Cui Bono

by Quinn

I’m going to write that post if it kills me.

Not this post. Oh no, not this post. This post I’m dashing off because it seems to me that lots of people are missing the point about the impending changes to child benefit. And after all, erroneously thinking I’ve a cogent response when others are missing the point is the only reason to keep this blog this side of the mothballs. No, I’m saying I’m going to write that post if it kills me, the post I’ve spent the past fortnight trying to find the time and inclination to finish off.

But enough about that post. The point of this post is to address to the fact that (almost?) every report over the past few days referring to the half-brained clusterfuck that is the government’s “plan” for child benefit has been premised on the fictional idea of one household with a single-earner on an income of £80,000 losing their child benefit, while the dual-income household next door bringing in two incomes of £40,000 are allowed to keep theirs. Oh the humanity!

Perhaps. But why get hung up on child benefit? If we leave that to one side for a minute, the anomaly we are all suddenly getting worked up about is baked into the tax system already. Let’s take those two households again, each with the same gross income of £80,000; even without child benefit the household with two incomes will be better off in the first place due to their having two tax-free personal allowances; add in the fact that the single-earner household will then pay some of its income tax at the higher 40% rate while the dual-earners only pay at 20% and you could say we have another inequity right there.

This objection to the child benefit plans, then, rather than highlighting some terrible new unfairness, in fact just illustrates an existing quirk regarding how individuals, couples and households are taxed in this country, and how clunky our system already is. Things are complicated even further once National Insurance is factored in; something that slightly benefits the single-earner household in this example, but more by accident than design, and which in truth provides yet another layer of clunkiness. But it is a clunkiness that universal benefits such as child benefit can ameliorate; they are simple to understand, cheap to implement, given to all so that the deserving* receive them while the undeserving* get them taxed away elsewhere while they’re not looking. The alternative is complicated rubbish that the deserving* don’t claim for while the undeserving* pay their accountants to collect for them. Despite all Iain Duncan Smith’s talk of a universal credit, the direction of travel seems to be towards the latter.

The real daftness about these child benefit reforms is not so much the aforementioned and well-worn scenario of two fictional households, but more the case of an individual who earns just above the higher-rate income tax threshold and who, while paying 40% tax on but a fraction of their income, will also lose all of their Child Benefit at a stroke, potentially leaving them with a lower net income than a supposed lower earner situated just below the threshold. I don’t know if there is such a thing as a negative marginal tax rate, but if there is then this government has just found it. So well done them.

You’d almost think they’d cooked up a nefarious scheme to serve as an object lesson in the value of universal benefits, only they haven’t. This isn’t so much the “cliff edge” problem people have been talking about as some demonic game of financial Snakes and Ladders. Now, the government has stated it is looking into methods to deal with the problems thrown up by their half-baked plan dreamt up overnight to grab headlines during a party conference. But what?

Well I suppose they could concoct some further sort of means test, devise a kind of taper system, this would necessitate implementing an appeals process, and of course a review system when the wrong amounts are paid out…basically bugger about with child benefit until it is as expensive to administer and inefficient as the rest of the benefits system. Alternatively you could leave child benefit as is, and expend your energies instead on trying to make the the tax and benefits system in general more simple and straight forward.

I’d favour the latter myself, perhaps utilising something as a benchmark so we can gauge our progress, that of an actually existing example of a simple and efficient benefit. Child benefit, say?


*There must be some better terms to use here rather than “deserving” and “undeserving”, but I can’t think of them. Intended target group and unintended target group? Optimal and sub-optimal recipients? They sound almost as clunky as the government’s plans for reforming child benefit.