Why we should scrap child benefit for everybody

Scrapping child benefit for the well-off makes some sense. But it will further complicate the benefits system. A better idea would be to get rid of it altogether.

If universal child benefit didn't already exist and a politician suggested its introduction this week, would it be introduced?

Of course it wouldn't. The very idea of paying every mother, regardless of income, £1,055 a year for having one child and then £697 a year for every child they have after that would be considered utterly ludicrous. How on earth, opposition politicians would say, could anyone possibly think it reasonable to pay a family with three children going on £2,500 a year of tax-free cash (so the equivalent of £4,160 in pre-tax income for a 40% tax payer and £3,125 for a 20% tax payer) when we have both a huge and growing public debt and a huge and growing budget deficit?

It isn't a question that anyone could come up with a sensible answer to. Look at it like that and it really shouldn't come as any surprise that child benefit has been one of the first parts of the welfare system to come under attack from the forces of austerity. Instead, the surprise should surely be that it has survived at all. Taking it away from the well off makes some sense.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

But since we are getting going on a bonfire of the benefits anyway, why not take it from everyone? Means testing it at £44,000 is going to cause endless irritation and income fiddling. How are those in a one-worker family making £55,000 a year going to feel when the two-worker family next door on a joint income of £70,000 (made up of one £40,000 and one £30,000) is still getting child benefit at their expense? And what of those earning somewhere near the threshold? If you earn £43,000 and get offered a £2,000 pay rise you aren't going to take it: you'd be swapping £1,700 of untaxed income for £2,000 of taxed income (£1,200). It is distorting stuff.

But it isn't just these minor unintended consequences that should be making the government think more radically. It is the fact that their self-imposed brief is to simplify our tax and benefits system it wants to bring everything from jobseeker's allowance to housing benefit under one 'universal credit'. Turning child benefit into another means-tested benefit hardly helps with this.

So why not dump it completely? After all, poor families are already supported by our welfare system, and some benefit payments can be raised to compensate for the lost income from child benefit where necessary (although it would, of course, be easier to simply raise the income tax threshold). Otherwise, some of the savings might be used, as suggested by the chief executive of Barnardo's in today's Times, to improve services for the poorest children, something that would have the twin benefits of being morally correct and financially efficient (help children very early in life and you are unlikely to have to help them so much in later life).

Once that is done, we might start to look at some of the other pointless benefits we hit ourselves up for every year. Yesterday's Sunday Times pointed out that we currently pay some £30bn in benefits of some kind (fuel allowance, housing benefits and so on) to people on above-average incomes. If that wasn't the case and someone suggested this week that it became the case, what do you think the reaction would be? Quite.

Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.