Child Benefit - October 2010

I fully expected a row following the announcement that Child Benefit will be withdrawn from households with a higher rate tax payer, but what did surprise me was the poll published by Populus in The Sun just a day or so after the announcement which showed 83% support for the measure. Another thing that surprises me is the fact that so little comment has been made about the other much greater cuts in welfare: we have announced £11 Billion of cuts to the benefits which will affect a rather more vulnerable section of society almost without comment; but announcing a £1 Billion cut to benefits enjoyed by the 15% most well off has resulted in a furore. Perhaps it is because that cut also affects TV journalists and politicians.

Much of the criticism has focussed on the perceived unfairness arising where a higher rate taxpayer might be the only earner in a household and yet lose the Child Benefit. Indeed, one lady emailed me to say that the solution was simple and blindingly obvious, namely that we should make the household income the key qualifying measure. I had to reply telling her it was not simple at all, on the contrary, that it was very complicated.
We used to treat income tax in that way years ago: in effect a wife's income was taxed as if it were part of her husband's income. When we moved to individual taxation it was regarded as a great liberation, and I do not detect any desire to return to the status quo ante.
The inevitable consequence of individual taxation is the anomaly with Child Benefit, but it exists anyway even before you consider the Child benefit. A working couple on, say, £40,000 each, has a household income of £80,000 and only pay lower rate tax. Next door a fellow earns £45,000 and his wife does not work. Notwithstanding that his household income is just over half of that of next door on the lower rate, he still pays higher rate income tax.
Eliminating the anomaly would require an expensive and intrusive procedure. There simply is no mechanism for dealing with household income rather than individual income under the present system.

The fact is that one pound in every three spent by government goes on benefits. It follows that the necessary cuts in spending to eliminate the deficit must involve weaning the public -including the middle classes- off their addiction to welfare benefits. A gentleman with an income of £86,000 emailed me to complain about losing his child benefit. I was speechless