Mary Dejevsky: The fault at the heart of the system

Together, these measures signal the end of the child-centred tax and benefits system so dear to Gordon Brown and a return to government for grown-ups
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The Independent Online

The mothers with time to chatter are in uproar. And vast swathes of the media have come out in sympathy. Pretty much everyone else, so far as can be judged by more representative chat-rooms and opinion polls, has taken the news stoically. The Chancellor is removing child benefit for those in higher tax brackets, capping benefits per household at somewhere near the average annual wage and – as was announced earlier – capping housing benefit, too. All in the name of the newest Coalition commandment: "Thou shalt not be better off out of work than in it."

Concentrating, however, as so many have, on the "unfairness" that allows some dual-earner households on more than £80,000 a year to keep their child benefit, while all single-earner households on £45,000-plus will lose it, has obscured the serious shift that is now in train. Jeremy Paxman came close to rumbling it, when he prodded the Culture Secretary, Jeremy Hunt, into saying on Newsnight that having children was a "choice" and, as such, entailed responsibility. Yesterday's Today programme, following the same "lifestyle" track, produced an incensed Kate Green (Labour MP and a former head of the Child Poverty Action Group) to argue that it was "absolutely wrong to go down the line of saying only rich people or better-off people should be parents".

Actually, no one was saying that – not George Osborne, not the Work and Pensions Secretary, Iain Duncan Smith, not the Prime Minister, David Cameron, and not Jeremy Hunt – but nor were they spelling out in so many words the true import of what is happening. Together, these measures signal the end of the child-centred tax and benefits system so dear to Gordon Brown, and a return to government by and for grown-ups. The Coalition's early abolition of Child Trust Funds should have been seen as a first straw in the wind.

From now on, the system is to be adult- and family-centred, including for those entirely dependent on state benefits. Mr Brown's focus, so far as family policy was concerned, was on children. He earnestly set out to relieve child poverty and he wanted to give every child a decent start in life, which was incontestably a noble aim. He believed, and doubtless still does, that any sins of the fathers – or mothers – should not be visited on the children. And he used his position, first as Chancellor and then as Prime Minister, to achieve that end.

To an extent, by the numerical targets he set himself, he succeeded. But he also failed, because the number of children in poverty remained stubbornly high. And the effort and the result may be related, though not as he intended. While most people in straitened circumstances probably did not see a child as a ticket to a life without work (and another child as a ticket to a better life without work), a few did.

Setting aside abuses, though, the wider effect was not to make poverty a discouragement to having children, but almost the reverse. The more child-centred the benefits system, the more those with children, but without other means of support, were protected – by the state, in other words by the taxpayers. Bear a child, and you received not only child benefit, but points towards social housing, higher housing benefit, a free nursery place and child tax credits. Tot this up, and it was no wonder that for many people with children, work would never pay.

A side-effect of child-centred benefits was that those without children lost ground significantly during the 13 years of Labour government. No harm, you might say, in that. But the losers included many low-skilled young men. Without work or in poorly paid jobs, they were seen by the mothers of their children as less reliable providers than the state. You don't have to like the idea of tax breaks for marriage to sense the perversity in a system that rewards having children, while penalising stable relationships.

Taken together, the cuts and the caps so far announced should redress some of this imbalance, by requiring those on benefits to confront the same choices – especially those about children and housing – as those who make less of a call on the state. If this results, as it could, in fewer children being born into poverty, that would surely be a plus.

But the new dispensation for child benefit has highlighted another anomaly, whose effects can be equally pernicious. The reason why some households earning more than £80,000 will keep their payments, while others on less than £45,000 will not, is that for 20 years now Britain has pioneered a system of taxing the individual, while almost not recognising the family as an economic unit. The benefits system, by and large, functions in the opposite way.

If household income were the basis for assessing child benefit – which has traditionally gone to one parent, usually the mother – the perceived unfairness would vanish. As it is, the crucial contradiction between the way tax and benefits are calculated provides a strong disincentive for couples to live together, where one or other or both are dependent on the state. In areas where housing is expensive, the penalty for cohabiting can run into hundreds of pounds.

The relatively well-off single-earner families who now stand to lose their child benefit are, in fact, already at a disadvantage compared with two-earner households, because they can claim only one tax-free allowance against income. You can say they have made a choice that one parent, say, should stay at home, knowing full well the calculations. But not everyone has the choice. To declare an interest here, couples where one cannot work through disability suffer the same penalty: two people, one salary, and one tax-free allowance.

Responding to the mini-outcry about child benefit, David Cameron restated his intention of recognising marriage in the tax code. He knew his audience. But it is not necessary to do anything so contentious. Before 1990, couples could opt to be taxed separately or jointly. Why should this choice not be restored, with allowances made fully transferable? Thus would the welcome transition to government by and for responsible grown-ups be complete.