Is this the coalition's 10p tax moment?

Child benefit cuts come under attack from all sides.

It must count as some achievement to attract the simultaneous ire of the Daily Mail, the Daily Telegraph, the Institute for Fiscal Studies, the trade union movement and the Labour Party. That's the unusual position George Osborne finds himself in this morning as his raid on child benefit comes under attack.

It appears that the cabinet was given little, if any, advance warning of the move, with one minister describing it as "complete bombshell". The Mail and Telegraph both attack the measure as a blow against the family in their leaders this morning and the IFS warns of the perverse anti-work incentives that result from the move. The decision to abolish child benefit for all higher-rate taxpayers means that a one-earner couple with two children with a gross income of £43,876-£46,850 would be worse off than if their income were £43,875. A one-earner couple with an income of £43,875 would need a pay rise of at least £2,975 to ensure they were no worse off after paying tax and losing child benefit.

It's for reasons like this that, less than 24 hours after the measure was announced, the children's minister, Tim Loughton, has already floated the possibility of "compensating measures" for those who have lost out. Is this the coalition's 10p tax moment? It would be foolish to rule it out. The decision to simultaneously abolish tax credits for all those earning over £30,000 means that there will be howls of anguish from those set to lose thousands of pounds of benefits in a single stroke.

But far more significant is the fact that this marks the opening salvo in the coalition's war on the universal welfare state. The decision to make child benefit universal was never just about income, rather it was the means by which society collectively recognised and supported the decision of couples to start a family. Once the poison of means-testing is injected into the system, the principles on which the entire welfare state is built start to break down. And it is the poorest who will suffer the most from the abandonment of universality. As the great sociologist, Richard Titmuss phrased it: "services for the poor will always be poor services." Ed Miliband must live up to his campaign promises and resist the coalition all the way.

George Eaton is political editor of the New Statesman.

Photo: Getty
Show Hide image

Theresa May's U-Turn may have just traded one problem for another

The problems of the policy have been moved, not eradicated. 

That didn’t take long. Theresa May has U-Turned on her plan to make people personally liable for the costs of social care until they have just £100,000 worth of assets, including property, left.

As the average home is valued at £317,000, in practice, that meant that most property owners would have to remortgage their house in order to pay for the cost of their social care. That upwards of 75 per cent of baby boomers – the largest group in the UK, both in terms of raw numbers and their higher tendency to vote – own their homes made the proposal politically toxic.

(The political pain is more acute when you remember that, on the whole, the properties owned by the elderly are worth more than those owned by the young. Why? Because most first-time buyers purchase small flats and most retirees are in large family homes.)

The proposal would have meant that while people who in old age fall foul of long-term degenerative illnesses like Alzheimers would in practice face an inheritance tax threshold of £100,000, people who die suddenly would face one of £1m, ten times higher than that paid by those requiring longer-term care. Small wonder the proposal was swiftly dubbed a “dementia tax”.

The Conservatives are now proposing “an absolute limit on the amount people have to pay for their care costs”. The actual amount is TBD, and will be the subject of a consultation should the Tories win the election. May went further, laying out the following guarantees:

“We are proposing the right funding model for social care.  We will make sure nobody has to sell their family home to pay for care.  We will make sure there’s an absolute limit on what people need to pay. And you will never have to go below £100,000 of your savings, so you will always have something to pass on to your family.”

There are a couple of problems here. The proposed policy already had a cap of sorts –on the amount you were allowed to have left over from meeting your own care costs, ie, under £100,000. Although the system – effectively an inheritance tax by lottery – displeased practically everyone and spooked elderly voters, it was at least progressive, in that the lottery was paid by people with assets above £100,000.

Under the new proposal, the lottery remains in place – if you die quickly or don’t require expensive social care, you get to keep all your assets, large or small – but the losers are the poorest pensioners. (Put simply, if there is a cap on costs at £25,000, then people with assets below that in value will see them swallowed up, but people with assets above that value will have them protected.)  That is compounded still further if home-owners are allowed to retain their homes.

So it’s still a dementia tax – it’s just a regressive dementia tax.

It also means that the Conservatives have traded going into the election’s final weeks facing accusations that they will force people to sell their own homes for going into the election facing questions over what a “reasonable” cap on care costs is, and you don’t have to be very imaginative to see how that could cause them trouble.

They’ve U-Turned alright, but they may simply have swerved away from one collision into another.  

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

0800 7318496