Tuesday, 12 October 2010

A Belated Blog on Child Benefit

I have only myself to blame for not being up to speed and offering the blogosphere my thoughts on the child benefit fiasco that was unveiled by the Tories last week in Birmingham. Unfortunately holidays and yet another bug passed to me by my ever generous 15 month-old son left me unable to get to a computer.

As an aside, what a fantastic advert for Birmingham the whole thing was. I tuned in one evening to the sight Quentin Letts of the Daily Mail being interviewed by the BBC alongside a Venetian-looking canal, bathed in autumn sunshine, with a jazz band clearly audible in the background!

Anyway, onto more mundane matters, namely child benefit. The Government has been accused of being unfair, which is probably true, but it is interesting to try and work out how it got itself into this mess.

The problem with making cuts to child benefit is that the easiest method to do it is via the PAYE system, but the fairest method is to means-test.

The problem with means-testing is that it involves calculating a combined husband and wife ‘household’ income which cannot be processed through the current PAYE system, which only takes into account individual income. To properly means-test the Inland Revenue would have to send us all a form, which we would then send back and a calculation would be made upon which our child benefit would be paid.

However, as we have found with tax credits, circumstances change in that individuals get pay rises or lose their jobs, babies are born, people fall ill or are injured at work and on and on. This means that on top of the workload to calculate millions of child benefit tax codes, there would also need to be a constant revision of the codes which takes manpower, usually in the form of civil servants and large call centres.

My gut feeling is that Dave and his cronies sat around and came up with this plan but then had to work out how to make it work. At some point somebody will have pointed out that to means-test would mean hiring thousands of public sector workers which would leave all but a small percentage of the actual saving intact.

It won’t be the last time the Government comes up against this sort of obstacle. Cameron has already talked about the possibility of thousands of public sector jobs being lost as we try and rebalance the deficit. However, those salaries will not flow straight down to the Treasury’s bottom line. As Sir John Gieve, former deputy governor of the Bank of England, pointed out before the General Election, job losses have to be paid for by unemployment benefit, retraining, increases in other benefits, not to mention beefing up Job Centre Plus.

The Autumn Spending Review may be brutal, we can only hope that the Government has identified real savings not paper ones and it won’t have to come back for a second bite when it finds a few months down the line that it hasn’t saved enough first time around.


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