Rushed policy is often bad policy, but the Child Benefit fiasco is not simply about obvious flaws. It raises longer term questions about where the welfare state might be heading under the Coalition.
In the immediate aftermath of George Osborne’s announcement, defects and unfairnesses came quickly to light. The sharp cliff edge whereby any salary just above or below £43,875 creates perverse incentives. And how to explain to a one-salary family on, say, £50,000, that they should lose their benefit while the two-earner family with a joint £80,000 keeps it? So much for parents making their own choices about work/family balances and so much, too, for Conservative Party notions about the importance of the traditional family.
Difficulties will multiply as administrators seek to turn plans into practice, not least because HMRC was not consulted in advance about the idea. What happens, for example, if a higher taxpayer becomes unemployed – or if a couple separate? Will Child Benefit immediately be restored to the mother? I doubt that the tax system is that fast-footed.
Any proposal to introduce a Married Couples Tax Allowance to rescue the policy would be an expensive operation. It would also be very poorly targeted because the vast majority of married couples do not have dependent children. All in all, a mixture of marriage, family and taxation creating a heady Tory brew.
So much for the immediate furore, but what does this episode tell us about the direction of our welfare state in Coalition hands? Their thinking is based on an ideological assumption that social security benefits should only be reserved for those on low incomes. That is essentially a nineteenth century view, one that spawned the workhouse in the 1830s and the household means test in the 1930s.
That approach was challenged rigorously in the twentieth century by an emerging progressive consensus behind universalism. It was based on concepts of citizenship, with attendant rights and duties. The early running was made by the Liberal Party of Asquith and Lloyd George which enacted National Insurance measures. The key document remains the 1942 Beveridge Report, the work of that far-sighted Liberal reformer. There followed the Attlee Government’s great social provisions – comprehensive national insurance and a universal NHS. The argument was about universal needs and social cohesion: in a democracy, all citizens experience financial needs and risks, whether sickness, unemployment, child-bearing or old age. Dignified provision had to draw in all classes. It was an ‘all in this together’ collectivism that gave birth to a modern welfare state.
This democratic universalism was epitomised in family policy by family allowances, introduced by the Coalition Government in 1945. They merged with child tax allowances in the mid-’70s to form Child Benefit. The introduction of family allowances owed much to the writings and campaigns of Eleanor Rathbone. Her arguments were powerful and persistent:
“Children are not simply a private luxury. They are an asset to the community, and the community can no longer afford to leave the provision of their welfare solely to the accident of individual income”.
That is the crucial point and it underlines why Child Benefit should be maintained as a universal provision. It recognises that at all income levels those with children have financial obligations above and beyond those without children. Now, that may seem a theoretical point at millionaire levels, but it is a pressing, practical and expensive point for many of those who now stand to lose out. Children are expensive and increasingly so, as parents have to pay for a multitude of items and probably child care costs and, later, university education. Since Beveridge’s day most children no longer become economic assets in their mid-teens. Children may ape the adult at younger and younger ages but in terms of financial dependency many still rely on their parents into their twenties. Liverpool Victoria have estimated the average lifetime costs of raising a child, from birth until 21, at £201,000. Their estimates exclude one of the biggest costs of all, namely the earnings foregone by mothers when they stay at home for at least a few years to tend to their children. It is surely no coincidence that the birth rate, at just below two children on average, is less than the replacement level.
Social policy should not just be about vertical equity, distributions from the rich to the poor, but also horizontal equity. For the self-styled ‘Party of the family’ to effectively raise taxation for families with children and not to do so for the single or the childless is bizarre at best and damaging at worst.
Defending Child benefit for better-off families may seem an unusual early Labour battle with the Coalition. But it puts down an important political marker for where the Party needs to be and how universal services and benefits must remain at the heart of the new and reformed welfare state.
Malcolm Wicks is the Labour MP for Croydon North and a former DWP Minister. Prior to his election 1992 he was the Director of the Family Policy Studies Centre.
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