From the BBC:
Chancellor George Osborne has said child benefit for higher rate taxpayers will be removed, after ministers' hints the policy could be made "fairer". But he said he would set out in the next months how the policy would be "implemented"...(1)
Asked if any further changes to the policy were sought, the chancellor said: "We're very clear that it is fair that those who are better off in our society make a contribution to the saving of money we need to make... so we will be removing child benefit from higher rate taxpayers. (2)
"We haven't set out how we're going to implement that and we're going to do that in the next few months. But the principle that it's not fair to ask someone who's earning say £20- or 25,000 to pay for someone who's on £80- or £100,000 to get child benefit is one that I think is very important.(3)"
Mr Osborne has said the proposed cuts could save up to £1 bn a year.(4)
1) Given his apparent complete lack of understanding of basic maths and logic, or ability to come up with a workable solution to a relatively simple proposal in a reasonable time frame, I'm not sure we ought to be putting him into bat when it comes to negotiating the terms of Scottish independence, eh?
2) How is this "saving of money"? Who is saving money here? Some people will clearly be worse off, so somebody else will end up a smidge better off. Child Benefit is a transfer payment, not government spending as such, and the chances are that government spending will be merrily nudged upwards by "up to £1 bn a year" accordingly (rather than taxes being cut on whoever). The government spends money far less wisely than higher rate taxpayers with children, I rest my case.
3) Wot? Higher rate taxpayers are paying a third of all taxes and being paid a tenth of all Child Benefit. The net transfer is from higher rate to basic rate taxpayers, that's basic maths and logic*. The same can be said for just about any universal benefit. Taking it away from higher rate taxpayers does not benefit basic rate taxpayers by one red cent.
4) "Could save up to..."? In other words, he doesn't have a clue how much money higher rate taxpayers will lose as a result of this, does he?
* OP in the comments points out that it is also a transfer from childless to people with children, which is true. In round figures, Child Benefit is £10 billion. Higher rate taxpayers chip in £3 billion; basic rate taxpayers chip in £7 billion. HRT's with kids get £1 billion, BRT's with kids get £9 billion. Let's assume half of working households have kids, and that there are 4 million HRT's and 36 million BRT's, the net transfers per year are thus:
HRT, no kids, lose £1.5 bn (£750 each)
HRT, with kids, lose £0.5 bn (£250 each)
BRT, no kids, lose £3.5 bn (£97 each)
BRT, with kids, gain £5.5 bn (£306 each).
Anthologies
6 hours ago
30 comments:
"The net transfer is from higher rate to basic rate taxpayers, that's basic maths and logic."
I disagree. If both workers are in productive jobs and paying taxes nobody is subsidising anyone. The basic rate income tax payer gets a larger rebate (in terms of his overall tax bill) and the higher rate payer receives a smaller one, but they're both paying their own way and subsidising The System. If you don't have any children at all though you're entitled to no rebate, and you best make sure you're not working in the private sector and renting too (i.e me) otherwise you'll get well and truly stuffed.
Universal benefits are the way to go though, George. Just do a U-turn and admit the idea was flawed from the off.
CD: "If both workers are in productive jobs and paying taxes nobody is subsidising anyone."
That is another way of looking at it. So we can see ChB as a kind of higher personal allowance. But the maths of personal allowances are that a higher personal allowance = smaller tax base = higher tax rate to collect same amount of money.
See here. This is also basic maths and logic.
Now, that is all in the past, and we are agreed that taking ChB away from higher earners does not benefit lower rate taxpayers.
Good luck implementing this. Can you imagine, the patronising letter to thousands of women (mostly, let's be honest here) across the country: "Please dear, could you ask your husband how much he earns?"
And/or the letter to thousands of men (again, mostly) asking "Please ask you wife about her personal financial affairs". There will have to be a box saying 'I don't know what my spouse earns or if they claim ChB, you find out', what a massive waste of admin trying to figure out who is married to whom, who earns what, etc. Does this apply to step children? From the government that has 750,000%+ marginal tax rates on stamp duty, I suppose a 170,000% marginal tax rate on income isn't too surprising. Accountants across the land must be moistening themselves for the rich rewards that such 'cliff edge' tax policies bring...
The net transfer is from higher rate to basic rate taxpayers, that's basic maths and logic.
Once I (a childless taxpayer) can claim child benefit too; then I'll agree that it's a transfer from high rate to basic rate.
Until then, it's more accurate to say that it is a transfer from the childless to the childed. That doesn't seem as fair to me.
@Mombers
Can you imagine, the patronising letter to thousands of women
Ignoring fraud (which would be, I suspect, negligible for Child Benefit), why not make the claim form say:
Total gross household income: X
Number of children: Y
Doesn't seem that patronising to me.
@Onus
The childless are not going to disappear once they become an economic burden due to old age. It's your decision not to have children, but unless you want a system where people are left to die if they don't have family to support them, everyone must contribute to the next generation. Forgive me if you don't have children because of medical obstacles however. But nonetheless, someone will have to take care of you eventually.
OP, fair point, it's redistribution in two directions.
Higher rate taxpayers chip in £3 billion; basic rate taxpayers chip in £7 billion. HRT's with kids get £1 billion, BRT's with kids get £9 billion. Let's assume half of working households have kids, the net transfers are thus:
HRT, no kids, lose £1.5 bn.
HRT, with kids, lose £0.5 bn.
BRT, no kids, lose £3.5 bn.
BRT, with kids, gain £5.5 bn.
Second comment, fair enough, but gross household income can only be established retrospectively at the year end. The beauty of ChB as it stands is that admin costs are immeasurably small and overpayments are less than underclaims.
Even if it only costs £10 to issue and process each form, that would double admin costs and there'd be more fraud (and possibly less underclaims). So that would take a big chunk out of the "up to" saving.
Mombers, good call!
@MW
Also need to take into account that a 175,000% tax rate at c. £42k will produce a massive amount of tax evasion, avoidance and people simply turning down pay rises. I for one am seriously considering becoming a contractor. No more NI, can pay my wife a salary and dividends, the Treasury will lose a huge amount. Same thing happens with the extra £7.5k that becomes payable on the sale of a house once it goes from £250k to £250,001. All sorts of alchemy like chattels, etc. Then HMRC loses out altogether at the higher 4 and 5% thresholds when you just plonk the house in the BVI and the Land Registry never changes...
M: "Also need to take into account that a 175,000% tax rate at c. £42k will produce a massive amount of tax evasion, avoidance and people simply turning down pay rises."
Yes, that's another big chunk out of the "up to" saving*. It's like the 50p top tax rate, any net gain to HM Treasury is too small to quantify (and might be negative).
* What they used to do in Germany, although less common here, was instead of giving people a highly taxed salary bonus was to pay the same amount to employee's spouse as (lightly taxed) self-employed earner or as wages below the personal allowance.
@Mombers
The childless are not going to disappear once they become an economic burden due to old age.
This ignores the economic contribution that the childless make throughout their lives. The same contribution that the childed made.
It's your decision not to have children, but unless you want a system where people are left to die if they don't have family to support them, everyone must contribute to the next generation.
No; given the conditions you specify, everyone must contribute to society if they don't want people left to die. You're argument seems to be that without child benefit there would be no children. I really don't believe that. People with children have this idea that they are doing us all a favour and they get nothing from the choice to have children. If that were true then we can confidently say that children are worth £40 a week to their parents.
My "contribution" to society takes the form of taxation, which I already pay. Your decision or not to have children should include your estimate of their value to you, exclusive of the child benefit you expect me to give you.
Forgive me if you don't have children because of medical obstacles however. But nonetheless, someone will have to take care of you eventually.
I don't see what difference it makes whether I can't have children through choice or nature.
By your logic, if I work as a builder on a hospital and you don't, you should give me a subsidy because you will need that hospital in your old age.
My taxation already pays for the hospital where you have your children, the social services to ensure your children aren't being abused, the shots, GP visits, primary education, secondary education and a giant subsidy to your child's university education. All of those things are, I feel, enough to justify having "someone take care of me eventually". Alternatively, can I have my contribution towards all those things back? Then I'll buy whatever care I need in my old age from the children that will continue to exist in the absence of child benefit payments.
My disposable income is higher because I _choose_ to drive a ten year old car; why should I subsidise those who choose to buy a new care?
I am in favour of citizen's income. Primarily because it is the perfect income redistributor. It is perfect because it is based entirely on income; not on personal lifestyle choices.
Even if it only costs £10 to issue and process each form, that would double admin costs and there'd be more fraud (and possibly less underclaims). So that would take a big chunk out of the "up to" saving.
Not having children, I don't know. But I had assumed that there was already a form to be filled in to claim it? I just want an extra couple of boxes on it.
My assumption is that most child benefit recipients are honest, so the policing of honesty on the form would be negligible.
@Onus
"This ignores the economic contribution that the childless make throughout their lives. The same contribution that the childed made."
The net economic contribution of the Baby Boomer generation, who have had less children than are needed to replace them, is negative, taking into account the promises of pensions, NHS, care, etc. The state pension alone is unfunded to the tune of £1tn if you add up all the pension payments promised and compare to the tax contributions that were made. Those who had children have produced (on average) valuable future taxpayers, those who did not are now a burden to the state with no backing human asset.
I suspect that my children are going to say 'not a chance!' to paying crazy marginal tax rates on income and move overseas to countries where taxation pays for current spending and saving towards known future expenses. Over here, I pay NI with no realistic hope of getting a state pension, and the NHS will be a shadow of its former self by the time I start to really use it in my old age. You just need to look at Japan, having children there is so prohibitively expensive that they've had a long running baby strike. Now, they have armies of OAPs and the ambitious and talented amongst the young are leaving for more exciting and rewarding opportunities abroad, further exacerbating the problem. Watch that space for what a demographic decline means for an economy.
I'm by no means saying that people should be coerced into having children. But having children is an enormous sacrifice and unless people have some help to defray the costs that are not already covered by the state (education and health mainly), increasing numbers are going to opt out. The consequences of this will not be pretty unless we figure out a way to make an economy work with a shrinking percentage of working age people.
OP, I'm a Georgist and justify it thusly:
The more people, the higher the demand for land and thus the higher the rents. Parents with kids thus push up the demand for land and hence the rent. So if children push up demand for land, need land and receive a CD of about half adult CD, then parents with two kids will receive 1.5 times as much as couple with no kids, and will also be spending 1.5 times as much on LVT.
M, I think ChB as it stands is largely symbolic. That £2,500 a year wouldn't have encouraged me to have kids on its own, it just softens the edges a bit.
And as I am now higher rate taxpayer with kids, as the above workings show i am probably £250 a year worse off for it. If they scrap it for higher rate taxpayers, I will be £2,750 worse off.
Get rid of all state rewards for sex.
@Mombers
I think you're cheating a little, and merely using the scale-up factor of a larger generation. Of course more people equals more revenue. I'm more concerned with the contribution/cost per person per generation when talking about whether other people's children are a benefit to the childless.
The method you are outlining is simply a Ponzi scheme. The next generation has to be bigger in order that the current generation has someone to pay for them.
I say let the market sort it out: rather than encouraging children by subsidy, children should be had because those having them value them themselves. (I am always surprised how normally sensible free-marketers completely throw out their principals when they have children and are getting subsidised for them). If the supply of children is lower, then they will valued more. No need for subsidies. Let's remember as well that a subsidy simply rebalances the equation at a different price.
"Having children is an enormous sacrifice". Possibly. Is it a net sacrifice though? No. Cannot be. People continue to have children. Measured for them personally, using whatever scale their desires give them, children are a net gain. Must be. Let's stop this nonsense about "I only have children because the state pays me to". If that's true, then I don't want the crappy quality of children that will be produced anyway.
@MW
I am far more comfortable with that as an analysis. A citizen's income payment as you describe would be fine, for exactly the reasons you give. Besides, a child is a citizen too. I can hardly object to them receiving CI.
I'm also happy to agree that it's largely symbolic, and actually makes little difference to childless me one way or the other.
@Mombers
Oops, missed this...
The net economic contribution of the Baby Boomer generation, who have had less children than are needed to replace them, is negative
I find that very hard to believe.
The net contribution of a generation cannot include the contribution of their children; their children are contributing to their own generation's total.
Therefore the net contribution of a generation will be a function only of its size.
The fact that that contribution has (as it always is) been pissed away by the government, and now requires a bigger next generation to fill the hole is irrelevant.
Any actuary can demonstrate that the old age benefit system that we have at the moment is badly underfunded. Person x has been promised y in benefits once they have retired. What should happen is during their lifetime, contributions are set to build up a big pot of money to pay these benefits. Instead, their contributions were used to pay the pensions, health care, etc of the preceding generation. There are no assets to back their massive liability except for the human capital of the next generation. This capital is inadequate. Companies that have promised defined benefit pensions for their staff are now having to make massive contributions towards these liabilities, and shutting them down for new employees. A similar situation exists now - you'll see the state pension bill go up and up every year, and the backing revenue stream - government taxation - is not going to be going up at the same rate. Eventually, benefits will have to be cut. As they have already been by the raising of the retirement age.
BTW the system is a classic Ponzi scheme. The government has promised to pay people money based on other people paying in. It works so long as there are enough people paying in to pay back the original 'investors'. This is not the case by any analysis, and is evidenced by the scheme having to curtail 'returns' by raising the retirement age.
And finally I wish that people only had children if they really wanted to. But they're idiots. I have 2 friends who are doctors - doctors! - and they didn't manage to prevent unwanted pregnancies, several more friends who are highly educated but couldn't figure out how to do contraception. 40% or something of births are out of wedlock these days. Now I'm sure that not all of these are unintended, but plenty are. And so many of these unwanted pregnancies are going to end up in crappy quality children I agree.
BTW, what's the difference between citizen's income and child benefit? If anything, CI would be much more than ChB.
@Mombers
I understand all that. That their contributions were mismanaged doesn't zero their contributions though. Their contributions weren't used just to pay the previous generation's benefits (if they were then there would be some left over), they were used to do all manner of additional government spending.
The baby boomer generation does indeed need paying for as it ages; but they (by any measure) also supplied that payment. It was just that it was wasted.
Their net contribution therefore was positive; regardless of how many children they supplied. Not as you say: negative.
I don't understand what point you're making with the "40% unwanted" case. Doesn't that add to my argument? It is you that says ChB is required otherwise people won't have children... but then you say 40% of them are unplanned anyway.
The difference between CI and CHB is that I would get CI too. Adult CI would be larger than child CI. However, I accept your point: the numbers aren't important. Child benefit is indeed a form of CI, so I can't really argue against one and favour the other.
The key here is net. x was paid in, y needs to be paid out. If x is less than y, it a negative net contribution. Based on this definition, how can you say that "they (by any measure) also supplied that payment"?
At the margin, ChB definitely does encourage people to have children. Many of my peers have made a rational decision that they can't afford to have kids. The more resources taken away from children, the less people will have them (except the silly ones who get pregnant by accident. I speculate based on the US experience that a lack of a social safety net does not have a huge impact on unwanted pregnancies. Their unwanted pregnancy rates are even higher than ours). The point I'm making is that people do not always have children when they want to. Good policy is to reduce the number of unwanted pregnancies. I believe it is also good policy on the other end to encourage people who would like to have children and can produce productive offspring to do so.
We need to make decisions as a country:
1.Can we devise an economic system that does not require a fertility rate of approx 2.1 (the replacement rate) or net immigration?
or
2.Can we encourage people who have better resources to have kids (generally people who are employed) and discourage people who do not have resources (the unemployed)
At the moment, we are relying on net immigration and are giving incentives the wrong way round.
LVT and CI will go a long way to solving the problems. There's very little that LVT can't solve :-)
OP, M, whatever the rights and wrongs of the matter, I'm not sure that it's that important one way or another. ChB is a token amount only and doesn't cost much or make much difference to anything. It's Child Tax Credits which do the damage.
I'm equally happy with a) slightly higher CI for adults and no ChB and b) slightly lower CI for adults and half-rate CI for kids. There's really no much in it.
@Mombers
I'm happy to give up on my objection to ChB. I'm persuaded that it's just CI-lite.
The key here is net. x was paid in, y needs to be paid out. If x is less than y, it a negative net contribution
I understand what you're saying here; but still don't think it's fair. The contribution is only negative because governments spent too much.
The contribution of the BB included, what they thought, was a component to cover their own old age. In other words: they have already provided for themselves.
Governments, being shortsighted buggers, spent that contribution with the justification "it's okay, we'll use the instantaneous receipts of the next generation to pay for the current generation's old age". They've done the equivalent of businesses that find their working capital by late-paying their suppliers. The problem is of course, that that trick only works once.
I suppose one might argue that the additional spending went into inflating the property prices of the baby boomers. But given that they are forced to sell up when it comes to paying their nursing home fees or it is passed on as inheritance, that profit is clawed back. (if it's inheritance, then they are still giving the next generation the means to pay for their old age)
Either way: my point stands, the baby boomers (and every other generation) have paid for their own old age before they get to it. That they have been tricked, and someone has stolen that contribution out from under them is not their fault.
I accept that that money still has to be found. My objection was to the implication that these people have done something wrong by not supplying enough children in the next generation.
(Incidentally, I would suggest the problem is not that they didn't supply enough children, the growing population is perfectly sufficient, the problem is that they are living too long).
OP, on this we can agreed: "(Incidentally, I would suggest the problem is not that they didn't supply enough children, the growing population is perfectly sufficient, the problem is that they are living too long)."
As to CI or ChB, it's no big deal. Imagine there's £100 to dish out between 35 adults and 15 children, you could say
a) £2 each regardless of age;
b) £2.35 per adult and £1.18 per kid; or
c)£2.86 per adult and nothing for kids.
A two-adult one-child family is more or less indifferent (they'd get £6.00; £5.88; or £5.72).
A single childless adult prefers c), gaining 86 pence, and a couple with three kids prefers a), gaining £4.28.
Haven't you missed secret option (d), being similar to what we do now?
d) £0 per adult and £6.66 per child
2A3C = £19.98 (gaining £17.98)
2A2C = £13.32 (gaining £11.32)
1A0C = £0 (losing £2)
While I've given and accepted that ChB is simply one point on the CI spectrum; I can't help still feeling it is a particularly distorting point.
OP, no I haven't missed it because that is nowhere near our starting position. ChB is only £11 billion out of total working age and child welfare £110 billion.
Remember: Basic dole is about £70 a week and ChB averages out at less than £20 a week. The tax free personal allowance is also 'worth' about £60 a week for a low earner.
OP, I'm not sure if you've understood my point about net contributions towards old age costs. It is not that the government squandered them, the revenues were not collected in the first place. NI was set at x, which was too small by a wide margin. It was enough to pay the benefit recipients at the time, but it's been clear for decades that the future bills would not be able to be met by the working age population unless tax rates went up a great deal (£90bn/year according to the Torygraph (http://www.telegraph.co.uk/finance/economics/8384449/NIESR-Taxes-must-rise-by-90bn-a-year-to-fund-baby-boomers.html)). The chickens are coming home to roost. Sure, let's not push the all the consequences onto the BB in their entirety, but there's only so much you can push onto the current working age population before you start losing revenue because high economic value people emigrate or get better accountants. LVT will sort out the latter.
I'm not saying that people should be punished for not having children. It's just that the burden of raising the next generation must be shared by all as we are all beneficiaries. I certainly did not have kids to make money. ChB doesn't come close to covering my additional costs. But my kids' childhood would be significantly worse if I didn't get ChB. I would do my best to try to make sure that this did not decrease their life chances (and economic value to society) but ceteris paribus it will. My kids have a modest collection of toys and we do not by any means live an extravagant lifestyle, but the big impact of the withdrawal of ChB would be moving even further away from work. Time spent with one's parents is very valuable to them and society as a whole, and a policy that will on balance mean that kids have even less time with their folks is not positive for society.
@Mombers; NI is just taxation by another name. While the general population thinks its ear-marked, we know it's not. You should really be counting all taxation (approx 50%).
I'm not saying that people should be punished for not having children. It's just that the burden of raising the next generation must be shared by all as we are all beneficiaries.
This is the problem though; we are not all equal beneficiaries. Those with children got the personal reward of the children as well (which has value to them); but those of us who didn't get/want that reward are expected to pay for your reward.
But my kids' childhood would be significantly worse if I didn't get ChB.. etc
I'm sorry to be blunt but: so what? Why am I to be personally concerned with whether your children are better or worse off?
From each according to his means, to each according to his need?
What if I were able to wheel out a more deserving set of children than yours? Would you hand over your child benefit then?
My kids have a modest collection of toys and we do not by any means live an extravagant lifestyle
I would be delighted for you if your children had lots of toys and you lived a hugely extravagant lifestyle. You do not need to justify your lifestyle to anyone. Spoil them rotten for all I care. I would fully expect any parent to want the best for their children. (If I had them, I would be the same).
If I were truly heartless (I'm actually not as bad as my anti-child rants are making me sound in this thread), I might argue that for me personally, it would be better if your children were raised with minimal education, and trained to expect nothing. That way I can pay them less when I need someone to look after me in my old age.
That is all beside the point: children are a benefit to all society. They are also a (non-material) benefit to their parents. They have an associated cost. The excess it costs you over and above what a childless equivalent would pay, is the price of that non-material benefit. Everything else is already covered by the taxes both childed and childless pay.
What if we were talking computers? Computers are a benefit to all society; everyone who has one gets access to an excellent resource and is likely a more productive member of society because of it. Should we therefore introduce per computer-benefit, paid to their owners?
@OP
I grew up in South Africa, where most children are "raised with minimal education". They don't come look after you in your old age at minimal cost, they turn to crime in desperation, because society has not had the foresight to step in where their parents have let them down. You should be very concerned about the welfare of children - just look at what under investment in children led to in the Autumn riots. Eating the seed corn never did any society any good.
Re the non-material benefit of children, most people with children are less happy than those without according to numerous studies. This is skewed by those who did not want the child(ren) in the first place and those who have perhaps been coerced into it, but this suggests that there is a negative non-material benefit in many cases.
Oh and re computer benefit, there are numerous corporate tax breaks for computers and software so yes, society as a whole does pay towards them as we are all beneficiaries. Likewise computers are provided in schools and universities - non-fungible spending on children. Should we cut that too?
PS 100% right on taxation BTW. NI entitles you to nothing really and is just a cunning way to hide marginal tax rates. State pension is replaced by pension tax credit if you don't qualify, and the NHS is free for all. What I favour is an Australian style system where pension saving is compulsory and everyone has a pot of their own money earmarked for their end of life and the books balance no matter what happens to the fertility rate. Too late for that now here - savings rate would have to increase so much that demand would implode and we'd go into Depression.
OP, M, ChB is an irrelevance as I explained.
So instead, let's go with the myth that "My NI contributions paid for my pension". According to HMRC the overall NIC rate (Ee's main + Er's main rate) has gone up from 14% of wages in 1976 to 23.8% now. It strikes me as highly unlikely that people paying the retiring today will get twice as much as those who retired in 1976.
In fact, the NIC/state pension is a pay-as-you-go system. I see nothing wrong with that at all, it's a very good system, as long as people are fair and realistic about how much is transferred from whom to whom.
M, compulsory savings achieves nothing, people will just pay off less of their mortgage in the vague hope that their retirement pot will be enough to cover the shortfall.
Yeah, my mal-education point was rubbish. Withdrawn.
Oh and re computer benefit, there are numerous corporate tax breaks for computers and software so yes, society as a whole does pay towards them as we are all beneficiaries.
Cheat. If those tax breaks are anything more than "purchasing them reduces profit"; I'll be very surprised. If not; I'd be in favour of cutting those subsidies too. It was a question whether you'd be in favour, not me. And to mimick child benefit it would have to be personal ownership. Feel free to send me a donation; my laptop is looking a bit worn out.
Likewise computers are provided in schools and universities - non-fungible spending on children. Should we cut that too?
Well; yes. If I had my full free-market hat on. Yes, there should be no state education. The private sector would be much better at it. With my not-so-insane hat on; I get a benefit from having an educated populace, so am happy to have that come out of my taxation (I'd prefer school vouchers, and for-profit schools though). I don't, however, get a benefit from having middle class parents receive a bit extra so that they can buy Harry Potter trainers for their sprog.
(And before you say "what about the poor kids" - they should be dealt with by the standard low-income parent benefits not child benefit; and besides I've already given in on child benefit once it's classed as citizen's income)
My primary problem with child benefit is that I have seen how my friends with children spend it. It is not going on providing them with a meagre bowl of gruel, it is being used for unnecessary crap. They don't need it in the slightest; and all this whining from them (and their ilk in the daily mail) when their children have considerably more than they "need" seems like a waste of resources to me.
If we must have ChB, I would prefer it were being focussed far more at the children who are in social deficit, than the spoilt little rich kids whose parents currently use it to buy them a McDonalds or a trip to the cinema.
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