Means testing child benefit is stupid economics but the left and the right need to look at the welfare system afresh
Turning child benefit into another means-tested welfare payment is stupid economics. Here, at least, critics of the coalition are on solid ground.
First, it further complicates an already byzantine benefits system. Then there is the disincentive to work harder when faced with a tax system and sliding scale of benefit withdrawal that pushes the marginal rate of tax for someone earning more than £50,000 to more than 70%.
So the left says we must keep the universal benefit in place. Meanwhile, those on the right maintain that full abolition is the answer.
For the shadow chancellor, Ed Balls, binding higher rate taxpayers into the state, even at a cost of more than £2bn, is a price worth paying if it wins their continued support for the wider welfare system. The universality of at least one benefit keeps the whole project sailing on.
The same theory was deployed when the tax credit system was introduced in 2003. The upper earnings limit was set at £60,000 with the deliberate aim of giving a warm state-funded hug to nine out of 10 families.
Balls is driving Labour’s response to welfare reform and at the moment it largely adds up to a defence of the things he helped put in place with Gordon Brown under the New Labour banner.
Yet a review of the last 15 years ought to show that the idea we should hand money to people just because we always have is intellectually barren. And the idea that the only way to win the hearts and minds of the affluent is to hand them some taxpayer cash was always deeply flawed. There are better ways to include everyone in the community and make them feel taxes are justified.
Boris Johnson, London’s mayor, puts the argument against cash handouts for the better off in his latest opinion article for the Daily Telegraph.
“What I cannot stomach at any price is the argument – I have a dim feeling that I once came across it in a Polly Toynbee column – that the point of universal benefits is to knit society together; that I and other members of the affluent bourgeoisie will be more inclined to support the welfare state if we are the beneficiaries of welfare.
“Let me ask: how in hell does it help me express my feelings of sympathy and solidarity with those on lower incomes if I take money in child benefit that could go on cutting the taxes of the poor and helping them to put bread on the table for their families?”
Cash doesn’t do it. The left needs to think of something else. Maybe, extracting the rich from their gated private housing estates to join in community events is the best way to get them involved in the wider society (we could also put the brakes on new developments of those gated estates).
Encouraging the involvement of the affluent is often easier through their children, who tend to like joining in if some effort has been made to put on an exciting show. Rather than sending a chunk of cash into the bank account of Johnson’s wife, better to tease him out of his Islington home with a lure for his kids. Who knows, he and his ilk might meet people from across the social divide.
Cutting the welfare bill is important and is something the left needs to tackle. Why is Labour not concerned by a doubling in the housing benefit bill, which has become a huge subsidy to landlords? Or by tax credits, which are a huge subsidy for employers? Why do the rich enjoy higher pension saving subsidies? The post-crash economy has distorted the welfare state in fundamental ways. Viewing it as purely cyclical, as something that will be resolved with a bit of growth, is deeply misguided.
The left needs a fresh analysis and sustained argument for reform to win over the British voting public – while the coalition jabs at the problem like a drunk boxer, mostly hitting its victims below the belt.
Labour is conducting a powerful review of the state and its purpose, but it looks like coming too late for the next election. In the meantime shadow ministers simply arguing for the status quo is not good enough.