Explaining the child benefit saga

Do you prioritise fairness for individuals or for households? The coalition is realising you can't d

Observing a government in the midst of a policy u-turn is rarely an elegant sight. When it is drawn out over an extended period, and fuelled by briefing and nods and winks from the PM downwards, it is even less edifying. So it is with the coalition's current contortions on Child Benefit.

None of the proposals being discussed as improvements to the coalition's original idea (to axe Child Benefit for households with a higher rate tax payer) are attractive. All are likely to be an administrative nightmare. Indeed, if the government could press rewind I doubt very much they would choose to repeat the initial pledge they made (not withstanding polling evidence showing it could be quite popular). And if they could press fast-forward into the future my guess is that they would probably decide not to plump for the sort of complex proposal that they are reportedly leaning towards (for instance creating what would in effect be a new tax threshold at £50k).

As things stand, Osborne's room for manoeuvre is limited. He's made clear that he wants to remove Child Benefit from the affluent. Some of the ways of achieving this that have been floated by leading voices like the IFS, such as integrating Child Benefit within the tax credit system, and so means-testing it according to household income, are now likely to be deemed to be politically too difficult (even though they might have once been possible back in 2010).

Why? Because they would hit (many) households with two earners each on say £30k-35k. You might think this would be more rational than axing Child Benefit for single earner households on £45k. Perhaps. But the last thing a government in retreat wants when placating one group of losers is to create another disgruntled set who previously thought they would escape unscathed. Indeed, the biggest risk the coalition faces right now on this issue is not that they fail to recoup the full £2.4bn they were hoping to save, but that they find themselves making a series of expensive concessions as each new proposal they make comes under pressure. They need to find a position they are sure they can defend and stick to it.

Given the hole they are now in on this issue, and assuming a complete u-turn is not on the cards, the least bad option for Osborne would probably be to ditch the idea of abolition and instead start taxing Child Benefit for higher rate taxpayers; though he will probably feel this falls short of what he needs to do (and it still suffers from some of the problems as his original idea).

Given the upheaval, it's worth asking what led the government down this path? Part of the answer is the tendency towards politically-driven but ill-conceived policy announcements - recall that the Child Benefit proposal arose in the first place in order to soften up opinion in advance of the wider cuts to the benefit system.

But it also reflects an underlying and still unresolved issue about the future of the tax system. Take a step back from the detail of this row and consider what pattern emerges from the coalition's changes to the tax and benefit system. In terms of where money has been spent, it has been on Clegg's flagship idea of increasing personal allowances - an agenda which is primarily about tax-cuts targeted at individuals. Meanwhile those parts of the tax and benefit system targeted at supporting households and children (like tax credits) face harsh cuts, though no one in the coalition would like to put it this way.

The Child Benefit proposal is an uncomfortable hybrid: it's based on individual earnings (means testing child benefit for higher rate tax-payers) but in a very clunky and arbitrary way it nods towards considering household income in that it asks each claimant whether their partner pays the higher rate of tax. The result, as has been widely pointed out, is that the single-earner household on £45k risks losing up to several thousand pounds while the dual-earning household on a combined income of £80k loses nothing.

At the heart of the issue is the point that tax and benefit reforms can prioritise fairness for individuals (Clegg's argument), or they can seek to respect the principle of individual taxation whilst advancing greater equity for low and modest income households with children - which is in essence what tax credits seek to achieve (at the price of far greater complexity). But they can't do both at once.

Regardless of how the current Child Benefit saga plays out it is unlikey to be the final word in this debate about supporting individuals as opposed to households. Why so? Because if personal allowances continue to be the favoured mechanism for tax reform, and there's little reason to think they won't for as long as the coalition survives, then sooner or later their comparative shortcomings as a way of supporting families with children will surface as more of an issue.

Liberal Democrat strategists concede as much (at least in private). Looking to the longer term they are interested in exploring ways of making the personal allowance better reflect household circumstances - for instance through some form of children's tax allowance. This isn't an issue for now, but could well be in the event Lib Dems are in with a real chance of forming another coalition government beyond 2015.

If you think some of this sounds vaguely familiar, you'd be right. We used to have child tax allowances before they were phased out in the 1970s and replaced by the Callaghan government with (you guessed it) a version of today's Child Benefit - a system thought to be much more beneficial to mothers than its predecessor.

Gavin Kelly is a former adviser to Downing Street and the Treasury. He tweets @GavinJKelly1.

How Jim Murphy's mistake cost Labour - and helped make Ruth Davidson

Scottish Labour's former leader's great mistake was to run away from Labour's Scottish referendum, not on it.

The strange revival of Conservative Scotland? Another poll from north of the border, this time from the Times and YouGov, shows the Tories experiencing a revival in Scotland, up to 28 per cent of the vote, enough to net seven extra seats from the SNP.

Adding to the Nationalists’ misery, according to the same poll, they would lose East Dunbartonshire to the Liberal Democrats, reducing their strength in the Commons to a still-formidable 47 seats.

It could be worse than the polls suggest, however. In the elections to the Scottish Parliament last year, parties which backed a No vote in the referendum did better in the first-past-the-post seats than the polls would have suggested – thanks to tactical voting by No voters, who backed whichever party had the best chance of beating the SNP.

The strategic insight of Ruth Davidson, the Conservative leader in Scotland, was to to recast her party as the loudest defender of the Union between Scotland and the rest of the United Kingdom. She has absorbed large chunks of that vote from the Liberal Democrats and Labour, but, paradoxically, at the Holyrood elections at least, the “Unionist coalition” she assembled helped those parties even though it cost the vote share.

The big thing to watch is not just where the parties of the Union make gains, but where they successfully form strong second-places against whoever the strongest pro-Union party is.

Davidson’s popularity and eye for a good photo opportunity – which came first is an interesting question – mean that the natural benefactor in most places will likely be the Tories.

But it could have been very different. The first politician to hit successfully upon the “last defender of the Union” routine was Ian Murray, the last Labour MP in Scotland, who squeezed both the  Liberal Democrat and Conservative vote in his seat of Edinburgh South.

His then-leader in Scotland, Jim Murphy, had a different idea. He fought the election in 2015 to the SNP’s left, with the slogan of “Whether you’re Yes, or No, the Tories have got to go”.  There were a couple of problems with that approach, as one  former staffer put it: “Firstly, the SNP weren’t going to put the Tories in, and everyone knew it. Secondly, no-one but us wanted to move on [from the referendum]”.

Then again under different leadership, this time under Kezia Dugdale, Scottish Labour once again fought a campaign explicitly to the left of the SNP, promising to increase taxation to blunt cuts devolved from Westminster, and an agnostic position on the referendum. Dugdale said she’d be open to voting to leave the United Kingdom if Britain left the European Union. Senior Scottish Labour figures flirted with the idea that the party might be neutral in a forthcoming election. Once again, the party tried to move on – but no-one else wanted to move on.

How different things might be if instead of running away from their referendum campaign, Jim Murphy had run towards it in 2015. 

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to British politics.

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