4 Oct 2010

Scrapping child benefit for higher rate taxpayers

Well the distant views of the sunlit uplands promised at this Conference probably don’t look so sunny for the higher rate taxpayers right now.  And they will be pondering how their loss of Child Benefit in one drastic swoop through the breakfast interviews this morning by George Osborne could be but the beginning.

This is bolder stuff than the Coalition’s predecessor’s have dared, including Margaret Thatcher.

Ever since Beveridge’s universal Family Allowance paid out of general taxation (5 shillings a week) came in after the War, Chancellors in tough times have eyed this universal allowance. Surely you could do something more targetted with the money, they argued.

Peter Thorneycroft resigned as Chancellor in 1957 when Macmillan refused to countenance his proposal to drop payments to the second child. Jim Callaghan as Chancellor looked at diverting money to a means tested Family Supplement in 1967. In 1968 he actually clawed back some money from better off families through the family tax allowance and Labour thought at the time they paid a political price for that.  Keith Joseph in 1970 went along a similar track introducing the Family Income Supplement. The plan was that the government would forgo increases in the universal Family Allowance and put the savings in the targetted, means-tested FIS instead. Barabara Castle then introduced the universal Child Benefit in the mid 1970s and until today that had “sacred cow” status. Margaret Thatcher’s government’s looked over the files repeatedly but never did anything fundamental – to save money they introduced lower payments for the second child, but that was it.

So it’s a bold measure and it cannot just stand there on its own you might think. Other universal benefits will be looked at as well. I asked one government figure about the anomaly of two couples on £40,000 each still getting child benefit while a one-earner household with a worker on £44,000 loses the lot. Ah, I was told, when we have the mighty combined tax and benefits database with all the info in one place we’ll be able to deal with that too!

Meanwhile, what’s the incentive for a couple where the husband earns £44,000+ and the wife doesn’t work to get married?

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