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What is the answer to the child benefit debate?

Broadly speaking, the idea that parents earning a six figure salary still receive child benefit is ludicrous.

It is a no brainer that we find a way to ensure that the limited money available is used in the best way and given to those that need it.

The trouble is that the government’s proposal to change the child benefit regime sounds as if its going to hit a lot of people who aren’t earning the mega bucks. I’m not sure that the proposal has been properly thought through but a household where one member earns £45,000 isn’t necessarily one which is affluent, especially in the South, especially around London.

I’ve had a look at the data around (http://en.wikipedia.org/wiki/Income_in_the_United_Kingdom
) and it appears that £45,000 puts you into the top 10% of earners in the UK. Really?

There’s been a lot said that the banks and bankers should pay.

That companies making millions should pay.

But they do, they already pay their taxes. And we need them to continue paying their taxes to provide the income that enables these benefits to be paid. And to be fair just putting a blanket tax on ‘bankers’ probably won’t do more than make them all change their titles to something different (not that most call themselves bankers, at least not after the last couple of years). And should we just punitively tax bankers when there are lawyers, accountants and others earning equal amounts?

Perhaps we need to increase the highest rate of tax, the one off 50% band, but will that actually raise enough money? Or will those with resources just flee the country and not pay any tax to the UK at all instead of contributing what they do at the moment.

The trouble with this entire proposal is that there are limited options for making this means tested without creating huge costs that will eat up any cash benefits of removing it from some people. Which leaves you with asking people nicely if they really wouldn’t mind not taking this benefit or else having to set an arbitrary level which fails to take into account personal circumstances.

And an arbitrary level is to fail to take into account differences in earning power in different parts of the country, is going to fail to take into account that people can’t just move away from London if that’s where the jobs are for them, is going to fail to take into account the costs of childcare, the cost of housing.

Yes we could all move somewhere remote, dig a vegetable garden and cut our consumption back to nothing but that isn’t really an option for most of us (not least those who actually want to work and where jobs are limited to one location). And consumption does have benefits for the wider economy.

There are people I know who are going to be hit hard by this.

They aren’t flash over spenders, they aren’t extravagant or have much in their lives that can be cut to make up the difference. Frequently they have made the decision that one of them will stay at home to look after the children in the short term, often making sacrifices to do this because they do have one higher earner and that salary is mostly eaten up by the costs of living. Or one partner has a part time job where the income is mostly swallowed by child care but its a job they enjoy and are fulfilled by and the small income does give them a buffer, give them some more flexibility but not a lot, and not if interest rates go up. Yes they have an expensive house but in general its not a mansion just a consequence of having to live in the South East.

And they are getting horribly dispirited by these cuts that threaten their jobs and these changes that are going to

Playing around with the numbers (sorry you can’t keep a good accountant down) you more or less double the financial benefit by including people earning £50,000 to £70,000 – that’s the problem. In order to make a meaningful financial impact you need to include the middle earners and you are going to hit those in the £50,000 to £70,000 band much much harder than you are going to impact those earning over £70,000. There are roughly speaking the same number of people earning £50,000 to £70,000 as there are earning from £70,000 upwards.

Its not fair, I don’t have an answer but what I do know is that it will be the people for whom child benefit is proportionally more valuable that are going to feel the impact of this. Yes its a good idea but there has to be a way to make sure that the same group of people aren’t getting squeezed whilst also trying to find a way to sort out the financial mess this country appears to be in.

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2 comments to What is the answer to the child benefit debate?

  • jenmum

    >Whilst some families may feel quite a lifestyle change with this cut I agree that no families are going to be devastated, unlike some of the other benefit cuts ahead. However I'm still pretty unhappy about it. It's hitting some families much harder than other, possibly wealthier, ones. It also penalises stay at home parents by virtue of the National Insurance cover you get when your child is young. This could leave many parents with gaps leading to no state pension. I'm totally happy for wealthier households to pay more to tackle the deficit. I just think this is an unfair approach. Put a penny on the 40p tax rate instead. Much fairer, much more transparent, much easier to do and with no unintended consequences.

  • zooarchaeologist

    >The child benefit allows me to go to work, without it there is no financial benefit at all from me working given the costs of childcare( as you know i also use a lot of grandparent cover). By taking this from us they will lose the hundreds of pounds of tax they make me pay per month. It wont be worth me working if our current circumstances continue and it would be unlikely that my employers would replace me if I left. I think they have un-wittingly shot themselves in the foot on many levels.

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