Azara Blog: The Tories completely lose the plot over child benefit

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Date published: 2010/10/04

The BBC says:

Ministers have defended plans to cut child benefits to higher earners amid criticism they represent an "attack" on already hard-pressed families.

From 2013, benefits will be removed from any family where one parent earns more than about £44,000 a year.
...
As recently as a year ago, Mr Osborne said he would preserve child benefit - for decades paid to millions of families irrespective of their income - as it was "valued by millions" of families.

But he said he he could no longer defend paying out £1bn a year to better-off families and the one-off cut "made sense" given the scale of debt and welfare spending he had inherited.
...
While critics said they accepted it was right that better-off families should be targeted, there was anger about apparent anomalies in the proposals.

Households where two parents each earning slightly less than £44,000 - adding up to a combined family income of over £80,000 - will keep the benefit while households where just one parent earns over £44,000 will lose it.
...
Ministers said the alternative was to introduce a complex and expensive system of means testing for all household incomes which would undermine the whole system.

But the respected Instititute for Fiscal Studies also expressed doubts about the proposals.

"Some may think it...is unfair because child benefit is withdrawn where an individual in a couple is a higher-rate taxpayer, regardless of the joint income of the couple," it said.

It also said the changes could "seriously distort" financial incentives for some families as they would lose all their benefit if they earned slightly more money.

This is the kind of idiotic proposal that one would have expected Gordon Brown to come up with, ostensibly "fair" but in fact deeply unfair and ill thought out, as all the commentators have pointed out. How can the Tories accept that a family that earns 85k gets a tax break but a family that earns 45k does not. It is madness.

One can just imagine the scenario where some poor soul is earning just under the higher income tax threshold, desperately telling their boss that no, they do not want a pay rise because it would actually leave them worse off. The Tories have spent some time complaining that people on benefits have too high a marginal rate of tax so have no incentive to work, but somehow are happy for the same stupidity to occur somewhere else in the tax system.

And it is ridiculous to believe that they could not have proposed something more sane. Brutal step functions in tax regimes are always iniquitous and here someone might not even know they are going to to over the magic threshold until the end of the year, in which case in theory they have to pay back the entire child benefit. Instead they could have proposed that it be tapered. Everyone who is a higher rate taxpayer has to fill in a tax form, so it would be easy enough.

And the Tories have not explained what will happen to couples who are not married because presumably there is no way they can easily try and force this tax increase on them. The Tories claimed that they wanted to eliminate the "marriage penalty" for people on benefit but here they are introducing a whacking great marriage penalty. Not that it will discourage anyone much from marrying, just like giving tax breaks to married people does not encourage anyone much to marry. Funnily enough, marriage is about more than tax breaks, but somehow conservatives the world over think otherwise.

Both George Osborne, and the Tory stooges lined up to parrot his talking points, claimed that it was "unfair" that poorer families subsidise better off families. But of course the reverse is true. Better off families subsidise poorer families, and the only question is how large that subsidy should be. It is a bit ridiculous that the Tories have failed to understand this trivially obvious basic fiscal fact. They might as well work for the Guardian or the Labour Party, given their complete lack of economic sense.

A far more sensible approach would have been to eliminate child benefit completely and increase benefits for all poor people, in compensation.

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