APPENDIX 4
Memorandum submitted by the Women's Budget
Group (ICC 07)
PRINCIPLES TO
INFORM THE
DESIGN OF
THE INTEGRATED
CHILD CREDIT
The WBG recommends that the following principles
should guide the design of the ICC:
— Society and thus all taxpayers
should contribute to the support of all children;
— The contribution all parents
make to society deserves recognition and financial support;
— Payments for children and childcare
should be made to those who actually look after children's needs
and arrange their childcare;
— Payments for children should not
be conditional on parents' behaviour; in particular, they should
be paid independently of parents' employment status;
— Couples should be encouraged to share
caring and earning responsibilities; to do this, men's involvement
in care and women's employment opportunities should be supported;
— Any incentive or disincentive effects
should not discriminate directly or indirectly against women;
— Women's financial autonomy should,
where possible, be encouraged.
THE WIDER
CONTEXT—THE
ICC IN RELATION
TO CHILD
BENEFIT
A fairer and more straightforward system of
financial support for children would be to increase child benefit
for all parents by the rate envisaged for the ICC, financing it
out of general taxation. This would promote better horizontal
equity between parents and non-parents. It would avoid the problems
that household means testing produces, including distorting incentives
to employment, penalising certain household types and failing
to take account of any hidden poverty due to the maldistribution
of resources within a family.
Reducing child poverty
ICC should be paid to a large proportion of
families through their principal carer(s) as the most effective
way of reaching children. Rather than saving money on children
by increasing ICC at the expense of CB, the government should
be committed to letting CB rise through time to absorb ICC as
finances permitted.
Making work pay—but equally for men and
women
ICC will be unrelated to parents' employment
status. Any employment incentives that form part of any package
of which ICC is a part should be targeted on men and women equally,
and not discriminate directly or indirectly against women, so
that a sharing of caring and earning roles between parents is
encouraged. Whether making work pay is the best route to tackling
child poverty is a matter of policy, and in particular depends
on the levels of support received by families who are out of work.
Reducing child poverty needs to be an aim even where it conflicts
with providing work incentives.
Childcare subsidy
The Childcare Tax Credit in the WFTC system,
by being paid only to parents who already have jobs, fails to
meet job seekers needs and promotes insecurity among children.
Further, the parent who organises and pays for childcare may not
be the one receiving the Childcare Tax Credit. The WBG believes
that these problems could best be solved by subsidising childcare
at source. Failing that, any childcare subsidy would be better
paid through the ICC than the ETC.
Delivery and take up rate
To encourage take up, the delivery mechanism
for ICC should reproduce that of Child Benefit. Claim forms should
be sent automatically and be easy to fill in. ICC should be paid
along with CB, with the combined ICC and CB payment paid at whatever
frequency and by whatever method the recipient requires in order
to meet children's needs. ICC awards should state clearly the
maximum that would have been paid without deductions for means
testing, as well as the amount actually being paid.
Background—the Women's Budget Group
1. The Women's Budget Group (WBG) is an
increasingly influential think tank that brings together a unique
configuration of women economists and social policy experts from
academic institutions, voluntary organisations and unions, as
well as independent researchers, to focus on the gender implications
of economic and social policy. The aim of the Women's Budget Group
is to transform government policy and practice to meet the reality
of women's lives by incorporating a gender analysis into economic
and social policy making.
We do this by:
— Attempting to raise the gender awareness
of economic policy makers;
— Challenging the gender insensitive
models on which much current policy is based;
— Creating alternative policy frameworks
and making detailed recommendations on policy.
We are therefore pleased to have the chance
to comment on the design of the Integrated Child Credit (ICC).
Principles to inform the design of the Integrated
Child Credit
2. Our recommendations are based on certain
principles that we believe should inform the design of the ICC:
— Society and thus all taxpayers
should contribute to the support of all children;
— All parents who care for children
are making a contribution to society that deserves recognition
and financial support from the wider community;
— Payments for children and childcare
should be made to those who actually look after children's needs
and arrange their childcare;
— Payments for children should not
be conditional on parents' behaviour; in particular, they should
be paid independently of parents' employment status;
— The system should encourage couples
to share caring and earning responsibilities; to do this, given
current patterns, it should in particular promote men's involvement
in care and support women's employment opportunities;
— Any incentive or disincentive effects
should not discriminate directly or indirectly against women;
— Any new system should where possible
encourage, and certainly not stand in the way of, women's financial
autonomy.
3. The Women's Budget Group welcomes the
recognition that while the Working Families Tax Credit (WFTC)
has brought benefit to many families, it should be reformed to
make it more effective by splitting it into two separate tax credits,
Employment Tax Credit (ETC) and Integrated Child Credit (ICC),
the latter also incorporating the Children's Tax Credit (CTC).
In particular, we welcome two features of the ICC: that it will
go some way towards providing an integrated and seamless system
of financial support for children that is unrelated to parents'
employment status and that it will be paid to the children's principal
carer.
The wider context—the ICC in relation to
Child Benefit
4. However, aspects of the ICC, in particular
that it will be withdrawn for higher levels of income, will recreate
some of the problems of the WFTC (and CTC), albeit in less severe
forms. We do already have a seamless system of payments for children
that is unrelated to parents' employment status and paid to the
children's principal carer in Child Benefit (CB). Child Benefit
is important for this country as a demonstration of the responsibility
of society as a whole for the well-being of its children. The
payment of Child Benefit recognises, though does not fully meet,
the extra costs borne by parents and validates the contribution
they make to society by caring for children. Parents make an investment
in a public good, their children, from which we will all eventually
benefit since children are the future workers who will produce
the resources to support the current productive generation in
their old age. Child Benefit thus promotes horizontal equity (between
parents and non-parents) and between generations (between adults
and children). This should not be confused with considerations
of vertical equity, the distribution of resources between income
groups, which only a progressive tax system can deal with fairly.
5. It would be a fairer and more straightforward
system of financial support for children to increase child benefit
by the rate envisaged for the ICC and pay it to all parents. This
would be more expensive and therefore necessitate increasing taxes,
but it would mean spreading the cost of supporting children over
all taxpayers. The savings produced by withdrawing ICC from parents
with higher levels of income will be paid for by those parents
alone, rather than by taxpayers more generally. Paying a correspondingly
higher level of CB to all parents would also be simpler administratively
with no requirement for means testing. This would be a genuinely
fully integrated seamless payment for all children, with a 100
per cent take up rate. It would also produce fewer distortions
and disincentives to earning extra income. All means testing produces
such disincentives to some extent. However, the net disincentive
effect of an increased tax rate spread across all taxpayers would
be much less than one that has to raise revenue from parents alone.
6. Another problem with means-testing, when
it assesses entitlement on the basis of the couple's income, is
that any hidden poverty due to the maldistribution of resources
within a family is not taken into account. The more that benefits/tax
credits received by a woman are means tested on a couple's income,
the more she loses her independent access to income and becomes
dependent on her husband's sense of fair play. Means testing and
the fear of the financial dependence that it brings also may trap
women in particular household types, not necessarily those that
are best for them and their children.
7. Our concerns about the disadvantages
of means-testing also make us wary about government claims that
the ICC and ETC are the first steps towards the longer term goal
of tax-benefit integration. Tax-benefit integration on this model
could mean the complete means-testing of the system and the end
of child benefit as a universal payment. This would be against
the interests of many women in couples who would not qualify for
a payment under a totally means-tested system based on the couple
as the unit of assessment. It would also erode the explicit recognition,
that universal Child Benefit currently provides, of the social
contribution made by those bringing up children.
8. In designing the ICC, it is important
to recognise that the aims of reducing child poverty and making
work pay are not the same. The separation of ICC and ETC goes
some way towards doing this. The government's own evidence in
Supporting Children Through the Tax and Benefit System
(HM Treasury, 1999b, page 15, Chart 1.8) shows that both the proportion
of children living in poverty and the proportion living in workless
households vary substantially across Europe and these proportions
are not highly correlated. Whether making work pay is the best
route to tackling child poverty is a matter of policy, and in
particular depends on the levels of support received by families
who are out of work. There are connections between the two in
that benefits paid for the support of such families need to be
financed, but "making work pay" should not be a substitute
for helping children directly and cannot ever hope to succeed
in reaching all children. Reducing child poverty needs to be an
aim even where it conflicts with providing work incentives.
In particular, we cannot hope to relieve the poverty of children
without relieving the poverty of those who care for them, largely
women. It is important that children are not penalised further
by the tax and benefit system for their parents' inability or
unwillingness to engage with the labour market, and that caring
responsibilities are recognised as the main reason why parents,
particularly mothers, may have difficulty doing so.
Reducing child poverty
9. We particularly welcome the recognition
that ICC should be paid to the main carer. Research both in the
UK and elsewhere has shown that money paid to the main carer is
far more effective than money paid to other family members in
reaching children. We also know from research how much importance
women, who are usually the main carers, attach to the direct payment
of benefits for children. However, by agreement it should be possible
for parents to split, in appropriate proportions, their claim
for ICC and CB. This is particularly important where parents are
separated and children spend a proportion of their time with both
parents, an increasingly common arrangement.
10. How effective the ICC is in reducing
child poverty will depend on the level at which it is set. It
will inevitably not eliminate child poverty at a stroke, so whatever
level it is initially set at, the combined level of CB and ICC
should be increased steadily each year in real terms. For the
reasons given above, the temptation to save money on children
by increasing ICC at the expense of CB should be resisted. Indeed
we would rather see the government committed to letting CB rise
through time to absorb ICC as finances permitted.
11. CB commands widespread support as a
contribution to the costs of child rearing. If ICC is to have
a high take-up rate (essential if it is to be effective in reducing
child poverty) it will need to have similarly widespread support
by being paid to a large proportion of families. For this reason,
it is important that ICC does not start being withdrawn until
income is reasonably high—in effect so that it is affluence
that leads to ICC being withdrawn, rather than poverty having
to be demonstrated in order to have the right to claim it. Having
a lower rate of withdrawal would also increase the number of families
eligible to claim ICC. If large numbers could claim ICC, it should
win widespread support from middle and lower income families and
should reduce any stigma associated with means testing. It is
this, far more than labelling it a tax credit, that might reduce
the problem of low take-up associated with other means tested
benefits.
Making work pay—but equally for women and
men
12. The primary intention of ICC should
be to help support children. However, it has been proposed as
part of a package of measures whose aims include making employment
pay. It is important that these parts of the package do not undermine
the primary purpose of ICC or its ability to enable both men and
women to support and care for their children. Any employment incentive
effects should be targeted on men and women equally, so that work
pays equally well for both sexes and a sharing of caring and earning
roles between parents is encouraged. This should enable couples
to make decisions about hours of work that allow each partner
time for their children and the opportunity to take employment.
Current incentives, work in such a way that for many families
it is most practical for one parent to work long hours while the
other takes on the bulk of caring responsibilities and only a
secondary labour market role, if any. Unequal pay and the difficulties
of finding suitable childcare are primarily responsibility for
these patterns. It is particularly important that government policy
does not exacerbate these inequalities.
13. The WFTC, because it is designed primarily
to get at least one parent from workless households into employment,
can act as a disincentive to second earners in households (despite
the child care tax credit). This is because a second earner in
a family claiming WFTC faces a high withdrawal rate of 55 per
cent with no individual incentive to start. Indeed there is a
disincentive to sharing hours and caring responsibilities between
the two parents, with a premium paid if one partner is employed
for 30 hours or more, but no premium if those hours are shared
between partners.
14. A further problem arising from the WFTC
being means tested on family income is that it makes it costly
for single parents to form new partnerships. Indeed women may
effectively lose their financial autonomy through cohabiting with
a new partner if they then find it is no longer financially worthwhile
to stay in employment. This is very undesirable, particularly
since such relationships will not necessarily survive. Whether
this feature will be the case in the new ETC/ICC system will depend
on the design of the ETC, in particular on whether two independent
earners would lose their separate entitlement by forming a partnership,
and the ETC's interaction with the ICC.
15. It is important that these distorting
effects on people's relationships are not reproduced in the ETC/ICC
system, and that everyone is treated equally by any incentive
to take employment. Not to do so not only indirectly discriminates
against women, who are more likely to be second earners, but is
very short-sighted in terms of preventing household and thus child
poverty. Many households depend on two earners to keep them out
if poverty and much employment these days is insecure. Households
with only a single earner are not only likely to be poor; they
will become workless if the sole earner loses their job. Further,
with increasing family breakdown many of today's second earners
will be tomorrow's single parents.
Childcare Subsidy
16. The Women's Budget Group welcomes the
introduction of the National Childcare Strategy and believes that
high quality childcare should be the right of every child. As
the Paymaster General, Dawn Primarolo, has said "Decent childcare
at an affordable price for those families who wish to work
should be a right, not a privilege" (HM Treasury, 1999a,
our emphasis). No child should be denied that right by the poverty
of their parents. The childcare tax credit embodied in the WFTC
should be a great help to single parents and to couples with children
where both parents want paid work. However, there are some problems
with the way paying the childcare subsidy through the WFTC works
in practice.
17. First, regrettable though it may be,
it is almost always the case that in two earner families childcare
arrangements are seen as the mother's responsibility and the costs
as a deduction from her income. Yet in many such families, the
WFTC including the childcare tax credit is paid to the father.
This reduces the woman's net income and gives a distorted impression
of how worthwhile it is for her to be employed and of each partner's
contribution to the household.
18. Further, because the childcare subsidy
is not payable until employment has started, parents are discouraged
from arranging childcare before finding employment. Not being
able to see their children settled into secure and suitable childcare
before finding employment in some cases may deter parents from
seeking employment at all. For others, it leads to hurried and
less than ideal childcare arrangements that cannot be good for
their children and to stress and anxiety for the parents at the
same time as starting a new job. Making the payment of the childcare
tax credit dependent on currently having employment means that
childcare arrangements have to be disrupted if parents lose their
jobs, even if they are intending immediately to seek new employment.
This again cannot be good for their children who need secure and
stable childcare arrangements.
19. Further, the fact that WFTC awards are
fixed for six months does not mesh well with the difficulty of
finding good childcare. Many parents make temporary arrangements
for their children when they first start employment, putting their
children on waiting lists for forms of childcare that they would
ideally prefer. In particular, as a temporary informal arrangement
children are often left with relatives who can cope in the short
term but are not able or willing to do so in the longer term.
However, the inflexibility of the WFTC means that waiting list
places cannot then be afforded when they become available because
the initial award did not take account of childcare costs since
they cannot be claimed for informal arrangements with relatives.
20. These problems are caused in the WFTC
system by a combination of to whom WFTC is paid, its inflexibility,
its restriction to formal care alone, and the linking of the childcare
subsidy to already having, rather than looking for, employment.
We believe these problems could best be solved by subsidising
childcare at source, paying the subsidy directly to the providers
of childcare, as happens in many other countries. There are a
variety of ways in which this could be done so that the subsidy
to a provider is matched to the number of childcare places going
to low income families.
21. However, if the current system of subsidising
childcare through a tax credit to the parents is to be carried
over into the new ETC/ICC system, paying it as part of the ICC
would remove some of the problems currently experienced in paying
it through the WFTC. In particular, breaking the childcare tax
credit's dependence on having rather than wanting employment would
mean that childcare arrangements could be made and started before
employment began, thus easing the transition to employment for
both parent and child.
22. Another advantage of paying the childcare
subsidy through the ICC is that it would signal that childcare
is meant to be of benefit to the child. In the long-run we would
hope that supply of childcare and financing arrangements would
be such that all children would have access to whatever form of
childcare best meets their needs, irrespective of the labour market
behaviour of their parents.
Responsiveness of the ICC
23. It is important that the ICC system
responds immediately to changes in needs eg it should automatically
be uprated along with child benefit when a new child is registered,
or when a child becomes disabled. It should also be responsive
to major changes in income eg when a parent loses a job which
had paid well enough to mean that the full ICC was not being claimed
or when parents spilt up. This was one problem with the WFTC when
awards were fixed and unresponsive to changes in circumstances.
Any childcare subsidy included in the ICC will have to be immediately
responsive to changes in childcare arrangements. The ICC ought
to be paid at higher rates to some families that incur additional
costs in looking after their children, such as those with children
with disabilities.
24. However, the ICC should not be too responsive
to small changes in income. It is important that families are
able to depend on it being paid at the expected rate. The principal
carer who will be receiving the ICC needs to be able to rely on
her money in order to be able to spend it effectively. It should
therefore not vary weekly according to small fluctuations in income
that may be being received by her partner. ICC should be fixed
for a period, six months or even a year, during which time any
small increases in income should be ignored.
Delivery and take up rate
25. Child benefit is effective in reaching
children because it is universal and easy to claim and consequently
has a 100 per cent take up rate. ICC will not be universal, but
its delivery mechanism should reproduce that of CB as far as possible.
A high take-up rate is most likely to be achieved if ICC is available
to a large proportion of families and claiming it is as easy and
automatic as possible. All parents should be routinely sent claim
forms along with any correspondence about child benefit, for example
along with annual notices uprating CB.
26. ICC awards should state clearly the
maximum that would have been paid without deductions for means
testing as well as the amount actually being paid. This will make
clear that the award is for the benefit of children and indicate
the element that parents are expected to contribute themselves.
27. ICC should be paid along with CB, with
the combined ICC and CB payment paid at whatever frequency the
recipient requires in order to meet children's needs. Since for
some parents ICC will be a replacement or an element of income
support/income related JSA, it must paid in cash at the same frequency,
at least fortnightly, whenever parents want it paid in this way.
There should be no pressure or incentive for recipients to have
it paid less frequently or directly into bank accounts rather
than by cash. Payments by the recipient's, that is the principal
carer's, method of choice is the most effective way of ensuring
that goes through the carer to meet the needs of the child.
REFERENCES
HM Treasury (1999a) News Release "Childcare
is a right, not a privilege" says Paymaster General, 13 January
1999.
HM Treasury (1999b) Supporting Children through
the Tax and Benefit System.
Susan Himmelweit
Chair
October 2000
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