Select Committee on Social Security Report


APPENDIX 17

Memorandum submitted by Manchester Care (CB 18)

EXECUTIVE SUMMARY

The future of Child Benefit

    —  Retaining Child Benefit as a universal benefit paid directly to mothers and increasing its value are very effective ways off targeting money on children and combating child poverty.

    —  Child Benefit has high take up, low administration costs, promotes social inclusion and welfare to work.

    —  The link between immigration status and eligibility introduced in 1996 is not cost effective and causes hardship to children.

Taxation of Child Benefit

    —  Consideration of this issue should be limited to higher rate taxpayers. But it may not be worth breaching the non-taxation principle for the limited savings that are likely to be generated.

The relationship between Child Benefit and the Income Support Allowances for children

    —  Taking Child Benefit out of the calculation for all means-tested benefits would significantly help to combat child poverty and support the welfare to work strategy.

    —  An "across the board" review of the level of all child allowances and their relation to the actual costs of caring for and rearing children at different ages is well overdue and urgently needed because of the damaging effects of child poverty.

How Child Benefit should take account of changing family structures

    —  Child Benefit is a stable element of income that helps individual families cope with periods of financial instability.

    —  Child Benefit has an important role in encouraging 16- to 18-year-olds to stay on in education and financially supporting them and their families.

    —  The principle of direct payment of financial support to the young person is positive, but it should not be implemented in a way that reduces inadequate family budgets.

    —  The absolute cut-off of Child Benefit and related child allowances at age 19 should be reviewed.

    —  The higher levels of poverty in lone parent families has been amply demonstrated by research. Given the recent abolition of One Parent Benefit, how will the greater identifiable needs of children in lone parent families be met?

The interaction of Child Benefit with the Working Families Tax Credit, Disabled Person's Tax Credit and Child Care Tax Credit

    —  Child Benefit should be ignored as income, not only for Working Families Tax Credit, Disabled Person's Tax Credit and Child Care Tax Credit, but also for Housing and Council Tax Benefit. This would boost the income of waged families and enhance Child Benefit's role as a springboard to greater independence. But further measures are needed to smooth the financial transition from welfare to work for families.

  This submission is formulated by Manchester Advice. Our staff offers a comprehensive advice service for Manchester residents. Our enquiry statistics show that last year we dealt with 144,678 enquiries from Manchester residents.

  Our evidence is drawn from over 25 years' experience in advising claimants with children about the social security system. We have extensive experience of low income families. The most recent figures available to us show that in April 1998 a total of 27, 841 Manchester children were in receipt of free school meals, about one third of Manchester's residents were receiving Income Support or Jobseeker's Allowance and 44 per cent of all Manchester households were in receipt of Housing Benefit.

The Future of Child Benefit

  We welcome the commitment in the Green Paper on Welfare Reform, "A New Contract for Welfare", to retaining Child Benefit as a universal benefit paid directly to mothers and the planned increase in April 1999. Our experience is that Child Benefit is a very effective way of targeting money on children and alleviating child poverty.

  The universal nature of Child Benefit leads to high take up by claimants and low administration costs. It promotes social inclusion because it is non-stigmatising and plays a vital role in the transition from welfare to work. Our experience is that Child Benefit has a low level of administration and adjudication problems compared with means-tested benefits. The main problem area is the rule introduced in 1996 linking entitlement to immigration status. This has generated administratiodjudication tasks and problems whose costs are disproportionate to the number of claimants affected, a high level of error in decision making and hardship to children in the families affected.

  In our experience, the division of money within families where both parents are resident is not always in the interests of the children. Payment of Child Benefit direct to the mother helps to redress the inequitable division of family income which can occur within low, middle and high income families.

Taxation of Child Benefit

  Examination of this issue should be restricted to higher rate taxpayers only. However, independent taxation and the lower earnings of women are likely to limit the savings from such a measure. There needs to be careful examination of the financial effects on lone parent families whose income is on, or just above, the current higher rate tax threshold of £27,100. Careful consideration also needs to be given to the origins of Child Benefit as a tax relief for families with children and that establishing the principle of taxation for higher rate taxpayers, in return for what could be limited financial savings, could open the way for taxation for standard and lower rate taxpayers at some future date.

The relationship between Child Benefit and the Income Support Allowances for children

  Taking Child Benefit out of the calculation for Income Support and Jobseeker's Allowance (Income Based). This could be done by ignoring it as income; this is done when Family Credit or Disability Working Allowance is calculated. The same rule should also apply to Housing and Council Tax Benefits to help other low income families and support the Welfare to Work strategy.

  Such measures would significantly help to combat child poverty. Our staff see the effects of child poverty in our daily advice sessions: parental and family stress; inadequate diet, clothing, fuel and other basics; health problems; debt; inability to meet the costs of school equipment, extra curricular activities and trips; restricted leisure activities, lack of holidays, limited life experiences etc. The scales on which Income Support and Jobseeker's Allowance (Income Based) are based have never been systematically reviewed since they were first adopted in 1948. Research carried out in 1993 showed that the Income Support child additions met 59 per cent of the cost of a child for a family on a stringent low cost budget ("The Cost of a Child—Living Standards for the Nineties", Oldfield and Yu, University of York/Joseph Rowntree Foundation). An "across the board" review of the level of all child allowances and their relation to the actual costs of caring for and rearing children is well overdue.

How Child Benefit should take account of changing family structures

  Child Benefit has an important role both in changes within individual families and wider social changes in family structure:

    —  Child Benefit is a stable element of income which helps individual families cope with periods of financial instability which can arise from flexible employment, self-employment, disruption of benefit claims, marital shifts, moving from welfare into work; etc.

    —  In recent years there has been a big increase in 16- to 18-year-olds staying in non-advanced education, Child Benefit entitlement continues for their families. We would highlight the following two issues:

  1. Proposals are currently being discussed for funding these students through a new system of further education grants. One of the proposals put forward is that Child Benefit should be paid directly to the young person. Whilst we support the principle of direct payment of financial support to the young person, it should not be done at the expense of inadequate family budgets. Direct payment would cause serious problems for low income families because Child Benefit helps to pay essential bills. It would therefore undermine policies to encourage young people from low income families to stay in education. More effective support could be given to low income families and students, if Child Benefit were taken out of the calculation for all means-tested benefits and the 16-18 child allowance in these benefits was increased. the position of families on incomes above current Family Credit, Housing and Council Tax Benefit levels needs to be looked at carefully because in our experience they would also struggle financially if Child Benefit was paid directly to the student.

  2. The absolute cut-off at age 19 of Child Benefit and related child allowances causes major disruption to the studies of young people, who for a range of reasons for example: health, family problems, are still in non-advanced education. The cut-off date should be extended to allow the student to finish their course.

    —  Lone parent families are a reality in modern society. Research has consistently shown that lone parent families, including those where the lone parent works, are concentrated in the lowest income groups. The Green Paper gives a commitment "that additional support should be provided for children in poorer families on the basis of identifiable need". Child Benefit has a vital role in two of the fundamental aims of the Green Paper "tackling the scourge of child poverty" and "helping parents into work". Given the recent abolition of One Parent Benefit, how will the greater identifiable needs of children in lone parent families be met?

The interaction of Child Benefit with the Working Families Tax Credit, Disabled Person's Tax Credit and Child Care Tax Credit

  We support the proposals flowing from the April Budget that Child Benefit should be ignored as income when Working Families Tax Credit, Disabled Person's Tax Credit and Child Care Tax Credit are calculated. The extension of this rule to Housing and Council Tax Benefit would boost the income of low waged families and enhance Child Benefit's role as a springboard to greater independence.

  Child Benefit is very important when families move from welfare into work because it is a steady income not disrupted by the change of claimant status. It helps bridge the gap between the last benefit payment and first pay packet. This is a further reason for welcoming the planned Child Benefit increase in April 1999. However, even with this increase, moving into work, especially in today's flexible job market, will remain a big risk for people with children unless more is done to smooth the transition into work.

September 1998


 
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