Monday, October 04, 2010

Child Benefit Shock - my first reaction

Featured on Liberal Democrat Voice

Monday mornings are bad enough without waking up to the news that this Government is continuing on its quest to screw our financial planning up. First of all, they raise retirement age to 66 in the year my husband reaches 65, secondly they are going to take our child benefit off us at a time when for the first time ever we are likely to stray in to the higher rate of tax for pension type reasons.

I have 3 issues with the plans to take Child Benefit from higher rate taxpayers George Osborne told the nation over its cornflakes this morning.  I will take the least important first:

Why, in the name of the wee man upstairs that I don't think exists, are we learning about this at a Tory Party Conference and not announced to Parliament? Heavens, this looks like an act of spin so sneaky that it's worthy of Alistair Campbell. Over the weekend stories circulated about Child Benefit being taken from those over 16 and Education Maintenance Allowance, which allows and encourages kids to stay at school after 16 would be scrapped. That worried me greatly to the extent that today's announcement seems an improvement. I don't like my head being messed with by anyone and especially not George Osborne, thank you very much. I didn't like it when Labour ministers announced things in the media and I don't like it when Coalition ministers do either.

The second, and now we're getting into the important stuff, and one of the first things I thought of. If this is to affect households with one or more higher rate taxpayers, families with one earner are going to be heavily disadvantaged. Let me show you how: One family with one parent earning £44,000 while the other stays at home to look after the kids will lose their Child Benefit. The family living across the road where both parents earn £43,999 each, with a combined income of £87,999, will get to keep their Child Benefit. That is completely unfair. Or even a closer example. One family with stay at home parent earning £44,000 would not qualify, the household across the road with a joint income of £50,000 made up of £25,000 each will. That just doesn't seem right or fair and we need to address that.

Why don't they just take it away from all families with a household income of £50,000 or even £60,000 or more? That would be fairer than the initial proposals and I'd feel more comfortable about it.

I've often thought that taking 40% of your income in tax at £37000 and keeping it that way until £150,000 is not fair. I wonder if we actually need an interim tax band of maybe 28% up to around £55,000-£60,000 and then pump it up to 40%. Decent housing doesn't come cheap, especially in some areas of the south of England. While for the highest earners in that band, Child Benefit might pay for extras, to a family just over the  40% tax band, it can be essential.

The final point - if there is a drop in income, if someone loses their job, for example, Child Benefit must be restored immediately - none of this mucking around as there is with the Tax Credit system, that they've had all they're entitled to for that year. Similarly, in cases of a marriage break up, the parent with the children can't be kept waiting for ages to get the vital Benefit.

There is a case that we should all pay for the raising of children,and Child Benefit is often the only income paid to the woman. The Government does need to look at the impact of this. During the Liberal Democrat Conference, I listened to one speaker describe situations where women who, for whatever reason couldn't work, had Child Benefit as their only source of income. Putting an arbitrary age limit would have adversely affected them, but removing from higher rate taxpayers will have no impact.

Ultimately if I have to choose between everyone losing child benefit at 16, and restricting it to basic rate taxpayers, I'd choose the latter because it is fairer. If we lose it, we won't have to make any choices about whether we eat or heat our homes. If our losing it means freeing people from real poverty, then I can live with it.

Of course, I have to see where it fits into the context of the whole welfare reform package which I'm still very concerned about. My support for this measure is conditional on them sorting out the household income issue, but if they do that, I will back it.

Update: Next Left has come up with another question that I hadn't considered, but it needs answering. Basically if you are not earning and you have a child under 16, you automatically get NI credits called Home Responsibility Protection. Under new child benefit arrangements, it's important to make sure that stay at home parents in the same household as higher rate tax payers continue to receive those credits. If they don't, then their state pension could be reduced as a result. That's unfair in principle, but it will impact on women most whose lifetime earnings potential is often lower anyway.

4 comments:

Keith Legg said...

George Osborne confirmed twice this morning - once in the interview on BBC Breakfast and again on Five Live - that they weren't going to look at household income because it was "too difficult" (his words, not mine.) Sian Williams did pursue this a bit (and credit to her for doing so, she didn't know he was going to talk about this.)

I completely agree - it was the first thing that struck me about it. The second was the historical reason for child benefit - the idea was that the woman had some money in her pocket that the man couldn't touch. OK, so society has moved on a bit since then, but it's still women who predominantly claim CB and men who are the higher / sole earners - and I'd suspect that men who don't want to hand over cash would be just as likely to refuse to do so in the higher tax bracket as they are in the lower tax bracket.

Jennie said...

I think George picked his words badly. To take CB away from a claimant who earns over £44k is relatively cheap in terms of administrative costs; if you're going to assess it by household then there's no point taking it away from anyone because the cost of administering the assessment system would swallow up any gain from stopping the benefit.

Caron, I think this is one of those rare occasions where we disagree. I share some of your worries, but in general, I think this is a good idea.

Neil M said...

Caron, as always the passion of your convictions comes through clearly. On this occasion though you and I take different views. I cannot see any justification for the well off getting benefits when the hard-stretched welfare budget has a primary responsibility to protect the most vulnerable in our society. Having said that you make a very strong point (second point) about the discrepancies in the proposals and this should be sorted out before legislation is presented to Parliament.
And on a small point can I say that I don’t think there is anything wrong with government ministers telling their party conferences about their plans in advance, this is not the same as leaking a Bill to the Today programme hours before Parliament debates it. And I certainly didn’t think there was anything wrong with it when it was Liberal Democrat ministers telling the Scottish Liberal Democrat conference of their intention to implement party policy as happened on several occasions.

KelvinKid said...

I have seen no figures but I cannot help thinking that it will cost as much to means test child benefit as it saves in not paying it to higher earners. This strikes me as a very badly thought out policy poorly presented. It smacks of a desire to grab a headline more than build a coherent benefit system. Are we to see five years of this? Coherent policy changes traded in for a series of Daily Mail placating soundbites. Surely we had enough of that under Labour?

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