I was going to make these points as a comment on Tom Neumark’s recent post about taxes and benefits, but since they also pick up on something written by Emma Norris a couple of weeks ago on the politics of TINA, I thought I’d post them in their own right.
As we all know, George Osborne has just announced that Child Benefit will be cut for families where one (or more) parent pays higher rate tax. On the face of it, cutting a benefit for people who earn enough to be liable for higher rate tax seems like a no-brainer, an ‘easy win’, and we’re invited to ask ourselves whether they should have been getting it in the first place. In reality, of course, it’s not so simple: the lack of a taper makes the change easy to understand and administer, but it also means the cut will hit some types of family harder than others. Extreme but presumably fairly rare examples of this inequity have been widely touted, and the opportunity to criticise has been seized upon, often strongly.
So far, so predictable. But in this flurry of comparisons between families, a couple of important wider points seem to have been missed. First, universal benefits like Child Benefit or indeed the Winter Fuel Allowance recognise that there are periods in people’s lives when their circumstances mean their disposable income is lower than it might otherwise be. Having dependent children and being retired are the two main examples. Removing or restricting an existing universal benefit inherently involves targeting people who have less disposable income simply by virtue of their lifestage, while sparing those who have more. This hardly seems fair, no matter how much money the people involved have. Shouldn’t higher rate tax payers without dependent children be asked to contribute as well?
Second, perhaps more insidiously, cutting a universal benefit removes one of the few obvious stakes the affluent have in the welfare system – one of the few things they feel they ‘get back’ in return for the substantial contributions they make to it (I don’t count free access to the NHS, as this tends to be taken for granted, and you don’t see it in your bank account every month). These stakes, however small, remind the affluent that there is something in the welfare system for them, that they get some ‘return on their investment’, and it’s not all give, give, give. Withdrawing them risks breaking this relationship between give and take completely, subtly increasing resentment (and decreasing understanding) of the ‘benefits culture’ and people who are felt to take without giving, and widening social divisions at a time when we’re all supposed to be in this together. This would not be helpful.
The real rub in all this lies in the fact that, taken in isolation, the idea of Child Benefit for higher rate tax payers is pretty indefensible in the current economic situation. No one would countenance it if it did not already exist. But it does exist, and the reason why cutting it has caused such uproar is that it has become the status quo: families have come to take it for granted, to expect it and, in many cases, to depend on it. Ironically, removing Child Benefit ought to increase levels of empathy with those on benefits, as it forces parents who feel they can’t do without it to reflect on the fact that ‘benefit dependency’ can affect them as well. But I don’t expect people will see it like that.
And what about TINA? Apart from raising VAT, at the moment cutting Child Benefit is the only substantial fiscal measure on the table, and once again TINA has been brought out to argue its case. We’re told it’s a difficult but necessary choice. It may well turn out to be a necessary element of a wider suite of cost-saving measures, but whatever the politicians may say, it’s surely not the case that ‘there is no alternative’ to it at this point.
I’m no economist, but increasing higher rate income tax a little would presumably raise/save the same sum, and do so by targeting all higher rate payers, not just parents with less disposable income. And it would be linked to income, so be fairer than an all-or-nothing benefit cut that will hit those earning just over the tax threshold harder than those on higher incomes. There is always an alternative, and the Treasury must have considered this and others. Further cuts and tax rises may well be introduced in due course, and changes to Child Benefit may prove necessary as part of this, but it would be nice, as Emma suggests, to know why there are no alternatives right now.
Just for the record, I have two young children, and so receive Child Benefit. In answer to Tom’s question, I would prefer to make my contribution to reducing the deficit through higher levels of income tax and have Child Benefit continue as a universal benefit. But you probably could have worked that out for yourselves. And incidentally, my wife disagrees with most of what I’ve said here, so please feel free to tell me I’ve got it all wrong!