Leading Article: Eroding a cornerstone

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The Independent Online
WE REPORT today that the Government is seriously considering the possibility of taxing child benefit as part of its efforts to reduce public sector borrowing. So the weekly payments collected by rich and poor alike from the Post Office would become part of taxable income, even presumably for those paying the bottom rate of 20p in the pound: an odd twist of events, given that child benefit was conceived as a substitute for the old tax allowance for children. Some of those just below the tax-paying threshold would inevitably find themselves pushed over it. Since the incomes of married women are being taxed separately from this year, mothers receiving child benefit would thus face a further disincentive to work.

The taxation idea is controversial largely because child benefit is regarded as the most effective known means of helping those most in need of help: low-income mothers and their children. There are two types of welfare benefit: universal ones, paid to everyone in a certain category (mothers, pensioners, the disabled); and ones that are targeted, a euphemism for means-tested, and so restricted to the poor.

The chief virtues of universal benefits are that they reach virtually all those at whom they are aimed, and that they are cheap to administer. The main snag is that they also go to those who are not in need. Theoretically and by contrast, means-tested benefits enable a limited amount of funds to be devoted solely to those in greatest need. In reality, filling in forms to prove one's poverty is intolerable for many people. Targeting sounds admirably precise and purposeful. In fact, targeted benefits have a low take-up rate, and are as expensive to administer as they are intrusive. In conjunction with the tax system, means-tested benefits also create the 'poverty trap', in which a gain in earnings is offset by loss of benefits. Taxation would extend that disincentive effect to some low-paid mothers.

The freezing of the level of benefits during Margaret Thatcher's three last years aroused great resentment. It was seen as a cynical flouting of the spirit of the Tories' 1987 election manifesto, which pledged that child benefit 'will continue to be paid as now': previous practice had been to increase it each year. Only in the most literal sense was the Conservative promise kept. At a time of relatively high inflation, that meant a significant drop in the benefit's value, to the particular detriment of poor people with large families.

The freeze ended in April 1991, and there was a further increase in line with inflation this April. At the last election, the Conservative manifesto stated that 'child benefit will remain the cornerstone of our policy for all families with children. Its value will increase each year in line with prices': a formula that did not exclude the possibility of taxation.

Taxing those on the highest (40 per cent) income tax band would have logic on its side: there is after all something anomalous in the spectacle of prosperous mothers descending from expensive cars to collect money for which they have no need. To do so right down the income scale would be harsh: benefits in Britain already compare badly with most of those on the Continent, especially for larger families. Neither taxing child benefits nor means-testing them is desirable; but taxation would be, by a large margin, the lesser evil.

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