Ideology driving the attacks on the incomes of the poorest and universal child benefit

By Anne Kane

Reprising the theme of the June Budget, George Osborne claimed his Conservative Party conference announcement of a simultaneous cut in Child Benefit for higher rate tax payers and an absolute cap on benefit income was ‘fair’. The cuts are not even-handed, let alone ‘fair’: cutting the income of one section of people paying higher rate tax but not others; attacking the living standards of children in families on the lowest incomes. But they do give a flavour of how the fabric of the post-war welfare state stands to be shredded by the scale of cuts this government aims to make.

The Comprehensive Spending Review on 20 October will provide the full taste. The Financial Times urged: “universality is a wasteful principle. Now that Mr Osborne has broken the taboo, he should go further. Free bus passes, winter fuel payments and free TV licenses for the elderly regardless of need look insupportable. Given the brutality of the cuts being demanded of departmental budgets, the coalition could usefully look at other areas of expenditure that have been protected, such as health and overseas aid.” Attacking the poorest while ending not only benefits but services that, while often low in substance, rationed in delivery and of modest quality, have been ‘universally’ available and the hallmark of the post-war welfare state, this is the Conservative-led government’s ‘fairness’.

The “brutality” of these cuts is indeed such that they are invoking a quite Dickensian rhetoric, with David Cameron’s talk of the ‘deserving’ poor and Jeremy Hunt’s moralising about poor people having children they can’t afford. We can expect more of this language encouraging fear, hatred and the delusion that the cuts won’t hit ‘us’. In reality, as the scale of the cuts will hit virtually everyone – except the tiny minority who can afford private health care, school and university education, housing, social care, unemployment protection, income cuts and much more – this fiction will prove impossible to sustain.

Yet, at the same time, those on the lowest incomes will be affected most from a combined attack on public services, jobs and welfare benefits. This will intensify inequality, because social groups are not evenly distributed across the income spectrum: for example, median earnings for full-time male employees in 2009 were £531 per week compared to £426 for women¹ (with a much higher gender pay gap in the private sector, at 21%, compared to the public sector, 12% in the public sector); in a study of 17 OECD countries single parent households were concentrated in the bottom of the income distribution²; child poverty is higher than the national average among BME groups³; disabled people in employment are more likely to be low paid.⁴

Child benefit signals wholesale attack on universality

The decision to means test Child Benefit is made in this context. The proposal to set a cut-off point at the threshold for higher rate income tax, was said by Osborne to mean from 2013 that households with at least one parent earning more than about £43,875 a year would not be eligible. An estimated 1.2 million families in the higher rate tax bracket will be affected (about 15 per cent of taxpayers, covering a range from the threshold of just under £44.000 to the extremely wealthy). The cut will mean a loss of £1,055 a year for a family with one child or £2,500 with families of three. It comes on top of the freezing of Child Benefit for three years, keeping it at £20.33 a week for the first child and £13.40 for subsequent children regardless of cost of living changes.

The website Mumsnet reported seven out of ten respondents opposed the move in an instant poll. Many criticised the logic of the cut: two earner households with both people below the threshold (up to almost £88,000) will be eligible while single earner households (two or single parent) with one person above the threshold will not.

The Conservatives’ apparent attempt to appease criticism by reviving a proposal to introduce a tax break for married couples underlines that the cut is driven by ideology: married couples without children could get a tax break while unmarried couples with them, and with just one earner in the higher tax bracket, would get no tax break and no child benefit. Allowing for a moment that the priority to deficit reduction was reasonable, taxing high earners would be a fairer and simpler way of raising revenue. The government is choosing not to do this, but to use the excuse of deficit reduction to attack universality.

While means-testing has become standard across a range of benefits, a number of universal benefits continue to reflect an understanding of inequality and approach to ameliorating it. If that principle is to be ditched for child benefit, other universal benefits are not safe (as the egging on from the FT, above, indicates), regardless of pledges in the Conservative manifesto (“we will preserve child benefit, winter fuel payments and free TV licenses. They are valued by millions”).

In the case of child benefit, it is paid to women, and universally available, because it is recognised that women take the lion’s share of domestic and child-rearing responsibilities, lose out financially for doing so and, within heterosexual couples where the man is earning, often cannot be assumed to have access to a shared income. These facts have an impact on children and child poverty. The realities of household financial dynamics often become brutally clear upon divorce.

Does the change in women’s economic position over the last few decades make child benefit to higher earners unnecessary? While more women overall are in employment, the positive meaning of this is offset by the reality of unequal pay, mothers having to take part time and lower paid jobs to juggle two ‘jobs’, or having to leave the labour market altogether when employers and the logistics of work don’t adapt to the demands of children. In any case, the cut is taking place regardless of the economic position of the woman in a household.

The case for keeping child benefit universal is strengthened by other government plans: such as the threat to Sure Start and affordable childcare.

In practical terms, a household with an income of just under £44,000 and dependent children while not poor, is not rich, and certainly not in London. Among respondents to the Mumsnet survey 38% said they used it for necessities and 28% said they would have to rethink their lives. One, in a household in the income bracket to be affected, but who does not go out to work herself said: ‘we use the money for things like nappies and milk. We have budgeted the money – it is built into our grocery bill and pays for one and a half weeks shopping each month.’

The Child Poverty Action Group have condemned the cut is a ‘child penalty’ which is irreconcilable with reducing child poverty: ‘It's difficult to see how the Government is going to meet its target of ending child poverty by 2020 through undermining the most popular, widely understood and targeted benefit helping families.’⁵

Despite such protests, the CSR may introduce an even deeper attack on Child Benefit than that announced at the Conservative conference.⁶ This may link to Ian Duncan-Smith’s ‘universal credit’.

Duncan-Smith has said: ‘We have identified that there is a problem here ... come the spending review, this will be brought into context...We're bringing in a thing called the universal credit, which will actually be a device which brings together all this stuff and we'll be able ... to rectify and ameliorate some of these points because of the way it tapers and all that.’⁷ The ‘universal credit’ has been spun as a concession to Duncan-Smith, with the intended implication that it is something progressive. There is no reason to believe this is that case and every reason to believe it is aimed at reducing cost, assisted by losing the focus on specific need that lies behind individual benefit and tax credit calculations.

Benefits cap signals attack on the poorest

Disdain for child poverty was underlined by Osborne’s other announcement – to cap income from benefits at £26,000 from April 2013. This attracted far less media comment – unsurprising as it hits the poorest people, with the least voice, and who are already fairly heavily demonised. It will particularly hit children.

The cap will be on the basis of median earnings after tax and is given an indicative Treasury figure of £500 a week. It will take into account income from unemployment, income support and Incapacity Benefit (ESA), plus other benefits such as Housing Benefit, Council Tax Benefit, Child Benefit and Child Tax Credit, Carer’s Allowance and Industrial Injuries Disablement Benefit. So, regardless of need, the number of children a family has and the costs derived from their household size, or other basic costs, there will be a flat cap on income.

The Treasury roughly estimates 50,000 families will be affected. Many of these will be in London where high housing and other living costs drive up benefit levels, entirely out of the control of recipients. High benefit levels don’t mean high incomes, they just mean high rents. As the FT puts it: ‘They will be larger families, probably with three or more children, living in higher-cost urban areas, and are more likely to be receiving housing benefit for privately rented rather than social housing’.⁸

The Treasury is uncertain about the spending that will be saved, estimating it at ‘hundreds of millions’ a year. The BBC’s Stephanie Flanders quotes £300 million. As she says, ‘not big bucks: for reference, Mr Osborne is expecting to save £3.9 billion...in 2012-14 simply from uprating benefits to CPI rather than RPI’ .

One reason, as Flanders puts it, is that ‘most of the families who now earn a lot of benefits will see their payments cut long before 2013 as a result of the housing and other benefit cuts already in train’. By 2013 these will amount in a spending cut of £8 billion a year. However, the second reason is that many of those who will be affected by the broad sweep of government benefit and tax credit cuts will anyway be on incomes under £500 a week.

Making a feature of this cut in his party conference speech was a purely political act by Osborne, part of setting an atmosphere receptive to the severity of the cuts to follow in the CSR and to encourage the belief that cuts will simply shake up a shiftless underclass of benefit scroungers. Hence David Cameron’s follow up: ‘Fairness means giving people what they deserve – and what people deserve depends on how they behave.’ Those who will get what they deserve include low paid workers in London upon whom the cap on Housing Benefit will provoke what one Conservative minister called a ‘Highland clearances’ in London. ⁹ One to be ‘cleared’, a single mother in central London, explained that the benefit cap will leave her with a rent shortfall of £180 a month, forcing her to move out of the area where her family live and who provide childcare and domestic support.¹⁰

Disabled people not exempt

George Osborne said that ‘Unless they have disabilities to cope with, no family should get more from living on benefits than the average family gets from going out to work’. This suggestion that disabled people will be exempt from the income cap is false.

Disability Living Allowance claimants will be exempt. So also will be War Widows and working families claiming the working tax credit. But income from Employment Support Allowance (ESA) (Incapacity Benefit) will be included. That means that disabled people unable to work will have their benefit levels capped, potentially losing income, their homes and adding to the poverty that disabled people are already disproportionately likely to experience. The process of transferring all Incapacity Benefit recipients to ESA is also intended to cut the number of recipients.

Industrial Injuries Disablement Benefit will also be included in the benefit cap. Other specific benefits available to disabled people, such as Mortgage Aid, have already been cut.

Additionally, income from Carer’s Allowance will be included: this is a weekly benefit, worth a measly £35, that people may be able to get if they care for a disabled person at least 35 hours a week. Poverty among carers is intense: research shows that 72% are worse off since they assumed significant care responsibilities, with 30% cutting back on food or heating and 10% unable to pay their rent or mortgage.¹¹

As far as Disability Living Allowance (DLA), there would have been a huge political storm if this universal benefit had been included in the cap. DLA makes a (small) contribution to the costs of disability and supports disabled people to be independent and exercise a greater degree of personal choice. However, it is not safe: the emergency Budget announced a push to cut the number of people receiving DLA by a fifth. Related benefits, such as the Independent Living Fund, which supports disabled people with high support needs, has already run out of money and is accepting no new applications until at least the new financial year.

There is no doubt that these cuts will intensify poverty among disabled people. They will come in alongside cuts in social care and local authority budgets which threaten to evacuate programmes for ‘personalisation’ of care of progressive content.

Crossing the Ts

Alongside all this, the government is in the process of weakening the safeguards that people may otherwise have found under equality legislation. The government is considering not bringing into force parts of the Equality Act 2010, such as in positive action, equal pay reporting and disability accessibility in schools. Their proposed equality duties for the public sector, currently out for consultation, will allow public authorities to take much less action on equality. If successful, the proposals reverse the impetus created by the MacPherson Inquiry and the disability rights campaigning of the 1990s.

Notes:

1 ASHE 2009, Office for National Statistics

2 The Contribution of Women’s Employment and Earnings to Household Income Inequality: A Cross-Country Analysis, Harkness, June 2010, Centre for Analysis of Social Policy, University of Bath

3 Child Poverty in Black and Ethnic Minority Groups , Willis, CPAG, http://www.cpag.org.uk/campaigns/articles/CPAG_article_child_poverty_in_BME_groups.pdf

4 How Fair is Britain, EHRC October 2010

5 http://www.cpag.org.uk/press/2010/041010.htm

6 ‘Lord Freud also suggested that the government may be planning to undertake a wider reform than simply removing child benefit from higher rate taxpayers as announced by the chancellor’, Guardian 12 October 2010

7 Fairness means giving people what they deserve, Cameron to tell Tory conference, Guardian, 6 October 2010

8 Financial Times 5 October 2010

9 http://www.telegraph.co.uk/comment/columnists/benedict-brogan/8047179/Conservative-party-conference-2010-Let-battle-commence.html

10 Benefit cuts: 'I cried when I heard about the changes. What will I do?' Guardian 6 October 2010