There is nothing fair about these changes to Child Benefit
The value of Child Benefit has been frozen until 2014, cutting family incomes in tough times. The Government has also announced plans to stop paying Child Benefit to higher rate tax payers, ending almost 35 years of universal support for children. While the Government have been arguing that it is fair that these wealthy, higher rate tax paying families should bear the greatest burden, there is nothing fair at all about these changes to Child Benefit.
Raising a happy, healthy child costs parents on average £210,000 by the age of 21, but benefits all of society. The tax and benefit system should recognise the extra costs that all families with children bear. Simply cutting child benefit means that wealthy households without children do not carry their fair share of the burden; many higher rate tax payers do not have children in their households, so are not affected by the plans. All households with the means – those who have the broadest shoulders – should be helping to share the burden in these tough financial times.
CPAG’s new report shows the hardship the freeze on child benefit is causing, and what impact the proposed claw back will have on families. Surveying and polling over 1,000 families, the report highlights how vital child benefit is in meeting children’s needs right across the income spectrum. Parents said their Child Benefit payments “enables us to live reasonable and happy lives with pride and self-respect” and described it as “a real helping hand every month and helps us provide a healthier life for our child. It is really helpful in allowing my children to take part in active classes that we would otherwise not be able to afford.” Many parents simply couldn’t imagine what they were going to do as the freeze further eroded its value or it was clawed back from their incomes. ‘It goes straight to my kids and it’s them that it will hit.’
We’ve developed a calculator which shows just how much families will lose as a result of these policies.
A lot of the anger in reaction to the proposal is around the unfairness of the threshold. Families with only one earner in the higher income tax bracket will lose child benefit, whereas families with two earners just below the threshold will not – even though the family with two earners may in total be tens of thousands of pounds better off each year.
The sums involved are eye-watering. Families with two children stand to lose up to £31,500, over £1750 a year. The IFS Green Budget highlights the impact on work incentives. As Child Benefit is not taxed, families would need to earn significantly more than these figures in extra income, to make good the damage. For 200,000 families just under the higher rate tax threshold, this amounts to a massive disincentive to work and earn more. For 170,000 families just over the threshold, this is an incentive to reduce hours and cut pay.
While this aspect is deeply unfair, there is nothing ‘fair’ about taking child benefit away from any families at all.
The British tax and benefit system has recognised the cost of raising children for over 200 years. Families with children face higher costs than families without children and it is right that the tax and benefit system recognises this. The tax and benefit system used to recognise these extra costs by providing a tax allowance for children, but in 1977 Child Benefit replaced these child tax allowances so that they could benefit the main carer (usually the mother) rather than the main earner (usually the father), and because tax breaks do not help families on low incomes who do not pay tax. Research shows that when the main carer (usually the mother) receives the money rather than the main earner, it is much more likely to be spent on children’s needs.
David Cameron promised to make Britain the most family friendly country in Europe. The only EU country that does not give some form of support for all children is Italy, which also has one of the highest child poverty rates in Europe. The Prime Minster should stick to his ‘family friendly’ promise. Asking only households with children to pay for the deficit – rather than all households – could never be family friendly.