More reflections on child benefit cuts
The child benefit cuts for higher rate tax payers are wrong, but there is some muddled thinking about why.
Good reasons for opposing the cut are that:
- they undermine the universal nature of child benefit;
- they target women and children who may not be getting a fair share of a male breadwinner’s income (and are part of a general pattern of cuts that will fall harder on women);
- they are technically flawed as they introduce ludicrous effective marginal rates of tax around the higher rate threshold;
- they are unfair because they treat a single earner household earning just above the higher rate threshold more harshly than a dual earner household with a bigger total income, but with both wage packets below the higher rate threshold.
I am not sure however that I agree with Richard that many of those affected are part of the squeezed middle.
This is not to say that there will be individual cases of hardship when single earners don’t compensate their non-earning partners for the loss. And of course many households across the income spectrum have extremely tight budgets. Any loss of income can therefore be extremely stressful. (And while I should disclose that I don’t have children, I do not think I underestimate the costs they entail.)
But higher rate taxpayers make up the top 17% of households in the UK. I think it’s stretching definitions of what makes up the middle to include many, if any, higher rate taxpayers in this group. Perhaps this is why there is still majority support for the move.
Other groups are facing far more significant cuts in their benefits. Housing benefit cuts will have the same effect on poor Londoners as the Highland clearances once had on Scotland. New Scope research shows that the cuts could have devastating effects on many disabled people.
Yet neither have received anything like the same attention in the media as the child benefit cuts (with honourable exceptions) – perhaps because many national newspaper commentators will lose out.
But because much of their complaint has been that it’s unfair to ask the middle classes to make sacrifices, there has been little sensible discussion of why the cut was wrong or why the coalition did it.
I would suggest two political points that have gone AWOL in this flawed coverage.
- First the coalition wanted a cut that looked much more progressive than it really was. Because child benefit only depends on the number of children you have, taking it away from every parent would be deeply regressive as poor parents would lose a much bigger proportion of their income than the super-rich. Taking it only away from higher rate tax-payers removes the really regressive aspects of an across the board-cut, but still lets the super-rich off the hook.
- Second the arbitrary decision to achieve 80% of the deficit reduction through cuts rather than tax drove this policy. A very large proportion of the population both pay taxes and receive some form of benefit – such as tax credits, pensions or child benefit. To the tax payer a tax-increase has the same effect of a benefit cut. Child benefit’s origins are in a mix of a tax relief and a family allowance, but was then turned purely into a benefit so that it did more to help non-tax payers and allowed all the cash to be paid to the mother, but is consequently now more vulnerable to cuts. So if a good proportion of child benefit were still paid as a tax relief to men it would have been much less likely to have been cut than its progressive replacement.