Child benefit: hitting the middle, not just the rich

One point that has been made in relation to the child benefit changes is that earning £44,000 is not “average”, but puts you in the top 10% of earners in the country. (Indeed, I made it in my own previous post.)

Before we get too carried away with that idea, however, we should bear in mind this is about household income rather than individuals. To see what type of households this change will affect, I went over to the Institute of Fiscal Studies’ excellent “Where do you fit in?” site and entered the following details:

  • Family of four: two adults, single earner, two children aged 0-13.
  • Household income after tax: £32,860 (equating to £45,000 gross for a single earner, according to this calculator).
  • Council tax: £1,200 a year.

According to the IFS, a family fitting that profile is on the 57th percentile of household incomes:

In other words, more or less slap bang in the middle – and with plenty of people only just below that level, whose aspirations to a higher income will be discouraged (to put it mildly) by the prospect of an instant loss of child benefit.

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6 thoughts on “Child benefit: hitting the middle, not just the rich”

  1. Or, more to the point, a single earner household just into the higher rate has a lower gross income than two earners on the national average. However, I’m not sure that you can raise a strong redistributive case against cutting benefits for individuals or households in the upper half of the income scale. How many upper tax payers are single earner households? (Next question: remind me why you were opposed to the married couple’s allowance?)

    You do raise a genuine technical issue when it comes to total withdrawal at the threshold. I hope that this is a detail which will be clarified in the CSR, because it will as you say put an insanely high marginal tax rate at the threshold, and create a dead zone for income where people with children are concerned. It must be a bit of a horror story for salary negotiations: “If you didn’t have children, we’d offer you a raise…”

    1. Well, as Chris Dillow points out, the “universal credit” could be a stepping stone towards a “citizens’ basic income”, merging the personal tax allowance with benefits and tax credits. Apparently (I’ve not done the maths myself!) this would have the effect of reducing some of these issues with marginal rates.

      Married couple’s allowance: where to begin? Other than to say there’s a reason why a Tory government abolished it.

      And as I’ve said, the argument against excluding households or individuals in the upper half of the income scale from the benefit system altogether is that universal benefits are, overall, more redistributive than means-tested benefits, because take-up is higher and the benefits have wider acceptance across society – and are therefore less prone to being frozen or cut. (Do you seriously think child benefit will even exist in ten years’ time if the Conservatives are re-elected in 2015?)

      See, in particular, the Fabian Society research referenced in the Left Foot Forward post I linked, which states that:

      …welfare institutions that are focused only on the poorest do less well at reducing poverty than “broadly based systems which aim to reflect a shared sense of citizenship across society”.

  2. My point about the married couple’s allowance was that, as I recall it (and I was wanting you to refresh my memory in case I’ve got this wrong), you were arguing that it should not be reinstated because it would only be of significant benefit to single-earner HRT households. They are exactly the households you are now defending as being in the middle of the income scale and therefore not deserving of a cut to benefits of roughly the same order of magnitude as reinstating the MCA.

    1. Few points in response:

      1. I was just addressing the specific argument that this change only affects the top 10% or 15% of earners.

      2. In any event, we’re not talking here about a new measure that distributes fresh money to single-earner HRT households. I don’t think such households should be given additional handouts, but nor are they necessarily the most obvious people to target in any squeeze. (In economic terms, anyway. In political terms, hitting child benefit is a much more palatable way of raising £1bn from higher-rate taxpayers than increasing the amount of direct taxation they pay, even if that makes this – in effect – a redistribution of wealth from HRTs with children under 18 to those without.)

      3. The married couple’s allowance has all sorts of other problems associated with it, such as the tax hit for (usually) women whose husbands leave home (or die), taking the tax break with them.

      4. Higher-rate taxpayers won’t get the proposed married couple’s allowance anyway (should it ever happen), which adds to the marginal effect for those who cross the threshold. (And, IIRC, the higher-rate threshold is being brought down over the next few years anyway to pay for raising the personal allowance, so more people will be caught in this particular trap.)

  3. Back on-topic properly, did you see Dillow on the incidence of CB? Apparently, it mostly goes on alcohol and adults’ clothing, because parents have already done all the ‘child-related’ spending they would have done.

    1. Yes, a very jolly post that. “Osborne blow to UK drinks industry”. 🙂

      I’m not sure that matters though. Child benefit is paid to recognise the additional costs of raising children. I don’t see how that principle is affected by the fact that most parents, when their income falls, will cut back on themselves before their children.

      (In fact, I’m going to scurry off and make just that point on Dillow’s comment thread!)

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