Haldenby could ruin Britain for the middle classes24 October 2009
THE political class needs no invitation to attack the living standards of Middle Britain - it has been doing little else for the past 15 years and more. From the phasing out of mort-From the phasing out of mortgage interest tax relief to soaring prescription charges for those not exempted from paying: whenever there is a hole in the public finances to be plugged it is the middle classes who get to do the plugging.
So the suggestion from the normally sensible Reform think-tank that so-called "middle-class benefits" should be eliminated from the welfare state is as welcome as a bucket of cold porridge.
Reform director Andrew Haldenby this week published a report calling for the middle classes to be disqualified from a wide range of benefits: everything from child benefit to subsidised higher education, winter fuel payments for the elderly and even the basic state pension.
He has calculated that more than £30billion could be saved each year if these payments were simply withdrawn from those with personal incomes of £15,000 a year or more (£20,000 if there are children in the house). Those on such incomes "must stop accepting benefits they don't need", he says.
Where is your logic in stopping at £30billion Mr Haldenby? If every service of the State were means-tested and only dispensed free to the poor then much more could be saved. Free healthcare and schooling could be withdrawn from Middle Britain and then you could treble the overall saving, wiping out half of the Government's annual deficit. Whoopee!
But obviously it would be outrageously unfair to withhold basic services from families purely because someone in the household has a job and is earning a reasonable living. So if disqualifying the middle classes from services such as the NHS and state schools is undesirable by what principle is it right to disqualify them from other universal or near-universal benefits?
The lazy assumption underpinning Haldenby's argument is that government should constantly seek to reduce the difference in living standards between those who work and those who do not. He is therefore led to the conclusion that if the State needs to save money it should always do so by applying a means test and saving it from the slightly better off.
BUT this is economically illiterate because it will produce terrible consequences for everyone's living standards. What incentive will anyone have to become self-reliant if doing so will see them lose access to child benefit, the state pension and a plethora of other entitlements?
In his party conference speech David Cameron highlighted the damage already being caused by very high marginal tax rates. He cited the case of a single mother working part time who would lose 96p in every extra pound she earned because of extra taxes and the withdrawal of benefits.
Haldenby's scheme would massively aggravate this disincentive effect, pushing it to punishing levels for millions. Working for a living would mean paying national insurance and yet not being entitled to an old age pension. Not working would entail looking forward to a means-tested "minimum income guarantee" in old age. Working would mean, for a family with two children, losing child benefits of more than £130 a month as well as free school meals worth about £80 a month and a big chunk of tax credits.
Haldenby may think such sums trifling but to millions in the modest middle classes they are the difference between having a few treats in life and just subsisting. Haldenby says that the middle classes could expect lower taxes as a result of adopting this welfare celibacy. But could they really?
Given that one of the motivations for him suggesting this change is to plug the "hole in public finances" isn't it more likely that such a move would be all give and no take?
Middle income families would lose benefits (what Haldenby describes as "being bribed with our own money") yet would still be expected to fund the welfare-reliant. There would be no tax rebate at all. In fact what would take place is a rapid shrinking of the tax base. More and more people would find it was not worth getting out of bed in the mornings and consequently tax rates would have to be increased on the diminishing band of working people in order to raise enough revenue to run state services. The economy would be tipped into a death spiral.
What Britain actually needs is the precise reverse of what Haldenby is proposing: a big reduction of means-testing at the lower end of the income scale so people who could make an economic contribution are not locked into a benefits trap.
With Vince Cable considering means-testing child benefit and George Osborne committed to scrapping tax credits for well-off families, Haldenby's suggestion of a more extensive war on the middle class comes at a very dangerous moment. Haldenby, Reform - go to the bottom of the class.