Select Committee on Social Security Report


Letter to the Clerk of the Committee from Tony Lynes (CB 2)

  I would like to comment on three aspects of the Committee's inquiry.

1. The purpose of child benefit

  The original purpose of family allowances (now child benefit) was to supplement the earnings of parents, in recognition of the fact that the wage system does not take account of family size. As Beveridge put it, "a national minimum for families of every size cannot in practice be secured by a wage system, which must be based on the product of a man's [sic] labour and not on the size of his family." I would go a little further and argue that child benefit is needed not only to provide a minimum income related to family size but, more generally, to reduce inequalities between families of different sizes. To achieve that aim, the value of child benefit must be maintained relative to average earnings. Tying it to the price index will make it increasingly irrelevant.

2. The taxation of child benefit

  Harriet Harman said in the Budget debate earlier this year: "If child benefit is increased in future, there is a case for higher-rate taxpayers to pay tax on it—that must be right in principle." I do not agree. It seems to me right in principle that higher-income families should pay more tax than those with low incomes, but it also seems right in principle that people with dependent children should pay less tax than those without children. In the past, the tax system recognised this by giving them child tax allowances. In the 1970s, these allowances were converted into child benefit, so that those below the tax threshold would benefit from them, but there was no question of taking them away from higher-income families. It is true that many people believe that child benefit should not be paid to the rich. Taxing it may, therefore, be relatively popular. But that does not make it right in principle.

3. CB and other allowances for children

  An issue which the Committee might wish to consider is the way in which child dependency additions to national insurance benefits have been eroded (and, in the case of short-term benefits, eliminated entirely). A written answer to a question tabled by Paul Flynn MP (25 July 1997) showed that the combined value of child benefit and the dependency additions, for the children of a widowed mother, had fallen yearly over nearly all of the period from 1979 to 1997. For the first child in the family, the reduction was from £28.79 to £20.95 per week at 1997 prices; for subsequent children, from £28.79 to £20.20.

  It may seem odd that this reduction has occurred, given that both child benefit and NI benefits are uprated annually in line with prices. The explanation is that both Conservative and Labour Governments have exploited a loophole in the statutory uprating provisions, which allow any increase in child benefit to be deducted in calculating the amounts by which the national insurance additions are uprated. It was the previous Labour Government which discovered this loophole and made use of it in 1977. The Conservatives then used it consistently in every uprating from 1980 to 1997, with the exception of 1991, and the present Government seems to be following the same policy. Thus, in the 1998 uprating, when other benefits were increased by 3.6 per cent, in line with inflation, the child dependency addition was raised from £11.20 to £11.30 per week—i.e., by 0.9 per cent. Nobody has ever attempted to defend this policy, of which few people are even aware. If anything, one would have thought it more important to protect the value of child support for people dependent on social security benefits than for those in work.

Tony Lynes

30 July 1998

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