Select Committee on Social Security Report


Memorandum submitted by Ms Fran Bennett (CB 6)



  Lists the issues dealt with in the written evidence submitted.


  Child benefit is a multi-purpose benefit, popular and widely supported. It replaced child tax allowances and family allowances in the late 1970s, with a higher payment for the first/eldest eligible child from 1991. It meets one-fifth of average spending on a child.


  Child benefit has a tax credit/allowance function. The case "in principle" for taxing higher rate taxpayers on their child benefit is not obvious. Practical issues/problems include: the tax unit and implications for independent taxation; treatment of cohabitees, etc.; possible consequences. Acceptance of the arguments for taxation could have knock-on effects. The cost of improvements in support for children should not have to be met by families with children alone but should be shared more fairly.


  A higher rate for the under-fives could muddy the purpose of child benefit and/or send out mixed messages about mothers' participation in the labour market. If one social security benefit were paid for all children, this would be likely to rise with age instead.


  Research suggests that the presence of one child does make more difference financially than two children compared with one, etc. But the other justifications for the new structure of child benefit, whilst reasonable, would suggest other policy directions instead. Large families are increasingly disadvantaged by the current benefits system.


  Child benefit is deducted from, not disregarded for, means-tested benefits. This is not popular with claimants. But the real issue is the total support allocated for poor children.


  Financial support for older teenagers should be reviewed; but child benefit is working. The arguments used to support abolishing child benefit for this age group undermine the case for universal child benefit more generally. The effect of a means-tested education allowance on incentives to stay on could depend on who receives the allowance.


  Child benefit is usually paid to women, as they tend to have more responsibility for children and budgeting and less access to other income. Changing this should not be seen as a means to the (laudable) end of increasing fathers' participation in child-rearing.


  Higher child benefit could help work incentives because more families with children are affected by benefit traps and child benefit is a highly visible factor. A new integrated child benefit scheme in Canada merges all benefits for children, and should be studied.


  1. The Committee's terms of reference cover a range of questions about child benefit. This evidence focuses on the following issues:

    —  the functions and value of child benefit

    —  the taxation of child benefit

    —  different rates for different ages

    —  higher payment for the first child

    —  child benefit and income support

    —  child benefit and 16- to 19-year-olds in continuing education

    —  child benefit and changing family structures

    —  the case for a higher rate of child benefit

The functions and value of child benefit

  2. Child benefit is a multi-purpose benefit.[8] In particular, it:

    —  reaches more low-income families than all the benefits designed specifically for them, since it enjoys virtually 100 per cent take-up;

    —  provides a floor for families to build on by their own efforts, and does not contribute to the unemployment or poverty traps, since it is not withdrawn as income rises;

    —  is skewed towards the lower part of the income distribution in its distributional impact, since most people have children and most families fall in the lower or middle parts of the income distribution (with income adjusted for family size);

    —  fulfils a child protection function, in that it "follows the child", via the main carer, during periods of instability in employment or family situations, when it may even temporarily be the only source of income available to meet family needs;[9]

    —  provides some women with their only source of independent income; without child benefit, one-fifth of married women would depend entirely on their husbands for income;[10]

    —  represents a vital contribution to family finances, and is seen as clearly intended for meeting children's needs;[11]

    —  is more likely to be spent on children's and family needs because it is routed via the main carer, usually the mother;

    —  helps to redistribute resources over the individual and family life-cycle to a time when—regardless of income level—income is likely to be lower relative to the demands upon it;

    —  recognises that those with children have a lower "taxable capacity" than those without, by acting as the equivalent of a tax credit for families with children;

    —  represents society's investment in the future and the commitment of the community as a whole to share the cost of rearing the next generation with individual parents.

  3. Given the above range of functions, it is perhaps not surprising that child benefit is also popular and widely supported across the political spectrum:

    "Child benefit is designed to meet the needs of families generally. As such, it is . . . simple, straightforward, well understood and preferred as it is."

    (The Reform of Social Security, Vol. 2, DHSS, Cmnd. 9517, 1985, page 47)

    "[Child benefit is] the fairest, most efficient and most cost-effective way of recognising the extra costs and responsibilities borne by parents."

    (Chancellor of the Exchequer during Budget debate, 17 March 1998)

  The authors of one recent qualitative study reported that most of the childless people interviewed by researchers said they were happy to support children through their taxes.[12]

  4. Child benefit replaced child tax allowances and family allowances between 1977 and 1979; but there was no statutory commitment to inflation-proofing, and it was frozen between 1988 and 1990. If it had been uprated annually in line with prices since 1979, child benefit would be being paid at the rate of £12.70 per week per child in 1998-99.[13] This calculation assumes the original structure of child benefit, which consisted of an identical rate of benefit for each child. From April 1991, however, child benefit has been paid at a higher rate for the first or eldest eligible child; it is now £11.45 per week for these children, and £9.30 for others. (One parent benefit for existing lone parents has now been made part of child benefit, but is not included here.) The then Conservative government committed itself to uprating child benefit annually in line with inflation from April 1992 onwards. In the 1998 Budget, the current government announced a very welcome increase of £2.50 per week for the first or eldest eligible child from April 1999, in addition to the uprating in line with price rises, with a parallel increase in the family premium for income support and other means-tested benefits. The Chancellor also emphasised the government's commitment to child benefit (see above).

  5. A recent study calculated that on average a child costs over £50,000 in "regular" items of spending from birth to age 17, with some ninety per cent of that provided by parents. Child benefit meets approximately one-fifth of average spending on a child.[14]

The taxation of child benefit

  6. The Inland Revenue regards child benefit as a form of tax relief. In Parliamentary questions about the burden of taxation, child benefit is usually treated as a form of "negative tax", or tax credit, and is therefore shown as reducing the amount of tax effectively paid by families with children. There has also been a tradition of calculating a "tax break-even point", which includes child benefit as part of an effective tax threshold, or tax-free band of income, for families with children. These practices suggest that, despite its inclusion in the social security budget, child benefit is also being seen as part of the income tax system. (Unlike tax reliefs/allowances, however, it is also available to families below the tax threshold.) The taxation of a tax allowance or tax credit would usually be seen as a somewhat contradictory policy.

  7. This submission concentrates on the current government's suggestion that child benefit should be made taxable for those paying higher rate tax:

    "It must be right in principle that if child benefit is raised in future, then there is a case for higher rate taxpayers paying tax on it."

    (New Ambitions for Our Country: A New Contract for Welfare, Green Paper, Cm 3805, DSS/The Stationery Office, 1998, page 58).

  However, beyond the bald statement that this is right "in principle" if child benefit is increased, the government does not yet seem to have produced any specific arguments in justification of its proposal. (In addition, it has not acknowledged that if future increases are also routed via the payment for the first or eldest eligible child, but taxation is applied to child benefit for every child, larger families will be disproportionately disadvantaged.)

  8. It is difficult to understand the logic behind the Chancellor's argument that there is a case "in principle" for higher rate taxpayers paying tax on child benefit if it is further increased. It is true that child benefit replaced not only child tax allowances but also family allowances, which were taxable (although, for higher income families, the effect of taxing family allowances was in fact outweighed by the advantage they received from child tax allowances, which were worth more to those otherwise paying tax at the higher rates).[15] In recent years, the Inland Revenue has also started to publish a figure for the revenue forgone from not taxing child benefit. In 1995-96, forgone revenue from not subjecting child benefit and one parent benefit to tax was estimated at some £700 million.[16] Yet there have been no recent calls for the imposition of income tax on child benefit for all taxpayers, as opposed to higher rate taxpayers alone. Taxation for all recipients would be unlikely to be politically acceptable, in part because it would bring more families into tax and could also affect mothers' incentives to enter the labour market.

  9. The Commission on Social Justice accepted the case for imposing taxation on child benefit for families where either the mother or father was a higher rate taxpayer. But it did so with apparent reluctance as part of the necessary price to pay for a "substantial" increase in child benefit, since it believed it was "unrealistic to seek new funds in the forseeable future" from elsewhere.[17] (The other reform called for by the Commission to help fund such an increase was the abolition of the married couple's allowance.) This proposal therefore appeared to represent a judgment about the best way to gain political acceptability for increases in child benefit—at a time when arguments against the retention of universal benefits itself were being put forward with considerable force. In a recent opinion poll, however, the option of increasing child benefit but taxing it for those on higher incomes attracted little public support; those who did not support the current system appeared to favour outright means-testing instead.[18]

  10. Others will no doubt submit evidence on the various substantial practical problems facing the government in exploring the feasibility of taxing child benefit for higher rate taxpayers. In particular, however, the following issues will need to be resolved:

    —  the tax unit (individual or couple) involved, and the impact on independent taxation;

    —  the treatment of cohabitees, step-parents and non-resident parents;

    —  the possible consequences of the change.

  11. The government could choose to tax only those 120,000 people (largely women) who receive child benefit themselves and pay higher rate tax; or they could also include those 855,000 higher rate taxpayers whose partners receive child benefit.[19] To tax only the recipients of child benefit would be likely to be interpreted as flying in the face of recent government commitments to judge all policies in part by their effects on women. It would also raise little revenue for a general improvement in child benefit.

  12. However, to link child benefit recipients with partners who are higher rate taxpayers, to tax the partners' income instead, could—whilst raising more significant amounts of revenue for an increase in child benefit—create other problems. It has been argued in the past that if men were taxed on child benefit received by their wives, they might press for the reintroduction of child tax allowances as compensation. The government has said that it has no plans to return to the pre-1990 treatment of women in the income tax system.[20] If significant revenue is to be raised, it appears that there will need to be more linking of information about the incomes of couples with children; the government has not yet made clear how this will be possible without breaching the principles of independent taxation.

  13. Questions also arise about married versus cohabiting couples. If only the child benefit of married couples were made taxable, this would be likely to be seen as discriminatory by many. On the other hand, to include cohabiting couples as well would introduce the complexities of a cohabitation rule into Inland Revenue administration. (Cohabitees could be allowed merely to sign a declaration; but with the current emphasis on fraud, there would be likely to be calls for some form of more rigorous policing.) It is also difficult to see how step-parents and/or non-resident parents will be treated under any taxation arrangements; the recent experience of the Child Support Agency does not provide a happy precedent for government agencies which deal with the interaction of financial and emotional issues in family relationships.

  14. Taxing higher rate taxpayers on their child benefit does not have the same implications as an outright challenge to its universal nature, such as proposing to withdraw child benefit from better-off families altogether, via means tests or affluence tests; they would still continue to receive the same benefit as other families with children, and could thus still be seen as retaining a "stake" in the system. Nonetheless, together with the government's plans to abolish child benefit for older teenagers and replace it with a means-tested education allowance (see below), the proposal to tax child benefit for higher rate taxpayers seems to have some dangers:

    —  first, that arguments may be used in support of the case for taxing child benefit for higher rate taxpayers which do in practice undermine the case for universal benefits and/or horizontal redistribution more generally;


    —  secondly, that these arguments could be used by analogy to support the taxation of other benefits to meet additional costs, such as disability living allowance and attendance allowance.

  15. Horizontal redistribution represents an attempt to achieve more equal treatment between those who may have similar levels of income but face different demands upon that income; at any given level of income, parents are at a financial disadvantage compared with people without children. To make child benefit taxable for higher rate taxpayers, however, is to try to recast the only mechanism which exists to achieve horizontal redistribution towards families with children, in order to adapt it to meet the separate goal of vertical redistribution between rich and poor. There are many other mechanisms within the tax system specifically designed to facilitate fairer treatment between those on high and low incomes (vertical redistribution). If there is concern about increasing income inequality, this concern should extend to other groups on high incomes who have benefited disproportionately from labour market developments and from recent policy changes in the tax system, rather than merely redistributing resources between families with children. If there is a case for an improvement in financial support for children via an increase in child benefit, this should be financed by changes in the incidence of tax which are not borne only by other families with children. There is also a case, as the government recognise in the 1998 Budget, for using resources from the withdrawal of other subsidies which are not seen as having equal social priority, such as the married couple's allowance. The redirection of resources from the married couple's allowance for non-pensioners into higher child benefit was been proposed by the Child Poverty Action Group and many other commentators over the years:

    "The married couple's allowance is an anachronism: it was right to shift spending from that to child benefit, recognising that these days, extra costs arise not on marriage but on the birth of a baby."

    (The Times, 18 March 1998)

  It has not been made clear whether the additional resources already generated by the reductions in the married couple's and additional personal allowances so far have been redirected into child benefit, or whether there are plans beyond April 1999 to do so explicitly.

  16. The parameters of the debate about taxing child benefit for higher rate taxpayers are also currently rather unclear:

    —  what level does child benefit have to reach before it is "in principle' right to introduce such taxation?

    —  and, conversely, to what relative level would child benefit have to decline before a government decided to reverse this decision?

  The suspicion must be that, once it had been introduced, the taxing of child benefit for some taxpayers would not be reversed, even if the benefit were subsequently allowed to decline in value. In the meantime, the rationales for horizontal and vertical redistribution would have been irretrievably muddled; a simple benefit would have been made more complicated; and the existing political consensus behind child benefit could have been compromised. As a leader in the Financial Times (16 March 1998) argued, the taxation of child benefit for higher rate taxpayers:

    " . . . [is] a highly complex matter, raising issues that need to be debated about the independent taxation of women and equality between families. It would also inevitably affect the glue that holds the welfare state together: that the better off pay more for the welfare state than they receive, but gain benefits that include a flat-rate acknowledgement of the costs of raising children. It is too soon for the Chancellor to tamper with child benefit."

Different rates for different ages

  17. Child benefit is paid at a flat rate per child (except for the higher rate for the first or eldest eligible child, discussed above), whereas the means-tested benefit rates vary with age. Family allowance used to be paid at the same rate for each eligible child (the second child onwards); but child tax allowances increased with the age of the child. There is therefore a precedent within non-means-tested support for children to vary the rate paid.

  18. Some participants in the debate about the structure of child benefit have suggested in the past that there is a case for considering a higher rate for the under-fives or a "child benefit premium" (one extra payement for every family with one or more children under five).[22] The cost of doubling child benefit for all children under five would currently amount to some £670 million (for the eldest qualifying child) and about £680 million (for all other children).[23] This proposal has usually been linked to a perceived need to give additional support to those families which contain one parent who is looking after the child(ren) at home full-time. Despite the recent increase in the percentage of women returning to employment soon after the birth of their baby, it is still the case that women with younger children are less likely to be in the labour market. In the recent Budget, the Chancellor justified the increase in income support and family credit rates for children under 11 from November this year in part by linking it to the case for additional support for mothers at home—perhaps in response to criticisms that the government's emphasis on paid employment makes it appear that it does not value unpaid caring work sufficiently.

  19. However, two problems have been identified in relation to these proposals. The first is that it tends—as with the proposed taxation of child benefit for higher rate taxpayers—to muddy the purpose of child benefit. In this case, a premium or increased rate for the under-fives seems to be responding to the indirect costs of having children—the impact on parents' labour market participation (and/or the need for alternative child care)—rather than to the direct costs, usually seen as the need which child benefit is designed specifically to help meet. Although the original case for family allowances was sometimes made with reference to the "endowment of motherhood", child benefit is now not normally seen as a payment for parenting, or as an income on which the parent at home should draw for their own needs. Parents themselves are much more likely to identify child benefit as intended for the needs of the child(ren). Any increase is also likely to be marginal in relation to these indirect costs of child-rearing.

  20. The second problem is that, if a premium for the under-fives is withdrawn once a child starts school, it may appear that the government expects all parents to be in the labour market when their children reach that age. Yet the current government—like those before it—has made it clear that it does not wish to make such assumptions explicit.

  21. If the system of financial support for children were to move closer to one payment for all children whether their parents were in or out of work, and whether they were currently covered by means-tested benefits or not (see below), then there could be a stronger case for differentiating the rates of child benefit by age. In that case, however, it would be more likely that the rates would rise with age, reflecting the higher costs of older children—if childcare costs are disregarded.[24] The introduction of a separate, albeit means-tested, system of help with childcare costs by the current government, through the proposed child care tax credit, makes it unlikely at present that childcare costs would be recognised in benefit rates for children.

Higher payment for the first child

  22. Family allowances were given only for the second child onwards, although child tax allowances were paid for each child in a family. As noted above, the higher payment for the first or eldest eligible child in the child benefit scheme was introduced in April 1991, and the differential was increased in October 1991. It will be increased again in April 1999. The removal of this rate would yield some £590 million in savings in the current year.[25] The UK is unique in the European Union in having a higher rate for the first or eldest eligible child.[26]

  23. One study of relative needs of different types and ages of household found quite strong supporting evidence for the proposition that having any children (one or more) made more difference than the number of children.[27] Another study of financial support for children via the benefits system, however, found

    ". . . the case for the . . . higher rate of child benefit for the first child in all families is less clear-cut. The present study adds to the evidence that the first child brings greater costs. On the other hand, it is larger families who tend to fall into lower income groups."

    (Findings, Social Policy Research 89, Joseph Rowntree Foundation, 1995).[28]

  24. The Coalition for Child Benefit commissioned a study of the rationale for the arguments given by the then Conservative government for the introduction of the differential payment in April 1991.[29] The Green Paper published during the social security review of the mid 1980s had considered increased benefit for the first child, among other options, but had rejected this.[30] The authors of the study examined the arguments used by the government in 1991in favour of the differential payment:

    —  the increase would give worthwhile additional assistance to all families with children within the budgetary constraints adopted:

    "given the limited expenditure allocated to the increase, it can be described as serving the purpose intended by the government" (i.e., this could be seen as a reason, if not a strong case, for the structure, and was seen by the authors as falling within the realm of political judgment);

    —  the increase would help with the start-up costs associated with the birth of children: since only 5 to 11 per cent of the total would go to families with a child under one year old, this did not seem to the authors an efficient way of helping with such maternity-related costs;

    —  the increase would be of special help to families where the mother gave up paid work: the impact of children on women's labour force participation is substantial (see above); but it seems to be related to the age of the youngest child, rather than number of children, and the size of the extra payment could not be seen as compensating for this impact;

    —  all families with children have greater needs than those without:

    "the evidence on the cost of children suggests that there are such economies of scale" with one child families having greater needs relative to those without children than families with two or more children have compared to those with one child (see above).

  The authors concluded, therefore, that although most of the arguments put forward by the government stood up to appraisal, they were

    ". . . arguments for reintroducing maternity grants, enhancing equal opportunity programmes, or introducing better parental leave; the increase in child benefit . . . provides much less support than is suggested by the scope of the problems identified."

  They argued that ultimately the question of the appropriate structure of child benefit can only be answered by reference to its basic objectives—supporting groups of families with extra needs, or supporting families generally.

  25. It could be argued that larger families are increasingly being relatively disadvantaged in the structure of financial support for families with children. Child benefit has a higher rate for the first or eldest eligible child—which is increasingly being described as a payment per family. One parent benefit (now abolished, but still in payment to existing claimants as part of the child benefit system) has always been paid per lone parent family, rather than per child. One family premium per family is paid in means-tested benefits, in addition to the children's rates paid per child. The lone parent premium is similar in structure (again now abolished, but still in payment to some families). The 1998 Budget saw announcements of increases in both the child benefit "payment per family" and the family premium from April 1999. It is of course obvious why increases in these payments are politically attractive to governments, in that they can claim to be giving additional help to every family, whilst at the same time limiting the cost of such increases. But there is perhaps a case for a re-examination of the relative needs and resources of families of different sizes, and the recognition of these by the benefits structure—especially in view of simultaneous developments in other policy areas, such as the increase in the number of families who pay for water consumption by volume via water meters.

Child benefit and income support

  26. Child benefit is deducted from means-tested benefits for families with children, rather than being disregarded (ignored). Claimants of means-tested benefits, especially income support, often argue that child benefit should be disregarded. They see it as unjust that they are amongst the poorest families in the country but do not benefit directly from an increase in child benefit, since it is deducted from their means-tested benefits. It may appear to them as though the total financial support they receive for their children would be increased, by adding together child benefit and the income support rates for children (though complicated now by the family premium—see above). Moreover, the cost-related benefits paid to disabled people—disability living allowance and attendance allowance—are disregarded for means-tested benefit calculations.

  27. However understandable claimants' feelings of injustice are on this point, and however attractive it might be to support their demands for reform of the benefit rules, it is unlikely that any move to disregard child benefit for means-tested benefits would have the desired result. This can be seen from the history of family credit. It may appear as though child benefit is ignored in the calculation of family credit for individual families. However, in calculating the family credit rates for children, governments have taken into account the rate of child benefit (and the loss of free school meals implemented as part of the replacement of family income supplement in 1988). The real issue, therefore, is the amount of financial support which society as a whole is willing to allocate to low income families with children—which is unlikely to be altered by any "technical fix" involving the treatment of child benefit in means-tested benefit calculations.

Child benefit and 16- to 19-year-olds in continuing education

  28. The government has announced pilot schemes for paying means-tested allowances for 16- to 18-year-olds staying on in education, in order to encourage more young people from low income families to remain in education for longer. Although the proportion of young people staying in education has increased significantly in recent years, the increase has been less marked amongst those from low-income families. Most commentators have accepted the government's case for persuading more such young people to stay on at school, or enter further education. There have, however, already been suggestions that the content and form of education for disaffected 14- to 16-year-olds at school will need to be changed, in order to increase its relevance and value for them; if the pilot schemes are successful, there may therefore be a growing debate over whether the education system as organised at present is actually suited to the needs of many who currently leave at age 16 but who may be persuaded to stay on in education in the future.

  29. Most commentators have also accepted the government's argument that financial support for this age-group is confused and must be reviewed. Until recently, youth training allowances had not been increased for years. Further education allowances are paid via local education authorities, and vary hugely in amount and qualifying rules from one part of the country to another. Young people aged 18 receive lower benefit rates than adults (from age 25). Under the government's plans, 16- to 18-year-olds will also have a lower minimum wage rate. Most importantly, the right to benefit was abolished for unemployed 16- and 17-year-olds from September 1988, with only discretionary hardship allowances available for certain cases. There is increasing concern about those young people in this age group who are not in education, employment or training ("NEETs'), and who have no visible source of income. However, the government's current proposals deal only with the lottery of further education allowances, rather than with the other problems of the current system of financial support for this age-group. Furthermore, in order to do so, they threaten to abolish the one benefit which does not contribute to the current problems, and which does work as it is intended to—child benefit.

  30. Ministers have said that, if the pilot schemes are successful, they may lead to the abolition of child benefit for 16- to 18-year-olds, in order to help finance the national extension of means-tested education allowances. The current Chancellor has argued, in support of this proposal, that

    "[child benefit] is not universal for young people from 16 to 18 and never has been. Only half the mothers of 16- to 18-year-olds receive it, and they tend to be from wealthier families. The mother of an unemployed 16-year-old loses it; the mother of an Etonian sixth-former receives £1,500 over three years."

    (Gordon Brown MP, then Shadow Chancellor, The Independent, 7 May 1996)

  This statement betrays a serious misunderstanding of the nature of universal benefits, which does not accord with the government's own definition:

    "[a universal benefit is] generally understood to be one payable to all who satisfy specified entitlement conditions, regardless of their level of income or national insurance contribution record . . . "

    (House of Commons Hansard, Written Answers 19 February 1998, col. 861)

  On this definition, child benefit is of course still universal for 16 to 18-year-olds—even though the only group entitled to it is parents of young people in full-time non-advanced education (precisely the group who, it appears, are going to lose it under the proposals.)

  31. The reason why mothers of unemployed 16-year-olds do not receive child benefit is that, in theory, a young person of this age could be entitled to draw benefit in their own right. (Under the proposed policy change, mothers of unemployed 16- to 18-year-olds would of course still not be able to claim child benefit.) The lack of entitlement to child benefit of the parent(s) in this situation was originally entirely logical, and did not represent an anomaly, but a recognition of the fact that their children were no longer seen as part of the family benefit unit but as claimants in their own right. Such unemployed teenagers are now in practice very unlikely to be able to claim benefit themselves, to replace their parents' entitlement to child benefit on their behalf. The government has so far given no indication that it is willing to restore the right of unemployed 16- and 17-year-olds to claim benefit. (The decision to abolish benefit entitlement for this age group was also made with a view to altering young people's behaviour through financial incentives; the problems encountered should therefore be examined carefully for their implications for the plans for means-tested education allowances.)

  32. The reason why mothers of pupils at private schools do receive child benefit is because any non-means-tested benefit will inevitably be received by a small proportion of families who are better-off. However, the same argument could be used to support the abolition of child benefit for better-off families with children of any age, not just 16- to 18-year-olds. Its use by ministers appears to betray a lack of understanding of the positive arguments for horizontal redistribution to families with children. Alternatively, the government may merely have been seeking a source of finance for means-tested education allowances which did not involve additional taxation. However, the effect of abolishing child benefit for this whole age group to pay for means-tested allowances for some 16- to 18-year-olds implies that any improvement for one group of families must be paid for by another, rather than by spreading the cost through the taxpaying population as a whole.

  33. Approximately one in four households who do receive child benefit for 16- and 17-year-olds are already on means-tested benefits.[31] In other words, low-income families with children of this age in full-time non-advanced education already receive allowances for them (which are increased at age 18)—if they take up their means-tested benefit entitlement.[32] If the young person leaves school and enters a youth training scheme, they receive their own allowance; if they leave and get a job, they get their own wage-packet. For such families, the incentive for the parents is therefore already likely to be weighted towards the young person staying on in education. For families above means-tested benefit level, on the other hand, the only income they would currently get for their children in education is child benefit; the contribution from young people leaving school for a job or training scheme is likely to be higher than the amount paid in child benefit, and the incentive therefore likely to work in the opposite direction. A means-tested allowance paid to the parents of young people staying on in education in return for the abolition of child benefit might not bring about the effect desired by the government—unless the threshold is set considerably higher than current benefits.

  34. On the other hand, if the allowance is calculated with reference to the parents' income but paid to the young person in education, the consequences are likely to be different. This would be intended to create more of an incentive for young people themselves to stay on in education, since the income they received would be more comparable to a training allowance or a wage.[33] Indeed, depending on the amount of the allowance, the most significant decisions to be affected by incentive issues might be those concerning participation in training schemes or education. However, parents previously receiving means-tested benefits for them would now presumably receive nothing—since child benefit would have been abolished. Child benefit currently contributes some 6 per cent of net weekly income for families with a 16- to 18-year-old who receive it, and 20 per cent of net weekly income for poor families.[34] It is not clear whether young people in education would see the allowance as being paid partly in recognition of the costs of their upkeep, and would therefore contribute to housekeeping expenses—as has been traditionally expected from young wage-earners. If they do not do so, the situation of parents—particularly mothers—trying to budget for their families' needs could be considerably worsened. This was why the Commission on Social Justice recommended retaining child benefit for parents alongside a new education allowance to be paid to young people themselves.

  35. Many young people who reach school-leaving age feel that the education system has failed them and that their own contribution and aspirations are not valued. For many, an important underlying factor in this experience has also been the impact of their parents' poverty on their ability to take advantage of educational opportunities. It is likely that policies to deal with these fundamental issues will be at least as significant in tackling the problem of low staying on rates amongst teenagers from low-income families identified by the government.

Child benefit and changing family structures

  36. Child benefit is usually paid to women. The arguments in favour of this preference focus on the evidence that in low income households with children it is usually women who have to manage the day-to-day budget; that resources entering the household via the woman are more likely to be spent on children's and household needs; and that women are less likely to have access to other sources of income. It is possible for fathers to claim child benefit in certain circumstances. Just under 4 per cent of child benefit awards are currently made to fathers.[35] The authors of one recent study raised the possibility that increased payment of child benefit directly into bank accounts might change the perception of child benefit as money for mothers, since many couples have joint bank accounts.[36] But one small qualitative study of low-income families—where the issue might be seen as most critical—concluded that access via a bank account did not result in diminished access for women.[37]

  37. Many research studies have cited the value which mothers usually attach to the payment of child benefit direct to them.[38] In one more specific study, the authors found that in discussion groups mothers from all social classes except D and E stressed the control and autonomy which they saw receipt of child benefit giving to mothers.[39]

  38. Recently, some suggestions have been made about paying other benefit entitlements direct to women in couples.[40] However, there have also been calls for child benefit either to be paid to fathers instead of mothers (as child tax allowances in effect usually were),[41] or for it to be divided between them.[42] The original draft directive on the individualisation of benefits from the European Commission also raised the possibility of choice over whether mother or father received family benefits.

  39. However, the authors of one recent qualitative study of low-income couples on benefits concluded:

    "The findings caution care . . . in devising policies for the payment of social security to families with children. Such policies should avoid both a limiting of the flexibility available to couples as they try to combine the demands of paid work and family life, and any reduction in the money available directly to women to meet the needs of their families."

    (J Goode, C. Callender and R Lister, Purse or Wallet? Gender Inequalities and Income Distribution within Families on Benefits, Policy Studies Institute, 1998)

  The concerns raised about payment of the working families tax credit through the pay-packet suggest that policy-makers should be cautious about introducing any changes to current arrangements for child benefit. The suggestion that it was sufficient for couples to be able to "choose" whether the payment was made through the main earner's paypacket or via a benefit payment to the main carer did not appear to take account of the realities of financial negotiations and the dynamics of family relationships within households. Encouraging shared parenting responsibilities by fathers is critically important. But there are dangers in putting the cart before the horse—in seeing fathers' access to child benefit as a means to that end, and therefore discontinuing the current "default" position of mothers being seen in normal circumstances as the child benefit claimant. In particular, this would remove a source of reliable income from women at the most financially vulnerable time in their adult lifecycle, when they usually have the main responsibility for other vulnerable people—children. The introduction of policies such as paid paternity and parental leave are also more likely to have the desired effect of encouraging more equal responsibility for child-rearing.

The case for a higher rate of child benefit

  40. A significant increase in child benefit would be a valuable addition to the current government's welfare-to-work policies, as well as having numerous other advantages. There are two major reasons for the importance of child benefit in policies to tackle unemployment and poverty traps. The first is that—apart from people in certain specific circumstances—families with children are the group most likely to be implicated in the unemployment and poverty traps. Action to help families with children via increases in child benefit is therefore likely to be more cost-effective than, for example, alterations in tax thresholds. Secondly, recent research has demonstrated that perceptions and beliefs about benefits can be at least as important as actual amounts in influencing labour market behaviour.[43] Child benefit is highly visible, clear and simple, and can therefore be expected to have a disproportionate impact on decision-making compared to some of the more complex schemes introduced recently to attempt to combat the unemployment or poverty traps.

  41. One possible scheme to explore in more detail is the integrated child benefit system, which has been introduced in Canada to replace the working income supplement (similar in form to the working families tax credit).[44] This new system equalises benefits to families with children irrespective of whether they are working, meeting both equity and work incentive objectives simultaneously. Such a system could be introduced in the UK by increasing child benefit to the level currently paid to income support recipients (though some thought would need to be given to the implications for family credit/the working families tax credit). It could be seen as "taking children out of the social security equation", achieving a valuable simplification of the benefits system. It could also be seen as improving incentives, by continuing the same financial support to children whether their parents are in or out of work, as well as promoting social inclusion by treating all children in the same way regardless of their parents' labour market status. In addition, the multiple purposes of child benefit identified at the beginning of this submission would all be enhanced by a significant increase in its value. (The Canadian scheme involves the tapering off of benefit until it is eliminated altogether at high income levels; but it would not be necessary to incorporate this feature, and the points made in earlier sections of this evidence would strongly advise against it.)

  42. The increase in child benefit announced in the Budget this year was a promising sign of the government's commitment; but plans for taxation of child benefit for higher rate taxpayers, and its proposed abolition for parents of older teenagers, raise issues of some concern for the longer term. The Social Security Committee could usefully examine the features of such schemes as Canada's new integrated child benefit scheme and others in more detail, in order to inform the current debate.

Fran Bennett

8   For more information see, for example, Valuing Children, leaflet published by the Coalition for Child Benefit, 1997. Back

9   J C Brown, Child Benefit: Investing in the Future, CPAG Ltd, 1988. Back

10   H Joshi et al, Dependence and Independence in the Finances of Women at 33, Family Policy Studies Centre for Joseph Rowntree Foundation, 1995. Back

11   J Bradshaw and C Stimson, Using Child Benefit in the Family Budget, Social Policy Research Unit/The Stationery Office, 1997. Back

12   F McAllister with L Clarke, Choosing Childlessness, Family Policy Studies Centre, 1998. Back

13   House of Commons Hansard, Written Answers 5 June 1998, col 402. Back

14   S Middleton, K Ashworth and I Braithwaite, Small Fortunes: Spending on Children, Childhood Poverty and Parental Sacrifice, Joseph Rowntree Foundation, 1997. Back

15   J C Brown, op citBack

16   Quoted in A Dilnot and G Stears, A Short Survey of the British Tax System, Economic and Social Research Council, updated in 1997. Back

17   Commission on Social Justice, Social Justice: Strategies for National Renewal, Vintage, 1994. Back

18   The Guardian, 10 March 1998. Back

19   House of Commons Hansard, Written Answers 27 January 1998, col 166. Back

20   House of Commons Hansard, Written Answers 13 February 1998, col 377. Back

21   See, for example, the editorial in the Sunday Times, 30 October 1988, which moves from advocating taxation of child benefit for higher rate taxpayers to supporting means-testing for all benefits and lower tax rates. Back

22   Such proposals have been reported as being put forward by, amongst others, David Willetts MP and Malcolm Wicks MP. Back

23   House of Commons Hansard, Written Answers 19 May 1998, col 357. Back

24   One study of the relative needs of different types and ages of household found, however, that older children did not have more of an impact than younger children on a family's standard of living (R Berthoud and R Ford, Relative Needs, Policy Studies Institute, 1996). Back

25   House of Commons Hansard, Written Answers 19 May 1998, cols 375-8. Back

26   J Clasen, "Supporting families with children in the European Union", Benefits, September/October 1994 Back

27   R Berthoud and R Ford, op cit. Back

28   Study conducted by R Dickens, V Fry and P Pashardes. Back

29   J Ditch, S Pickles and P Whiteford, The New Structure of Child Benefit: A Review, Coalition for Child Benefit, 1992. Back

30   The Reform of Social Security, Green Paper, Cmnd 9518, DHSS/HMSO, 1985, para 4.36, p 47. Back

31   House of Commons Hansard, 25 June 1996, cols 135-7. Back

32   Thanks to Youthaid and Paul Archer for information about current benefit entitlement. (The interpretation, and any mistakes, are mine.) Back

33   See, for example, the analysis of the Austudy scheme by L Dearden and A Heath in Fiscal Studies, winter 1996. Back

34   J Bradshaw and C Stimson, op citBack

35   House of Commons Hansard, Written Answers 18 May 1998, col. 287. Back

36   J Bradshaw and C Stimson, op citBack

37   J Goode, C Callender and R Lister, Purse or Wallet? Gender Inequalities and Income Distribution Within Families on Benefits, Policy Studies Institute, 1998. Back

38   See J Bradshaw and C Stimson, op cit, for a comprehensive list of research studies. Back

39   R Walker, S Middleton and M Thomas, "Mothers' attachment to child benefit", Benefits, September/October 1994. Back

40   The then Secretary of State for Social Security, quoted in The Times, 21 July 1998. Back

41   For an exception, see F Fukuyama, The End of Order, Social Market Foundation, 1997. Back

42   See, for example, work by Adrienne Burgess for the Institute for Public Policy Research. Back

43   See, for example, J Ford, E Kempson and J England, Into Work? The Impact of Housing Costs and the Benefit System on People's Decision to Work, York Publishing Services, 1995. Back

44   M Mendelson, The WIS that was: Replacing the Canadian Working Income Supplement,York Publishing Services, 1998. Back

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