Perfect illustration of the lack of sense in the Coalition Government

[LilyBolero]

This Government seems to have no sense. No brains. And have a serious case of 'speak, decide, announce' before every the brain is got out of the jar on the shelf.

On another thread it got round to Child benefit. And this illustration occurred to me. A perfect example of 'joined up thinking'.

Imagine a street, lined with houses. In the first house, House A lives a couple. They have four children. One of the parents goes out to work, and earns a salary of about £42.5k. After tax, this amounts to about £30k. Under the budget cuts they lose child benefit of £3k per year. So they have about £30k to spend per year, because they are deemed 'too wealthy' to receive child benefit.

The next house, House B houses another couple. Neither parent works, and they instead rely on benefits. They qualify for the maximum benefit payout and receive £26k. Under IDS' new proposal today, child benefit is paid on top. As they have 4 children, this gives them a further £3k, giving them a total disposable income of £29k, only £1k less than House A, which is deemed 'too wealthy' to keep their child benefit.

In the next house, House C lives another couple. They both work full time, and both have a salary of about £41k, giving a gross income of £82k. After tax this is a household disposable income of £60.4k. They also have four children, and because neither parent is a HRT payer, they also get £3k in child benefit, so their disposable income is £63.4k, over double the house that lost their child benefit for being 'too wealthy', and yet they retain it. This helps them cover childcare fees.

In the final house, House D, a single mother lives with her 4 children. She works full time, and has no income from the children's father. 2 of the children are in school, and go to after school club, 2 of the children are in full time nursery, incurring huge fees. She earns about £42k, giving a net household income of about £30k, the same as House A, and very similar to house B. However she loses her Child Benefit, because she is 'too wealthy'.

4 houses, 4 situations, is the child benefit paid to cover need, or is it just an arbitrary hand out given to some and not to others? Round the corner lives a family with a disabled child. The mum did have a career, but now stays at home as a carer. Her husband has a salary that just tips them into the HRT, so they lose their CB.

Where is the joined up thinking?

Tell me about it.

We're a different house: couple of disabled kids, DH earning a low income salary and me caring- I;d love to work, hope to manage part time but lady at council yesterday said that in her experience all carers are the same and they all never manage it (depressing!).

Anyway our income wont; see a drop in CB but the changes to WTC means our family income will drop by £200 PCM due to the cut in disability tax credit.

DH graduates next eyar and if the business doesn't grow a lot in the next eyar, scary given the economic environment, we lose everything. And as the boys would ahve to go to foster care as they can;t go to homeless accom due to SN, I do mean everything. I ahte hate hate this Government, and myself for having been an LD voter in the past.

In any tax/benefit system which is designed around keeping things simple, there are going to be anomalies. If the system is redesigned to eliminate those anomalies, it will a) become more complex and b) throw up more anomalies. The most simplistic solution was to maintain the universal benefit but then you had people in 'House E' with 4 kids earning £250,000/year and pulling down £3k in child benefit at the same time. Few thought that was fair. In practice, in a population where the average household income is circa £25k, very few people meet the criteria for your 'House C' example. However, we have until April 2013 before the changes come in. Plenty of time to iron out wrinkles.

They're not ironsing out wrinnkles, I ahve a letter from the Disability Minister saying basically at least people have time to get used to it.

Well, there is one very easy way of doing it.

For low income families (say, those on under 15k, or perhaps those on FSM, just making sure no-one slips through the net), pay CB, either as at present, or perhaps in terms of vouchers etc (to avoid that minority of families that use children as a cash cow - and I know some - because having more money in the form of food and clothes vouchers is not as appealing as more £££ in the account, and would make sure that the money got to the children - someone who uses the CB correctly wouldn't be affected in that way).

For those who pay enough income tax, make CB into a taxable allowance - possibly at a smaller amount than is received in benefit - I would keep it the same for the 1st two children, and then reduce for each further child. This acknowledges the added drain a child puts on a salary, and recognises that actually, if you are a couple with no children, on the same salary as a couple with children, you have many fewer calls on your income. And if a few higher earners get it as a tax break, so be it.

It's a cop out to say 'to make it simple we're going to totally screw a few families'. They also haven't made it clear whether the anomaly is the single income 42k family or the dual income 80k family - ie whether they intend that you shouldn't receive CB on a household income more than 42k, or whether they intend that you SHOULD receive it up to about 80k. Because if it's the former, that is to say that a person on full benefits (house B in my example) can receive 26k, and still qualify for full child benefit (and remember they may not stop at 4, they could have any number they like, assuming IDS' proposal that CB be on top of the cap), when a family that takes home 30k is 'too rich' to get it. So House B can very easily be wealthier than House A. House C is also wealthier. And it is House B that suffers and has to subsidise the rest.

Call me Dave and Gideon continually said 'it's Tough but Fair'. Tough yes, Fair, patently not.

I agree with you completely.

Although I can sympathise with the need to reduce the bill, the method of implementation is a total FAIL on fairness.

And they've still not said what the plan is for non-working partners of HRT payers who get their NI credit from the CB. Or are they meant to forego part of their State pension because of gaps in their contributions record? House A loses out again.

I strongly suspect they're planning to get rid of child benefit all together and lump it in with universal credit.

The only way to fully satisfy the process is mean-testing. Sorry no easy way. I am one of the HRT going to lose CB and my DH works but on a lower salary. If he gave up work there would be far less tax in the system to pay CB to everybody. I think we are lucky to be in the position as is every other HRT. No arguments from me. I hope I do not end up out of a job on income support and have to put up with comments from people who then criticise me for receiving benefits. Working situations within a family can change very quickly.

bitsyandbetty, it's not a case of criticising people for being on benefits, it's a criticism of a system that draws an arbitrary line, says that this is the maximum amount the state will give you, anything above it and you are shafted, unless you are a dual income family.

People aren't complaining so much about the principle, but about the implementation.

I always quote this, but living in our city, with an income that puts you just into the HRT bracket and with 3 or 4 children, you are on the 30th centile of standard of living, using the IFS calculator. That means 70% of people have a higher standard of living, and yet you are punished by the Government, for supposedly being wealthy.

It would have been fairer if it had been based on household income.

It would have been more competent if the question of NI credits had been sorted out properly and information announced about that at the same time.

Current system hypothetical case

House no 1 lives a wealthy couple, wife doesn't work, husband earns 150K they get £3k in child benefit.

House no 2 lives a single mum working full time, she earns 21K and also gets 3K in child benefit.

Country is broke, or so they say and cannot afford to finance the current benefit levels! What's fair when savings have to be made.

This doesn't save much. But £95billion lost in tax evasion and they don't chase it? (that is the figure btw, child benefit cuts save somewhat less than 1billion).

They have cocked up anyway, because a wife and husband are not obliged to share their financial affairs, so they are either removing a right that every other married couple enjoys, from married couples with 1 HRT payer, or it is unenforcable. The law states that I do not need to tell dh if I am claiming CB, and he does not have to tell me what tax bracket he is in. And yet on our tax forms, he will have to fill in data about my financial affairs.

adamschic, there's no point looking at extremes like that. Because they have created some massive disincentives to progress in your career - and that is damaging to the economy.

And even when times are tough, fairness has to be enforced, and be seen to be enforced.

I think what we'll find is that all of these peripheral 'specialist' benefits will quietly disappear when the Universal Benefit is introduced. That will be means tested and greater or smaller depending on the boxes you tick... with some kind of total cap on what can be awarded.

As for the rights and obligations of sharing marital financial affairs... if you're asking for money, you have to expect to go through a few hoops to get it. I remember suggesting to my old Gran that she should probably claim some benefits. Her response was 'I don't want everyone knowing my business'.

Actually you've missed the point a bit, the 'hoops' will only be jumped through by those who will LOSE the money. Because the way they are proposing to administer it is;
Mother claims CB.
Father then has to declare it on HIS tax return, which will then have the CB paid added on to his tax bill.

If you are keeping the CB, you retain the right to privacy over your financial affairs.

Going back to the point about making it a tax allowance, that makes a lot more sense to me - even if very high earners get it too - because it is a good philosophy - if you have more people to support, you get to keep a bit more of the money you've earned. We can then support low incomes through benefits, possibly paid in terms of vouchers. The reason I don't have a problem with very high incomes getting it as an allowance is that even at a high income, kids cost money, and therefore perhaps you should be let off a tiny proportion of tax, for their costs.

Did you see the programme 'Poor kids'? What emerged from that programme was that one of the biggest causes of poverty is debt, and debt repayments. Paying child benefit to low income families as vouchers would also mean that CB could not be 'snatched' as debt repayments - it would safeguard it so that children WOULD get food, and WOULD get clothing. Rather than a parent in desperation handing the money over to a baliff, or a debt collection company putting pressure on a parent that 'they have some money, they MUST pay it'.

Did you know we are the only developed country in the world NOT to have a universal child benefit (either as a benefit or a tax allowance)?

What you can't have is the proposed system, where benefits are given, almost at random, families that really need the benefit and rely on it, lose it, families who are FAR wealthier than they are, keep it, families who are desperately poor, can't use it for what it's intended for, and a v small number of families, see it as an ever increasing source of income - have another child, get more money.

In a nutshell, if I were IDS, this is my reform;
Families on incomes over £15k (this would need properly calculating though); CB to be removed completely, and instead is a tax allowance, per child. This is a fairer form of taxation, reflecting the drains on an income as well as the actual income.
Families on incomes under 15; CB to be given in the form of vouchers, valid for food and clothing, and also valid for clubs at school (eg either breakfast clubs, or even 'activities' after school - it's not intended to remove parental choice, but to protect the benefit for the child).

I would think that, in practice, there will be an opt-out for people that no longer wish to claim, knowing they don't qualify.

adamschick: you're example could equally have been -

Family A earning £80k - benefit £3k: keeps it
Family B earning £43k - benefit £3k: loses it

It's not about whether cuts should be made in this area, it's the unfairness of the current proposals that is the sticking point.

Lilybolero: I think that's how it might work - but the proposals haven't been terribly clear. And it doesn't seem either simpler or cheaper.

IMHO it would have been better to keep it universal (as there is a well established system in place), but make savings by letting the cash value atrophy.

lilybolero - x-posted (upgrade delay!). I hadn't seen your most recent post when I wrote my last.

CB used to be a tax allowance, as you describe. So it has been workable in the past. But if course it meant nothing for those who paid no tax.

I'm not convinced by a vouchers scheme - they are bureaucratic and expensive to run (the reasons why the Labour Govt abandoned pilots to use them for asylum seekers), especially as there are liable to be lots of families crossing any threshold at any time.

meditrina, yy, the issue of not paying enough tax for it to be beneficial is why you need a dual scheme. The reason I would advocate some sort of voucher system is because I think there is an issue concerned with the child benefit actually getting to some children - either because it is spent on other things, or because it is snaffled by a debt collector.

You could equally well have a swipe card, that had a certain amount of credit put on it each week/month, valid for certain goods/services. But I do think that no child in this country should be hungry, or inadequately clothed, and yes we still have problems with this, (as depicted on 'Poor Kids' for example), either through poverty, or chaotic family life, and so the benefit simply isn't reaching all children. They changed the benefit from a tax allowance to allow the money to reach mothers, now there is a need to ensure it reaches the child.

CES - not claiming simply isn't an option, as under the current rules, if you are a SAHM and don't claim, then you don't get credits towards your state pension, and will not get a full state pension on retirement. The act of claiming CB actually protects your state pension.

My thinking behind making it a tax allowance above a certain threshold (you could make the threshold quite high to ensure that no-one misses out), is that the philosophy 'when an income has more calls on it, you keep more of it' is a better philosophy than 'people on high incomes still get paid a benefit'.

To those who say that it is unfair for higher income families to get any sort of benefit (either as a benefit or a tax allowance), bear in mind that those of us on medium incomes (say a single income family on about 42k) are losing a huge whack of child benefit, but through our taxes are paying for Alan Sugar (for example) to get a free bus pass and a winter fuel allowance. He himself says this is anathema, and tried to send them back, but there was no mechanism for this. Universal benefits still exist, just not for families.

Actually Lily. I completely agree with you that this CB change isn't fair and it wasn't well thought through. It's actually an example I think of where Cameron & Gideon don't actually truly understand how most people live. I've said before that whilst I support the Tories, I'm not actually a big fan of Cameron.

This change actually affects me personally. I earn a little above the threshold and up until recently my OH didn't work so would will lose it. That's a fair chunk of my monthly income which will vanish and indeed it will be sorely missed. Compare that to good friends of ours whose joint income far exceed mine yet they get to continue getting their CB.

But at the end of the day I accept that the line must be drawn somewhere and that its a very difficult decision since no matter what you decide to cut, someone will lose out. If it were me then I'd have set a joint income threshold as well as the HRT limit but that's me and I'm not johnny on the spot.

As long as I see continue to see cuts to restore our nations woeful finances then this is a bitter pill I'm willing to swallow.

As I long since realised. Fair is relative, as is affordability.

niceguy, you mustn't just swallow it as a bitter pill. Because there are ways of making cuts that are fair. The CB cut was not a policy that had been thought through, and reluctantly agreed upon, as part of a coherent cuts programme.

When it was announced, it was a surprise to most in the cabinet. It was essentially drawn up in the bar the night before, by Cameron and Osborne. No-one was consulted.

Why? Because the LibDems had made some announcements on policy at their conference, the previous week, and they felt they had to announce something. And also to avoid being criticised for announcing the cut in housing benefit. You don't normally announce a cut in a benefit like that at conference, it is normally part of a budget. The policy was made for purely political grounds, not financial grounds. When the media went nuts about the intrinsic unfairness, Cameron wobbled, and said they might try and redress it with a 'married couple's allowance' which is true insanity - because all the savings made would be negated, and you would be taking money from families with children (and therefore higher expenses), and sharing it among all married couples - whether or not they had children - single mothers and unmarried parents would still miss out. Madness. And supposing, like us, you would be losing 3k, the projected married couples allowance was proposed to be £150.

I can't emphasis enough, this cut is not for financial reasons, it is for political ones, and as such, we must not just say 'oh, cuts need to be made'. The RIGHT cuts need to be made.

What's more, the cut in CB will have a big negative effect on the economy, so the saving is much much less than the 1 billion stated. The spending power of parents will be hugely reduced (£250 a month is a LOT to have to find out of a family budget), so growth figures will be further inhibited, reducing revenue to the treasury. The 1 billion saved does not factor this in, nor Cameron's patronising married couple's allowance.

So it is a political decision, that is financially unsound, but will make life very hard for some families, whilst not affecting families who are much better off. It is a bad policy and should be scrapped.

Just re-reading reports and watching interviews - David Cameron says it's fair because 'the tax system already negatively affects single income families'. So he's making it even worse.

And it would apparently be 'complicated' to means test. But that is already in place, for CTC and WFTC.