Child benefit and child tax credits represent the second biggest area of welfare spending, after pensioners. Public spending should be invested disproportionately in ensuring that all children fulfil their potential and develop the skills needed for tomorrow’s jobs, and that we intervene early to prevent, rather than react to, problems. However, this does not mean that current child-related expenditure is spent as well as it could be. Here are two considerations ahead of the Autumn Statement.
Firstly, any real-terms reduction in spending on child-related cash transfers should go alongside increased investment in early years support and childcare, especially for poorer families.
By international standards, the UK directs a disproportionate amount of money towards cash benefits rather than to services such as early years education. The coalition has rightly recognised that both the cost and quality of childcare are key issues. Nick Clegg has told us he’s “determined to make sure we do more, and do it better [... and] if we can find the money, we’ll try to make that possible”. Shifting money from child-related cash transfers may be a way to fund this provision of quality childcare, and a better way of helping families and meeting ambitions on social mobility, school performance and long-term economic health.
This is in keeping with the conclusions of the Independent Review on Poverty and Life Chances, led by Labour MP Frank Field. This said that child poverty targets have led to too great an emphasis on cash transfers and suggests, “no longer should governments automatically increase benefits for children but in each financial year consider whether the life chances of poorer children will be increased more by transferring any benefit increases into building the Foundation Years”. This ties in to new measures of child poverty and early child development.
Graduate-led early years education is key, but early years investment must also include areas such as pre-natal support, health visitors and family nurse partnerships, maternal health, parenting programmes, and ensuring a good home learning environment. The upcoming Early Intervention Foundation should help identify the most effective interventions. None of this is to say that cash transfers are not important; only that more may be achieved by redirecting just a fraction of this spending.
Secondly, the government should consider varying child benefit and child tax credit by the child’s age.
Child benefits do not currently vary by age. Support is equal from birth all the way up to 16, or even 20 for some on child tax credits. If the government is to make any cuts to child benefits, harm could be minimised and value-for-money increased by protecting certain age ranges. Variations should be based on the impact on child development, the cost of supporting a child of that age, and work incentives.
As a first guess, a smarter benefit system might give the highest rate to 0-1 year olds (like the now-scrapped ‘baby element’), a generous rate for 1-5 year olds, and a lower rate for over 5s. These benefits could even decrease steadily with each year of age.
Targeting cash transfers at 0-5 year olds seems sensible given the developmental importance of these foundation years. But it may also have the bonus of raising employment by encouraging more parents back into work once their children start school. It was for this reason that both the Tax by Design study and the report of the Commission on Living Standards suggested that child tax credits should be lower for children over 5 than for those under.
These two debates go alongside three others: the balance between the first, second and subsequent children; the balance between child tax credits and child benefit; and whether any changes should apply only to future children.
Even if the economy were booming these would be important questions, helping to deliver the best outcomes from public spending. With the prospect of further cuts to child benefits, we can’t afford not to look at how best they can be directed and how reform might tie into increased investment in quality childcare and other early years support.
* Adam Corlett is an economics researcher at CentreForum, the liberal think tank, and vice-chair of the Liberal Democrats for Drug Policy Reform.