Select Committee on Social Security Report




Memorandum from the Department of Social Security (CB 1)



    —  Child Benefit was phased in during the period 1977 to 1979 to replace the support for children provided through a combination of Family Allowances and Child Tax Allowances.

    —  The objective of Child Benefit is to make a contribution towards the cost of a child. Take-up of the benefit is consistently above 98 per cent of eligible families.

    —  Child Benefit is usually claimed by the mother, although there is nothing in law that prevents either partner in a couple form making a claim. Priority of title rules apply where competing claims are received from two or more people.

    —  The number of children for whom Child Benefit is payable has risen to 12.9 million in 1997. Increases in caseloads stem, to a large part, from increases in the number of children staying on in post-16 education.

    —   Family size has remained fairly stable since 1980.

    —  The vast majority of Child Benefit awards are made to females. Male claimants represent around 4 per cent of caseload.

    —  Child Benefit is paid at a fixed rate regardless of household income. There are three main rates of Child Benefit (April 1998):

        For the first child: £11.45 a week

        For the first child of a lone parent: £17.10 a week

        For second or subsequent children: £9.30 a week

    —  Research on the cost of children does not reach universal conclusions. The rates of Child Benefit are, therefore, based on a judgement of the additional costs families face, the extent to which these should be met from general taxation and the impact on public expenditure.

    —  Expenditure on Child Benefit is estimated at £7,319 million in 1998-99.

    —  As a largely universal, fixed rate benefit, Child Benefit is relatively cheap to administer and achieves a high rate of accuracy in decision making.

    —  There is a wide range of different types of financial support for children provided internationally.

    —  Current issues for Child Benefit include whether high rate tax-payers should be taxed on their Child Benefit income and whether alternative provision would be more appropriate for children who continue in post-16 education.


  1. This memorandum has been prepared for the Social Security Select Committee for their inquiry on Child Benefit. It provides the Committee with the information requested in their letter dated 5 June 1998. The memorandum also provides background information on the support which existed for children prior to the full introduction of universal Child Benefit in 1979.


  2. Before Child Benefit was introduced, support for children was provided through a system of Family Allowances and Child Tax Allowances.

Family Allowance

  3. The Family Allowance Scheme was first outlined in a White Paper in 1942 (The Chancellor's Memorandum on Family Allowances; Command Paper 6354). It was then proposed in the Coalition Government's White Paper of 1944 and became law in June 1945, taking effect from 12 August 1946.

  4. The 1942 White Paper argued the benefits of a family allowance were that the existence of such help would:

    —  lessen the risk of malnutrition in larger families;

    —  correct the effect of a wage system which pays little regard to family responsibilities;

    —  encourage parenthood to counteract a falling birth rate; and

    —  ensure those families not liable to pay tax received the same allowance.

  5. Family Allowance was introduced at a rate of 5 shillings a week for second and subsequent children. It was a non-contributory, non-means tested benefit, but the allowance was subject to income tax in the same way as earned income.

  6. There was no statutory obligation to up-rate Family Allowance and primary legislation was required in order to raise the level of the allowance. Family Allowance was only increased on five occasions during the period 1946 to 1976 (see Annex 1). Increases from 1968 to 1975 were offset against reduced tax allowances with only the families on the lowest incomes benefiting in full.

Child Tax Allowance

  7. Child Tax Allowances were introduced as early as 1909. From 1957 the child tax allowance was linked to the child's age.

  8. A freeze on child tax allowances took place between 1964-65 and 1970-71. And "clawback" provisions were introduced in 1968 whereby the child tax allowance was reduced as Family Allowance increased leading to an increasingly complex system.

  9. The 1972 Green Paper on proposals for a tax credit system included a proposal to abolish Family Allowances and child tax allowances enabling low income families to receive the full benefit of a new child credit. These proposals were not implemented in full, but the succeeding Government's proposals to introduce Child Benefit as a replacement were legislated in 1975.

  10. The Finance Act 1976 removed child tax allowances.


  11. The Labour Government's 1974 Manifesto stated it would "Attack family poverty, by increasing family allowances and extending them to the first child through a new scheme of child credits payable to the mother". Child Benefit was regarded as having a number of advantages over support provided through the tax system:

    —  it directed help straight to mothers;

    —  it ensured maximum help went to children in families irrespective of income (previously only taxpayers benefited from tax allowance); and

    —  it was more easily understood and simpler to administer.

  12. The Child Benefit Act 1975 provided for the introduction of Child Benefit from April 1977. One of the main features of the new Child Benefit scheme was the provision of support for the first child. The Family Allowance scheme had only made payments in respect of second or subsequent children.

  13. Child Interim Benefit was introduced, ahead of the main Child Benefit scheme, in 1976. This benefit was paid in respect of the first child in lone parent families. Its introduction was a result of the relatively long implementation time for the main Child Benefit scheme and the priority the Government placed on providing support to these families.

  14. It was originally envisaged that the Child Interim Benefit would be only temporary until the full implementation of the Child Benefit scheme, but it became a more permanent part of the benefit system, re-named as One Parent Benefit. From April 1997 One Parent Benefit was incorporated into main Child Benefit rates as Child Benefit (Lone Parent). From 6 July 1998, Child Benefit (Lone Parent) was abolished for new claimants—with existing recipients retaining entitlement for as long as they satisfied the entitlement conditions.


  15. The objective of Child Benefit is to make a contribution towards the cost of bringing up children. This is an acknowledgement of the fact that, although the decision whether or not to have children is rarely driven by economics, families with dependent children face costs additional to those without. Costs are incurred through:

    —  the direct cost of providing for the needs of a child; and

    —  the effect on the return from work—either as a result of the time commitment raising a child requires or through the cost of paying for childcare while the parent works.

  16. The benefit is effective in targeting help on the identified client group with take-up of the benefit consistently above 98 per cent of potentially eligible recipients. Receipt of Child Benefit can also provide access to other benefits—for example, the additional family premium and children allowances in Income Support.


  17. The conditions of entitlement for Child Benefit are set out in the Social Security Contributions and Benefits Act 1992. The main criteria are:

    —  the claimant must be responsible for a child, who is living with or financially supported by them;

    —  the child must be under 16, or under 19 if in full-time non-advanced education; [1]

    —  both the child and payee must be normally resident in Great Britain;

    —  there is no entitlement if the claimant (or their spouse or partner) has income exempt from UK tax; and

    —  there is no entitlement for people from abroad, who are subject to immigration control, unless they are a refugee, or have been granted leave to remain or settled status, or are from countries covered by EU or bilateral agreements.


  18. The arrangements for claiming Child Benefit reflect the objective of making a contribution to the cost of raising children. Generally, either parent can meet the conditions of entitlement to Child Benefit. However, it is usually the mother who gives up work to care for a newborn child, and the mother who retains caring responsibilities in the event they separate; 92 per cent of lone parents are women. Research[2] into spending patterns within households suggest that it is usually the mother who takes most responsibility for expenditure in respect of the children.

  19. For this reason, the mother is encouraged to make the claim for benefit, although there is nothing in the law that prevents either partner in a couple from doing so. When a husband or male partner in a couple wishes to claim, agreement is sought from the female partner to ensure she is content for the claim to be made in her partner's name. This is intended to be a relatively non-intrusive way of ensuring the mother can exercise her right to claim Child Benefit if she wishes to do so.


  20. Schedule 10 to the Social Security Contributions and Benefits Act 1992 sets out the criteria for establishing priority of entitlement where a child spends equal time with separated parents and each may have a potential entitlement.

  21. In such circumstances, the parents are able to make a joint election as to who will receive the benefit. Where agreement cannot be reached, the Secretary of State decides who should receive the benefit, or if benefit is payable for more than one child, whether it should be split (only one payment can be made in respect of each child and, hence, an allowance for one child cannot be split). If an applicant disagrees with the Secretary of State's decision they may seek judicial review.

  22. In such cases the question of entitlement is not at issue. The issue is who has the greater priority of entitlement. Decisions are made on a case by case basis, based on the balance of evidence provided by both parties, and take account of guidance issued by the department.

  23. Approximately 2000 such cases are dealt with each year.


  24. The data requested by the Committee relating to the number and ages of children since 1983 are contained at Annex 2(a)-(d). The number of children for whom benefit is paid rose to 12.9 million in 1997. Estimates to 2001-2 indicate that the numbers will remain relatively stable.

  25. The rise since 1990-91 has in large part been due to a substantial rise in the number of children continuing in full-time education after age 16. For 16 year-olds staying on rates have risen from 59.3 per cent in 1990-91 to 70.7 per cent in 1995-96; for 17 year-olds from 42.8 per cent to 59.3 per cent; and for 18 year-olds from 23.7 per cent to 39.9 per cent.[3]

  26. In contrast, the population aged 0-5 is expected to remain level at 11.7 million to 2003, but is projected to decrease from 11.7 million in 1996 to 10.8 million by 2015.[4]

  27. By age group the most significant trend has been the reduction in the 11-15 group, from 4.5 million in 1980 to 3.5 million in 1995. The 5-10 group is at about the same level as 1980, after a dip in the early 1980s, and the 0-4 and 16-18 groups have shown a small increase over the period.[5] This is simply a result of trends in birth rates.

  28. Annex 2(e) shows that the composition of the caseload by family size has remained fairly even since 1980.


  29. As family size has remained relatively stable, the number of families receiving Child Benefit has followed a similar trend to the number of children. On 20 May 1998, 7,006,050 families were in receipt of Child Benefit compared to 7,161,000 in 1979, about 99 per cent of all families with children. Of these 1,091,250 were lone parents in receipt of the lone parent rate. Annex 2(f) shows the numbers of families receiving Child Benefit since 1977.

  30. The vast majority of Child Benefit awards are to female claimants. The number of awards to male claimants are an estimated 273,000 as at April 1998. This represents just under 4 per cent of the total number of awards in payment at that time.

  31. Administrative statistics are not kept on whether a recipient is co-habiting or married (this information is not relevant to determining entitlement). However, estimates based on the Family Resources Survey in 1995-96 suggest the caseload consists of 4.8 million married couples, 425,000 co-habiting couples and 1.6 million lone parents.

  32. Of the total recipients, 1.29 million receive Income Support, 180,000 receive Income-based Jobseeker's Allowance and 760,000 receive Family Credit. Annex 3 compares the proportion of families with children in receipt of these benefits with other household groups. This shows that a much higher proportion of lone parents receive Income Support than any other group (although there has been a shift towards Family Credit as more have moved into work in recent years) while couples with children have a below average representation—less than both pensioner households and single, childless households.

  34. Annex 4 shows the position of families with children across the income distribution. Income levels have been adjusted to take account of family size. The greatest number of families in the bottom quintile are married couples with children, although, proportionately, this group is slightly under-represented. Smaller numbers of co-habiting couple and lone parent families are in the poorest groups, although both groups are over-represented in proportional terms, lone parents particularly so. The level of representation at the lower end of the income distribution is closely related to the differing rates of participation in the labour market of different family types.


  34. Child Benefit is paid at fixed rates regardless of household income. There are two standard rates—one payable for the first child and one for each subsequent child. From April 1997, when One Benefit Parent was incorporated into Child Benefit, a separate rate of benefit for the first child of a lone parent was introduced. The current rates are (from April 1998):

    For the first child £11.45 a week

    For the first child of a lone parent £17.10 a week

    For second or subsequent children £9.30 a week per child

  35. On introduction, the rates of Child Benefit were set so that no family would be worse off than they were under the previous system of Family Allowances and age-related child tax allowances.

  36. Since then, the rates have been reviewed annually in line with statutory requirements (Part 9, Section 145 of the Social Security Contributions and Benefits Act 1992). It has been increased every year except for 1988, 1989 and 1990 when its rate remained unchanged.

  37. In 1991, a higher rate was introduced for the first child. The then Secretary of State for Social Security said the higher rate would:

    " . . . make an increase which gives a worthwhile amount to all mothers, and which will be particularly welcome to new mothers because it recognises that for the great majority of parents the arrival of the first child has much the largest impact on their finances, not only because of the initial costs that they incur but because, in a world where the great majority of women work while they are childless but where most feel it necessary or right to give up work, or to work less for some considerable time thereafter, it is frequently associated with a sharp reduction in family income."—(Hansard, 24 October 1990 col 352)

  The Committee asked for the number of children for whom the higher rate for the first child or oldest eligible child is payable. This is the same as the number of families receiving Child Benefit (See paragraph 29).

  38. In 1998, the Chancellor of the Exchequer announced his intention in the March 1998 Budget to "make our primary aim that of supporting families through supporting children". From April 1999, the rate of Child Benefit for the first or only child will increase by £2.50 a week above indexation.

  39. As requested by the Committee, details of the rates payable in cash and real terms since the benefit was introduced are at Annex 5.


  40. Many attempts have been made to identify the precise cost of raising a child. There are two key difficulties in quantifying this cost:

    —  separating expenditure on children from household expenditure more generally; and

    —  determining what costs are associated with need and which relate to choice. For example, higher income families tend to spend more on their children, but this can reflect the availability of additional resources, rather than additional costs.

  41. As a result, the body of research which considers the cost of children does not reach universal conclusions. Very few studies have systematically looked at the differences in the cost of a child across family types, comparing like with like, and there are different methods of measuring the costs of children and of determining a child's needs. An index of key research is at Annex 6.

  42. The rates of Child Benefit are, therefore, based on a judgment of the correct balance between the additional costs families face as a result of the presence of a child, the extent to which the State should provide a contribution to these costs from general taxation and the impact on public expenditure.

  43. Using data from the Households Below Average Income series, Annex 7 shows the proportion of average income and earnings represented by Child Benefit. It is not surprising that the greater the number of children a family has the more important Child Benefit is to them.

  44. The falling relative value of Child Benefit over time reflects the fact that Child Benefit is usually uprated in line with the Retail Price Index, which has grown at a lower rate than earnings and incomes.


  45. Child Benefit provides a contribution to the cost of raising a child. For those families claiming other Social Security benefits additional amounts may be payable.

  46. The income-related benefits—including Income Support and Income-based Jobseeker's Allowance—are intended to help families meet their day to day living expenses. The rates for children vary according to their age, with higher rates for older children in recognition of the greater costs involved in providing for them. In his March 1998 Budget, the Chancellor of the Exchequer announced a relative adjustment to the age allowances. From November 1998 the allowance for children under the age of 11 in the income-related benefits will increase by £2.50 a week.

  47. As a result of their different objectives, there is no direct relationship between the level of child allowances in the income-related benefits and the rates of Child Benefit, although both relate to the cost of raising a child. As might be expected from the objectives set for the benefits, child allowances in income-related benefits are higher than the rates of Child Benefit (see Annex 8).


  48. Information on expenditure on Child Benefit from 1983-84 to 1997-98 is set out in Annex 9. For 1998-99 it is estimated that expenditure will be £7,319 million.

  49. The trend in real value is driven by changes in the population of eligible families and children, as set out in the previous paragraphs, combined with the effects of annual upratings.


  50. As a largely universal, fixed-rate benefit Child Benefit is relatively simple and cheap to administer. Administration costs account for 1.9 per cent of benefit expenditure, equal to an average weekly cost of 35 pence per family.

  51. A simple scheme also helps the Department achieve a high level of accuracy in decision making. The Chief Adjudication Officer's Report for 1997-98 found that 99 per cent of Child Benefit decisions were correct.


  52. The anti-fraud and security work in Child Benefit forms part of the Government's concerted action to secure a reduction in benefit fraud across the board. Measures to address fraud within Child Benefit are the subject of a separate inquiry and are not detailed here.[6]


  53. The vast majority of countries provide some child support although the level and mechanism for the provision vary.

  54. Generally, support is payable for all children from birth to at least 15 years of age, except in France where it is paid for second and subsequent children only. A wide range of additional conditions apply for older children. In around one-third of countries, the amount of support is dependent upon income—with maximum income levels applied to entitlement. In Greece, Spain and Switzerland the benefit is taxable.

  55. Support is paid as a tax credit through the tax system in Canada. New Zealand and USA both have systems of tax credits for those families in work, and benefits for those without work.

  56. Around one-third of the countries pay the benefit to the mother. The majority paying to the person caring for the child or either parent, with the exception of Luxembourg where it is paid to the father.

  57. Details of individual schemes are at Annex 10.


Universal Child Benefit

  58. The Government's Manifesto contains a commitment to retain universal Child Benefit where it is universal now. The Government have indicated that they believe Child Benefit remains the fairest and the most efficient way of recognising the extra costs and responsibilities borne by all parents, and that they intend future support for children to be built upon universal Child Benefit.


  59. In his Budget speech on 17 March 1998, the Chancellor of the Exchequer announced that the standard rate of Child Benefit would be increased by £2.50 a week above the level of indexation. At the same time, he stated that if further increases were made to Child Benefit, there would be a case for taxing it for higher rate tax payers, but he subsequently made clear that, if Child Benefit were to be taxed, this would not breach the principle of independent taxation.

  60. Estimates of the yield from options which are consistent with this principle these are set out in Annex 11. They are based on data from the 1995-96 Family Expenditure Survey projected to 1998-99 levels of income and with the 1998-99 tax and social security benefits system in force.

Child Benefit for 16 to 18 Year Olds

  61. In line with the Government's manifesto commitment a review has been conducted on educational finance and maintenance for those over 16 years of age. Following this review, the Government has announced its intention to pilot an Educational Maintenance Allowance. Details of the plans for this will be brought forward in due course by the Department for Education and Employment.

  62. The Youth Cohort Survey shows that, in 1996, 83 per cent of 16 year olds from managerial and professional families stayed on in full-time education compared to 53 per cent from unskilled families. The pilot will test the effectiveness of an Educational Maintenance Allowance in helping young people from poorer households to stay on and achieve in education and training.

  63. The Chancellor for the Exchequer has indicated that, subject to the outcome of the pilots, the Educational Maintenance Allowance may eventually replace Child Benefit for 16 to 18 year olds.

Active Modern Service

  64. In line with the aims of developing an Active Modern Service the Benefits Agency is reviewing the existing claim process for Child Benefit with the aim of developing a more streamlined process. A range of options are being considered including the feasibility of a "Tele-claims" (telephone claims) service.

1   Full-time non-advanced education is over 12 hours supervised study a week up to and including A level or NVQ Level 3. Back

2   Distribution of Income within Families receiving Social Security Benefits Joseph Rowntree Foundation Ruth Lister, Jackie Goode and Claire Callender, April 1998. Back

3   Department for Education and Employment Participation Rates (England only). Back

4   Office of National Statistics estimates and Government Actuary's Department 1996 based projections. Back

5   DSS Analytical Services Division. Figures based on a 4 per cent sample for 1977-93 thereafter on a 1 per cent sample. Back

6   See Minutes of Evidence taken before the Social Security Committee, 21 July 1998, HC 102-i. Back

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