Monday, 16 January 2012

Child Benefit

Chris Dillow points out the clumsiness of the government's proposal to claw back Child Benefit from households whose top earner is in the 40% bracket (or above), and rightly suggests that it would be much simpler to increase the 40% rate to something higher.  He's mistaken about the numbers however: treasury estimates (see page 14) say that £2.5bn a year is at stake.  I agree with Dillow's view that the government is sticking with this ugly policy because it sees inherent virtue in reducing both taxes and benefits.

In general, I hold that government benefits should be of one of two types: universal benefits with no means test (treated as taxable income), or subsistence benefits which taper off with increasing earnings.  (The government's proposed "Universal Credit" is a composite of subsistence benefits.)  Up to now, Child Benefit has been a universal benefit: the current proposal would make it neither flesh nor good red herring. Why should a childless household falling just below the 40% band subsidize a similar household with children, but no such transfer take place if both households fall just above the band?

My opinion is that children are expensive for parents but necessary for society, and that with the UK's fertility rate currently well below the replacement rate it's reasonable for the state to transfer modest sums from the childless to the fecund.  And that universal benefits are generally preferable to subsistence benefits.

Declaration of interest: my household currently receives child benefit which it would lose under the government's proposal.

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