Child benefit: fit for the future
60 years of support for children

Six: Policy options

Introduction
Time for child benefit
Large families and poverty
Skewed support system
The way forward?

Notes

Introduction

Government reforms to tax and benefits since 1997 have had a major impact on child poverty and on families’ living standards more generally. The Government has said that as a result, by October 2007 families with children will, on average, be better off in real terms by £1,550 per year, and those in the poorest fifth by £3,350 per year.1 One study found that government expenditure on child-contingent support overall rose by nearly 70 per cent in real terms between 1997/98 and 2002/03,2 while another says that it increased by over 50 per cent between 1999 and 2003.3 While the Government could go further – and intends to – this is by any measure a real and significant positive change, and the Government should be given due credit for it.

A step backwards was taken, however, by the exclusion from child benefit of the children of asylum seekers and those with work permits. Since 2004, they have had no entitlement to child benefit because their parents do not have the ‘right to reside’ in the UK. In addition to the problems this creates for the families themselves, it is more likely, as noted earlier in this publication, that support for children is better protected when all families have an entitlement. This measure potentially weakened the basis for that support.

In introducing the new tax credits system, the Government said that it aimed to encourage:

“public debate about the correct level of support [for children] in the context of the Government’s aim to abolish child poverty within a generation.”4

There is room for debate not only about the level of support for children but also about the balance between universal and means-tested support. The Government’s principle of ‘progressive universalism’5 may suggest that there is no tension between the two. However, Adam and Brewer in Supporting Families: the financial costs and benefits of children since 19756 show that child benefit as a proportion of total financial support for children has virtually halved between 1979 and 2003, falling from 79 to 42 per cent.7

And, given the relative importance of income-tested child tax credit compared with universal child benefit in the current system of support for children, one author has argued:

“‘Progressive universalism’ is gradually replacing the ‘universal principle’, and this diminishes the symbolic importance of collective social responsibility for children as individuals in their own right whatever their parents’ circumstances.”8

Moreover, the Government’s view of ‘progressive universalism’ implicitly suggests that universal benefits cannot be progressive. But this depends on both their incidence and the way in which they are financed, and many commentators have argued that a broad-based benefits system is more likely to be sustained in the longer term than one which is focused solely on those on low incomes.

Time for child benefit

“The most important trend [in financial support for children] has been the increasing importance of means-tested or income-related child-contingent support programmes, and the corresponding decline in the universal child benefit.”
S Adam and M Brewer, Supporting Families: the financial costs and benefits of children since 1975, 2004, p549

There is a growing consensus that the time is ripe to shift the balance between the universal and means-tested elements of financial support for children. In its manifesto for the 2005 election, CPAG argued that child benefit:

“... provides a well-functioning mechanism that does not suffer the administrative or technical difficulties of child tax credit; it has a vital role in tackling child poverty. The element [of support for children] that is child benefit ought to be maximised and provides a key way to build a national consensus towards increasing the value of benefits to children.”10

End Child Poverty is an alliance of seventy-five organisations, including CPAG, which campaigns for the eradication of child poverty in the UK. The first of the ten demands in its Ten for a Million Charter – published in 2005 in the run-up to the general election – also argued for an increase in child benefit:

“A real increase in universal child benefit would ensure that the money reached the poorest families and complement the child tax credit while raising no problems for work incentives.”11

It suggested an increase to £20 per child per week, to restore the value of child benefit to 4.7 per cent of median full-time earnings (in 2004).

There is also support from others, outside groups concerned with child poverty. ‘Get Heard’ was a participatory exercise involving workshops in which a large number of people with direct experience of poverty throughout the UK developed ideas to feed into the next National Action Plan on Social Inclusion, for 2006-08. (A National Action Plan is prepared every few years by each member state of the European Union, including the UK, and sets out each government’s strategy against poverty and social exclusion.) The Department for Work and Pensions supported the Get Heard project. The final report of Get Heard included a section (2.1.5) on what participants wanted to see in terms of more financial help for low-income families.12 The first item in the list, drawn up on the basis of report-backs from that exercise, was an increase in child benefit.

The case for the importance of improving life chances for children has been made powerfully by the Commission on Life Chances and Child Poverty set up by the Fabian Society. In its final report, published recently, it developed a strong case for shifting the balance back from tax credits to child benefit, to ‘allow both elements to work more effectively alongside each other.’13 Moreover, it argued that this would help families who have experienced insecurity as a result of, for example, administrative difficulties with the new tax credits and overpayments being clawed back.

The Work and Pensions Select Committee, in its report on child poverty, argued that:

“The national strategy on child poverty should reassert the commitment to retain universal child benefit uprated in future to maintain and enhance its real value as one of the foundations of all future support for children.”14

As noted, the Government argues that child tax credit ‘builds on’ child benefit. It is not clear quite what is meant by this. But in practice, child benefit is ignored when child tax credit is calculated, so families on low incomes benefit by the full amount of any increase in child benefit. In the past, child benefit was deducted from means-tested benefits for families with children. This meant that critics could argue that increases in child benefit did not help children in poverty directly – though CPAG often argued that the more they got in child benefit the better, and that the real issue was how much society was prepared to give to parents on low incomes to support their children in total.15 But now every increase in child benefit – though more expensive – benefits children in low-income families directly, as it is not offset against their child tax credit.

The other rebalancing which can be undertaken is between the level of support provided for different children, or different kinds of families. In the UK in recent years, child-contingent support has increasingly emphasised the first child in the household.16 One suggestion for which support has been growing is to provide more child benefit for larger families. More specifically, the call is for the rate of child benefit for second and subsequent children to be increased. Some have just called for such an increase in principle. Others have suggested that the rate for second and subsequent children should be raised towards, or by a sufficient amount to equal, the level for the first or eldest eligible child.

The Commission on Social Justice called for the rate of child benefit to be the same for all children as early as 1994, and the Coalition for Child Benefit did the same in 1997. More recently, End Child Poverty pointed out that the rate for second and subsequent children is one-third lower than that for first children,17 yet research had found that family spending on second and subsequent children was just 10 per cent lower than for first children.18 It added that the birth of the second child is when mothers are more likely to leave the labour market, as childcare becomes both more expensive and more complicated to organise. End Child Poverty called on the Government to ‘raise child benefit and pay an equal rate to all children, whether first born or not.’

To have increased child benefit in 2005/06 for second and third children (then £11.40 per week) to the same rate as for the first child (then £17) would have cost £1.56 billion and benefited 5.3 million children.19 This does not take into account similar increases for fourth and subsequent children, and so is an unrealistically low calculation in terms of raising the rate for all children beyond the first. But it does give some idea of the order of magnitude of the costs and of the number of beneficiaries of such a move.

Large families and poverty

“Central to this reduction [in child poverty] is the support delivered directly to families through the child tax credit and increased child benefit – and the expanded opportunities and support for parents to work. I recognise that we need to do more. And I promise we will.“
Response from the Prime Minister in January 2006 to a letter from CPAG calling for further action on child poverty, forty years after its founding members delivered a similar letter to the then prime minister, Harold Wilson.

The association between poverty and family size was the focus of Eleanor Rathbone’s study of 1924, The Disinherited Family, which was so influential in the campaign for family allowances, introduced sixty years ago.20 The higher risk of poverty for children in large families has in fact been spelt out in research for many years,21 though it seems to have been rediscovered by the Government recently. The definition of ‘large’ is usually three children or more, though sometimes it is four or more.22 Over the last thirty years, there has been a reduction in the proportion of children in families of three children or more, from 43 per cent in 1972 to 32 per cent in 2003;23 about a third of these live in households with four or more children.24 And rates of poverty have in fact recently fallen most for children in larger families.25 But such children still have a disproportionate risk of living on a low income.

In line with the income poverty risk, data from the Families and Children Study show a similar pattern for material deprivation, in which larger families suffer more.26 This is important for the Government’s target of reducing child poverty by half by 2010 compared with 1998/99, because its new child poverty measures will be in use by then, including one measure which includes material deprivation as well as relative low income (see p41).27

The Government had already expressed concern about the increased risk of poverty for large families in its fifth Opportunity for All report, while arguing that research focusing on family size was limited.28 Subsequently it has commissioned such research. At the time of writing, two reports are due to be published shortly which will help to fill the gaps in our understanding: one from the Department for Work and Pensions29 and one from the Joseph Rowntree Foundation.30 In the meantime, however, official statistics are clear about the increased risk of poverty for children in large families. Despite the decrease in recent years, 1.4 million of the 3.4 million children defined as poor after housing costs live in families with three or more children; and children in families with four or more children have nearly double the risk of children as a whole of living in poverty measured on this basis.31 Because the differential risk is shown as larger when income is measured before housing costs, the Government’s new measures of child poverty from 2010 onwards will emphasise the influence of family size on the child poverty figures, as they all use income before housing costs.

There is an overlap between large families and other groups at risk of poverty (such as younger children, minority ethnic groups, those living on benefit and social tenants), but being in a large family is still a specific driver of living in poverty.32 The increased risk of poverty for large families is not inevitable, however. In Norway, for example, there is no linear connection between the number of children in a family and living on a low income, with a link only for families with five children or more.33

Skewed support system

One factor which may affect large families is the system of financial support for children. This may lead at worst to a greater risk of poverty, or at best to unequal resources in proportion to need for different sizes of family. In the UK, as already noted, our financial support system for children is geared more towards the needs of smaller families:

“The last 28 years have seen structural changes to child-contingent support programmes that place more weight on whether a family has any children than on how many it has.34

While it could be argued that there may be economies of scale for larger families, to weight the system towards one child families in the way that the UK does is internationally unusual.”35

Several elements of our system of financial support for children contribute to this effect. In addition to the higher rate of child benefit for the first or eldest eligible child, child tax credit contains a per family element which is the same no matter what the family’s size; means-tested benefits had a family premium, introduced in 1988, which had a similar effect; and help with childcare costs through working tax credit does not increase after the second child. As the Government noted in 2003, recent research had found:

“‘First-child bias’ in our system of financial support leads to the UK performing less favourably for large families in a league table comparison of 22 advanced countries.”36

The new child support formula has a similar pattern, in awarding 15 per cent of net weekly income as maintenance from a non-resident parent for one qualifying child, 20 per cent for two children, or 25 per cent for three children or more.37

The way forward?

The Government’s next target in terms of tackling child poverty – to halve it by 2010 – is highly ambitious and will require great political will. Making suggestions for policy changes to help the Government achieve this, the Institute for Public Policy Research has called for new measures to help larger families. It highlights the lower rate of child benefit for second and subsequent children, as well as the fixed per family payment in child tax credit, as possible places to start from in terms of policy reform.38 The report of the Fabian Commission on Life Chances and Child Poverty, as well as calling for a rebalancing of child benefit and child tax credit in favour of child benefit, suggested more specifically that one option was for the rate of child benefit for second and subsequent children to be increased.39 And Ed Balls MP (now Economic Secretary to the Treasury), who spoke at the launch of the Commission’s report, has also been reported as being ‘keen on ideas such as raising child benefit for second and subsequent children ...’40

The Child Poverty Review included a ‘long-term aspiration’ to improve financial support for large families.41 The commitment to uprate the child element of the child tax credit in line with earnings over the lifetime of this Parliament helps to redress the balance slightly for large families, and seems to be what is being referred to in the Review document. But it does of course simultaneously tilt the balance of financial support for children further towards child tax credit and away from child benefit. And more than this incremental improvement is needed if the Government is to make ‘accelerated’ progress it says is needed.42

There are various policy options. As mentioned above, the rate of child benefit for second and subsequent children could be raised either towards, or to equal, the rate for the first/eldest child. Bradshaw43 suggests the alternative of a premium for the third and subsequent children in child benefit for families in employment (which would be like France, Italy, New Zealand, the Netherlands and Sweden).44

The first option, of raising the child benefit rate for second and subsequent children, would be likely to be more expensive (though this would obviously depend on the amount decided on, and in particular whether the idea was to equal the rate for the first or eldest eligible child). But it would also be likely to be more popular, given that more families would benefit from it. It would also place more emphasis on correcting the bias in our financial support system towards families with only one child, and on rebalancing that system towards its non-meanstested component, child benefit. A structure of child benefit which gave more for the first/eldest child and then skipped over the second child, to give more support for the third child onwards, would also seem more complicated than necessary. (If all children got the same rate, further options would then open up.)

Notes

1 House of Commons Hansard, Written Answers 17 January 2006, col 1203W
2 K Stewart, ‘Towards an Equal Start? Addressing childhood poverty and deprivation’ in J Hills and K Stewart (eds), A More Equal Society? New Labour, poverty, inequality and exclusion, The Policy Press, 2005, pp143-165
3 S Adam and M Brewer, Supporting Families: the financial costs and benefits of children since 1975, The Policy Press for Joseph Rowntree Foundation, 2004
4 HM Treasury, Supporting Children Through the Tax and Benefit System, The Modernisation of Britain’s Tax and Benefit System No. 5, HMT, 1999, para 3.30
5 HM Treasury, Budget 2003: building a Britain of economic strength and social justice – economic and fiscal strategy report and financial statement and Budget report, HC 500, The Stationery Office, 2003, para 5.1
6 See note 3
7 There are various ways of calculating financial support for children, of which this is only one.
8 T Ridge, ‘Benefiting Children? The challenge of social security support for children’, in J Millar (ed),
Understanding Social Security: issues for policy and practice, The Policy Press, 2003, p183
9 The Government argues that new tax credits are income-tested rather than means-tested, because they have no capital rule to limit entitlement to people with assets of below a certain amount, but instead just take account of the income from capital. In this report, we continue to use the term ‘means-tested’, as it is more familiar than income-tested or income-related.
10 Child Poverty Action Group, Ten Steps to a Society Free of Child Poverty: CPAG’s manifesto to eradicate child poverty, 2005, p5
11 End Child Poverty, Ten for a Million Charter, ECP, 2005
12 Get Heard, Get Heard! People living in poverty contribute to the National Action Plan on Social Inclusion 2006-2008, UK Coalition Against Poverty, 2006 (project supported by the European Commission, Oxfam and the Department for Work and Pensions)
13 Commission on Life Chances and Child Poverty, Narrowing the Gap, Fabian Society, 2006, p185
14 House of Commons Work and Pensions Select Committee, Child Poverty in the UK, Second Report, Session 2003-04, HC 85, Vol 1, The Stationery Office, 2004, recommendation 22
15 J Brown, Child Benefit: investing in the future, CPAG Ltd, 1988
16 See note 3, p55
17 See note 11
18 S Middleton, K Ashworth and I Braithwaite, Small Fortunes: spending on children, childhood poverty and parental sacrifice, Joseph Rowntree Foundation, 1997
19 House of Commons Hansard, Written Answers 5 December 2005, col 911W
20 J Bradshaw, ‘Child Poverty in Larger Families’, in G Preston (ed) At Greatest Risk: the children most likely to be poor, CPAG, 2005, pp109-121
21 H Land, Large Families in London, Occasional Papers in Social Administration No. 32, O Bell and Sons Ltd, 1969
22 Land’s definition of a large family in the 1960s was five children or more (J Bradshaw and C Stimson, Using Child Benefit in the Family Budget, The Stationery Office, 1997).
23 See note 20
24 Department for Work and Pensions, Households Below Average Income: an analysis of the income distribution 1994/95-2004/05, Corporate Document Services, 2006
25 See note 2
26 N Lyon, M Barnes and D Sweiry, Families with Children in Britain: findings from the 2004 Families and Children Study, Department for Work and Pensions Research Report 340, Corporate Document Services, 2006
27 Department for Work and Pensions, Measuring Child Poverty, DWP, 2003
28 Department for Work and Pensions, Opportunity for All: fifth annual report 2003, Cm 5956, The Stationery Office, 2003
29 M Iacovou and R Berthoud, The Economic Position of Large Families, Department for Work and Pensions Research Report, Corporate Document Services, forthcoming 2006
30 J Bradshaw, N Finch, E Mayhew, V-M Ritakallio and C Skinner, Child Poverty in Large Families, Joseph Rowntree Foundation, forthcoming 2006
31 See note 24. Poverty is defined here as living in a household on a net disposable income of below 60 per cent of the median, equivalised for households of different sizes.
32 See note 20. These are preliminary results from research by Bradshaw and others about large families for the Joseph Rowntree Foundation (see note 30).
33 A-M Jensen, A Trinekjorholt, J Qvortrup and M Sandboek, with V Johansen and T Lauritzen, ‘Childhood and Generation in Norway: money, time and space’, in A-M Jensen, A Ben-Arieh, C Conti, D Kutsar, M Nic Ghiolla Phadraig and H Warming Nielsen (eds), Children’s Welfare in Ageing Europe, Vols I and II, Norwegian Centre for Child Research for COST A19, 2004
34 See note 3, p24, author’s emphasis
35 J Bradshaw, ‘Child Benefit Packages in 16 Countries in 2004’, in J Lewis (ed), Children, Changing Families and Welfare States, Edward Elgar, forthcoming 2006
36 See note 28, p101 (citing J Bradshaw and N Finch, A Comparison of Child Benefit Packages in 22 Countries, Department for Work and Pensions Research Report 174, Corporate Document Services, 2002)
37 From description of new child support scheme formula at www.csa.gov.uk, accessed 5 June 2006.
38 Institute for Public Policy Research, Maintaining Momentum: promoting social mobility and life chances from early years to adulthood, IPPR, 2006
39 Commission on Life Chances and Child Poverty, Narrowing the Gap, Fabian Society, 2006
40 The Guardian, 1 April 2006
41 HM Treasury, Child Poverty Review, The Stationery Office, 2004, p6
42 J Hutton MP, Secretary of State for Work and Pensions, Speech to Fabian Society on launch of Commission on Life Chances and Child Poverty report, 10 May 2006
43 See note 20 (drawing on J Bradshaw and N Finch, A Comparison of Child Benefit Packages in 22 Countries, Department for Work and Pensions Research Report 174, Corporate Document Services, 2002)
44 Once child tax credit is fully implemented for families out of work, children will get the same level of support in the same way whether their parents are in or out of employment.

Child benefit: fit for the future: CPAG policy briefing

Contents page
Executive summary
1: Introduction
2: Background
3: The importance of child benefit
4: The history of child benefit: key issues and challenges
5: The value of child benefit over time
6: Policy options
7: Conclusions
Appendix

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