Cutting Child Benefit – A Progressive Case for the Defence

There were many reasons to commend the Labour Pre-Budget  Press Conference on Monday.  Good attack lines against the government on the 50p rate, a restatement of a costed five point plan to drive growth in the economy and a new pledge to cut higher rate pension tax relief and use the proceeds to reinstate a number of tax credits.

The overarching strategy looks appealing; identify modest tax rises on the wealthiest and use the proceeds to help provide support to some of the groups most gravely affected by the financial crisis.  All of this ties neatly to the pitch of delivering, ‘fairness in tough times’ and deserves to be applauded.

The problem for the party is that this is the easy part.  The 50p tax rate and pension tax relief are easy targets; if we are serious about an economic strategy that is redistributive, we need to make some difficult choices about the spending priorities of a future Labour administration.

This leads me to child benefit, the £2.4 billion elephant in the room at the Press Conference on Monday.

Ed Balls didn’t duck the question entirely, saying that Labour wants the government to conduct an ‘urgent review’ into the policy to remove child benefit from higher rate tax payers.  He condemned the Coalition for an ‘unfair policy’ that will see  a two earner family earn up to £84,000 and retain their child benefit while a family with a single income of £43,000 would lose their benefit entirely.

My charge is simple, what is truly unfair is that taxpayers across the income spectrum contribute £2.4 billion a year so the state can provide child benefit  to higher rate taxpayers.  A generous subsidy for the most affluent 15% of families, at a time when the government is presiding over an austerity programme that is undeniably hitting the poorest the hardest.

I fully appreciate that a family in the South East of England with three children, a mortgage and a single income of around £45,000 are not ‘rich’ and we should not take lightly a decision to remove a valued benefit from this cohort of people.  However, the reality is that this family would be better off than 8 out of every 10 in the UK and are relatively better placed to withstand the loss of child benefit.

If we are serious about delivering fairness in tough times, calling for an ‘urgent review’ into child benefit is not good enough.  Labour should make the progressive case for a permanent end to child benefit for higher rate tax payers, and support Osborne’s original plan.  The one qualification I’d be happy to accept is a degree of tapering, so that people don’t go from receiving full child benefit at £42,000 and nothing at £43,000.  I’d rather it were phased out gradually from £35,000 to zero at £43,000.

Once achieved, removing child benefit from high earners hands £2.4 billion back to the Exchequer every year; money that could be used for a host of progressive causes.  Where to prioritise an extra £2.4 billion per annum is worthy of another blog entirely, but I will sign off with one suggestion – lifting the 1% pay cap on public sector workers earning less than £42,000 a year.

At a stroke, Labour would move from defending a costly subsidy for higher rate taxpayers, to being the only party to oppose a real terms pay cut for frontline teachers, police officers and nurses.

That is what I call ‘fairness in tough times’.