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.

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A global marketplace: the internet represents exporting’s biggest opportunity

The advent of the internet age has made the whole world a single marketplace. Selling goods online through digital means offers British businesses huge opportunities for international growth. The UK was one of the earliest adopters of online retail platforms, and UK online sales revenues are growing at around 20 per cent each year, not just driving wider economic growth, but promoting the British brand to an enthusiastic audience.

Global e-commerce turnover grew at a similar rate in 2014-15 to over $2.2trln. The Asia-Pacific region, for example, is embracing e-marketplaces with 28 per cent growth in 2015 to over $1trln of sales. This demonstrates the massive opportunities for UK exporters to sell their goods more easily to the world’s largest consumer markets. My department, the Department for International Trade, is committed to being a leader in promoting these opportunities. We are supporting UK businesses in identifying these markets, and are providing access to services and support to exploit this dramatic growth in digital commerce.

With the UK leading innovation, it is one of the responsibilities of government to demonstrate just what can be done. My department is investing more in digital services to reach and support many more businesses, and last November we launched our new digital trade hub: www.great.gov.uk. Working with partners such as Lloyds Banking Group, the new site will make it easier for UK businesses to access overseas business opportunities and to take those first steps to exporting.

The ‘Selling Online Overseas Tool’ within the hub was launched in collaboration with 37 e-marketplaces including Amazon and Rakuten, who collectively represent over 2bn online consumers across the globe. The first government service of its kind, the tool allows UK exporters to apply to some of the world’s leading overseas e-marketplaces in order to sell their products to customers they otherwise would not have reached. Companies can also access thousands of pounds’ worth of discounts, including waived commission and special marketing packages, created exclusively for Department for International Trade clients and the e-exporting programme team plans to deliver additional online promotions with some of the world’s leading e-marketplaces across priority markets.

We are also working with over 50 private sector partners to promote our Exporting is GREAT campaign, and to support the development and launch of our digital trade platform. The government’s Exporting is GREAT campaign is targeting potential partners across the world as our export trade hub launches in key international markets to open direct export opportunities for UK businesses. Overseas buyers will now be able to access our new ‘Find a Supplier’ service on the website which will match them with exporters across the UK who have created profiles and will be able to meet their needs.

With Lloyds in particular we are pleased that our partnership last year helped over 6,000 UK businesses to start trading overseas, and are proud of our association with the International Trade Portal. Digital marketplaces have revolutionised retail in the UK, and are now connecting consumers across the world. UK businesses need to seize this opportunity to offer their products to potentially billions of buyers and we, along with partners like Lloyds, will do all we can to help them do just that.

Taken from the New Statesman roundtable supplement Going Digital, Going Global: How digital skills can help any business trade internationally

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