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Andrew Lilico

Andrew Lilico: For a family on £80,000, Child Benefit is a tax rebate

The government is apparently engaged in a re-think about its policy of cutting child benefit for the wealthy.  Osborne is adamant, however, that the principle of the policy stays.  He says:

But the principle that it's not fair to ask someone who's earning say £20,000 or £25,000 to pay someone who is on £80,000 or £100,000 to get child benefit is one that I think is very important.

What Osborne says here is wrong, and wrong in a very fundamental way that goes to the heart of the issue about child benefit for the well-off.  It is both formally and historically incorrect to say that, under the current system, we "ask someone who's earning say £20,000 or £25,000 to pay someone who is on £80,000 or £100,000 to get child benefit".  That is not what the system is at present.  And it is precisely because Osborne and so many other people think that that is the system that they believe in cutting child benefit for the wealthy.

As a matter of formality, child benefit is not administered by the Department for Work and Pensions.  It has not historically been part of the Social Security budget.  Instead, it is administered by HMRC.  Why?  Because, despite its misleading name, it is not a welfare benefit.  Instead, child benefit is a tax rebate.  The UK used to have child tax allowances that were a proportion of income.  In the late 1970s, the system was changed and the tax allowance was converted into a fixed sum rebate.  But it was still a tax allowance.  It was regarded as a tax allowance by the public (which was why take-up was well above 90%, in contrast to welfare benefits that often have take-up rates only in the 60s of percent).  It was regarded as a tax allowance by the bureaucracy, administed to this day by HMRC.

Thus the issue is not, contra Osborne's claim, whether someone on £20,000 per year should pay for someone on £80,000 per year a benefit.  There is no such payment.  Instead, the question is whether someone on £80,000 per year that has children should pay less tax than should someone on £80,000 that does not have children.  Opinion surveys suggest that the public is split about half-and-half as to whether having children should mean you pay less tax.

Personally, I think that some element of taxation should be relative to the ability to pay.  And I think it completely obvious that someone on £80,000 with children is less able to pay a given amount of tax than is someone without children.  So to me the question is really this: if you believe that a couple on £80,000 should pay the same amount of tax, regardless of whether they have children, by what criteria are we determining how much tax they should pay at all?  Why, for example, do we think such a couple should pay more tax than a couple on £70,000.  It manifestly isn't about the ability to pay - the £70,000 couple without children would manifestly find it easier to pay £30,000 in tax than would a couple on £80,000 with three children.  So on what basis do you claim that the couple on £80,000 should pay more tax?


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