|
APPENDICES TO THE MINUTES OF EVIDENCE
TAKEN BEFORE THE SOCIAL SECURITY COMMITTEE
APPENDIX 1
Memorandum from the Department of Social
Security (CB 1)
CHILD BENEFIT
SUMMARY
— 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.
INTRODUCTION
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.
HISTORY OF
FAMILY ALLOWANCES
AND CHILD
TAX ALLOWANCES
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.
THE INTRODUCTION
OF CHILD
BENEFIT
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.
THE OBJECTIVE
OF CHILD
BENEFIT
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.
RULES OF
ENTITLEMENT
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.
WHO CLAIMS?
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.
SHARED CUSTODY/PRIORITY
OF TITLE
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.
CASELOAD—THE
NUMBER OF
CHILDREN
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.
CASELOAD—FAMILIES
AND FAMILY
CIRCUMSTANCES
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.
RATES OF
CHILD BENEFIT
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.
RESEARCH
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.
CHILD BENEFIT
AND ALLOWANCES
FOR CHILDREN
IN INCOME-RELATED
BENEFITS
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).
EXPENDITURE
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.
ADMINISTRATION
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.
Fraud
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]
INTERNATIONAL COMPARISONS
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.
CURRENT ISSUES
FOR CHILD
BENEFIT
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.
Taxation
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
| 
