The participants of talk radio were seething this morning, as people complained that they will lose child benefit if they are earning over £50,000. There was one particular man on Radio Berkshire shouting at his phone about it.
I think we need to step back here. Child Benefit’s predecessor, Family Allowance was introduced in 1946. Part of the reason for this was to encourage or, at least, facilitate the repopulation of the country following the killing of the war. The government was particularly keen on people producing boys. My own family duly did their patriotic duty splendidly by producing seven children, including six of the male variant.
We’ve moved on now. The government no longer needs to encourage reproduction.
The 1946 era was such that it was decided to pay the money to mothers. These were the days when, in many families, the father was the single earner and chucked a bit of money at his wife on a Friday night to look after the kids before going down the pub to spend the rest.
Times have changed (somewhat – hopefully).
It is fair that those who earn a bit more do their patriotic duty now to help reduce the deficit.
After all, child benefit (family allowance) was originally intended to pay for those bare necessities such as food and shoes to go to school. These days, if you are earning more than £50,000, child benefit is most likely to be spent on another computer or Sky Plus top-up subscription.
* Paul Walter is a Liberal Democrat activist and member of the Liberal Democrat Voice team. He blogs at Liberal Burblings.
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68 Comments
As well as times changing, is it perhaps possible that the motive of child benefit changed from encouraging reproduction to topping up the incomes of low earning/no earning families?
The coalition are all very keen on the idea that richer families should not receive child benefit, but resolutely refuse to discuss the possibility of increasing it for low income families.
Like much of the debate on the child benefit changes, this article misses the point. Because it is universal, Child Benefit helps sustain support of higher earners for the welfare state. If those in highest tax bracket come to feel that they are only paying for others, incentives to avoid/evade tax will grow. Meanwhile, in line with the logic of this article, future governments are likely to progressively lower the cut-off point for receipt of Child Benefit, causing it to become increasingly targetted on families ‘in need’. While this has a superficial social justice logic, it is almost certain to result in additional resentment towards lower income families with children. It’s worth noting that there were plenty of families in 1948 who didn’t strictly ‘need’ what was then Family Allowance to feed or clothe their children. The decision to make it universal was made precisely to avoid the stigmatisation of those who receive it.
If you accept that nobody needs more than £50,000 p.a. and that nobody should keep more than they need then you should introduce a 100% rate at that level. If, as the government accepts in all other situations, you believe that people contribute more when allowed to keep a fair proportion of their earnings, it makes no sense to introduce a specific 65% rate for upper-middle earning one-income families .
g – I’m not sure they refuse to discuss the possibility of increasing it for low income families. Thanks to the Benefit Uprating Bill that will be debated tomorrow, increases in child benefit will be capped at 1% until 2016, meaning a real terms decrease in value of child benefit.
All good points, but the real problem is that for a government who like to use (or abuse) the word fairness why is this not based upon household income ??
My wife will lose our child benefit, although generally a part time worker to enable child care, she is currently on SMP only whilst at home with our 4 month old daughter. Over the last few years, she gave up several promotion opportunity to support me in achieving a good position and good wage. Our joint income is far less than £99,999 and certainly less than many of our peers who, as couples, have two moderate wages coming in and will keep the benefit.
Anyone who does not voluntarily give up the benefit will be required to submit a tax return. Surely, a better, fairer, system would be to make this both partners and make them declare the other partners’ UTR. By doing so the joint income would be apparent and a simple decision could be made. If income after tax >= x then recoup / withhold the benefit.
We would probably still lose our child benefit, but would be content that it was being applied fairly. In those circumstances I would wholeheartedly support the change. The coalition have had two years to make this fair and have failed. This is a great example of an attempt to do the right thing meeting incompetent implementation and administration….
One plank of the argument for universal child benefit is the idea that the benefit is paid to the mother. The example of a household where the father earns the money but the mother doesn’t see any of it , and the mother has to rely on the child benefit to live off.
This is all outdated for many reasons; There is still only one name on a child benefit record, but this can be either the mother or father and there needs to be no special justification for the family’s choice. It is usual for benefits to be paid by bank transfer, and common for them to be paid into a joint account.
And I don’t think it’s nanny statist to suggest that in a family where the father drinks and gambles all his income away, leaving his wife and children to rely on state handouts, The family needs more direct intervention than being propped up by the pittance of child benefit. This is the 21st century, after all.
There are many good points in the above article, but it misses the point that most people are upset about, a family benefit should be paid based on family income, not an individual’s income.
How can it be “fair” for a couple earning £40,000 each (family income £80,000) gets full benefit, but a single working parent earning £50,000 gets nothing.
While we no longer live in a time where we need to repopulate the nation, we also no longer live in a time when the man goes to work and wifey stays at home with the kids, but this policy seems to think that we do.
I personally don’t believe that it would cost significantly more to administer, as there is already an administration cost involved in determining that Mrs X is ineligible for the benefit as she is married to Mr X who earns more than the cut-off
I am going to lose the benefit and in principal dont have a problem with it as when times are tough the higher earners should contribute, I also agree it should be capped at 2 children. My real issue with this policy is that Cameron keeps saying it is fair and it blatantly is not fair. How can it be fair when a family with 2 people combined earnings of close to £100k still receive the child benefit, but a single earning traditional family earning £50k – £60k lose the payments. As I said I do think the child benefit system needs looking at but this policy will just cause anger in the 15% of the country that Cameron says will be affected. Thats 15% of the vote he has just lost and couldnt afford to – The coalitions time is up!
There are two things missing from Paul’s comment.
1. This change makes the tax system more complex. The coalition government talked about making the tax system simpler and reversing some of Gordon Brown’s complexity. This doesn’t – in many ways it’s worse than some of the things Labour did – just targeted at the other end of the spectrum – at least tax credits were supposed to held less well-off families (even if the administration was shambolic). For this change, the threshold £50,000 is only a starting point – it can be changed by making charitable donations or paying into a pension – and the final tax liability will only be known once the higher earner receives notice of any taxable benefits (often over a year after the original child benefit has been received – and spent). That the change is being brought in today – rather than in April – is crazy and only benefits accountants.
2. We should either have a tax system based on household income or individual income. Any combination will always throw up losers. Or is this the Conservatives’ married tax allowance (in reverse)?
BTW – the argument about support for the welfare system is a red herring – I don’t think parents paying income tax at 40% need that encouragement – they will most likely have received a tax free income of at least £5,000 via maternity benefit on the birth of each child, if the mother was at work – and if not, they’re not missing anything.
I am moderately effected by this change to I guess I have a vested interest in this topic. However, my main issue is with all the anomalies this change throw up: –
1 . It harshly punishes families where one partner has chosen to not work (to rear children) and the other is the main bread winner and has managed to attain an good income as a result.
2. It harshly punishes people with larger families and good incomes. So much so that potentially somebody earning £50,000 with 4 children would keep less than 30% of any bonus or overtime their earn. Given marginal tax rates of 50% were a huge disincentive for people earning over £100,000 (and apparently the tax rate needed to be lowered), this seem a very odd calculation from the coalition.
If the policy was to get the wealth to pay more towards paying down the debt then there is a simple solution – Tax the wealthy more. This would be fairer as people would be paying based on what they earn and not on family size. However, I suspect this is all part of a plan to remove child benefit completely. Slowly over time wages will go up and the £50,000 cut off point won’t change and the net effect is that the anomalies will increase to a point where child benefit will seem so absurd that it ends up being scrapped altogether! Yet another fine policy from the coalition!!!
Overall I support the change.
As Paul sets out, the circumstances that led to the introduction of Child Benefit simply don’t apply nowadays, and in a period when we have to collectively deal with the deficit it is one way of reducing the welfare bill that doesn’t harm people in need.
For me there is a parallel with the equally reasonable changes to the state pension age, a reform that should have been started decades ago and would have caused far less pain if it had been.
I do have some sympathy with the point about finding a way to base the change on household income rather than individuals, but I suspect this is a relatively small number of people in reality and the gain outweighs this .
If we are concerned about fairness, why is no-one in the Party agitating about the marginal rate of 60% that now exists when an income hits over £100, 000 income as the result of the personal allowance being reduced pound-for-pound above that income level. What the hell is that about? If I receive one more email from Danny Alexander yapping about ‘making everyone better off’ by increasing the personal allowance,’ I will scream. I have been hit by this and now by Child Benefit. Guess what has been my first economy? My £100/month donation to the Party, that’s what. I am a high-earner; no question; I don’t mind paying more tax but not via these arbitary and ill-thought through ‘sniping’ cuts.
Given the reasons for the introduction of Family Allowance/Child Benefit have been more than met I see no reason why it should not be totally scrapped.
The Sky Plus subscription is a real red herring! The majority of subscribers to Sky Plus et al. earn significantly less than £50,000, if this wasn’t the case Sky would not be such a successful business…
No, if we really want to improve the life of ALL children born to UK residents (and taxpayers) then there are more effective (both in terms of cost and results) and targeted ways of achieving this, several of which have been discussed previously on LDV.
>It is fair that those who earn a bit more do their patriotic duty now to help pay down the deficit.
But that is not what is being done with the £2 billion of ‘revenue’ this scheme makes available… remember the debts were “eye wateringly large” in 2010 and the coalition is still massively increasing government spending and debt …
If paying down the deficit was a priority for the coalition then we would of be seeing year-on-year reductions in government spending
Also Paul has overlooked a rather embarrassing statistic for his argument: if you are a higher rate tax payer you are already paying more to the government than you are getting back…
Because of the various benefit changes, a four person household with one working parent and two under 16’s will need to have an income over £70,000 pa to have a similar disposable income to a similar household on £26,000 and full benefits – I think this illustrates quite nicely who the “squeezed middle” are and the real problem with the benefits system.
Whilst I think higher earning parents don’t *need* child benefit, the current implementation sucks beyond belief.
Imagine the following…
In November one parent was earning over 60k the other 40k, under the new scheme they would of course not receive any child benefit and so opt out of the process in an effort to avoid having the expense in time and money of completing a tax return (if you have never done a return then I feel very happy for you). Alas in December the higher earner looses their job due to an unexpected redundancy and every penny now counts so they have to opt back into the process. Of course being well paid and educated (and lucky) the higher earner finds a new job in February and opts back out of the system. This causes a lot of paperwork and the possibility of *lots* or errors occuring.
Would it not have been easier to raise income tax by 1%, on higher earners? That would have increased revenue by more than replacing universal benefits (which are easier and therefore cheaper to provide) and any additional revenue could have gone on keeping other out of work benefits in line with average wage increase (or paying down the debt).
The more I think about it the more I think we need to radically alter the whole tax/benefits system so that its simpler therefore less expensive to manage and harder to cheat at all points in the system.
How about creating a system that looks like:
National Minimum wage – The hourly rate a person must be paid no matter who or what they do, fixed on a national basis and dependent on age. Someone out of work receives the equivalent of 16 hours pay, a retired person gets 20 hours. This should, at 37.5 hours per week, be used for the threshold for basic rate tax
Local Living weekly wage – The rate of pay (set on a council wide basis) that some one needs to live on their own (this needs to be thought out properly as to what is need and what is want) anyone paid less than this receives a top up from their employer (which the employer claims back out of their tax bill) or from the Benefits Agency.
And that s it, no other benefits needed, the system should always make sure that people aren’t out of pocket for working more hours but at the same time protected when their incomes fall for whatever reason. With such a hard limit in place you also make the provision of social housing easier as you know how much a low income worker is going to get in an area.
Now the next things that needs fixing are the whole NI/Income Tax problem and introducing a LVT
The history is a bit more complex than Paul suggests. Family Allowance (paid via a weekly voucher) went to the mother but was only paid for the second and subsequent children. However, fathers were also entitled to a child tax allowance for each child. Sometime in the seventies these two elements of child support were amalgamated into one universal child benefit. At about the same time, the taxation of household income (where the income of the wife was treated as if it were that of the husband for tax purposes) was changed to individual taxation. At the time, neither of these changes was without controversy. The present fuss illustrates the problems that arise with these changes that took place 40 years ago. Universal benefits have the advantages of simple administration, sureness of receipt, and make everyone feel part of the welfare system. But they go go people who do not need them. The tax and benefits system is churning money from taxation to benefits and, even if the economy were performing better, governments of any colour would need to get some grip on it. Purnell and Byrnes in the last government were suggesting ways to reform benefits. They faced great difficulties because the politics is hard – as the man on Radio Berkshire illustrated. My only suggestion is that all benefits should be taxable through the normal tax system and at all levels of income (subject to tax allowances). In a dual income household benefits should split 50-50 and taxed accordingly. As an OAP, my pension is taxed but not my winter fuel payment. It does not make sense to me.
Would it be better if they based it on household income? Yes. Should it more intelligently taper so as not to skew incentives? Yes. Do I particularly *care* about the tiny minority of parents that are affected? No. They are earning more than twice the median gross national income, will often be sending their children to private school and/or have a nanny. If they have lots of children that’s their problem, not mine. At that income bracket Child Benefit isn’t going to be the difference between feeding the kids or heating the home or doing both. They’re not poor. They don’t need our help. Get over it.
The changes are just silly, and driven by right – wing dogma.
Universal benefits are the best way of lifting people out of poverty since they don’t have a means – test trap attached.
The most sensible way to tackle the perceived unfairness of higher rate tax payers getting child benefit is to increase higher rate tax to cover the cost.
The way this has been done is also unfair and stupid, since the focus is on individual income, not household income.
@Graeme Cowie:
Such concern for your fellow citizens is truly admirable. In that spirit, I heartily wish that you have a large family, especially daughters.
You never know, by the time they are ready to go to school, the Tories with support from the Orange Bookers (crocodile tears streaming down their faces), may have applied the means test to state education and healthcare as well.
Paul is right that this issue will hardly set the world on fire. Doesn’t hide the fact that the changes which we have ‘supported’ (sic)are irrelevant, unnecessarily complex and just plain daft. 🙁
@Graeme Cowie
“They are earning more than twice the median gross national income, will often be sending their children to private school and/or have a nanny.”
£60,000 gives a take home of £3,465.09 per month.
The average house price is £161,490 (http://www.landregistry.gov.uk/public/house-prices-and-sales) although you would assume that someone in the top bracket of earners has a house above this level lets assume a mortgage of around 160,000 at 5%. This would be £950 per month.
Private School fees average £11,500 per year (http://www.telegraph.co.uk/education/educationnews/9500429/Private-school-fees-soar-at-twice-the-rate-of-inflation.html)
A nanny anywhere up to £500 per week (http://www.littledarlingsnannyagency.co.uk/salary.htm)
Without looking at council tax and bills etc I suggest you reassess what the admittedly excellent salary of £60,000 actually allows. The people with a lifestyle you refer to are those earning a lot more than those this measure affects by failing to take into account household earnings. The government gave a tax cut to them which will probably more than offset the loss of Child Benefit…..
A couple who both earn £30,000 take home more at £3822.86. I doubt they would have a nanny either. The measure also does not affect the pair on £50K each who take home £5963.52 a combined salary that would allow some of the lifestyle elements you quote – and they keep the benefit.
The simple truth is that a properly thought out measure would have saved more money and been fairer. The better off should contribute more, rich pensioners shouldn’t get fuel payments or bus passes and better off parents, such as myself, shouldn’t get child benefit. The problem is that this measure is ineffective and inconsistent.
@JUF
Sorry, but I disagree with you and agree (basically – not sure about the nanny) with Graeme Cowie.
The simple fact is that the Government needs to cut public spending and this particular cut is one of the least objectionable.
It also has the advantage of bringing out those who claim to be on the left in defence of the indefensible.
Incidentally, if anyone is really concerned about anomalies in the tax and benefit system as it affects high earners, they should turn their attention to the fact that someone on £110,000 pa has a higher marginal rate of income tax than someone on £220,000 pa.
Interesting comment from Graeme, it’s a misconception if you think people who earn 50 or 60k are wealthy. I only wish I could send my kids to a private education, a nanny would be nice as well, or, maybe I could buy a Porsche. Oh, I’m dreaming.
Of course we have to trim the deficit and the fairest way with Child Family Allowance is to base it on joint income. Like everyone else the government knows this but it doesn’t make political sense. Only 15% of the working population are affected by the changes, if it was based on joint income the % would be higher thus denting their position in the opinion polls. At the end of the day, money in your pocket determines who you vote for. It’s about politics, not fairness.
@Graeme Cowie so naive!
>They are earning more than twice the median gross national income,
Yes they will be EARNING the money the government uses to pay benefits – typically the amount of tax they pay will be equal to or more than the benefits paid to a low income family, so effectively the one income will be supporting two (unrelated) families.
>will often be sending their children to private school
A sweeping generalisation that is based more on a fevered imagination rather than reality – if you don’t believe me just do the maths – fee’s are just the most visible of the various demands/requests for money, but then even state schools are increasingly asking for money (at my children’s state school the cost of school trips includes a surcharge so that those on ‘low incomes’ can be subsidised) …
Further if you do some additional maths, you will see that the typical parent sending their child to private school, is paying:
1) Through their taxes towards state education (but not using it, so effectively paying for someone else’s child) meaning that the state system is smaller and costing the taxpayer less.
2) Through the school fee’s, contributions to bursary’s etc for deserving children and to making the schools facilities available to state schools, thereby further helping to reduce the cost to the taxpayer.
Also what is so wrong about providing employment for qualified teachers?
So in conclusion the state does quite well out of the people who freely choose to send their children to private schools.
>and/or have a nanny.
Yet another sweeping generalisation, once again what is wrong with providing employment to a UK citizen who needs the money?
>If they have lots of children that’s their problem, not mine.
Totally agree, however this also applies equally to those on low incomes.
>At that income bracket Child Benefit isn’t going to be the difference between feeding the kids or heating the home or doing both.
Totally agree, likewise this also applies to those on low incomes who have Sky, smoke, regularly go to the pub or eat McD’s etc. etc. as they obviously are not poor. And in any case should we be making it easier for people on ‘low incomes’ to have children which they so obviously could not otherwise afford to provide for?
No whilst whilst we can expect those who do well in life to contribute more to society and be more responsible for their actions this does not mean that we should not expect those who do less well to shirk their responsibilities. So if you expect me to contribute to your household finances you have to accept that such funds will come with strings attached.
Crush is right. The simple way to fairness is not to replace a universal benefit with a means test, but to increase higher rate tax. The reason why the Tories would prefer to do something needlessly complex and inefficient is because it suits their propaganda image to be seen clobbering benefits, whereas they would hate to be seen raising taxes. We are of course joining the Tories in taking this stance.
Paul does have a point. The people who are losing money can spare it.
But it isn’t the crucial point, and the reason why it isn’t is given in Paul’s post itself. People are “shouting at the phone” about it.
Whenever a section of the public is hit by a tax rise, they tend not to like it. They seek a cause about which they can get angry. If they really can’t find one at all, they tend to simmer down and walk away muttering to themselves. But if they can find some sort of peg on which to hang an argument – Then it’s Ranters Away!
And, here we have a peg to hang the argument on. The perceived effectiveness of the one-income cap. The awkward timescale. The horror of doing a tax return. So in fact there are at least three pegs! Now Paul may argue that none of those arguments are actually earth-shattering in their unfairness (not, for example, on the same plane as an ATOS assessment of disability). But that isn’t the point. People who want to make a big fuss are being given the opportunity to do so. They will. It will hurt the Coalition.
I have no problem with universal child benefit. . Every generation (not just in the post WW2 era) has a duty to perpetuate the human race with 2 and1/2 children and to my mind child benefit is a tax rebate in disguise. Certainly savings have to be made – the current cost of benefits as a whole is an intolerable burden for everybody – but soaking the rich is not the solution. Better that society addresses the problem of studs who engage in recreational sex fathering children without any thought of responsibility for their upkeep matched by the culture of girls in no stable relationship who view pregnancy as the key to a council provided flat of their own . This is a statement that is easier to make than it is to address without inflicting hardship on the innocent offspring of a casual relationship but difficulty is not a valid excuse for giving up on the problem and passing the buck to responsible but wealthy parents
I have mixed views about the Child Benefit Changes but agree that an increase in the higher rate of Income Tax might have been better. Having a 50% tax rate for the chunk of income above £150,000 would seem fairer, staggered and progressive. Personally I would support a 50% rate for incomes above £120,000. I do not think that the argument that such a rate doesnt collect enough stands up. It CAN be made to work with the right commitment and resources! Just like making Multinational Companies pay a fair contribution CAN be made to work with the right commitment, resources and international co-operation, in my view.
David Allen 7th Jan ’13 – 2:33pm……………… The simple way to fairness is not to replace a universal benefit with a means test, but to increase higher rate tax. The reason why the Tories would prefer to do something needlessly complex and inefficient is because it suits their propaganda image to be seen clobbering benefits, whereas they would hate to be seen raising taxes. We are of course joining the Tories in taking this stance…………….
But more than that. A ‘universal tax’ which is frozen (and after 2014 will still lag behind inflation) will hit the poorest hardest…Dogma driven ? Of course. After all, the poorest don’t vote Conservative….
last paragraph should read ‘universal benefit’….
@ Rob Heale
“It CAN be made to work with the right commitment and resources! Just like making Multinational Companies pay a fair contribution CAN be made to work with the right commitment, resources and international co-operation, in my view.”
Perhaps you would like to provide an example in the UK when we have achieved that?
“I CAN make the tide stay back…”
The CB changes are cost-effective. Cost-effective does not mean fair.
A family with a single earner on 60k loses all CB. A family with two earners on 49k each, total 98k, keeps all CB.
How is that fair ?
Neither are poor, but why tax the poorer of the two more than the richer ?
wouldn’t it be nice to earn that much money!!.. simple, scrap CB and replace it with a tax allowance, then adjust benefits/credits for those on low incomes and unemployed..
As has been pointed out this change is not “fair” as it penalizes families with a stay-at-home parent.
Then again, maybe that is the point?
This way the stay-at-home parent will in many cases be “forced” back into the workforce , except of course if you are rich enough that such changes won’t impact your finances anyway (as you are maxing out your Junior ISA/CTF with your “pocket change”).
Many people impacted by this will see it as a case of the politicans are overspending so THEIR kids are going to take a hit. Child Benefit, after all, is supposed to be for the child, not the parents.
I wonder are such people more likely to vote Lib-Dem or Tory?
The comment I make here, is NOT, a suggestion that this Child Benefit cut to the high earners is a bad idea, in fact, quite the opposite. I believe it is (despite the admin mess), the fair thing to do.
However, pondering the possible effects, I wonder if the consequences, might turn out to be more profound than anticipated?
It has been suggested that it will affect 15%, of the wealthiest families. Interestingly, this 15%, might be close enough to kick in the 80/20 rule or its more complex mathematical analysis, The Pareto Principle.
Stated very briefly, the 80/20 rule suggests that 80% of the consequences, are derived from 20% of the root causes.
So those (15%), families that might have previously retained a take home pay of (say) £40,000 per year, might lose out to the tune of (say), £1500 per year. Not much really, and it frankly doesn’t put them in the ‘poor’ bracket. But the consequences of their spending pattern changes, (using the 80/20 rule), might be far more profound.
(Just a couple of examples) : If someone loses 4% of their income, they don’t go 4% less to the gym, or watch 4% less Sky TV, they cancel their subscription totally. Similarly, do they take the family to Sunday Lunch at their local pub/restaurant 4% less, or change to a different (less spending), weekend habit with the family?
Again, I’m shedding no tears for these wealthy earners, and I do believe this benefit cut is fair. I’m just saying, (assuming an 80/20 multiply effect), to the rest of the economy, “Watch Out Below”.
@Simon Shaw :
“if anyone is really concerned about anomalies in the tax and benefit system as it affects high earners, they should turn their attention to the fact that someone on £110,000 pa has a higher marginal rate of income tax than someone on £220,000 pa.”
Indeed. Why weren’t Osborne and Alexander addressing this issue rather than fafling around with child benefit in an ‘unfair’ manner?
A nanny? What planet are you on? Single earner household on 60k with 2 kids in south east will not typically have a nanny, that requires a bigger house with an extra bedroom. If you have grandparents living around the corner providing free childcare live is easy. If not with young kids you can either pay 12-15K a year in childcare or a parent can give up work. This change is punitive for people who put off having children until they could afford it and for single earner households, especially single parents.
The coalition had a goal of simplifying the tax system having accused Gordon Brown of tinkering with it. It seems they have done some particularly inept tinkering and made a right mess of the tax and benefit systems: –
http://blogs.spectator.co.uk/coffeehouse/2013/01/briefing-means-testing-child-benefit/
I have a vested interest as I’m losing out, however, I don’t particularly care about the money. In fact I really wouldn’t care that much if I were asked to pay more in tax than I’m losing in child benefit. What I object to is the unfairness of this on people with large families and a single earner. A £50,000 salary may put you in the top 15% of earners. But if the one sole earner brings in £50,000 then actually that doesn’t make them a rich couple. If £50,000 is twice the average salary then many couples with two average earners will be bringing in the same amount! (Hopefully this demonstrate the stupidity of remarks about earning £50,000 and having nannies and private education).
My prediction is the Tories have done this for a reason. As salaries increase, the absurdities of high marginal rates will hit more and more people until the overwhelming consensus is that child benefit needs to be scrapped because it is no longer fit for purpose. Yet another step to the ultimate goal of undoing the welfare state (with Lib Dems acting as cheerleaders).
@Paul
“My prediction is the Tories have done this for a reason.”
Yes it has been done for a reason, although it is the Coalition Government who have done it rather than the Tories.
That reason is to cut the welfare bill – in this case it is a cut which has no impact on low and middle earners. Why would anyone NOT support this?
@Simon Shaw
“Why would anyone NOT support this?”
Because it is unfairly applied. It’s not the principle (which is sound) but the implementation. The treasury have had almost 2 years to plan for this and have completely loused it up. This is a good idea turned into a lousy policy. It could have been a better idea if all universal benefits were included but Cameron doesn’t want to break his pledge…
Saying the people who are losing it can afford to is the politics of envy and smacks of the worst of old Labour. Saying ALL people who can afford to lose it are doing so is a fair policy in times of need.
I would happily support a system based upon joint income which could still be at the £50 – 60K range although this would now be for both parents income. This would save the government more money as it would broaden the current group of people who lose the benefit and would also be fair. Saying this is too complex has been proven to be a red herring as any policing of the system will require identifying partners income in a significant proportion of cases. People already have to apply for many benefits yearly and providing the UTR of ones partner would solve the problem easily. The system should also cap the amount of pension contributions that are discounted for the calculation. I know of people stating they are currently increasing their pension contributions to avoid losing the benefit.
@Simon Shaw
“That reason is to cut the welfare bill”
Were that the reason then combined family income was an obvious basis for a cut-off.
Paying benefits to families on 99,999 a year doesn’t make any sense while simultaneously cutting them to families on 60,001.
Which of the families would you say would find it easier to put the maximum into a Junior ISA for their kid?
@Paul R
“Simon Shaw – ‘That reason is to cut the welfare bill’
Were that the reason then combined family income was an obvious basis for a cut-off.”
And if we wound back 20 years or so (before the Finance Act 1988 came into force) to when we still had husbands and wives taxed together that would be the obvious solution.
The difficulty is that from 1990/91 we have had Independent Taxation of husbands and wives. This was quite rightly regarded as a progressive move, but it does complicate the CB situation.
Paul
If the policy was to get the wealth to pay more towards paying down the debt then there is a simple solution – Tax the wealthy more
Er, yes, but many of the arguments about these child benefit changes can be summed up as
“When we said tax the wealthy, we didn’t mean us”.
You didn’t? So you on your £50,000 salaries do not think you are wealthy? Sorry, if you think the loss of income this will give for you will make life hard for you, maybe it might help you think a lot more about how hard life is for the VAST MAJORITY of the country’s population whose income is well below £50,000.
The average salary for full-time workers in the UK is £26,500. So I’d say to anyone who’s still moaning about this “Shut the (word rhyming with “duck”) up, and count yourself lucky you still have a very well paid job, unlike many people in this country”.
@Matthew Huntbach
Well done for putting up the straw man. I have yet to see someone claiming that 50k is not a very good salary, actually a household with two 25k incomes and children no longer needing child care is better off. Why not try to address the actual argument that 100k is a better combined salary than 50k but still attracts the benefit in question. Until such time try your own medicine regarding ducks…
There are a lot of people with a salary above 50k and support the ending of universal benefits but feel that the Government, through the tax and benefit system should do so fairly. In fact many people support lowering the higher rate threshold even though it will affect them, as I once supported putting a penny on income tax for education. Not everybody disagrees based upon their own self interest. This is not a benefit payed for the claimant, but for their child. If that child benefits from two incomes then it is on that basis the amount of benefit should be decided.
@Matthew Huntbach @Simon Shaw
Nice use of straw man arguments
I’ll repeat I’m not anti making a bigger net contribution to paying down the deficit (no benefits and higher taxes). However this policy is poorly structured. It hits large families (I do not have a large family) and punished singler earner households (I’m in a dual earning household) and its unfair. I stated my vested interest but actually I’m only marginally effected by this bad policy. I object fundamentally because its a bad polcy
Simon Shaw Incidentally, if anyone is really concerned about anomalies in the tax and benefit system as it affects high earners, they should turn their attention to the fact that someone on £110,000 pa has a higher marginal rate of income tax than someone on £220,000 pa.
I wouldn’t describe myself as “really” concerned, but yes,I think the tax and benefit system should make sense at the higher levels. I have no idea what set of values can justify a parent earning 49900 having a higher take home than one earning 50100. What is more “really” concerning and damaging is the punitively high marginal rates of tax/benefit removal at the lower end, but it is possible to be concerned about both.
Tax and benefits should depend on how “rich” people are. A single person on 11000 is richer than a single parent with two kids on 11000, so the tax and benefits system favours the single parent (you could say favours the three people sharing 11000). Just the same, a single person on 60K is richer than a single parent on 60K so the parent should be favoured too. If you want to “get” the rich, put a penny on higher rate income tax, change the allowances, inlcude owning a mansion in the definition of “rich”, do anything, but at least try to leave a system that makes more sense than it did when you started.
@Simon shaw
>The difficulty is that from 1990/91 we have had Independent Taxation of husbands and wives. This was quite rightly regarded as a progressive move, but it does complicate the CB situation.
I see no difficulty, with the now mature tax credit system and underlying IT systems, we have a joint/household income assessment system laid on top of the individual tax assessment system, this system should be used for Universal Benefit (but then this is Whitehall), so adding CB is relatively simple.
[Aside: If the coalition really wants to save money the introduction of Universal Benefit is the time to transfer responsibility to HMRC and shrink the DWP, but as this is Whitehall we can expect both departments to grow in size, whilst politicians spout nonsense about the government’s spending cuts…]
@Matthew Huntbach 7th Jan ’13 – 11:01pm
@Steve Way 7th Jan ’13 – 11:34pm
>So you on your £50,000 salaries do not think you are wealthy?
>I have yet to see someone claiming that 50k is not a very good salary
Depends on what you mean by a good salary, certainly to receive a salary of this amount means you have something that people want and value and have probably worked hard to get and keep it. But can it be considered very good or a sign of wealth?
As I have pointed out previously (“Opinion: The cap doesn’t fit, so don’t wear it” https://www.libdemvoice.org/opinion-9-24459.html) the point at which someone actually receives a salary that is greater than what someone earning £26,000 with full access to benefits could achieve can be quite high (potentially £72K in the example being discussed in that column). So whilst I agree, if you are receiving £50K+ pa then you have a good job, wealthy? no – if this is your total household income then you are a member of the “Squeezed middle”; namely a member of a persecuted minority that are actually paying more to the government in taxes than they get back…
Well done to Stuart Wilks-Heeg for getting back to principles about why universal child benefit is so important, and tinkering with the principle is just plain wrong – everything else is pitting one side against another – surely what the Tories want and shame on the party for going along with it.
In addition could you ever imagine five years ago the very thought of implementing below inflation rises on a section of the population that could least afford it? Where is the stomach and integrity (notable exceptions aside) to stand up for people gone?
“It could have been a better idea if all universal benefits were included but Cameron doesn’t want to break his pledge…”
I really dislike the Tory Party of Cameron, Osborne etc but fair play to Cameron for keeping an election pledge. And tactically very astute in terms of the grey vote.
@peebee
So you don’t want to cut benefits to those with incomes in the top 10%, and you don’t want to cut benefits to those “that could least afford it”.
That leaves you in rather a difficulty, don’t you think?
‘g’ says ‘The coalition are all very keen on the idea that richer families should not receive child benefit, but resolutely refuse to discuss the possibility of increasing it for low income families.’ Sadly it only under Labour, who promise us that they have a fairy godmother, that such an increase is possible at present. The coalition has unfortunately got to operate under the sad reality of economics.
Roland,
“a member of the “Squeezed middle”; namely a member of a persecuted minority that are actually paying more to the government in taxes than they get back…”
Well gosh, here we have a programme for government which takes your taxes, runs an army of soldiers, an army of bureaucrats, a police force, etc etc, and then, it hands you back benefits which are greater than the taxes it took from you in the first place! Except that there is a “persecuted minority” who don’t do quite so well out of it.
Where is the money tree, the perpetual motion machine, that can create such a wonderful system of government? We need it!
To put it another way, the tax and benefits system recognises a distinction between:
needs – (by allowing a tax allowance and providing benefits)
comforts – (paid for by money taxed at the basic rate) and
luxuries – (paid for out of money taxed at the higher rates)
It is not clear why the cost of having children should be treated as “needs” for some families but as “luxuries” for other families. A single person on 60 K is way richer (and able to spend more on luxuries) than a family on 60 K (who are spending money on essentials and yes, a good deal of comforts).
The relative comfort of the people we are talking about it a reason why this is not a high priority, but it is not a reason to create for them a system that doesn’t have internal logic to it. Why not “get” the rich a different way and say that if you don’t have kids, you have to start paying higher-rate tax 5K earlier? That way the burden would be falling on the richer 60K earners, not the (relatively) poorer 60 K earners
@Matthew Huntbach “The average salary for full-time workers in the UK is £26,500.”
So compared to a family with a single earner on £52500 (who you think should shut up – so much for a liberal approach to freedom of speech 😉 ), a family with two average earners will have a higher gross income, a much higher nett income (two tax allowances), and get to keep their child benefit.
The problem with the policy is not the principle but the cack-handed implementation (which let’s not forget is an “improvement” on Osborne’s original plan). This is then coupled with the inconsistency of retaining universal benefits for rich pensioners and a mixed message when the tax rate for the highest earners is reduced (is that how Clegg, Cameron and Osborne will be recouping their lost child benefit?).
It astonishes me that the coalition has taken what is essentially a good idea (‘don’t pay benefits to those who don’t need them’) and turned it into such a farce.
leekliberal,
‘g’ says ‘The coalition are all very keen on the idea that richer families should not receive child benefit, but resolutely refuse to discuss the possibility of increasing it for low income families.’ Sadly it only under Labour, who promise us that they have a fairy godmother, that such an increase is possible at present. The coalition has unfortunately got to operate under the sad reality of economics.
There are always choices.
I’m afraid that Simon Shaw’s tax history lesson last night is important here, in that since the introduction of independent taxation in 1990, and with the abolition of the married couple’s allowance, HMRC has no way of calculating household income reliably.
Yes, you could match up addresses, but given the surprising number of people who ‘disappear’ or simply fail to tell HMRC that they have moved, you risk all sorts of controversy.
But also, if you want to define it by household income, do you include adult children in work – they are part of the household, one presumes – and how intrusive do you want the tax system to be?
The cut-off point chosen by the Government is not ideal, and it has the unfair elements that have been described above. But means testing is ludicrously expensive and would require a lot more people to complete tax returns than is currently required. Given the tax framework that exists, I’m not convinced that there is an easier way to reduce the child benefit bill than this (assuming of course that you want to) except simply cutting the rate at which child benefit is paid. And we really don’t want that, do we?
@Mark Valladares
The only trouble with your point is that the the only way to police the system they have chosen is to look at the income of both partners.
“Yes, you could match up addresses, but given the surprising number of people who ‘disappear’ or simply fail to tell HMRC that they have moved, you risk all sorts of controversy.”
They have proved the capacity to do so by looking at addresses and sending the announcement letter to them. Remember this policy is based upon either the claimant or their partner earning greater than the threshold. If the higher earning partner has ‘disappeared’ then the current system will not work either.
Every individual also has a UTR (Unique Tax reference) this can be used to ascertain an individuals income (either from their P60 or Tax return depending on their affairs). As a businessman I have seen these used within PAYE inspections to easily gain full knowledge of someone’s tax affairs.
As to who is responsible for the financial needs of the child (and therefore whose income should be looked into), there is a clear precedent set by the current maintenance calculations.
Steve,
With respect, I know all of that – I work for HMRC, after all – and the letter was sent to anyone who might be affected. But you’ll notice, if you look at a self assessment tax return, that there is no reference to your spouse/partner – there is no need under independent taxation.
And interestingly, I don’t have a UTR, and there are many people who don’t – tax returns aren’t mandatory, after all, only if issued to you or if one is necessary. For many basic rate taxpayers, with only small amounts of investment income, the PAYE system is incredibly accurate.
Yes, we hold a lot of information, and we can obtain rather more in an investigation environment, but we wouldn’t bring it together as a matter of course.
If only more people believed in our omnipresence…
@David Allen
Not sure which way to take your comment, I think it was intended to be a back-handed complement?
Just to clarify the interpretation I intended, in a previous comment (Roland 7th Jan ’13 – 12:03pm) I had stated that it is right to expect those who better in life to give more. My angle on the persecuted minority of the squeezed middle is from reading many of the comments on LDV you could conclude that there was something morally repugnant (or even criminal) about a person earning sufficient to pay higher rate tax and that we (as a society) should take every opportunity to ridicule and free load off such people and “put them back in their place”. This is exactly the same mentally we see in working class communities and council estates where people who try to do something with their lives and get out, get called and bullied for “have idea’s above their station” etc.(something I had personal experience of as a child).
Hence they are being persecuted by those, who have not done so well, for doing better and not having to rely on handouts. What such critic’s totally fail to grasp is that their lifestyle is totally dependent upon these more successful people continuing to be more successful and for more people to similarly become successful… Hence the really hard question they (and the politicians) need to be asking is how can we (as a society) increase the earnings of all those on low incomes so that they don’t need benefits to supplement their income.
>Where is the money tree, the perpetual motion machine, that can create such a wonderful system of government? We need it!
Totally agree, but I don’t believe it exists and hence am constantly surprised that so many (including politicians) just don’t get it and think that life can carry on as before.
@Mark Valladares
>HMRC has no way of calculating household income reliably.
Does it need to do this pro-actively? My expectation is to use the tax credits opt in solution, where two people voluntarily agree to have their individual tax affairs linked and household income is calculated after the end of a tax year and benefits adjusted accordingly. CB and Universal Benefit can be implemented in exactly the same way and use the same core HMRC business processes and systems.
@Mark Valladares
Fair point about UTR’s the people checked who work for us were all Doctors so all had them, but everyone has an NI number.
The question remains how you can police it if you cannot tie two people together ??? More importantly what does it say about the competence of the Government that they have managed to come up with an unfair and potentially unenforceable plan despite the timescales involved?
“But you’ll notice, if you look at a self assessment tax return, that there is no reference to your spouse/partner – there is no need under independent taxation.”
And yet I am now obliged to declare the income from Child Benefit that my wife receives. It’s already a fudge that has moved beyond independent taxation – it’s never been my income…
@Mark Valladares
> I’m not convinced that there is an easier way to reduce the child benefit bill than this (assuming of course that you want to) except simply cutting the rate at which child benefit is paid. And we really don’t want that, do we?
Actually, I would actually prefer to see Child Benefit removed totally as (even as a non-means tested benefit) it is a highly inefficient way of getting money to a child in need! Greater benefit can be obtained by directly funding providers of 0-5 year services and schools for such things as breakfast and supper clubs (these ensure the child gets meals and the parents can work full-time). Such directing of funding also ensures that the monies actually go to improving the opportunities for a UK resident child. This would actually be aligned with the views of several LibDem’s who have written on the subject in LDV over the last year or so.
I accept that as part of the removal of CB, a proportion of the savings will be used for deficit reduction.
Roland,
I fear that you’ll find that voluntary pooling for financial gain is radically different to that for financial loss.
Steve,
The child benefit isn’t paid to the wife because it’s her income – it belongs to the family, and as you are presumed to be the head of the household (sexist, I know but the law presumes all sorts of old-fashioned things), you are to declare it.
And the tax system is based on trust to a surprising extent – it would be horrendously expensive to operate if it were otherwise. It can be policed, but at a cost, one which would probably outweigh the benefit of cutting child benefit at all.
200,000 households have opted-out of receiving child benefit, according to recently published HMRC figures, so the publicity is clearly working. I suspect that one year of having to repay it all will generate more opt-outs in a year or so.
@Simon Shaw
You seem to assume that the only way of balancing the government’s books is by cutting spending.
The other side of the coin is increasing taxes. If you can argue that the top 10% don’t need their benefits, you could also argue that they don’t need to keep a lot of the vast amount of money that they get paid.
As long as they are contributing enough in taxes, I don’t see why err should take the
And please note I said “paid” not “earned”.
I meant to say as long as they are contributing enough by way of taxes, then I don’t see any reason why they should be denied any benefit.
And as I said yesterday, universal, non means tested benefits are the best way of lifting people out of poverty.
The problem is that were not taxing the rich enough.
Mark
“I fear that you’ll find that voluntary pooling for financial gain is radically different to that for financial loss.”
I suspect a major contributor to this problem is the decision to make CB a voluntarily opt-out rather than an opt-in with annual review like tax credits.
I note that the old CB forms (like the new) require disclosure of claimant’s and their partners NI number. So for existing claims, it would not be too difficult to pull together an initial data verification and re-registration mailshot, that also complies with current data protection, equality legislation etc. (yes I know this a grey area with respect to HMRC operations but often it is better to be explicit).
From looking at the various forms there is likely to be further backlash. Firstly only the person who is entitled to CB (I suspect the original applicant) can actually request the opt-out and they can only do this with the agreement of their partner/ex-partner which means that a person (who has given consent to opt-out) can complete their self-assessment totally unaware of whether their partner/ex-partner (the person entitled to CB)) has/hasn’t actually requested an opt-out. Secondly, for new CB claims we can expect to see significant numbers of people not submitting claims in the first place, which will mean that there will be many who will in later life find that they have missed out on the Home Responsibilities Protection (HRP) pension credit …
Aside: Who is the head of a household in a same sex marriage?
Peter Watson
So compared to a family with a single earner on £52500 (who you think should shut up – so much for a liberal approach to freedom of speech ), a family with two average earners will have a higher gross income, a much higher nett income (two tax allowances), and get to keep their child benefit.
The problem with the policy is not the principle but the cack-handed implementation
Yes, but this follows from the way we now tax people as individuals, we pay no attention to their family status. So the situation is not that much different from the unfairness of a husband and wife who both work getting taxed differently from just one of them working and earning twice as much. When the suggestion that bringing back some sort of married person’s tax allowance is suggested, Liberal Democrats are usually up in arms about it.
Actually, I do appreciate the implementation is cack-handed, a rush job to get it through without having to make widespread change elsewhere. Whatever, the reality is that it IS a way in effect to tax the rich more without actually calling it such. As I said, sorry, but anyone earning £50,000 is rich. When people getting a fraction of that are being penalised, I think something has to give and I don’t weep tears if it’s the £50,000 earner who’s giving, but I do very much weep tears if it’s someone on unemployment benefit giving due to below inflation increases.
I.e. opposition to this sounds to me to be a bunch of rich people saying “oh, when we said tax the rich, we thought it meant some other sort of rich person”. Well they would say that, wouldn’t they?
@ Matthew Huntbach
Yet no one wants to say that two people earning £22,500 represent a rich household yet they take home roughly the same….
Would you take money off that couple and tell them to shut the “duck” up?
I agree with only 2 children being payed for BUT thats only towards the mothers of the children, if a woman is being told that she is is only entitled too 2 children then why is it not the same for men a man can getcsomwone pregnant and leave the mother and get more women pregmant the rules should apply for both could save a hell of alot of money on the long run if a man can make a baby they can provide if not they shouldnt have more kids for the goverment to lrovide for ao if a man geta anothe woman pregnant they shouldnt get no benifit if thats the case about all this or ia that just me?