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Starting next week, child benefit will gradually be withdrawn from over a million families with the aim of saving the government around £1.3bn a year.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families claiming child benefit, where one partner earns over £50,000, will have one per cent of their child benefit withdrawn for every additional £100 of income they earn up to the threshold of £60,000, at which point the benefit is completely withdrawn.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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Election 2017: 30 MPs at risk from a Lib Dem surge

The Lib Dems are hopeful of winning "dozens" of seats on June 8. Here's a list of the 30 most vulnerable if the party surges.

Buoyed by the 48 per cent's Brexit backlash, Labour's disarray, a famous win in Richmond Park and a string of council by-election victories, the Liberal Democrats say they are on course to make "dozens" of gains come June 8. 

Its targets can for the most part be divided into two broad categories: the first a disparate clutch of seats held before their 2015 collapse, the second a handful of new targets whose pro-Remain electorates are at odds with Brexiteer MPs.

The party is particularly hopeful of recouping the losses it made to the Tories in its erstwhile south west heartlands at the last election. As George revealed last month, internal polling reveals most of those seats could be vulnerable to a Lib Dem surge - as several Labour-held seats in England and Wales that broke heavily for remain in last year's referendum. 

EU referendum results were, for the most part, released by local authority rather than Westminster constituency – the totals in this list, where not officially available, are taken from political scientist Dr Chris Hanretty’s estimates, of which a full table is available here.

Labour-held:

Daniel Zeichner – Cambridge
Majority: 599 (1.2 per cent)
EU referendum vote: 69 per cent Remain

Julie Cooper – Burnley
Majority: 3,244 (8.1 per cent)
EU referendum vote: 40 per cent Remain

Neil Coyle – Bermondsey and Old Southwark
Majority: 4,489 (8.7 per cent)
EU referendum vote: 68 per cent Remain

Thangam Debbonaire – Bristol West
Majority: 5,673 (8.9 per cent)
EU referendum vote: 80 per cent Remain

Jo Stevens – Cardiff Central
Majority: 4,981 (12.9 per cent)
EU referendum vote: 62 per cent Remain

Jess Phillips – Birmingham Yardley
Majority: 6,595 (16 per cent)
EU referendum vote: 36 per cent Remain

Kate Hoey - Vauxhall 
Majority: 12708 (25.6 per cent)
EU referendum vote: 81 per cent Remain

Conservative-held:

Maria Caulfield – Lewes
Majority: 1083 (2.1 per cent)
EU referendum vote: 50 per cent Remain

Luke Hall – Thornbury and Yate
Majority: 1459 (3.1 per cent)
EU referendum vote: 44 per cent Remain

James Berry – Kingston and Surbiton
Majority: 2834 (4.8 per cent)
EU referendum vote: 60 per cent Remain

Marcus Fysh – Yeovil
Majority: 5293 (5.3 per cent)
EU referendum vote: 39 per cent Remain

Derek Thomas – St Ives
Majority: 2469 (5.1 per cent)
EU referendum vote: 46 per cent Remain

Kevin Foster – Torbay
Majority: 3286 (6.8 per cent)
EU referendum vote: 40 per cent Remain

Paul Scully – Sutton and Cheam
Majority: 3921 (7.8 per cent)
EU referendum vote:  49 per cent Remain

Ben Howlett – Bath
Majority: 3833 (8.1 per cent)
EU referendum vote: 66 per cent Remain

Will Quince – Colchester
Majority: 5575 (11.5 per cent)
EU referendum vote:  49 per cent Remain

Mary Robinson – Cheadle
Majority: 6453 (12.1 per cent)
EU referendum vote: 58 per cent Remain

 Alex Chalk - Cheltenham
Majority: 6516 (12.1 per cent)
EU referendum vote: 57 per cent Remain

Peter Heaton-Jones - North Devon
Majority: 6936 (13.3 per cent)
EU referendum vote: 43 per cent Remain

James Heappey – Wells
Majority: 7585 (13.3 per cent)
EU referendum vote: 47 per cent Remain

Scott Mann - North Cornwall
Majority: 6621 (13.7 per cent)
EU referendum vote:  40 per cent Remain

Anne-Marie Trevelyan – Berwick-upon-Tweed
Majority: 4914 (12.2 per cent)
EU referendum vote: 45 per cent Remain
 

Flick Drummond - Portsmouth South
Majority: 5241 (12.5 per cent)
EU referendum vote: 48 per cent Remain

Nicola Blackwood – Oxford West and Abingdon
Majority: 9,582 (16.7 per cent)
EU referendum vote: 61 per cent Remain

Anne Main – St Albans
Majority: 12,732 (23.4 per cent)
EU referendum vote: 64 per cent Remain

 

SNP-held:

John Nicolson – Dunbartonshire East
Majority: 2167 (4 per cent)
EU referendum vote: 71 per cent Remain

Michelle Thomson – Edinburgh West
Majority: 3210 (5.9 per cent)
EU referendum vote: 71 per cent Remain

Stephen Gethins – North East Fife
Majority: 4344 (9.6 per cent)
EU referendum vote: 62 per cent Remain

Paul Monaghan – Caithness, Sutherland and Easter Ross
Majority: 3844 (11.2 per cent)
EU referendum vote: 51 per cent Remain

Ian Blackford - Ross, Skye and Lochaber
Majority: 5124 (12.2 per cent)
EU referendum vote: 57 per cent Remain

 

 

 

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