Select Committee on Social Security Report


Memorandum submitted by Professor Hilary Land (CB 11)


  (1) The child benefit is a benefit which raises issues about:

    Fairness within generations:

      between mothers and fathers;

      between parents and those without children;

    Fairness between generations:

      children are future citizens and workers who will produce the resources needed to support the current generation of workers in their old age. This is the case irrespective of the sources and methods of funding pensions, health and welfare services.

  (2) The proposal to tax child benefit overlooks the origins of child benefit: it was a consolidation of family allowances, a cash benefit, and a tax allowance. The proposal raises issues which are still relevant today.

    Horizontal equity:

      taking accounts of special costs or needs of individuals or families within income groups in the allocation of resources or taxes.

    Vertical equity:

      taking account of distribution of resources between income groups so that those with more resources contribute more than those with fewer.

  (3) The proposal to tax child benefit in order to release resources to improve the child benefit for poorer families ignores the question of horizontal equity within the higher income groups. It is also based on a very narrow definition of vertical equity. Proposals to reduce or abolish benefits paid to better off pensioners to pay for higher selective pensions; to more affluent disabled people to pay for improved disability pensions; to higher earning mothers to pay for improved maternity pay for low paid pregnant women and to pay for higher child benefit, means that high earners with no dependants, who are able bodied and healthy and have no special needs are absolved from paying for improved welfare benefits. Yet they have a greater capacity to contribute to higher benefits. Each generation has a collective responsibility to support the younger generation, upon whom they will all depend in later years. Higher child benefits should be paid for by an overall increase in taxes on all those with higher incomes.

  1. In the foreword to the Green Paper, A New Contract for Welfare, Tony Blair wrote, "the welfare state isn't just about a few benefits paid to the most needy". He described the system of benefits, taxes and charges as "a contract between us as citizens" and emphasised that this contract should be "one that is fair not just for the existing generation, but fair between the generations". The child benefit is a benefit which raises issues about fairness both within generations—between mothers and fathers and between parents and those without children — as well as fairness between generations. Children are the next generation of citizens who, as workers will produce the resources needed to support the current generation of workers in their old age. Most as individuals sons and daughters will provide some support for their elderly parents but irrespective of the sources or methods of funding pensions, health and welfare services, collectively they will be contributing to the welfare of all pensioners including those who never had children. Taxing child benefit in order to release resources to improve child benefit for poorer families is not fair either to children or to their mothers.


  The child benefit introduced twenty years ago replaced the child tax allowance and the cash family allowance. The tax allowance introduced before the First World War was justified on the grounds of horizontal equity, i.e., in recognition that the taxable capacity of those with children to maintain was lower than that of the childless taxpayer. At the end of the First World War the married man's allowance (MMA) was introduced on similar grounds (and initially set at the same level). At this time few taxpayers had wives in paid employment for the tax threshold was well above average male earnings, marriage bars existed in many professions, so on marriage a man acquired a dependant. Housekeeper's allowances for widowers with children were introduced at the same time (and at the same rate) in recognition of the need for children to be cared for as well as maintained because, like his married brother, the lone father could not be expected to be a breadwinner and at the same time provide the domestic services necessary for himself and his children. The housekeeper's allowance was subsequently extended to widows and during the Second World War to other categories of lone parents. In 1960 a tax allowance for lone parents without resident housekeepers was introduced (the APA) and in the mid 1970's, following the Finer Committee's recommendations, was increased to the value of the married man's allowance. The tax system has therefore recognized first, the costs of maintaining children and subsequently the costs to certain categories of taxpayer, of caring for them. The MMA indirectly recognized the cost of caring for children but its main rationale was to meet the needs of men as husbands.


  Family allowances were introduced in 1945 and paid irrespective of the marital, employment or household status of the parents. As the then Chancellor of the Exchequer explained, family allowances were to be "the basic social security payment for children". Family allowances, like tax allowances, were paid in recognition that families with children incur additional costs. The principle was clear as Eleanor Rathbone, who had campaigned tirelessly for over thirty years for their introduction wrote:

    "Society should include in its economic structure some form of direct financial provision for the maintenance of children, instead of proceeding on the assumption that, say in cases of exceptional misfortune, this is a matter which concerns only individual parents and should be left to them because normally men's wages or salaries are, nor ought to be and can be made sufficient for the support of their families".1

  Forty years later, Norman Fowler, when Secretary of State for social services reviewed the social security system as a whole and wrote:

    "The fact is that child benefit provides the only recognition in the tax or benefit system of the extra costs of having children. This is a good principle. We would be alone amongst all the countries of Western Europe if we turned our back on child benefit"2

  4. The continued neglect of child benefit played a significant part in his and his successor's, John Moore's subsequent resignations. Child benefit was frozen throughout much of the 1980's, personal taxes continued to be reduced and more emphasis was placed on the means-tested Family Credit, (FC), which in 1988 replaced the Family Income Supplement. However in the mid 1990's for the first time in its history child benefit was index linked and the value of the MCA, which replaced the MMA in 1990 was reduced. The increases made in the new Labour government's recent budget restores the real value of child benefit for first children close to what it was at the end of the 1970s. As Gordon Brown explained in his Budget Report. "These measures to increase support for children will be partly funded by reducing the rate of relief on the MCA, and the allowances linked to it, to 10 per cent from April 1999, rebalancing reliefs to those families with children" (page 67 paragraph 5.08).


  The introduction of independent taxation benefitted two income couples, especially those in which either both were working full-time or both had unearned income. Until the late 1980s these were likely to be childless couples. However in the past ten years a growing proportion of young children have mothers as well as fathers in paid employment. Where parents are in professional or managerial occupations, both parents are likely to be in full-time employment. (Overall, however the proportion of school age children with a mother in full-time employment in still lower than it was in the 1950s). Today such families are less likely to be living close to grandparents or friends able and willing to provide childcare, have longer journeys to work (in the 1960s over half of all employed married women lived within a ten minute journey to work) and children must be escorted to and from school. The new Child Care Strategy and the proposed childcare tax credits recognize that today's parents incur much higher direct child care costs than previous generations. However childcare tax credits will not be available to all parents. Higher earner couples (including many two earner couples with quite modest incomes) will not qualify. As the APA withers away with the MCA, the recognition of lone parent's childcare costs in the tax system across the whole earner range has dwindled. In 1980 450,000 lone parents benefitted from the APA. The annual cost in foregone revenue was £90 million. Since 1988 it has been of no additional value to the lone parents receiving FC because the level of FC is based on post-tax income (FIS was based on gross income). However it does mean that these families have been protected from the fall in the value of the APA. In 1997/98 the cost of the APA in forgone revenue was £210 million, worth at most £5.50/week. Next year it will be worth at most about £4 a week.3 Had the government chosen instead to directly subsidize day care services for all children whose parents wanted or needed it (a policy chosen in Australia and in many EU countries) than the issue of horizontal equity in practice would be less pressing. However, the principle remains and the parents of children in every income group incur substantial costs which are not borne by childless people.


  Children should not only be discussed in terms of what they cost. They are society's most precious resource. They are literally our future upon whom we all—rich and poor—depend. There have always been those who have argued that the State should have no interest in children except those at risk of poverty or harm, but as we have become a more individualistic and consumed oriented society, having children is more often seen as essentially a private matter. As the Institute of Directors argued that if parents choose to have children "for reasons of personal pleasure rather than social obligation . . . what then is the source of the claim on the rest of society?".4 Eleanor Rathbone's answer to such views although written nearly sixty years ago is still valid today.

    "It is not from the sentiments of individual fathers or mothers that the present system can be judged, but from its proved reactions on parenthood and on children . . ..

    To my own inner mind the case in this aspect of it presents itself in the image of a group of people seated round a table engaged in sharing out among themselves the wealth of the community. Representatives are there of landlords, capitalists, employers, salary earners, skilled and unskilled workers all anxious to increase or at least preserve the share of their class. Then steps forward a new figure, representing the family, and cries "Here what about me? Without me how many of you would exist? If I don't do my work or do it badly, you'll soon cease to exist. What if I go on strike? Give me my share".5

  7. She was writing this at the beginning of the Second World War when concern about the size of the population for economic and military reasons were highlighted. The UK has never been as concerned about the birth rate and the size of population as some of our European partners. In discussion about pension policies the size of current and future population of working age in relation to the size of the retired population has been an important consideration in assessing the affordability of various pension schemes. A reasonable balance between different age groups in the population is descirable for many economic, social and political reasons. Currently several EU countries have lower birth rates than those in the UK. Nevertheless, in the UK the proportion of childless women in their twenties and thirties is increasing. Only 9 per cent of women born in 1946 remarried childless. Of those born in 1965, it is estimated that 21 per cent will be childless. In the past, more women remained childless because they never married. However, as a recent study of voluntary childlessness6 shows, the reasons today are complex and cannot be accounted for by the crude stereotype of the selfish feminist career woman. The researchers concluded that more educational opportunities for women is one of several factors (childlessness is more common among the higher educated) but the lack of support from society is another. "They have weighed up the responsibility of money and commitment and sacrifice which parenthood involves and have counted themselves out".7 The questioning of Nicola Horlick's right to maternity pay (to which she had contributed) and suggested "affluence tests" for maternity pay and benefits can be taken to signify indifference (if not hostility) to the needs of well-paid women contemplating motherhood. The UK is still a long way from having family friendly employers or environments.

  8. Child benefit also has a symbolic as well as practical value. Today it may only account for 20 per cent of the average cost of a child 8 but it does signify that the State has an interest in all children. The payment of the family allowance from the outset of the scheme to the mother was recognition of her primary responsibility for ensuring that children were fed and clothed, etc., In the context of a social insurance and assistance system based at that time on the male breadwinner model in which the husband/father was the legitimate recipient of benefits was an important and controversial step in recognizing women—as mothers—in their own right. The question of who should receive the benefits for children has remained a contentious one as is shown by the debates about the transfer from "the wallet to the purse" when child benefit was introduced twenty year go or the current concerns about paying the working families tax credit in the wage packet. It is arguable that if child benefit has not remained universal and paid to mothers it might not have survived the onslaughts on the social security system in the 1980s and 1990s. A scheme based on a clear principle is often easier to defend than one based on expediency. The Conservative government in the 1980s were surprised at the strength of support for child benefit from middle class mothers. Both historical and comparative research shows that social services and benefits in which the middle classes have a stake are more resistant to erosion than those targetted on "the poor".

  9. On the other hand, as the Tax Credit Study Group pointed out in 1973, substituting a cash benefit for a tax allowance (claimed by fathers) and paying it to the mother would make it easier to forget that child benefit is a form of tax relief. Once child benefit is taxed, even if only the small minority of mothers paying at the highest rate are initially affected and the money released used to increase to child benefit for poorer families, then considerations of vertical equity have triumphed over those of horizontal equity. It is then a slippery slope to a completely means tested system or integration into the new working family tax credit.


  Taxing child benefit in order to release resources to improve support for children in poorer families is defining vertical equity very narrowly. In the debates about curtailing public expenditure on social security and targetting benefits on those most in need, it has been argued that moving away from a universal basic state pension, disability benefit, maternity pay or child benefit would make it possible to afford to increase these benefits for poorer claimants. That is true. But why should only better off pensioners pay for bigger state pensions, only more affluent disabled people pay for better disability benefits and higher earning mothers pay for improved maternity pay and child benefit? Apart from being administratively cumbersome and expensive, such a policy means that it is those individuals of working age who are able bodied and healthy, in well paid employment and without dependants who are not paying any more towards the improvement of benefits. Single people have been protected in the changes in the level and value of tax relief over the past 20 years. But those who remain childless will be the most dependent on other people's children in their old age and they are the very people who could most afford to pay higher taxes. It would therefore be fairer, simpler and administratively cheaper to increase taxes on all the higher paid, not only on those with children.


  In practice, taxing child benefit within a system of independent taxation could be complicated. If taxed on mothers and lone father's income it is estimated £700 million would be raised. If taxed on father's income the revenue would be doubled.9 (It is interesting to note that the tax exemption of child benefit for the first time is listed in the Board of Inland Revenue's latest annual statistical report as a cost (Table 1.6), indicating that the origins of child benefit as a tax relief have been forgotten. It is however still regarded as the mother's taxable income). Independent taxation and the growth of cohabitation, separation followed by remarriage or re-cohabitation makes establishing equity between married and cohabiting parents and between two and lone-parent families difficult to achieve, especially if fathers income was to be taxed as if he were the recipient of child benefit.

  12. To avoid issues of horizontal equity there is a case for considering the child benefit as the child's income for his or her maintenance which is paid to the mother (or caring parent) until the child is sixteen when it could be paid directly to the child. As the tax system has for decades recognized children in their own right, has given them a personal tax allowance and has never aggregated their income was that of their parents, most children would benefit from child benefit free of tax. Only the child benefit of those with unearned income, or in the case of older children, earnings incompatible with full-time education would attract tax. (It might also reduce the scope of insurance based systems of paying private school fees but that would not be an undesirable outcome). Such a change would have to be reviewed alongside the tax treatment of maintenance payments.


  The tax and wages systems have a number of functions, not all of them compatible: both are over determined. As argued in this paper, there are conflicts between considerations of vertical and horizontal equity for example. In the past the tax system recognized a variety of family relationships and obligations—some legal and some moral—ranging from dependent relatives, daughters or granddaughters caring for frail tax payers and female relatives acting as housekeepers. Since Nigel Lawson's reforming Budget of 1988, the tax system barely recognizes that tax payers have families. Overriding concern has always been to raise revenue and to maintain work incentives. However until the mid 1990's work was defined differently for men and for women: women's (at least wives' and mother's) incentives to take paid employment were not considered except during war time. Work meaning paid work in the labour market was men's work. In contrast women's work was primarily in the home and it was this which the tax and benefit system sought at least not to undermine and sometimes to support. Today the measures contained in the 1998 Budget aim to "help to make work pay" but refer only to activities in the labour market. In his foreword to Martin Taylor's report, Gordon Brown wrote that the purpose of integrating taxes and benefits was for "promoting work incentives, reducing poverty and welfare dependency and strengthening family and community life". These are conflicting aims if work is only counted and valued and considered to be a source of self-esteem if it is waged work and takes place outside the home. It is not in the interests of children and those who care for them that improving work incentives so narrowly defined should take priority over strengthening family life.

September 1998


1 Rathbone, E (1940) The Case for Family Allowances, Penguin (xi).

2 cited by Brown, J (1989) Investing in Children, CPAG.

3 First Report of the Commission of Low Pay, (1998) p. 221.

4 cited by Brown, J (1988) op cit.

5 Rathbone, E (1940), op cit.

6 McAllister, F and Clarke, L (1988), Choosing Childlessness, FPSC.

7 Roberts, Y (1998) "To bear or not to bear" Search, JRF 30, Summer 1998. p. 14.

8 Middleton, S et al (1997) Small Fortunes, JRF.

9 Board of Inland Revenue (1998) Statistics 1997, Table 1.6.

10 Hof C Vol 303 Written Answers, 22 December 1997, col 470.

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