How Cameron uses child benefits as a cover for wider cuts to poorer families


9:01 am - October 14th 2010

by Nicola Smith    


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David Cameron yesterday accused Ed Milliband of defending the rich, as a result of Labour’s defence of universal child benefit.

But the child benefit cuts are not a cut for the rich. They are a cut for richer families – and they come hot on the heels of an enormous list of benefit cuts that will hit the poorest families in the country far harder.

These include:

– freezing the value of child benefit for three years;
– linking benefits (including carers allowance) to CPI;
– cutting the Health in Pregnancy Grant;
– cutting the Sure Start Maternity Grant for all but the first child;
– significant cuts in Housing Benefit – which the DWP have admitted will affect families with children the most;
– a cap on the overall value of benefits an out of work family can receive;
– an increase in the rate at which Tax Credits are withdrawn as a member of a household enters work;
– a £545 cut in Tax Credit entitlements for the poorest by withdrawing the Baby Element;
– the cut in the Child Trust Fund (including the cut for disabled children);
– an introduction of a Tax Credit disregard for falls in income (so those who lose their jobs will recieve less).

The entire package of Coalition cuts that affect children needs to be opposed.

The Child Benefit cuts are wrong – but focusing on them exclusively only helps the Coalition to provide ‘progressive’ cover for a wider assult on the incomes of the poorest families.

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About the author
Nicola is the TUC's Senior Policy Officer working on a range of labour market and social welfare policy. She blogs mostly at ToUChstone.
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Story Filed Under: Blog ,Conservative Party ,Fight the cuts ,Westminster

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Reader comments


“They are a cut for richer families ”

So you accept in principle richer families should not be receiving welfare?

What would you cut instead? And please come up with a politically possible answer that Labour can adopt i.e. don’t say “Trident”.

Blanco – no, if you click though to my link on LFF (from ‘are wrong’) I’ve set out the full case in favour of universal welfare. My point in this short piece is that cuts to richer families are being sold by the Government as ‘progressive’ while, even if you accept this definition of progressive (which I don’t), they are making far more cuts to benefits that the very poorest people rely on at the same time.

4. charlie reynolds

Until you set out an alternative method to deal with the structural deficit you will not be taken seriously.

We are currently spending over £40bn a year on debt interest alone. We have mortgaged our futures and our children’s futures by spending too much and by not spending prudently. That is the real injustice to our children – NOT taking child benefit away from higher rate taxpayers.

Is there a pain free way of reducing our deficit? Everyone is going to suffer. Freezing benefits or reducing annual increases during this period seems the least worst option.

Please get real.

5. Alison Charlton

The government plans to start mean-testing Child benefit for everyone in 5 years time as part of the new Universal credit.

This will have two effects:
1) For the first time CB will be counted as income for families in receipt of benefits, this means they may no longer get any CB.
2)There are many low-paid working families who will not be willing, or who will fail to claim which will impoverish their children and wipe out many women’s rights to a state pension

Child benefit will be means tested, says Iain Duncan Smith gu.com/p/2k7eb/tw via @guardian

These moves will increase child poverty, reduce the financial independence of vulnerable women, and leave many women with no state pension in their old age. If you think this is OK, you should try asking your mum what she thinks about it.

This is not a middle class or high earner issue. It is important and it is vital.

@2 – quoting from Wikipedia’s article on the UK’s plans to renew Trident: ‘In evidence to the House of Commons Defence Select Committee on 23 January 2007, the US nuclear expert Richard Garwin said that the plans were “premature and wasteful”, and that delaying the decision for 15 years following inexpensive engine repairs would save £5bn. He added that pressure to commission a new fleet of submarines was rooted in the shipbuilding industry’s urge to land lucrative contracts’

In other words, there’s a £5bn saving which is possible, BUT you have to balance it against possible loss of jobs in the Clyde shipyards, so you’d have to spend some money elsewhere to create new jobs, retrain people etc.

Problem Ms Cooper made this statement a week ago, we looked at child benefit and decided doing this at the moment would cost to much, now the only way this would cost would be if labour intended to means test the benefit.

Problem for labour £44,000 is a lot of money coming into your house, where as £12,500 is not, but Labour have decided to attack the poorest with welfare reforms while looking after it’s believed voters the middle class.

We have had new labour, Browns New labour and now we are back with New labour again, seems new labour is alive and well with a new leader who talks a lot says very little.

How would labour cut the cost and the deficit, well welfare reforms

” We have mortgaged our futures and our children’s futures”

For the sake of our children, we must impoverish our children.

We lived through the re-mortgages before i was brought up just as rationing ended, but I can still remember not being allowed sweets, we had eggs twice a week, and the bread and dripping which made me sick because you could not get butter.

Yet we lived through it, we will live through this again, maybe it will help the kids know what it’s like not to have everything.

10. Chaise Guevara

@2

“What would you cut instead? And please come up with a politically possible answer that Labour can adopt i.e. don’t say “Trident”.”

LOL. “What would you cut instead? Please don’t answer.”

What can labour cut? wrists, throats, that would do for a start…..

What would you cut instead? And please come up with a politically possible answer that Labour can adopt i.e. don’t say “Trident”.

Trident!!!!!

And failing that, meals on wheels.

Worth saying all this again:

1. An individual on £44,000 is in the top 15% of *earners*, but a family on £44,000 is not in the top 15% of comparable *households*. According to the IFS, they’re pretty much in the middle, depending on how many kids they have.

Think about it folks – a family with one earner on £44,000 is already living on a lower net income than a family with two median earners on £20,801 each (because they’re only using one person’s tax-free allowance). How can they *as a household* possibly be in the richest 15%, as the Coalition keep trying to suggest?

The richest 15% of *households* are on £60,000 plus – and many of them, of course, will still get Child Benefit under these proposals.

2. All those people who were sceptical that this move would ultimately be used to justify tax cuts for the rich and benefit cuts for the poor: have you noticed that we’re already hearing talk about the marriage tax break being extended to higher-earning couples by way of compensation? Have you noticed that the media are already linking the loss of CB for higher earners with the question of whether we should be paying poor people to have children?

3. It just seems obvious to me that if you have 4 kids, you can afford to pay slightly less overall in taxes than someone on the same income who has 2 kids; and if you have 2 kids, you can afford to pay slightly less overall in taxes than someone on the same income who has no kids. That’s true whether you’re on £10,000 or £100,000. Now, we could mess about with tax codes to recognise that fact – but why not keep it simple and pay a cash benefit that can go to non-taxpayers as well?

Say a higher-rate tax payer with kids is making a net contribution of £13,000 at the minute, because she pays £15,000 in taxes and gets £2,000 back in Child Benefit. And say we think she should be paying £2,000 more than she is.

We *could* just take away her Child Benefit – but then why is the bloke next door, who’s on the same income but doesn’t have kids, making the exact same contribution as her? Surely if she can afford to pay £15,000, he can afford to pay at least £17,000?

The solution is pretty obvious – you put up taxes to £17,000 for both of them, but let her keep her Child Benefit.

Sorry, but I struggle to accept that a household with 3 kids to look after and a wage earner falling just into the 40% tax bracket is rich; loads better off than those on benefits or low pay, yes, but not rich.

The loss of a years’ Child Benefit is equivalent to an inflation level increase in fees for a boarder at St Pauls, where the Chancellor spent his schooldays – that’s how serious this loss is to the truly rich.

That’s the level of sacrifice behind this ‘difficult decision’ to show we’re all in it together.

2

Yep, I’m afraid some of the other posters beat me to it, but Trident has to be top of the list: it’s an instant saving of billions for decades ahead, and the best part of it is, you do NOT now have to be on the far left, or a CND supporter to make a principled case that it simply no longer makes sense for the UK to spend scarce resources on renewing this system.

There are of course other options to add: even on the radio this morning the cunning plans announced vis a vis reducing tax relief on pension contributions suddenly came up with an “extra” £4 billion.

Much like the debate about university tuition fees, the queston about child benefit in the end revolves around how the finite amount of resources are allocated. Everyone accepts that there are savings to be made, efficiencies etc… the $64,000 question is how equitably the available funds are spent.

Looks like we know the answer…not very!

OK, anything in addition to Trident?

Richard –

You’re assuming it’s an alternative spending cut that’s needed. But the abolition of CB is a tax rise in all but name (it’s effectively the scrapping of the old Family and Child Tax Allowances that CB replaced 30 years ago), and the best and closest alternative is simply a fairer tax rise.

If you agree with the Government that higher rate taxpayers should be making a £1 billion contribution out of their own pockets, then obviously the simplest option is to raise the 40p tax rate – an extra 2p would more than do it. The burden would be more fairly shared, and you wouldn’t create the same powerful incentive for people to keep their taxable income below the higher-rate threshold.

We might try cutting down on tax avoidance, evasion and huge handouts to the massively rich. We would be £6 billion better off if the Treasury didn’t love Vodafone so much and the forthcoming cut in corporation tax will cost £2billion pa.

George Osborne, putting the ‘n’ in cut

19. Chaise Guevara

“George Osborne, putting the ‘n’ in cut”

I LOL’d.

@Richard

You’re asking the wrong question. Which is fair enough, as most if not all of the media refuse to see the way out of the economic crisis other than slash and burn…

…but y’know we could introduce new ways of tightening up on tax (est. £30billion lost to avoidence and evasion I think? – ie: 150 billion over 5 years)
We could stop private schools having charitable status and claw back half a billion over 5 years.
Legalise all drugs (except maybe crack) and tax them accordingly (would also create jobs for people in pharmacies, stop addicts from stealing to fund their addiction, etc). Dunno how much that would bring in but tobacco makes the chancellor £9billion p/a so depending on how much the tax was and how cheap the products were to produce I reckon a similar sum (so £45billion over 5 years)
And even though you forbid it, yeh getting rid of/delaying Trident would save us £5billion

So that’s £200.5billion over the course of this parliament. Without cutting benefits or owt. Deficit smeshicit.

Granted most of my money comes from the legalisation of drugs (and no gvmt has had a sensible drugs policy for a really long time) and the tightening up on tax avoidence&evasion (highly unlikely). But it’s not to say it can’t be done.

Oh and one more: change the rules for money making in the UK so that people like Google and News International who make shitloads of billions out of the British public actually put some of their $$$ back into society. And maybe Philip Green, now he’s helping out the gov, could put his hand into his wallet for once as well.

sources: google
Murdoch

On this point:

“a family with one earner on £44,000 is already living on a lower net income than a family with two median earners on £20,801 each (because they’re only using one person’s tax-free allowance). ”

– worth noting that this effect is going to become much more pronounced. Over the next few years, the lower-rate threshold is set to rise to £10,000, while the higher rate threshold is set to fall. And presumably wages will be rising too. So in a few years’ time, single-earner families on £40,000 or so are likely to be losing thousands in Child Benefit even though their net incomes are already thousands lower than families with two earners earning around the median wage.

I won’t try to do the exact sums, but imagine:

Family A: 2 earners on £23,000 each; £26,000 of household income taxable.

Family B: 1 earner on £40,000; £30,000 of household income taxable.

Family B might be a single mum with three kids; family A might be a couple with one. Family A are thousands of pounds a year better off – although they’re only on modest incomes – but they get Child Benefit and Family B don’t.

My response: it’s unfair to give CB to family A but not family B.Give it to both.

Tory response (give them time): it’s unfair to give CB to family A but not family B. Don’t give it to either.

(NB: the Tories can make the same move regardless of all that stuff about tax thresholds etc.; they just say: ‘Look, single-earner families on £44,000-plus have been doing without CB for years; why shouldn’t two-earner families on £44,000-plus do without it too?’)

So the thrust of the original post is that there will be cuts for everyone, not just rich or poor. Isn’t that what Mr Cameron has kept saying? Hardly a major surprise then.

As to finding alternative cuts (a strange response you keep seeing) – how do we do that when everyone is cutting? It’s a simple argument between cutting back and reducing spending of money that the government does not yet have and continuing to spend at present rates, using money the government does not have.

‘ linking benefits (including carers allowance) to CPI; ‘

The government do save money by switching away from RPI to CPI. However, the CPI measure allows for substitution of goods and that is what people actually do. The RPI index contains mortgage interest payments and council tax. How many children pay council tax and have mortgage interest payments? Their parents might but that is hardly a cost of living expense for children.

“How many children pay council tax ”

I’m sure somebody reading this just had a lightbulb moment.

Richard –

“How many children pay council tax and have mortgage interest payments? Their parents might but that is hardly a cost of living expense for children.”

How are the costs of living in a bigger house (and/or a house that’s more expensive because of its location in relation to schools etc) any less of a ‘cost of living expense for children’ than the costs of eating more pasta or getting through more pairs of shoes?

26. G.O.

Richard –

‘ How are the costs of living in a bigger house (and/or a house that’s more expensive because of its location in relation to schools etc) any less of a ‘cost of living expense for children’ than the costs of eating more pasta or getting through more pairs of shoes? ‘

I am sure their parents do have those expenses. However, CB rises should reflect the cost of living expenses spent on children. I agree, the government are doing it to save money. If the government save money then recipients will lose money. However, it is an anomaly for the government to be using different inflation indexes for different things. The BoE target CPI, so that should be the only index used. British CPI is exactly the same index as the The Harmonised Index of Consumer Prices (HICP) used throughout the EU. We are only falling into line with the rest of the EU.

“OK, anything in addition to Trident?”

50% cut in military spending – around 22 billion. Obviously this means withdrawl from Afghanistan and Iraq, but I always viewed this as a waste of resources anyway.

Abolish Child Benefit and replace it with universal child care provision. PWC think this can be done for 3 billion IIRC so that is a 9 billion saving.

End use of private sector consultants by central govt. 3 billion there (although my source for that is UNISON.

Now onto the UK spending site for some crap amateur economics:

Another 13.5 billion spent on “general economic commercial and enterprise development, agriculture forestries and fishing” No idea how that breaks down so lets play save and just cut 3.5 billion off it.

2.1 billion on cultural services. We’ll get rid of that. (I’m going to assume that is opera and theatre etc)

Spending on “others” within that general “other” category is 8 billion ish. We’ll get rid of those on the ground that if you aren’t important enough to be a category of spending in your own right then you can be cut.

Thats 57 billion. Now we’ll raise the retirement age to 70 to make some headway in the 113 billion pensions bill. We will of course assume that all people between 65 and 70 will automatically get jobs and not end up claiming benefits, and if anybody questions it we’ll issue a press release calling the person economically illiterate for not understanding that the magic adam smith fairy dust will mean those people automatically get jobs. We can do exactly the same if people ask what those squaddies, opera singers and management consultants are going to do.

@ planeshift

Outstanding manifesto.

How do I vote for you ?


Reactions: Twitter, blogs
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