Tuesday 5 October 2010

Wobbly Tories keep digging: why reforming marriage tax break won't help on child benefit

There is panic on the streets of Birmingham - or in the leaders' suite inside the Tory conference secure zone, if anybody still has the nerve to log on to mumsnet to check if there has been any warming towards the goverment's child benefit cuts.

There has been a day of flipping and flopping over what to do about the (surprisingly unanticipated) response to George Osborne's decision to stop child benefit being universal.

The government has a lot of questions to answer about how it might handle proposals which will clearly have many unintended consequences - introducing the highest marginal tax rates yet seen, disincentivising marriage by introducing big couple penalties, and all sorts of other things the government are meant to against. (I list ten policy headaches over at Left Foot Forward). And that's aside from the politics of the move - where the "Angry Middle" of the Mail and Express make common causes with the high Tory Telegraph and Labour Mirror to demonstrate the Fabian case that progressive universalism will be defended much more robustly than narrowly targetted poverty strategies.

Instead, they have chosen to distract attention from the worst-designed policy they have come up with in government, by returning to an even stranger policy: the marriage tax break.

David Cameron suggested this was the answer to the stay at home mums problem.

But it was quickly pointed out that nobody who has lost from the child benefit change would gain a penny from the tax break described in the Tory manifesto, since this explicitly excludes precisely the same group: higher rate taxpayers.

And there was no plan to change that this morning. He was just making a general point (at lunchtime) about winners and losers, the Guardian's Andrew Sparrow, whose blog has covered the fluctuations across the day was told. (Though I can't work out what point this might possibly be). This morning's Cameron pitch was astonishingly inept politics, in effect saying 'to those people who are angry about losing child benefit, I can tell them we'll bring something else they won't get either. Parents with children who won't now be eligible for child benefit should wait to hear about the tax break to value marriage that two out of three married couples won't be eligible for'.

By teatime, interviewed on the Radio 4 PM programme, the Tory leader was not ruling out extending the tax break to higher rate taxpayers too, telling the BBC it would be something to "look again" at, with Tories hopeful that this would sort out the child benefit backlash.

Tomorrow, who knows where we will be.

But it isn't to work. This evening's Cameron hint is astonishing inept policy-making.

The problem is that trying to amend the marriage tax break - long a headline in search of a policy - to compensate child benefit losers just makes less and less sense. Amending the policy simply defeats the object of the original cut, while probably doing as much or more to annoy as to compensate the losers.

Child benefit

Estimated saving for public finances: up to £1 billion. (But likely to be less, until the government explains how the mechanics of the increased complexity will be handled).

Who loses? 1.2 million families who have a higher rate taxpayer, or around one in eight families with dependent children, according to Treasury estimates.

How much? They will lose at least £1055 a year for a single child, rising to £2500 for three children, and more for larger families.

Marriage tax break

Estimated loss to public finances: £550 million for Tory manifesto policy, which does nothing for child benefit losers but which does give £150 per year to one in three married couples.

A rough estimate is that this would increase to around £750 million to include higher rate taxpayers. The net saving to the deficit is now somewhere between nothing and £250 million.

For this additional £200 million, some of those losing at least £1055 or considerably more for those with two, three or more children might gain £150, while some will gain nothing (because they are divorced, widowed, single, or have a married partner on very small part-time earnings using up the threshold).

Prediction: they will not be massively grateful.

On the current marriage tax policy, 11.6 million married people (5.8 million married couples) do not gain anything from the marriage tax break. Nor do any unmarried couples or single parents, including widows and divorcees.

See this earlier post for a summary of the IFS' findings:

Out of 12.3 million married couples in the UK, 5.8 million would not benefit because they are both already taxpayers (so there is no unused tax allowance to transfer), 1.6 million would not benefit because neither are taxpayers (meaning that there is no benefit to either partner from a higher personal allowance) and 0.8 million would not benefit because, although only one partner is a taxpayer, they are a higher-rate taxpayer. Four million couples would benefit, a third of all married couples.

So four million couples would gain up to £150 a year - under the original plan, and around 4.8 million couples if it was extended

But only one in five families with children gain anything from the Tory tax break, as estimated on Next Left previously, and only around 31% of married couples with children were included in the tax plan.

In 2001, there were 7.2 million families with children, of whom 4,559,060 were married couple families, 814,939 were cohabiting couple families, 1,664,081 lone mother families and 182,514 lone father families. The married couple and cohabiting figures each include over 300,000 stepfamilies within those categories.

Fully two third of the gainers from the (original) marriage tax break do not have any dependent children, as the IFS analysis reported just before the election:

Even if marriage did improve child outcomes, though, it is not clear that a policy where pensioner families make up more than a third of the beneficiaries and receive 31% of the gains is well targeted. In fact, only 35% of the families who gain from the policy have children, and only 17% have children aged under 5.

So in order to save not much (if anything) from the deficit the government is going to redistribute from families with children to some married couples, many of whom are childless.

This isn't about the deficit, is it?. Who knows where the flip-flopping will have got to by the time David Cameron speaks. It now looks much more like the government is more interested in the ideology of changing the nature of the welfare state than it is in pursuing the child benefit change to try to reduce the deficit.

1 comment:

Anonymous said...

Surely this is cock-up rather than conspiracy? Cameron got flustered and forgot the finer points of his own policy.

I genuinely don't think this is being introduced as a trojan horse for the cunning dismantling of universal benefits. I think it was thought of as a political win which would make the cuts look fair, to back up the "Together in the National interest" schtick. Nothing about Cameron & Osborne makes me think they're capable of the level of cunning you're hinting at.

I get the strong sense that the majority of people are on board with this policy; indeed, it's that rarest of things, a soak-the-rich policy which much of the public feels comfortable with. I suspect Labour will regret it if they try to make hay with this.