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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I worked as a teacher – so I can tell you how regressive grammar schools are

The grammars and "comprehensives" of Kent make for an unequal system. So why does Theresa May consider the county a model for the future?

In 1959 my parents moved me from a Roman Catholic primary school to the junior branch of King Henry VIII, Coventry’s most high-profile grammar. The head teacher berated my mother for betraying the one true faith, but although she was born in Galway, my mum was as relaxed about her religion as she was about her native roots. Any strong feelings about the English Reformation had disappeared around the same time as her Irish accent. Her voice gave no clue to where she was from and – as a result of a wartime commission – the same was true of my father. Together, Mrs and Mr Smith embodied postwar Britain’s first-generation upwardly mobile middle class.

Their aspiration and ambition were so strong that my mother saw no problem in paying for me to attend a Protestant school. Why, you may ask, did my dad, a middle manager and by no means well off, agree to pay the fees? Quite simply, my parents were keen that I pass the eleven-plus.

King Henry VIII School benefited from the direct grant scheme, introduced after the Education Act 1944. In Coventry, the two direct grant schools were centuries old and were paid a fee by the government to educate the fifth or so of boys who passed the eleven-plus. When secondary education in Coventry became comprehensive in the mid-1970s, King Henry VIII went fully independent; today, it charges fees of more than £10,000 per year.

A few years ago, I returned to my old school for a memorial service. As I left, I saw a small group of smartly dressed men in their late seventies. They had strong Coventry accents and intended to “go down the club” after the service. It occurred to me that they represented the small number of working-class lads who, in the years immediately after the Second World War, were lucky enough to pass the eleven-plus and (no doubt with their parents making huge sacrifices) attend “the grammar”. But by the time I moved up to King Henry VIII’s senior school in 1963 there appeared to be no one in my A-stream class from a working-class background.

From the early 1950s, many of the newly affluent middle classes used their financial power to give their children an advantage in terms of selection. My parents paid for a privileged education that placed top importance on preparation for the eleven-plus. In my class, only one boy failed the life-determining test. Today, no less than 13 per cent of entrants to the 163 grammar schools still in the state system are privately educated. No wonder preparatory schools have responded enthusiastically to Theresa May’s plans to reverse the educational orthodoxy of the past five decades.

Nowhere has the rebranding of secondary moderns as “comprehensives” been more shameless than in Kent, where the Conservative-controlled council has zealously protected educational selection. Each secondary modern in east Kent, where I taught in the 1970s, has since been named and renamed in a fruitless attempt to convince students that failing to secure a place at grammar school makes no difference to their educational experience and prospects. That is a hard message to sell to the two-thirds of ten-year-olds who fail the Kent test.

Investment and academy status have transformed the teaching environment, which a generation ago was disgraceful (I recall the lower school of a secondary modern in Canterbury as almost literally Edwardian). Ofsted inspections confirm that teachers in non-grammar schools do an amazing job, against all the odds. Nevertheless, selection reinforces social deprivation and limited aspiration in the poorest parts of the south-east of England, notably Thanet and the north Kent coastline.

A third of children in Thanet live in poverty. According to local sources (including a cross-party report of Kent councillors in 2014), disadvantaged children make up less than 9 per cent of pupils in grammar schools but 30 per cent at secondary moderns. University admissions tutors confirm the low number of applications from areas such as Thanet relative to the UK average. Though many of Kent’s secondary moderns exceed expectations, the county has the most underperforming schools in the UK.

When I began my teaching career, I was appallingly ignorant of the harsh realities of a secondary education for children who are told at the age of 11 that they are failures. Spending the years from seven to 17 at King Henry VIII School had cocooned me. More than 40 years later, I can see how little has changed in Kent – and yet, perversely, the Prime Minister perceives the county’s education system as a model for the future.

This article first appeared in the 22 September 2016 issue of the New Statesman, The New Times