One-nil to my Welfare Reform Minister

A couple of weeks ago, Adam Collyer summarised thusly:

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%...

... 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.

From the BBC today:

The IFS criticises the government's plans to withdraw child benefit from households with a higher-rate taxpayer from 2013, on the grounds that it would create a "cliff-edge" that would mean 170,000 families could increase their income by earning less. The think tank suggests that the government should instead gradually reduce child benefit as household income rises, using the existing means-testing system that is used to pay child tax credit.