Monday, 4 October 2010

Child benefit cut, in a cack-handed way!

Frozen for 3 years already, but now if one parent is a higher rate taxpayer won't get anything.
For the avoidance of doubt I strongly believe in universal benefits but if you are going to cut benefits at least do it consistently.  Lets assume that cutting child benefit and means testing is the only option available for now.  I am an accountant but not a tax specialist, and it has only taken me 5 minutes to see some big problems in the way it's being done.  So did the treasury have a competition to come up with the most perverse way of cutting child benefit?

The first and most obvious point is that if both parents say earn £43K they will keep it, it but if one parent earns £45K they wont.  So some households with combined incomes of £86K will still get it - but some households with an income of £45K wont.  That's arbitrary.

Secondly if you read the small print the proposal is that this is being implemented as a change in the tax code and declaration on your income tax return as a higher earner.  Effectively it's a tax rise.  Why not just have raised higher rate income tax by a small amount?  That would have spread the pain more and focused the costs on those who earn more.  I suspect this is because it sounds better to cut benefits than to raise tax if you are a Conservative.  So it's ideological.

Finally this is not really going to be properly 'means tested':  You get if or you don't.  Now I hate to say this but  Ian Duncan-Smith has been talking a lot about work incentives over recent months, but what this means is that if I was lucky enough to be offered a pay rise from say £43,999 to £44,0000 as a parent I would say no, as it would cost me over a thousand pounds a year (post tax!) as a mum-of-one and more if I had more children.  So I would be better off not taking on more responsibility or working more hours, or seeking a promotion.  That's anti-aspiration for parents.

(NB Throughout this I've assumed that the threshold for higher rate is £44K, this is not exactly correct and of course will change by 2013, but the principle applies)