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more-on-child-benefit

I basically agree with Sam’s take on the end of universal child benefit. When resources are scarce, you should target them on those most in need. Giving benefits to families earning twice the average wage at a time when you are trying to reduce spending seems an odd policy. But there are certainly problems with the way this change – taking the child credit away from higher-rate taxpayers – has been designed.

The obvious one is that a single-earner household earning £45,000 will lost the benefit, while a two-earner household could potentially still receive it while bringing in £88,000. This seems both absurd and unfair. But another serious issue is that withdrawing child benefit in this way will create very high effective rates of marginal taxation for people crossing the boundary from the basic- to the  higher-rate income tax bracket. It is undoubtedly peculiar that while welfare secretary Iain Duncan Smith is doing his best to get rid of high marginal deduction rates for the unemployed, chancellor George Osborne is recreating them further up the income scale.

But that highlights a broader point – does it really make sense for one government department to be announcing all sorts of ad-hoc tinkering with the welfare system, while another is bringing forward a radical overhaul of the entire system? It does seem to me that a better approach to this issue would be to abolish the child benefit altogether, incorporating a ‘child element’ into the proposed universal credit for the unemployed (and those on low incomes), while putting some of the savings towards raising income tax allowances across-the-board – which would soften the blow for working families.