Opinion: the Coalition’s £7 billion hit on families

The Government believes that strong and stable families of all kinds are the bedrock of a strong and stable society.

So says the Coalition Agreement, but has the Government’s approach to reducing the deficit actually demonstrated the opposite?

The furore over the proposed removal of Child Benefit from higher rate tax payers has raised hackles in the middle classes – and aspiring middle classes. But the cuts to Child Benefit are further evidence of a worrying trend since the election.

Whether there are arguments for the cuts or not, the list since May does not smack of a Government committed to “strong and stable” families:

  • Health in Pregnancy Grant abolished – saving £40m this year and £150m a year thereafter
  • Sure Start Maternity Grant restricted to first child only – saving £73m a year
  • Child Trust Funds cutback and then abolished – saving £320m this year and £520m a year thereafter
  • Child Benefit frozen from April 2011 – saving £1.8bn next year and £2bn by 2014/15
  • Child Benefit to be scrapped for higher rate earning households – saving £1bn a year from 2013

Taken together this totals a £12.7 billion hit on the pockets of families in the life of this Parliament – and that is without taking into account the impact of the VAT rise and other cuts to public services.

There are of course some pluses:

  • An increase in the child element of Tax Credits – adding £1.8bn in 2012/13 rising to £2bn by 2014/15
  • The increase in the personal allowance threshold by £1,000 – and the promise of more

However, the overall effect of this is to take more than £7 billion away from families – and mostly families at around average income levels; that is those in the £20,000-£40,000 bracket.

You can make good arguments – and the Government have – for some of the individual cuts made. But my concern is the cumulative effect of all this. If we believe that families, of all kinds, are truly the bedrock of a strong society, then should they be being hit so hard by the Coalition’s deficit reduction programme?

With further cutbacks to be announced this month as part of the Comprehensive Spending Review, I fear that Children’s Centres, Sure Start Centres and youth service budgets (already squeezed by saving-searching local authorities) will be further hit.

Where then for the Government’s family-friendly policies? Where then for the goal to end child poverty in the next decade?

Mike Bell was the Liberal Democrat candidate for Weston-super-Mare in the 2010 General Election

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36 Comments

  • That’s just it though. If you are involved in such large scale ideologically driven cuts, then families have to face the brunt of those cuts. You see, what Labour, Brown in particular did, was to skew the states resources towards the family. Therefore if you are ideologically driven to reduce the size of the state, then it stands to reason that families will take the biggest hit.

  • Richard Hill 9th Oct '10 - 2:33pm

    One problem nobody seems to want to face anymore, possibly even worse than global warming , is the growing world population. At the moment everything seems to encorage people to have more children, I think anybody has more than two children should not get anymore child allowance. If we don’t start doing something about it eventually the system will crack, which would be bad now, but what woul it be like with a global populatiuon of 25 or 50 billion. Even if everybody was creating 10% of the polution we are now (highly unlikely) the planet could not cope. Imagine all the starving children then.

  • Not families jayu, the middle classes. You have to balance these cuts against the billions of unsustainable subsidies that New Labour paid to the middle class to buy them off. Borrowed against hoped for future earnings. Unfortunately it didn’t work so now those who appeared to be benefitting from the recycling of their own taxes by the state into the mirage of a subsidy has to be paid back out of their current earnings. What a bummer.

  • @ed

    So Family Tax Credit was for the benefit of the middle classes? The Health in Pregnancy Grant, Sure Start Maternity Grant, Child Trust Funds, and the uprating of Child Benefit, all for the benefit of the middle classes, we must suppose?

  • No @Ian Ridley. The idea was that trust funds would be set up for poorer children, so that parents, and other family members could contribute to. This could be used to give the child a start into adult life. If the maximum is saved in the trust fund, this could amount to around £25000. I don’t know of a single 18 year old who wouldn’t welcome that amount of money on their 18th birthday. It’s a sound way for people to invest in their children’s future. Of course it could have just been left to the markets to provide these investment vehicles for those on low incomes.

  • vince thurnell 9th Oct '10 - 3:35pm

    Ian , im glad you think its a gimmick, you obviously didn’t get it . What it did for us was to give us a small amount to start a savings plan for our youngest something we didnt do for either of our elder children. We now save £5 a week for him which is something we wouldnt of done without the initial payment. That money will go hopefully towards his future education when he reaches school leaving age which is just as well because once you and your colleagues in the Tory party have finished, without it , the chances are he wouldn’t be able to afford to enter further education the same as his brothers couldn’t when they left school.

  • Soooo lets see you go into coalition with the CONSERVATIVE PARTY and act suprised at finding yourselves forced to defend vile policies.Naieve willfully blind or simply yellow Torys I give up trying to fathom you.
    Anyway heres the answer either be honest and merge with them or become independent Lib Dems youd be suprised what a good reaction you would get from such a principled (look it up) stand.
    PS dont join Labour it will just reinforce your image as pilot fish to the big boys.

  • Hmm.
    Higher rate tax payers are showing they are no different to those on lower incomes. A woman in Ashford, Kent phoned ‘Any Answers’ this afternoon. She has six children and is expecting her seventh. Her husband’s career has progressively taken him to a £44,000 salary. She will lose all her child benefit – approx £4000 per year. Her husband is now pondering asking his employer for a pay decrease to take him below the threshold i.e. lose £1,000 pa gross to keep £4,000 pa net. Presumably he’ll then waive all future pay rises and not seek promotion. The family have estimated he’d need a £10,000 pa pay rise to cover the child benefit loss.

    For years, lower income families have been castigated for trying maximise the combination of incomes and benefits. Lower income families welcome higher income families to the benefits trap. Will higher income families now be subjected to the same vicious rhetoric?

    As David Cameron pointed out at the conference on Wednesday, they’ve had thirteen years “in the wilderness” to prepare for these changes. The Lib Dems have had even longer. It’s a shambles!

  • coalition kid 9th Oct '10 - 4:24pm

    No it’s not a shambles unless you think that the default for an individual is to look to the state first to provide for their children. Labour militated very much against the single tax-paying householder. I’m afraid as a Liberal Democrat I’ve come to see the Labour party for what they are – social democrats without the guts (and now the `balls`) to say where the money’s coming from for their own economic plans.

    I’ve just come from China where there’s a Communist one-party state. If that’s communism then I’d like to know what inequality really is.

    Let’s face it – British families get a very good deal from the rest of us. All the coalition is asking is that people take responsibility for having children before they have them.

    The more economic illiterate Labourites come on here ranting on about their poor 44kers having to lose some of their benefits the more I think the Coalition is a good thing. Perhaps they’d like to come north of Watford where most hard-working people find it astonishing that any rent is over £500 a week. Sure, I sympathise with those with large families whose sole bread-winner loses their job. However, we seem to have gone from one extreme to another: it used to be the case that you took on a mortgage that was well within your means until the 80s when you went above and beyond that. Labour fostered a similar thing with kids – instead of having just one or two that were affordable some people felt carte blanche to have many – as the state would always pay for them.

    It’s time to get real – this new sort of `liberal conservatism` is prevalent in Germany, Sweden, Netherland and now the UK. It’s the Social Democrats that are losing power.

  • Child Trust Funds were a fundamentally flawed waste of money. Lots of Labour supporters like to shout about the nonsense figures like getting £25k for their child on their 18th Birthday. Of course, using the governments 7% annual growth standard for child trust funds, that requires parents paying in £56 a month. If the £250 is left alone, it will amount to £873 – not quite the same really is it?

    Now I don’t know many people on low incomes who are able to put £56 a month in to an account that they cannot access again and is of no use to their child until they are 18. Alternatively, any small money they have available they could put into their child’s normal savings account (Halifax offers 6% interest at the moment). This would then be accessible in emergencies and could be useful to their child prior to them turning 18. Especially if, for instance, they decided to leave education at 16.

    I haven’t seen any research on this, but I’m guessing that the overall behavioural change for people will be small. I suspect that, as with so many of Labour’s universal schemes, huge amounts have been spent on achieving only a negligible difference in the target affect, with the middle classes and the wealthy getting a free £250 for the sake of it.

    I agree that the scrapping of the Health in Pregnancy grant is an ideological attack. Though not on the family, but on untargeted ineffective cash grants. That is an ideological attack I completely agree with. A woman who actually wanted to eat more healthily and was solely restricted by finances, and that that would be her top priority for extra cash, seems to me a very unlikely scenario. But that is the rationale to offering a universal grant. Doesn’t make a lot of sense to me.

    I’m more supportive of the idea behind the Sure Start Maternity Grant, as there is a clear logic behind it. However, again, there is no control over what this money is spent on. Perhaps vouchers would be more appropriate? I’m open to persuassion either way on this one.

    As for CB, the freeze is perfectly logical. Just about everything is being frozen or reduced – including a lot of people’s pay. Why should CB be any different?

    And I’m losing patience with how many times I have had to point out that less than 15% of people earn over 44k. And if they are genuinely going to struggle now for losing that extra money, I worry about their ability to budget and how close to the line they have been living. There will be occasions were people have also lost some other income and will have to significantly alter their lifestyles of course, and I have sympathy for them.

    But limited sympathy that bears in mind that they have been well off and should still be able to live more comfortably than many millions in the country already do. I just wonder if an accountant earning 50k including bonus didn’t get his bonus one year and only took home 45k, would a single Labour member express an ounce of sympathy for him? Why if the reduction is from the state does that change?

    Overall I disagree with the thrust of this article. Given the overall amount of cuts required to stabilise the government accounts, I’m pretty sure you could tot some a combination of them together to cite an ideological cut on just about anything you fancied.

  • The coalition is working very hard for political gain. Ill thought out policies, lack of experience and so on and a mad rush to get things done has left no time for any discussion about the consequences of dismantling the state at breakneck spead. The phrase ‘in the national interest’ and the language used about the poor have led to a position where it has become encouraged, in fact a badge of honor to talk about the’feckless poor’ – what does the coalition expect the poor to do, have abortions or infanticide or what? I am ashamed of the way the coalition are encouraging hatred for those who have the misfortune to lose their jobs.

  • @ Richard Hill –

    I see the Reverend Thomas Robert Malthus is alive and well!

  • 44k a year isn’t a fortune. losing up to 4k in child benefit is a big deal. and what about commuters who pay 4k+ out of taxed income for a seaon ticket before they can even put a meal on the table? tory privatised rail charges set to increase by 10%+ or so i’ve heard. a really unfair cut when couples on 40k each will still get cb.
    coalition just let slip higher rate tax threshold to be reduced so couples on joint 80k likely to lose out also, so no point asking boss for a pay cut to keep your cb.- last minute coalition attempt to make cut look acceptable? either way a £150 tax allowance to married couples to compensate will cost more to implement than the cb that’s being abolished.
    dogma and victorian values of the workhouse at any price.

  • Liberal Neil 9th Oct '10 - 10:44pm

    Mike’s list is interesting, in that most of the schemes that are being cut are ones that involved the setting up of another bureacracy each time to deliver a relatively small amount of cash to particular groups of people whether they needed it or not.

    Overall the Coalition are scrapping these schemes, cuting the payment of Child Benefit to the top 10% of earners whilst increasing the amount going to less well off families through tax credits and raising the basic allowance.

    Overall the cumulative effect of this is moving things in exactly the right direction as far as I am concerned.

    “However, the overall effect of this is to take more than £7 billion away from families – and mostly families at around average income levels; that is those in the £20,000-£40,000 bracket.”

    This is not around average income levels, it ranges from below average income levels to very high income levels – the average is about £26K. £40K is in the top 20%.

    In line with the original purpose of the welfare state, aiming to eliminate the social evils including ‘want’, I want to see families on £20K get more support, particularly as extra help for those who are working. Those on £30K plus are not in ‘want’ and should not expect the state to pay for their children.

  • Liberal Neil 9th Oct '10 - 10:47pm

    @helen “44k a year isn’t a fortune”.

    It may not be a fortune but it puts you firmly in the top quintile of income and more than able to pay for the upbringing of your own kids.

    It is certainly a very long way from:

    “victorian values of the workhouse at any price.”

    Some people arguing aginst the Child Benefit cut seem to believe that the state should give several thousands of pounds a year to pretty much anyone. It seems pretty obvious to me that this simply doesn’t add up.

  • I’m beginning to wonder how many people have grasped the magnitude of the cuts to come.
    I’m not shouting apocalypse now, but there needs to be a serious rethink if ‘family friendly policies’ are any kind of priority at the moment.
    The pregnancy and maternity grants are worthy but the vast bulk of these policies were and are dog whistle politicking focused grouped to woo the mumsnet and Mail crowd.

    Public spending cuts, however, will be felt by all and cause far more suffering to families than a few headline grabbing gimmicks. Yes, we have to cut, but I fear the idealogical bias Cameron and Osborne have given to the tax rise/cuts ratio is going to be something we will come to regret deeply.

  • Liberal Neil 9th Oct '10 - 10:55pm

    @pat roche

    “the consequences of dismantling the state at breakneck spead.”

    The Government’s plans will see state spending as the same percentage of GDP at the end of this Parlament as it was as recently as 2006. Is that really ‘dismantling the state’?

    “in fact a badge of honor to talk about the’feckless poor’”

    Can you cite even on example of any Minister using those words?

    “what does the coalition expect the poor to do”

    How are you defining ‘poor’ exactly? Are you refering to the policy that those living entirely on benefits will have their overall income limited to £26K, which is well above the poverty line? If not, what is your point?

    “I am ashamed of the way the coalition are encouraging hatred for those who have the misfortune to lose their jobs.”

    Again, I would be interested to know of any actual examples where Ministers have done this. I think you are making this up. Everything I’ve heard is that the Government are trying to reform the system in order to ensure there is a stronger incentive for people to work, thus helping achieve that key objective of the welfare state to deal with that great social evil of ‘idleness’.

  • Liberal Neil 9th Oct '10 - 10:58pm

    @LDV Bob “I’m beginning to wonder how many people have grasped the magnitude of the cuts to come.”

    I think I have. Based on the figures the Government have published they will take us back to similar levels of state spending that we experienced up until about five years ago.

  • @Liberal Neil

    I’ve heard the same argument from John Redwood and you’ll pardon me but it seems to be the basest kind of sophistry. We aren’t living in the same world we are 5 years ago and we definitely won’t be in 5 years hence. Though I’m sure everyone would love to have a cost of living that is not just 5 or even stretch 10 years into the past.

    The cuts touted have ranged from 25-40% and that isn’t spin but the hard figures every minister had to produce. (Apart from Laim Fox who still thinks he’s ‘special’.) One or two cuts will no doubt be not merely far less damaging than feared, but could even be a positive step in shaking out some entrenched waste that has ossified into a few of our public services. Those will be the exceptions though as the majority of our public services are not drowning in many tens of Billions of excessive spending, nor are the average teacher or fireman or nurse rolling around in piles of cash. Whatever the Murdoch or Dacre press might spin.

    But if you truly believe these kind of across the board cuts will not cause a massive disruption and a huge change in the public services the public rely on every single day, then I fear you may be also of the Redwood Idealogical school that thinks all cuts are good cuts and public spending is an evil to be eliminated.

  • David Allen 9th Oct '10 - 11:46pm

    “44k a year …may not be a fortune but it puts you firmly in the top quintile of income and more than able to pay for the upbringing of your own kids. … Some people arguing against the Child Benefit cut seem to believe that the state should give several thousands of pounds a year to pretty much anyone. It seems pretty obvious to me that this simply doesn’t add up.”

    But let’s look at this a different way. If the Bloggs family pay income tax of (say) £15K while receiving child benefit of £4K, then they pay a net tax of £11K. That’s all that matters. At the moment, the childless Moggs household which pays income tax of £11K and receives no child benefit also pays a net tax of £11K.

    The Coalition want to change things. They want to increase the Bloggs’s net tax payment to £15K, but leave the Moggs net tax payment at £11K. So they will favour the childless over the child-rearing, even though it is the child-rearing who are spending time and money bringing up the next generation.

    Wouldn’t it be better to raise the rate of tax, so that both Bloggs and Moggs pay a net tax rate of (say) £13K, and we don’t discriminate against people with children?

  • @kev – child trust funds
    “I haven’t seen any research on this, but I’m guessing that the overall behavioural change for people will be small. ”

    Guess again. It tripled the number of people saving long term for their children. One-third of children whose parents have a combined income of 19K were putting away an average of £19 pound a month. David White the CEO of the Children’s Mutual said it was the most successful savings initiative there has ever been and that the efforts made by
    those in low income groups were ‘heroic’. ‘Red Tory’ Phillip Blond called for the scheme to be enhanced and extended. It costs around 500 million. Far lower than the tax breaks on pensions and Isa’s. It was an effective,
    successful and relatively cheap policy that could have made an enormous difference to the life chances of millions of children. A thoughtful liberalism should recognise that without money or assets people have little chance to author
    their own lives and Lib Dems should have supported this policy. Particularly galling to see it axed by people who have always been well supplied with money, educational opportunities and jobs.

  • Stuart Mitchell 10th Oct '10 - 9:51am

    “There are of course some pluses: An increase in the child element of Tax Credits…”

    Though you forget that a lot of families (including families within your average income bracket) are having their child tax credit completely taken away from them, to the tune of £545 per year. This was a big omission from your “cuts” list.

  • @ AndrewR – that sounds interesting, but those are very specific figures you have quoted. I find taking an average of a selected third of a specific income range a somewhat odd statistic. Also, I’m sure the Children’s Mutual are a well intended organisation, but as a group that offers Child Trust Funds, I don’t necessarily consider their view impartial.

    Any chance of a source/link to the research referred to?

  • >I see the Reverend Thomas Robert Malthus is alive and well!

    It’s basic biology that any ecosystem can only sustain a limited number of predators. When we reach the tipping point is arguable, and it’s been pushed back before by technological advances (tho’ the agricultural ones of chemical pesticides/fertilisers have come at the expense of our wildlife). But all scientists know there will be one.
    Or do you think over-fishing and destruction of the rain forests aren’t an issue? Or that all the world’s resources are infinite?

    >44k a year isn’t a fortune.

    It is to those of us who live on half that. If I can live ok and bring up a child on my salary, it’s hard to feel sorry for those on considerably more.

    >we don’t discriminate against people with children

    It could of course be argued that the current system discriminates against people WITHOUT children. Who pay for schools they don’t use and fund child benefit. That’s the deal we accept with a state system of course: the healthy pay for the sick and so on. Other people’s children grow up and pay taxes that benefit the elderly childless, etc.

    However, if the cuts are going to be fair, would it be fair for all families to be exempt and only childless couples or single people or people whose kids have grown up to have to pay the price?

    How many people opposed to cutting CB for higher-rate taxpayers would be delighted if told: “OK, we’ll keep it: but we’re putting your income tax up to pay for it”?

  • Liberal Neil 10th Oct '10 - 7:25pm

    @George Kendall “especially on public service pay, will be nigh on impossible to unwind without huge industrial unrest.

    I was outraged when I heard about the extra pay GP received a few years back. But I doubt the government will be able to reverse it.”

    This is a fair point, although I don’t think it means that the overall point doesn’t stand.

    Yes, there are going to be cuts, and some of them will be hard, but the Government is not cutting back the state to pre-war levels, as some seem to want to believe.

    There has been a general trend that the higher end of public sectors have gone up much more than most, which also impacts on increasing pension liabilities etc.

    I hope this is something the Government will look at rebalancing (personally I would stick with public sector pay agreements like the current one – cash increases up to a certain level and then nothing at higher levels) for a few years yet. And hopefully this is something that public sector pension reform will deal with in part.

  • @Liberal Neil
    The Government’s plans will see state spending as the same percentage of GDP at the end of this Parlament as it was as recently as 2006. Is that really ‘dismantling the state’?

    This while perhaps correct is a disengenious bit of spin put out by Clegg and repeated by yourself . There is a propsensity in times of recession and/ or high unemployment for governments to spend more . 2006 was perhaps the strongest of the boom years , therefore the same percentage of government spending will get no where near the same level of services .

    You also ask whoin government has condemned the unemployed . The whole tone of govenment has been to talk about capping benefits for those who ‘CAN work (as if they have jobs to walk into tommorrow) . indeed you experessed similar type sentiments in previous postings on the subject about not wanting to pay more than 26K for those who have never worked . (Who says they have never worked ) ?

    According to the daily Express there are 900 families on benefits who who have 8 children or more . Whatever we think of this your generous policy of capping benefits at £26K will risk sending 8000 -9000 children into care at vast expense as £26K will not feed clothe and house 10 and more people in the long term with any semblance of dignity .

    By definition people who supprt this policy seem to be treating these people as in need of a damned good punishing for their fecklessness. Perhaps popular in this day in age Neil but morally wrong neve the less.

  • @ george Kendall
    Full agree IDS has been a revelation I keep waiting for his punchline , but even hear thatb he was against the £26K caps.

    The point was about the coalition slagging off the unemployed however and there are cases of Lib Dems using the ‘Can Work’ language (impling that they are voluntarily unemployed) . Susan Cramer did it on what was a very weak showing on last weeks Question time and totally ignored questions as to what would happen to very large families. (let them eat cake ) ?

  • John Fraser 11th Oct '10 - 8:23pm

    @George Kendall
    George our coalition of agreement cameto an abrupt halt.

    By all means if IDS’s ideas see the light of day job centres have the right to cut benefits if a ‘reasonable’ job is refused (and the family would be better off) . This has been the case since the 1960s and I dont think anyone would object to this. But to arbitarily cut benefits when someone is genuinely looking for work is wrong whether done with an iron fist or a lib dem smirk.

    I read that IDS’s think tank called the 26K ceiling unfortunate . I am kind of assuming they did so with his blessing.

  • watch this:

    http://www.youtube.com/watch?v=J6OLguh7_P8&feature=player_embedded

    here are two very apt points from the You Tube comments below:

    ‘Hesiltine @ 2:38 “we live in a global economy” yet, he insists on blaming the economic downturn on the outgoing political party? Hesiltine’s face @ 3:40 sums up the Tories: psychotic scum. If they want people off the dole maybe they should sort out the minimum wage issue and pay people a reasonable wage for their labour, why is there no discussion on this?’

    ‘I really enjoyed watching this, it almost defies belief that the Tories thought it fit to put Heseltine forward to fight their corner, if any proof at all is needed that the Conservatives are still entrenched in their old Thatcherite ways, this is it. The sheer stubborn hypocrisy and bigoted nature of Michael Heseltine is superbly laid open for all to see by the calm and collected figure of Ken Loach. Pity there’s nobody left in the Labour Party willing to make the same argument.’

    Question: What are Liberals doing propping up this government???

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