None of us is exactly alike in our behaviour – fortunately; but generalisations can certainly be made about human reaction to both good and bad luck. Generalisation one is that we are greatly cast down by a sudden adverse change in our circumstances, but then gradually get used to the new arrangement, and eventually become as happy (or unhappy) as we were beforehand. Generalisation two is that the anger we feel at someone taking something from us tends to be a more powerful sentiment than the gratitude we feel towards someone bestowing a favour on us (the first we feel is undeserved, the second we take as our due).
Which brings us to this week's Budget and the predicament of the Chancellor, George Osborne. No element has caused as much grief – at least on the Conservative benches – as the prospect of the withdrawal of child benefit from households with at least one adult earning enough to pay the upper rate of tax. But imagine a situation in which child benefit had for many years been means-tested: it would then be thought most odd to introduce a benefit (for having children) to be paid to every family, even those of the Duke of Westminster and Sir Richard Branson.
Yet given that this universal benefit has existed for some time, comfortably off families regard it as their due and – to judge from Tory MPs' mailbags – are outraged at the idea it should be withdrawn. It is true that the upper rate of tax comes in at £43,000, and that families on that income can hardly be described as "rich": but if a benefit ceases to be universal, and instead becomes means-tested, then there has to be some cut-off point. Moreover, since the ostensible reason for this reform is to reduce significantly the monstrous public sector debt, it makes no sense to withdraw the benefit only from those few who really wouldn't notice – such as The Duchess of Westminster and Lady Branson. If the numbers aren't big – and there are 3.7 million people on the 40p tax rate – it isn't worth the considerable political and bureaucratic hassle.
George Osborne could point his more irate party colleagues to recent opinion polls, which show such abrupt means-testing to be extraordinarily popular: a YouGov survey for last week's Sunday Times gave a two-to-one majority behind the idea of abolishing child benefit for upper rate taxpayers. Yet this is where mere quantitative opinion polling can be misleading as to the politics of the situation: the anger of the minority who will actually lose out is of a much greater intensity than the gratitude (if any) of the majority who will continue to benefit.
This is highly reminiscent of Gordon Brown's travails over his withdrawal of the 10p in the pound tax band for low-income earners, which was designed to fund a cut of 2p in the pound – to 20p – in the basic income tax rate. Those proposals were entirely revenue neutral; but the rage on behalf of those who had previously benefited (relatively speaking) from the 10p band was of such a volume and ferocity that it almost destroyed Brown's leadership of his party. Yet did the Labour leader get any letters of gratitude from the many millions who would benefit from the cut in the basic rate? I'd be surprised if there were more than a handful (perhaps written in disguise and posted by Sarah Brown, just to cheer up her beleaguered husband).
That searing episode shows the political difficulty of making any significant tax realignment. The 10p band had itself been introduced by Chancellor Brown back in 1999. He would have been much more popular if he had never introduced it, rather than the political fortunes he endured by first giving (thanks for nothing!) and then taking away (you bastard!). That sort of reaction, however unfair it might have seemed to Mr Brown, is based on a visceral understanding of the real nature of tax. While those on the left tend to describe any tax cut as "a hand out" – as if this were an act of generosity by the state – most wage earners understand that all tax is money compulsorily removed from the pay packets they have struggled to achieve. It is impossible for a government ever to be "generous" (in the sense that charity can be).
This simple point should provide some thought for those on the upper rate now fulminating at the prospect of losing their child benefit. After all, who actually pays the bulk of this benefit, except them? It is part of a grotesquely inefficient money-go-round: so much of the benefits system sees money leave the family in tax, only to return, eroded by the vast costs of running the bureaucracy.
There are, of course, infuriating anomalies with a brutal cut-off tied to individual earnings, rather than household income as a whole. As has been endlessly pointed out, at the extreme it means that a household with just one earner on £43,000 would lose child benefit, while one with two people earning £42,000 each (a total of £84,000) would continue to receive it. What no one ever seems to point out is that that second household in which both parents work full time will almost certainly be paying substantial additional amounts in childcare.
The novelist Rachel Cusk has written that the prospective removal of child benefit from single-earning middle-class families is adding insult to the injury of well-educated women who feel they have suffered hugely by staying at home to look after their children, and deserve some recognition by the state for their sacrifice; but the answer to the frustration so powerfully anatomised by Ms Cusk ("The simmering but stymied rage of stay-at-home mums") is more likely to be provided by marriage counselling and Prozac than anything George Osborne can provide. This is a therapeutic rather than a fiscal problem.
If one is seeking a fiscal solution, where better to turn than the Institute for Fiscal Studies? The IFS last month argued powerfully that since there is already a means-tested Child Tax Credit – a legacy of Gordon Brown and worth up to £2,600 per child – it makes more sense to merge Child Benefit with the Child Tax Credit in a single, tapered, means-tested system.
It might also be a good idea to decide whether or not as a country we want to have a fully fledged natalist policy, as France has long pursued under governments of all political persuasions. No British political party seems to have the slightest idea of whether it is in favour of encouraging fertility through fiscal measures, or, indeed, the opposite. Little wonder the public is perplexed if even governments don't know what it is they are trying to achieve.Reuse content