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

Seven: Conclusion

Notes

Appendix

To increase the rate of child benefit for second and subsequent children to the same amount as for the first/eldest child would have lifted 250,000 children out of poverty and cost £1.7 billion in 2005/06.1 More children in small families live in poverty, so additional money for children in small families is likely to take more children out of poverty. However, the objective of the Government’s anti-poverty strategy is to abolish all child poverty, including that experienced by children in larger families.2 Moreover, this report has also argued that there is a case in its own right for equity in the treatment of different children in our financial support system.

Clearly, to increase child benefit is also going to be more expensive in proportion to how many children are taken out of poverty than increasing child tax credit. The net cost of such an increase is also higher now than it used to be, because children in low-income families on child tax credit benefit in full from any child benefit increases. But seeing increases in child benefit as in part equivalent to a tax reduction for families as well may put them in a different light. Although the Government tends to combine child benefit and child tax credit in ministerial statements when it is claiming increases in both as tax reductions for families with children (for example, in the 2006 Budget), increases in child tax credit cannot really be seen as the equivalent of a tax reduction in the same way as increases in child benefit because they are not available to all families with children. This is particularly true of the child element – which is the part of child tax credit the Government has chosen recently to increase in line with earnings – as it is only available to lower-income families. And equivalent means-tested benefits were not usually treated in this way by governments in the past, meaning that comparisons over time can be misleading.

The higher cost of increases in child benefit in terms of public expenditure totals is in part artificial, because child benefit is counted in full. Money given as tax allowances, reliefs or credits can be counted in part or in full as ‘revenue foregone’. This means that all or part of child tax credit (depending on which public accounting rules are being followed) does not count as public expenditure. Yet, as argued above, this is misleading, because foregone revenue has the same economic effects as public expenditure.3 And the labelling of child tax credit wholly or partially as a tax expenditure paradoxically means that in some comparative studies of financial support for children which omit payments made through the tax system, the UK system appears much less generous than it is in practice.

The advantages of child benefit over means-tested help for families also need to be weighed in the balance. It has been suggested recently that:

“…the combination of means tests resulting from different aspects of policy in recent years may be reaching its limits, if it has not done so already.”4

Many of these means tests simultaneously affect the same families with children and/or young people who are still wholly or partially dependent on their parents. The recent history of the pensions debate has shown that the increase in means testing – even administered in a ‘light touch’ way, as with pension credit – can reach such a point that consensus can emerge, despite the higher cost, about the need to rebalance the system in favour of non-means-tested provision. Many of the same, or similar, arguments apply to support for families with children (see Chapter 3).

The increased emphasis that the Government is now putting on helping ‘second earners’ in couples into employment as an integral part of its accelerated anti-poverty strategy5 also means that the advantages of child benefit become even more apparent. Potential second earners have been the group that many commentators argue may be disadvantaged by expanding the net of means-tested provision. Two-parent families which already have one parent in employment and are eligible for child tax credit are less likely to claim it than lone parents in work (73 per cent, compared with 91 per cent).6 Child benefit can boost their incomes immediately, as well as helping to support them as the other parent finds employment and the family’s total income increases as a result.

CPAG has argued that:

“…benefits and tax credits to poorer families need to rise in real terms. Despite, and indeed because of, its universality, there is a clear and compelling argument [for] maximising the role of child benefit within the balance of financial support to children and families.”7

This is what this report is suggesting. The Government needs to take the opportunity of the forthcoming public expenditure review to do exactly that. This would mean that it would be fulfilling the Chancellor’s boasts in his recent Budget speech, both to ‘lock in stability’ – for families, as well as the economy to which he was in fact referring – and to ‘secure fairness for every child by investing in every child’.8 And it would be a fitting decision for the Government to make in the sixtieth anniversary year of universal benefits for children.

Notes

1 House of Commons Hansard, Written Answers 17 January 2006, cols 1201-3W
2 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
3 Adrian Sinfield has written extensively about ‘fiscal welfare’, that is social provision made via the tax rather than social security system (see, for example, A Sinfield, ‘Fiscal Welfare’ in M Powell (ed), The Mixed Economy of Welfare, The Policy Press, forthcoming).
4 J Hills, Inequality and the State, Oxford University Press, 2004, p268
5 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
6 HM Revenue and Customs, Child Tax Credit and Working Tax Credit: take-up rates 2003-04, HMRC, 2006, p10
7 Child Poverty Action Group, Ten Steps to a Society Free From Poverty: CPAG’s manifesto to eradicate child poverty, CPAG, 2005, p16
8 G Brown MP, Chancellor of the Exchequer, Budget statement, 22 March 2006

Appendix

Cash value of different elements of child benefit, April 1979 – April 2006 (£ per week)

Source: adapted from Institute for Fiscal Studies (no date), available on IFS website: www.ifs.org.uk, accessed June 2006.

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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