Opinion: It’s time to reform child benefit

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 economist analyst at the Resolution Foundation, and writes here in a personal capacity as a party member.

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9 Comments

  • I do not agree with this article.

    For a start , feeding and clothing a child of 14 is much more expensive than a 5 year old.

  • Adam Corlett 22nd Nov '12 - 4:48pm

    CP: would you disagree with the idea that we should look into varying these benefits “based on the impact on child development, the cost of supporting a child of that age, and work incentives” or do you just disagree with my “first guess”?

    Food costs do significantly increase with age, of course, but childcare costs decrease (for now?) and household incomes must increase (as parents return to work; as people earn more as they get older; and because the future should be richer). Data from the US (for what that’s worth) show that for a dual-parent family, it costs about 10% more per year to look after a 12-17 year old than for a 0-5 year old. My guess was that this difference doesn’t outweigh the huge developmental importance of the early years and the research on work incentives.

    PS It’s my own fault for not coming up with a good one, but LDV’s chosen title for this article is a bit misleading. For one thing, I’m talking in general terms about both child benefit and child tax credits.

  • Adam Corlett 22nd Nov '12 - 5:14pm

    Further to my comment above, a UK report from January – ‘Cost of a Child: From cradle to college 2012′ – calculated an average cost of £10,261 for the first year of parenting, £14,140 per year for ages 1-4 and around £7,600 for 5-17. Added to the reasons above, that’s a clear case for targeting money – through benefits and/or subsidised childcare – at those earlier years.

  • Mark Inskip 22nd Nov '12 - 8:39pm

    @ Adam Corlett
    And that same report shows the cost is around £17,500 for 18 to 21. How are you going to deal with that aspect?

  • Adam Corlett 22nd Nov '12 - 10:38pm

    Mark, I didn’t mention that partly because that’s usually out of the scope of child benefits but mainly because it’s so variable. Poorer parents whose child goes to uni shouldn’t really be paying anything. Richer parents may pay more. And some children will be off earning plenty of money themselves.

    In any case, I struggle to see how the £17,500 per year figure is at all plausible, unless it treats tuition fees loans as an unfront cost to parents, or is distorted by some parents buying their children houses and cars.

  • The fair way to raise revenue is to increase tax rates. Child benefit is a misnomer, it’s really an allowance to help parents with the massive costs of bringing up a child. Why are we even considering reducing ‘benefits’ for children, whatever happened to 1p on tax to pay for the nation’s’ needs?

  • Adam Corlett 22nd Nov '12 - 11:45pm

    Nic: I’d be tempted to agree that we should increase early years and other education spending while maintaining these cash transfers, but that doesn’t seem a helpful thing to say in the present climate! And it doesn’t tackle the question of whether these child ‘allowances’ should be the same for every age. Thanks, Adam

    PS I now think the ‘Cost of a Child’ report I referred to should probably be dismissed as churnalism. Unfortunately I haven’t yet found any better data for the UK.

  • Why are single mothers having their money cut all the time and forced to go out to work when our youngest Child turns 5? It should be the individuals choice, alot of people without Children can’t even find a Job, so why are we forced to look for one? We already have one, the time the Children are at School, is the time we can catch up on Housework, decorating and such like.

  • Helen Dudden 24th Nov '12 - 10:21am

    Child care is very expensive, and how about when the child is unwell, some children do have health issues. I am fully behind regeneration of some housing estates here, in the west country. To live and exist in somewhere decent, is the stepping stones to a brighter future.

    I still feel that while children are at school, good eating habits should be helped, and meals should reflect that . Times are difficult, and no child should be hungry.

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