a family income calculated system wouldn’t target.”

      Sorry – I think I’m missing your argument here. The point about the 44,000 cut-off is that there is very little administration to be added (in comparison to other options) as we know who top rate tax payers are and they are all already on self assessment (or special PAYE Coding). The only way we could bring those under the 44k on to a system is either to have the entire country go on self-assessment (and have HMRC implode) or implement yet another monster IT application and government database to link the PAYE data from separate spouses to to the Child Benefit payments system.

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