The Tories are making progress with their arguments over the economy. The message has trickled down even to primary school children. Yesterday, six year old Niamh Riley offered David Cameron her tooth fairy money after hearing about the country’s economic situation.
“I heard about it and I wanted to write a letter. I wanted him to get the letter with the pound to make the country better and pay for jobs.”
Is there a better way to sum up Tory economics than this? David Cameron, the personification of the vested interests of the rich, telling us the cuts must come first and taking money directly from children.
Actually, he rejected the pound, but that seems pretty inconsistent given this week’s assault on child benefit.
Jeff’s made the case here that their move is a good idea, despite the widely shared concerns about the fairness of the specific proposal. Don Paskini, one of Labour’s brightest bloggers, has argued that the winning tactics for Ed Miliband would be to tackle the specifics and accept the principle. Tactically, perhaps, but on the principle I disagree with both, however progressive it may appear to being taking money away from the well off.
I’ve got four reasons for this position, even assuming the specifics are sorted out. First, means testing is inherently expensive. The savings will be partially offset by the cost of paying civil servants to work out who shouldn’t get child benefit. Second, child benefit gives a massive swathe of society a buy-in to benefits. It’s an incredibly powerful message, that benefits aren’t simply for the “others”, the people they read about in the Mail with their massive taxpayer-funded houses.
Next, although some have used child benefit for fine dining or other decadence, many find their partner gambling or drinking away money that they need for childcare, and that’s not just driven by class or income level. Some parents with partners on bigger incomes are in exactly the same position, and child benefit gets a little way past that problem.
Finally, it doesn’t look like the result of any considered and comprehensive policy on the public finances. A responsible government would look at the debt, current spending and current revenues, and start to prioritise. What are the most vital or cost-effective parts of our public services? What are the most progressive ways to raise funds? What will the economic impact be of cutting staff numbers at a particular rate, or of raising additional funds in a certain way?
They should be identifying the most obvious waste – like vast defence boondoggles and the damaging Afghan war – and cutting them first. Child benefit for anyone simply isn’t anywhere near the cut-off on that list, , even those on the civil list (who perhaps for equity should also also have a £26k limit on their income). Next, they should be looking at the most progressive ways to raise more money without damaging the economy, starting with taxing banks and bankers’ bonuses, or looking at (bear with me) Land Value Tax. Again, increasing VAT shouldn’t have featured there. As the Lib Dems told us before the election, it’s one of the most regressive taxes going.
That information should then have been plugged into projections about the deficit to estimate the optimum approach for tackling it. One thing the Tories are right about is this: paying ever-increasing interest on the national debt isn’t a good long-term use of taxpayers’ money. At the end of a long bubble like Labour’s property/cheap oil boom the national finances ought to have been in credit, which would have made it easier to invest in the lean years as Keynes knew. Leaving those regrets aside, though, can the cost-cutting and revenue options there allow deficit reduction now? Probably not without incurring other social costs too high to bear. More likely in a year or two, probably, but it’s hard to say without all this information being provided.
We should have been shown a review of this sort, a Domesday book of the British public finances. It’s a big job, sure, but if that’s not what the Treasury is for, then what really is its purpose? Telling tall tales to children?
#1 by CassiusClaymore on October 7, 2010 - 3:58 pm
Good website, gentlemen, a valuable contribution.
In response to James’s 4 points:-
“First, means testing is inherently expensive. The savings will be partially offset by the cost of paying civil servants to work out who shouldn’t get child benefit”
Not as expensive as making a benefit universal – means testing only exists because it saves net cost. Moreover, this new proposal doesn’t involve means testing – it just withdraws entitlement from higher rate taxpayers, who HMRC have to have systems to identify in any event.
So – I don’t see that this proposal increases administration costs at all.
“Second, child benefit gives a massive swathe of society a buy-in to benefits. It’s an incredibly powerful message, that benefits aren’t simply for the “others—
What’s the point in taxing people more, in order simply to give it back to them? It’s ridiculous. Benefits should be for people who need them, not for people who intrinsically don’t. It’s worth remembering that if you pay 40% tax, you are earning nearly twice the average wage. All universal benefits should be withdrawn, on this basis. We can’t afford this sort of largesse any more.
“Next, although some have used child benefit for fine dining or other decadence, many find their partner gambling or drinking away money that they need for childcare, and that’s not just driven by class or income level”
Child benefit is about keeping children out of poverty. How many higher-rate taxpaying men/women are going to allow their children to live in poverty? No doubt you could dredge the country and find some atypical examples, but you’re talking about a tiny percentage and you can’t base a policy on that kind of statistical irrelevance. In any event, as I am sure you know but may not be prepared to acknowledge, the uncomfortable truth is that the folk who behave like this are almost never higher rate taxpayers….
“Finally, it doesn’t look like the result of any considered and comprehensive policy on the public finances”
I agree, if you take this measure in isolation. But I think you really need to reserve judgment until the CSR is announced.
As a generality, I am slightly surprised that left-leaning people are upset about this cut. It is, in fact, an increased tax on the (comparatively) rich – which is what the leftists are supposed to want to happen.
My only criticism is that it should extend to all universal benefits, which are a luxury we can no longer afford.
CC
#2 by Jeff on October 7, 2010 - 11:18 pm
Thanks Cassius, trying our best.
I agree about your means testing point, particularly when it is linked to a tax system that already works out who is above higher tax rate and who is below. There is a Green love of universality that I don’t particularly share in.
I agree with your second point too; paying people benefits so that those who actually need the benefits don’t feel so bad seems a bizarre way of going about things.
I’m not sure the left-leaning are ‘that’ upset about the cut, just being clever about trying to find a way to land a blow or too on Cameron. They can’t very well stand back and just applaud him if he’s done something correct. Well, they should, but they ‘can’t’.
#3 by Indy on October 7, 2010 - 5:36 pm
What do you mean by universal benefits though?
Do you mean cash benefits like child benefit – or services like personal care, nursery education, concessionary transport etc?
I think means-testing them would be a huge mistake for two reasons.
Firstly because we should all get the benefit of services we pay for and that set-up helps to create a more cohesive society. If we shift to a position where taxpayers are essentially funding services they are not allowed to use because they are not poor enough then we will have trouble on our hands because people will become quite fed up with that and it will exacerbate social and economic divisions.
Secondly, because although need may be concentrated in areas of poverty and deprivation it is not exclusive to those areas so a universal approach makes sense.
Finally how do you judge what is a “luxury”? For example as a nation we spend much less on supporting families and children than our Scandinavian neighbours. Perhaps that is because they do not regard child welfare as a luxury but as an imperative. Why do we feel differently – do we in fact feel differently or are we just being fed the idea that spending on families is a luxury while spending on other matters is not.
#4 by CassiusClaymore on October 7, 2010 - 6:40 pm
Indy – I’m talking about cash/cash equivalent benefits, which I suppose would mean winter fuel payments, free bus passes for over-60s and free TV licences. Can’t think of any others offhand.
I think it’s really quite unsustainable to say that a high-rate taxpayer should receive these – what higher-rate taxpayer can’t afford fuel/bus travel/a TV licence? That’s just a waste of taxpayers’ money. Why should the poor pay income tax so that a rich pensioner (Rupert Murdoch, say) can have a free bus pass, TV licence and winter fuel?
As for taxpayers funding services they can’t use – well, that already happens. As a high earner, I’m paying a lot of tax and I get very little back – but I’m happy to pay the price to live in a civilised society.
“Luxury”?
The state handing money out to people who patently don’t need it – that’s a luxury, particularly in the context of a country shelling out £120m PER DAY in interest alone to its bondholders.
Of course, the country could also save quite a lot of cash by stopping all manner of other unnecessary spending (Trident etc.). Or, even better, we could declare UDI and leave the rest of them to it. Even in a rich independent Scotland, though, I’d be against welfare for the rich.
CC
#5 by richard on October 7, 2010 - 8:37 pm
perhaps the benefits would stretch further if folk didn’t give their kids a pound for a tooth! it was only 10p in my day 🙂
#6 by cynicalHighlander on October 7, 2010 - 10:48 pm
Uh a tanner in mine.
#7 by blanco on October 8, 2010 - 1:32 am
“child benefit gets a little way past that problem”
£20 a week? Are you kidding me? The well-off don’t need it, stop giving it to them and give more to the poor. Progressive economics 101.
#8 by Murray on October 8, 2010 - 11:28 am
The first poor post on the new blog.
A) It is a tax system, of course it is expensive, but minute compared to the revenues.
B) A minority of cases should sway you?
C) The most progressive way to cut waste is to stop giving money to those that don’t need it.
Bizarre post. Out of touch. More UKIP than Green. Sorry.
#9 by James on October 8, 2010 - 11:41 am
Say it’s poor if you like but I cannot stomach the UKIP comparison. I’m arguing for a comprehensive and progressive analysis of our expenditure, revenue, debt, and economic situation. I’m also seeking to protect money that goes directly to mothers, and the principles of the welfare state. I don’t see that being very ‘KIPperish.
#10 by Shuna on October 8, 2010 - 1:47 pm
One wee thing that seems to have been ignored in all the talk about losing Child Benefit is that in most cases the benefit is paid to the mother and for some women this is the only money that they have control over – for some it is a life line that does what it was intended – puts food on the table and clothes on their child’s back. Child Benefit was introduced to do just this and paid universally because the powers at be understood how putting money in the hands of mothers (in most cases) was the best way of ensuring this.
Can someone clarify if this loss is being clawed back through tax and that the money will still be paid out (normally) to the mothers?
#11 by Jeff on October 8, 2010 - 2:29 pm
Maybe I’m misunderstanding Shuna but, assuming the mothers you mention are paid < £44k, they would still get benefits as before just not under the name of ‘child benefit’.
There may be a gap in my misunderstanding but parents (mostly women) who don’t see much from their partner’s bulging pay packets will still receive benefits for their children through their individual basic-rate taxpayer status.
That’s not much by way of confirmation but that was how I saw it.