Should child benefit remain universal?

Yes, says Imran Hussain, head of policy, rights and advocacy, Child Poverty Action Group
Fairness was one the watchwords in the Queen’s Speech. If fairness means anything, it should mean ending child poverty. Ending child poverty by 2020 is not a pie in the sky ambition: it’s achievable, it’s been promised by all the main parties and it’s the right thing to do.
But is it fair to give child benefit to relatively well-off families? Yes, but we also need fair taxation. Means testing has grown too much in the welfare system and the gap between the richest and poorest has grown alongside it. Meanwhile means testing has shrunk in the tax system so that the poorest pay a greater proportion of their income in tax than the richest. Let’s have more means testing, but let’s have it in the tax system.
If we means tested child benefit, families would have long forms to fill in and long waits for them to be processed. The mother of a newborn child cannot wait for this, especially when she has so many forms to deal with already. If circumstances changed and their income dropped, they would have another long wait, with knock-on effects in a benefits system so full of interactions that the Work and Pensions Select Committee has condemned it as “stunningly complicated” in a report on benefit simplification.

Take-up would fall too. The number of families qualifying for the means-tested child tax credit who claim it is about 80 per cent, but take-up of child benefit is about 98 per cent.
Universal child benefit has reached more low-income families than any of the means-tested payments specifically designed for them. Start means testing child benefit and we can guarantee this: tens of thousands of families who most need it will go without and their children will suffer.
It is much better value for the taxpayer too. It’s far less labour-intensive and cheaper to administer as a universal benefit. Means testing for higher earners, or taxing child benefit at the same rate as income for higher earners, would cost a typical family earning just above the higher rate tax threshold nearly the equivalent of a 2 per cent rise in income tax and would bring in barely a billion pounds to the Exchequer. A 1 per cent income tax rise for all high earners would raise more than a billion pounds and be much fairer because it would target not only households with children, but all high earners.
Not only that, but you would not need a single extra civil servant to deal with changes in people’s circumstances, whereas means testing or taxing child benefit would require an army of thousands of new bureaucrats whose salaries instead could be invested in lifting children out of poverty.
Means testing can never create a fair society. We should remember, too, that the fairest and happiest societies in Europe tend to be those that have kept more means testing in the tax system; and where universal benefits are a force for social cohesion that bonds people through common values like the importance we place on all children enjoying their childhoods and having fair life chances.
No, says Patrick Nolan, chief economist, Reform
Supporters of universal welfare programmes argue that giving billions of pounds to wealthy families will help poor families. But evidence shows that they are wrong.
Supporters of universal benefits need to focus less on claiming some moral high ground and more on fact. The fact is that means testing the child benefit, which currently goes to all families irrespective of need and costs £11 billion a year, would help poor families and contribute to reducing the deficit.
The UK needs to face up to its deficit and problems with debt. Even under the most optimistic projections for economic growth interest payments on government debt are expected to climb to £74 billion by 2015.
People who argue that the UK does not have to sort out its debt, or that there is no cost associated with borrowing or taxing more, are living in a fiscal fantasy land.
Means tested assistance does reach families in need. HMRC data show that the means tested child tax credit reaches about 95 per cent of eligible families. As poor families with children receive both the child benefit and the child tax credit there is little case for continuing to provide both separately. The two should be combined into one means-tested programme and take-up should be increased through improving administration such as having a simpler application process.
Universal programmes reduce funds available for spending on other programmes and lead to less generous assistance for poor families. Reform has estimated that in the UK more than £30 billion is spent on welfare to wealthy families every year. This is equivalent to 8p on the basic rate of tax. Twice as much is spent on the child benefit than is spent on the jobseeker’s allowance.
OECD data show that the UK has one of the most expensive welfare states in the world but is one of the worst performing with low living standards for children and high rates of inactivity among young people, substance abuse, teenage pregnancy and sole parenthood. Welfare spending does not need to increase; it needs to improve.
Better spending would make the welfare system stronger and more just. Experience shows that universal programmes lead to less generous support for poor families. Even a small increase in the generosity of a universal programme comes at a very large financial cost, meaning resources have to be spread thinly and less is available for poor families.
The desire to use welfare to attract votes means that benefits for middle class voters become more generous while poor families are left with scraps. Spending on working families now accounts for nearly twice as much of the welfare budget as spending on families out of work. It is no wonder that the last government failed to reach its child poverty targets. Improving welfare and sorting out the debt will require wealthy families to take greater responsibility for themselves.
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