The child benefit reforms are a disaster waiting to happen

Osborne has underestimated the perverse incentives that removing the benefit from higher earners will create.

Starting next week, child benefit will gradually be withdrawn from over a million families with the aim of saving the government around £1.3bn a year. But the new system is complex to understand, difficult to administer and costly to implement. After U-turns and climb downs, the government has ended up with a dog’s breakfast.

From Monday, all families claiming child benefit, where one partner earns over £50,000, will have one per cent of their child benefit withdrawn for every additional £100 of income they earn up to the threshold of £60,000, at which point the benefit is completely withdrawn. Although the government has softened its original stance on child benefit withdrawal, it will still affect roughly 1.1 million families.

By complicating what is a very simple benefit, as reflected by its high take-up rate (97 per cent), this reform is set to create all sorts of perverse incentives. The Chancellor will effectively increase the marginal tax rate for families where one person earns between £50,000 and £60,000. The rate of child benefit is £20.30 a week (or £1,056 a year) for the first child, and £13.40 a week (£697 a year) for each additional child. Based on these figures the marginal tax rate for an individual earning over £50,000 with one child will be 52.6 per cent, rather than 42 per cent. But in the extreme case, a person with six children and earnings over £50,000 will face a staggering marginal tax rate of 87.4 per cent. This translates into a net income gain of just 12.6 pence for every pound earned.

Given these high marginal tax rates, the Chancellor may have underestimated the impact this change will have on work incentives. For people with children who earn between £50,000 and £60,000, there may be little incentive to seek promotion, as any increase in their earnings will erode their child benefit entitlement. The benefit withdrawal will also seem unfair to some households. Two people in one household who both earn under £50,000, but together earn, say, £80,000 will not lose any child benefit, while a family with a single earner on £60,000 will lose it all.

The Chancellor may also have overestimated the savings that this move will bring. One logical response for someone facing a very high marginal tax rate due to the withdrawal of child benefit would be to increase their contributions to their pension. If enough people diverting earnings towards their pension pot, it could dramatically reduce the amount the government saves.

Rather than making complex changes to child benefit, the government would do better to conduct a more fundamental review of its support for families. There is evidence to suggest that spending on services for families instead of benefits is more effective in reducing child poverty. The government could extend its freeze on child benefit and use the savings to fund affordable childcare. This would avoid complicated reforms, cliff edges and perverse work incentives. Providing quality universal childcare should be a national strategic priority for public service and welfare reform, particularly as the cost of childcare largely influences parental decisions on whether work pays.

If the government is genuinely committed to welfare reform, then affordable childcare, rather than fiddly means testing, would offer the best help to struggling families.

Amna Silim is a researcher at IPPR

Chancellor George Osborne leaves Number 11 Downing Street. Photograph: Getty Images.
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It's Gary Lineker 1, the Sun 0

The football hero has found himself at the heart of a Twitter storm over the refugee children debate.

The Mole wonders what sort of topsy-turvy universe we now live in where Gary Lineker is suddenly being called a “political activist” by a Conservative MP? Our favourite big-eared football pundit has found himself in a war of words with the Sun newspaper after wading into the controversy over the age of the refugee children granted entry into Britain from Calais.

Pictures published earlier this week in the right-wing press prompted speculation over the migrants' “true age”, and a Tory MP even went as far as suggesting that these children should have their age verified by dental X-rays. All of which leaves your poor Mole with a deeply furrowed brow. But luckily the British Dental Association was on hand to condemn the idea as unethical, inaccurate and inappropriate. Phew. Thank God for dentists.

Back to old Big Ears, sorry, Saint Gary, who on Wednesday tweeted his outrage over the Murdoch-owned newspaper’s scaremongering coverage of the story. He smacked down the ex-English Defence League leader, Tommy Robinson, in a single tweet, calling him a “racist idiot”, and went on to defend his right to express his opinions freely on his feed.

The Sun hit back in traditional form, calling for Lineker to be ousted from his job as host of the BBC’s Match of the Day. The headline they chose? “Out on his ears”, of course, referring to the sporting hero’s most notable assets. In the article, the tabloid lays into Lineker, branding him a “leftie luvvie” and “jug-eared”. The article attacked him for describing those querying the age of the young migrants as “hideously racist” and suggested he had breached BBC guidelines on impartiality.

All of which has prompted calls for a boycott of the Sun and an outpouring of support for Lineker on Twitter. His fellow football hero Stan Collymore waded in, tweeting that he was on “Team Lineker”. Leading the charge against the Murdoch-owned title was the close ally of Labour leader Jeremy Corbyn and former Channel 4 News economics editor, Paul Mason, who tweeted:

Lineker, who is not accustomed to finding himself at the centre of such highly politicised arguments on social media, responded with typical good humour, saying he had received a bit of a “spanking”.

All of which leaves the Mole with renewed respect for Lineker and an uncharacteristic desire to watch this weekend’s Match of the Day to see if any trace of his new activist persona might surface.


I'm a mole, innit.