Friday, January 13, 2012
The child benefit fiasco
Posted by David Smith at 05:00 PM
Category: Thoughts and responses

This is what I wrote about the government's child benefit plans on October 10 2010:

It was brave for the Tories to attack last week one of the welfare state’s sacred cows, risking the wrath of its own supporters in middle England and demonstrating that the pain of the cuts will reach up the income scale.

What there was no excuse for, however, was announcing the change in such a cackhanded way. One characteristic of the Conservative team in opposition was the effort it put in to ensure external experts backed its numbers.

Perhaps it was the pressures of office, or of putting together the chancellor’s party conference speech in haste. Perhaps, to take the Machiavellian interpretation, the chancellor’s deliberate intention was to generate maximum anger in the short-term in return for long-term gains.

That is too generous. Something went badly wrong. You did not have to be a tax expert to spot the immediate double-income flaw in the crude removal of child benefit for higher rate taxpayers - two parents earning £40,000 each get it, a single earning parent on £44,000 does not.

It was predictable that the Institute for Fiscal Studies would warn that the move “seriously distorts incentives” for families with main earners. Nobody would know this better than Rupert Harrison, George Osborne’s special adviser, who used to work at the IFS.

So the episode is puzzling, and potentially worrying, though the Treasury has time, until 2013, to straighten it out.