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30 September 2011

The coalition prepares to “rethink“ child benefit cuts

Ministers consider offering relief to families who on average will lose £1,750 a year.

By George Eaton

George Osborne’s plan to remove child benefit from higher rate taxpayers hasn’t received much attention in recent months, largely because the change isn’t due to be implemented until 2013. But it remains a policy fraught with difficulties. At a time of high inflation and stagnant wages, it amounts to an average tax increase of £1,750 a year (£1,000 for the first child and £750 for each subsequent child) for the families affected, and disproportionately penalises single-earner households. While all households in which at least one person earns £44,000 or more will lose out, a family with two adults earning, say, £40,000 a year will not. Osborne’s decision to freeze the benefit for three years tightens the squeeze.

With this in mind, it’s no surprise that, as today’s Times (£) reports, ministers are “rethinking” the proposal. One solution proposed by Iain Duncan Smith – to means-test the benefit as part of the universal credit – has been rejected by the Treasury. But Osborne is looking into how he could offer relief to the biggest losers. The Tories are increasingly anxious about their flagging support among women and fear that the child benefit cuts will compound the problem. An unusual number of the coalition’s austerity measures – the abolition of baby bonds, the three-year freeze in child benefit, the abolition of the health in maternity grant, the cuts to Sure Start, the withdrawal of child tax credits from higher earners – hit women and families hardest.

One of Ed Miliband’s first decisions as Labour leader was to oppose the coalition’s child benefit cuts. It offered evidence of his commitment to “the squeezed middle” and to an expansive welfare state. A passionate universalist, Miliband has often quoted Richard Titmuss’s wise assertion that “services for the poor will always be poor services”. But whether this stance survives the Labour leader’s new emphasis on fiscal rectitude remains to be seen.

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