It seems the Prime Minister is finally waking up to the implications of his government’s ill-advised removal of child benefit from those paying the 40p tax rate. In several months time, any household which has a taxpayer living in it who dares to earn £42,745 will lose the right to claim child benefit. If they have two children that means a whopping loss of £1752.40 a year; that’s on top of the other tax rises the government has introduced.
As the Prime Minister belatedly points out in an interview with the House magazine, this creates a “cliff-edge” effect. You don’t say. Someone just below the cut-off point is eligible for child benefit, and someone earning only a few hundred pounds more is clobbered.
And consider a couple earning a combined £80,000 (£40K each). They get to keep their child benefit whilst their neighbours, where one partner earns £42,745 and the other decides to stay at home to look after the children, loses out.
It is anti-aspirational, too. Tory ministers should surely be able to grasp that it will not only have an impact on those earning £42,745 but also on those who aspire and hope to do so one day if they put in the work and enjoy some luck. Get there, and have children along the way, and this government tells them that it will hit them hard.
It would have been good if David Cameron had realised all this at the time and stopped George Osborne announcing the coalition’s ultimate too clever by half policy*.
Now the PM is trying to get the Treasury to work out a “taper”. Good luck with that. The Treasury says the policy will not change, although officials who were not involved in the original decision by Osborne’s team did say afterwards that it was all nightmarish.
On the day it was announced at Tory conference in Birmingham in 2010 some of us warned it was an iniquitous disaster in the making – a depth charge of a policy that would disappear until implementation, at which point it would explode. There are echoes of the way in which Gordon Brown’s abolition of the 10p tax band backfired so badly.
Having denounced the government’s approach on Newsnight that evening in Birmingham I retired to the Spectator’s drinks reception to be loftily told by one of the Chancellor’s friends that I didn’t understand the middle classes. A minister said that I shouldn’t be concerned as the removal of child benefit would only impact on “the rich”. As I told him, if the Tory leadership thinks voters earning £43,000, already over-taxed, with a hefty mortgage and probably paying through the nose to commute, count as rich then it has lost touch with reality. For a great many aspirational families taking away £1750 will count as removing the summer holiday or cancelling Christmas.
Here was a policy designed in Notting Hill, by privileged Tory modernisers or what I have termed OKA Conservatives. They may like to think of themselves as hard-pressed members of the middle class, but that is only in relation to their friends who went into banking.
To understand how this stinker of a policy was conceived, picture the scene around dinner tables packed with very prosperous double-income couples shortly after the election, when deficit reduction was all the rage:
Him (working at the top of financial PR), pouring another glass of white burgundy: “I mean, it’s outrageous. Do people like us really need child benefit?”
Her (working in media or as a headhunter), declining another portion of Hugh Fearnley-Whatshisname River Cottage pie: “I know. We spend it on skiing. It’s terrible. I feel rather guilty.”
Another him, this one working for a senior government minister as an advisor but married to a successful furniture designer: “We actually save it. We’ve opened an account in the kids names and they’ll get it when they need a deposit for a flat.”
Her: “I know, it is going to be so difficult for them to get on the housing ladder, particularly around here. But us getting child benefit is simply not fair.”
Him: “I say axe it. I’ve said so to George.”
*Note: Too clever by half, meaning sounds clever in a meeting but is actually a stupid idea. The child benefit policy was a piece of positioning, designed to emphasise that the Tories were prepared to punish voters more likely to vote Conservative as well as cutting money from those on welfare. It would supposedly prove their caring credentials: “We’re all in it together,” etc. It might have sounded clever on a surface level for five minutes but it is daft when one thinks properly about the practicalities and who it will hit.