This morning’s Daily Telegraph reports that the Treasury is considering limiting Child Benefit to two children. The Telegraph has been the conduit for a series of kites flown by government recently. The main purpose of speculating about policy changes – Norman Fowler, a former Conservative Secretary of State, used to do it with the Times – is to test the water, to see what people will put up with. This is the first attempt to put flesh on the bones of Iain Duncan Smith’s suggestion that large families should lose support, but it comes from outside his domain – Child Benefit is the responsibility of HMRC and the Treasury, not the DWP.
As ever, there are issues of principle and practice to consider. In principle, Child Benefit does four things:
- It supports children in general;
- it gives an income to women responsible for child care;
- it supplements wages and other benefits, so that household income is adjusted for family size; and
- it stands in place of a Child Tax Allowance, which it replaced.
The main effect of cutting benefits for larger families would have in three of these cases would be to limit the benefit, rather than to destroy it. There will still be a benefit, but it will be worth less. The aim that it negates is the principle of adjusting family income to the family’s size. Larger families are not going to say that the income they receive is intended for child number 2, and not for child number 3; what will happen is that all the family, and all the children, will have less, and that will happen regardless of whether people are in benefits or in work. In a nutshell, it will increase child poverty.
The issues of practice are more complex. Child Benefit works mainly because it is very simple. This reform looks simple on paper, but it adds a significant complication. People claim Child Benefit first for the oldest child. That claim runs till the child is too old, and it continues automatically until the youngest child is too old. If the benefit is paid only for the first two children, the claim will only be for the first two, and there will be no link to records for the younger children. Families will need to register a fresh claim for younger children – the ones HMRC will not know about – at the point where the oldest child reaches school leaving age. Fresh claims mean, inevitably, delay and non-takeup. It’s possible that this is an effect the government wants to produce – HMRC has been encouraging better-off families not to claim at all. If people don’t claim, they don’t cost.
Savings, however, will be limited. Only about a fifth of families have more than two children, and all of those will still be entitled to benefits for the first two. The cuts would, of course, affect the welfare of all the children in these families, but the actual savings would be about a sixth of the Child Benefit bill – far less than the government is aiming to cut from benefit. I am not sure exactly how much this would be, because from the previous £12-13 billion that Child Benefit costs, the government claims already to have taken steps to save £2.5 billion a year from the cut to higher earners. On paper, though, it seems unlikely to save more than about £1.5 billion. To put this in perspective, it’s worth about £2.50 a week on the pension. The effects of this saving would be disproportionate, however, because they will affect every person in a family with three or more children.