Child benefit in UK

Child benefit: there’s plenty of welfare on offer to the Poles
The removal of middle-class child benefit payments is unjust, argues Philip Johnston

Successive post-war governments have been deeply reluctant to tinker with child benefit, other than to enhance it, and have certainly been unwilling to end its universal nature Photo: PHOTOLIBRARY

Philip Johnston 7:19PM BST 04 Oct 2010

Now we know. Middle-class parents are to lose their child benefit in order to find savings in public spending and as part of a planned overhaul of the welfare system. Is this a good idea? It does seem daft to make what is tantamount to a social security payment to a millionaire, or someone on £80,000 a year for that matter; but that is what happens because there is no means-testing.

Yet the system from the beginning was deliberately universal in its scope. It began life in August 1946 as the family allowance, and was redesignated as child benefit in 1977. It may sound semantic but the difference between an allowance and a benefit is an important one: the former is something that is yours to keep, the latter the state’s to give. Successive post-war governments have been deeply reluctant to tinker with child benefit, other than to enhance it, and have certainly been unwilling to end its universal nature. George Osborne’s decision to do so follows his three-year freeze on the payment announced in the Budget. The sacred cow is being slaughtered by a thousand cuts.
The main reason why it has been left largely untouched for so long is because it is an opportunity for better-off taxpayers who fund most of the benefit payments to get a slice of the cake. One third of all benefits last year – £53.5 billion – went to people who earn above the average and £4.8 billion was paid in child benefits to middle-class families, many top-rate taxpayers, with a take-up rate of almost 100 per cent. The think tank Reform estimated that 42 per cent of child benefit went to households that did not need the money, though many families on about £45,000 a year might have other ideas about the definition of “need”. Reform called child benefit “among the most expensive forms of middle-class welfare”.
So why keep it for everyone? Osborne previously said that “people feel their child benefit is the one thing they get without asking from the state”. But it is also true that once the middle classes no longer have any stake in the bloated welfare system they pay for, their irritation about the way the money is used (and often wasted) will turn into open revolt. It is precisely for this reason that the strongest support for a universal child benefit has always been on the Left: they see the threat posed to the welfare state when the middle classes only pay in and get nothing out.
So if child benefit is to be removed, there has to be a quid pro quo. Iain Duncan Smith wants to simplify the welfare system by introducing a single benefit for which the better off, by definition, will not qualify. In return, there must be tax breaks, including a transferable couples allowance (as promised at least twice by the Tories) to recognise the additional costs of children for the middle classes. Mr Osborne’s move will otherwise result in a blatant unfairness for parents where one stays at home and the other earns over the threshold for child credit. They could be living next door to a couple where both work and each earns £40,000 – the latter would qualify for benefit while the former will lose it.
If tax credits are withdrawn higher up the income scale, as they should be, then tax reliefs should be available instead. The absurdity of giving money back to the same people it was taken from is the main reason why the tax-credit system has been so expensive to administer.
Another change is needed if the middle classes are to accept with any equanimity that a benefit they have claimed for many years is to be removed. This is going to cost many people hundreds, even thousands, of pounds a year – and they will simply not understand why EU migrant workers should continue to claim child benefit for children they have left at home.
By the end of 2009, some 40,000 children living in Poland were receiving British child benefit – which is significantly higher than similar support in their own country. In Poland, the equivalent is about £5 a week. With migration from eastern Europe picking up once more, the cost of paying child benefit to non-British nationals will be going up just as the Government withdraws it from the people who pay for it.
While there is, in theory, reciprocation, other EU countries have far lower benefit rates and many also have tougher qualification rules. All of these countries have some form of family allowance. So if children qualify for benefits in their own countries, why should our taxpayers support them? It makes no sense, whatever EU rules say.
In opposition, Philip Hammond, then the shadow chief secretary to the Treasury, said: “With Britain facing a debt crisis and the Government’s child poverty strategy in tatters, it beggars belief that [Britain] is continuing to send millions of pounds of taxpayers’ money to children who don’t even live in this country.” Quite so. And what is the Coalition proposing to do about it?
Moreover, Britain might be forced to remove the few residency rules that limit social security payments to EU migrants because the European Commission says they are against Community law in failing to treat all nationals equally. If these restrictions are lifted, the annual cost of benefits could increase by as much as £2.5 billion, cancelling out other welfare savings.
Somehow, I doubt that will go down well with the taxpayers who fund a system they no longer use; or maybe the Government just hopes they won’t make a fuss.