Osborne should say that the child benefit restriction is temporary

By Paul Goodman
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The Daily Mail and the Daily Telegraph see the Government's plan to restrict or remove child benefit from higher-earning people as an assault on their readers.  So as we approach the start of the plan's implementation next week, they are stepping up their assault.  The Mail this morning began to frame David Gauke, the Treasury Minister responsible, as the villain of the piece.  (The submarine Chancellor will keep his head down, as would almost anyone else in his position.) The Telegraph chose to highlight the view of Chris Leslie, Gauke's opposite number, that the move is "the worst shambles since the poll tax", in its headline. There will be more.

Leslie's soundbite may be cynical - not to mention repetitious: Andrew Adonis applied it last October to the West Coast mainline debacle - but it at least provides a place from which to start thinking about the measures.  The poll tax affected all residents, minus those on certain benefits.  The child benefit changes will have an impact on a smaller number - some 1.1 million people, all higher rate taxpayers. Many of them, as the Mail pointed out, live in "the Conservative heartlands in the south-east...nine of the top ten constituencies where most letters have been sent out warning that families will lose the benefit are in Conservative seats".

The original anomaly in George Osborne's proposal, which so convulsed the 2010 Conservative conference, remains.  As Amna Silim reminds us over at the New Statesman, "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."  Furthermore, the Chancellor hasn't solved all the problems that his scheme creates.  He has smoothed the original cliff-edge of his scheme by gradually withdrawing child benefit for families in which one partner earns between £50,000 and £60,000 pounds.

The manoevre is intended to protect the position of relatively well-off families who are slightly worse off than other relatively well-off families.  But this juggling is a reminder that means-testing a simple payment, such as child benefit, brings complications with it.  Gauke is already wrestling with one of them - namely, the difficulties inherent in assessing how much money people have, since wages are not the same thing as incomes, and both change over time.  HMRC wants to know if these better-off families with children gain income from savings and investments, or profits from a small business or rental company.

And of course, as Gauke conceded yesterday, referring specifically to salary changes, "HMRC doesn’t have all that data in real time".  This presumably explains why more than 300,000 claimants haven't had a letter from HMRC and may thus be unaware of the looming change.  If the parents affected don't opt out of child benefit altogether by this Sunday, off into the new system they go, and must register for self-assessment by early October.  Gauke's line is that "HMRC doesn’t normally write to everybody, every time there is a tax change that affects them", and that many of those affected have visited the HMRC website.

The Mail's take on these words is: "The minister says it's all going very well!".  If the axis wants even more fun it should commission Ms Silim, who plunges headlong into calculating marginal tax rates ("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").  The inherent complications of the scheme have led Jill Kirby to question whether the £2 billion of savings will be made and Mark Field to warn that they will penalise aspiration.  Gauke stoutly defends the scheme today in the Huffington Post, pointing out that 85% of all families with children are entirely unaffected.

Those who will lose out, he reminds his readers, are "the richest 15% of the country...nearly half of the households affected by this change have a household income of more than £100,000...how can we justify spending nearly £2 billion per year on child benefit to the wealthiest people in society?"  All this underscores the Chancellor's calculation - namely, that while the details of the change may be fiendishly complicated, the politics of it are extremely popular, at least with most voters.  If you don't believe me, read The Master, Anthony Wells, over at YouGov, which found 83 per cent of those polled support the policy.

Headline poll figures don't tell you everything, of course, and a relatively small group of people who feel strongly about losing money can blast lumps out of a Government's reputation.  And  one of Gauke's arguments doesn't stand up (he is wrong to suggest that poorer taxpayers transfer money to richer ones).  But when it comes to the crunch, he and the Chancellor are right, at least in principle.  Everyone must play a part in reducing the deficit, including true blue voters in the south-east.  Remember: the seats we must win are largely in the midlands and north.

Which is why, with a heavy heart, I've supported the move.  However, there's a big difference between a deficit reduction measure and permanent policy shift.  The Treasury has always had its eye on universal child allowances, whatever the cost of removing them may be to incentives.  Andrew Lilico has explained why they are a recognition of taxing according to the ability to pay.  From that principle flows child benefit or child tax allowances or something like either.  Osborne should make it clear that his move is a temporary innovation, not a permanent measure.