George Osborne – Incompetent as Well as Plain Wrong
You will remember that George Osborne announced some time ago that child benefit would be scrapped for higher rate taxpayers. That was later clarified to mean that any family with at least one higher rate taxpayer would lose the benefit.
And that means all of the benefit. If you go over the higher rate tax threshold by a single pound you lose all your child benefit – which for a family with three children is £2,500 per year.
In other words, this would create a massive benefit trap with a huge spike in effective marginal tax rates to 2500%.
Others pointed out that a household with two earners each just below the threshold – with a household income of £80,000 – would get the benefit. Those with one earner earning just above – with a household income of say £45,000 – would not.
There has therefore been much talk of “fairness”, with the government saying it is not “fair” to give the benefit to the rich, while the Opposition say it is not “fair” to single-earner households.
Chris Leslie, for Labour, said:
We have repeatedly warned that the Government’s current plans to cut child benefit are unfair and highly bureaucratic.
Highly bureaucratic! That really is a bit rich coming from the party that invented the hugely bureaucratic and disastrous tax credit system. But in this case, he’s right – replacing a non-means tested benefit by a means tested one will be bureaucratic.
The amount of hypocrisy flying around from both sides on this is in fact quite stunning. The government talk as if giving taxpayers a bit back in child benefit is very generous of the government. The Opposition talk as if they understand the concept of efficiency, which they absolutely do not. It is hard to avoid the impression that none of them believe any of what they are saying.
But my especial contempt on this is reserved for George Osborne. This is, as I said, a ridiculous proposal in the first place. But even if you accept what he wants to do, there is a much better way to do it.
The tax credit system is an appalling mess. But it exists. So if Mr Osborne wants to means test child benefit, all he has to do is scrap it and add the same amount to the child tax credit.
Tax credits are already means tested, so no new bureaucracy to add. In fact, it would remove the small amount of bureaucracy that is currently needed to administer the child benefit system.
Tax credits are already based on household income rather than individual income, so no anomalies about two-earner versus one-earner households.
Tax credits are not cut off bang when you go above some arbitrary threshold. They are tapered, so as you earn more, the credits are gradually removed. So no benefit trap.
Perhaps Mr Osborne is worried about the political impact of looking like a socialist by accepting the principle of Gordon Brown’s tax credits. That would mean he is hoping to hide his acceptance of Mr Brown’s socialist ideas by messing around with child benefit instead. But even in this case, he could always call the new addition to the child tax credit the “child benefit addition” or something.
What’s not to like, then, from Mr Osborne’s point of view?
There are political objections to Mr Osborne’s plans to means test child benefit. Some (though not I) would even say that child support is wrong anyway and the State should not provide it.
But regardless of those political debates, Mr Osborne’s plans as they currently stand are simply a piece of crassly bad administration. His civil servants should be ashamed of their gross incompetence in putting them forward in that way.
And Mr Osborne should be ashamed of being stupid enough to listen to them.