Benefit cuts and fairness: We're all in this together or are we?10 October 2010
Siobhan Freegard was getting her three children ready for school in north-west London when she noticed George Osborne on breakfast television. Like millions of parents, her mind was more on unpacked school bags and untied shoelaces.
Then came a shock announcement from the chancellor. The co-founder of Netmums - a website for mothers - knew instantly it would light a firestorm. "I thought the forums would be busy after this," she says. "In fact they lit up like results night on X Factor."
Osborne's bombshell was that he was withdrawing child benefit from 1.2 million higher rate taxpayers. It was a matter of fairness, and it was in the national interest, he declared. "It is very difficult to justify taxing people on low incomes to pay for the child benefit of those earning so much more than them," he told the Tory conference later that morning.
"There were hundreds of posts before the school bells had rung," says Freegard. Her children safely behind their desks, she decided to set up an online poll. Soon there were 2,500 responses. The message was clear: seven out of 10 mums opposed the change, believing it to be unfair on those who had paid their taxes and relied on their benefits.
Their anger was not about means testing child benefit but about the way it had been done, using individual rather than household income. What about mothers who chose not to work to bring up their children or single parents, they raged.
Tomorrow, Freegard and the other founder of Netmums, Sally Russell, will take the results and deliver them by hand to 10 Downing Street.
The next morning the Daily Mail, on the pulse of middle England, was in full cry, denouncing the betrayal of "stay at home Mums". The uproar was all the greater because Osborne had said something very different at the Tory conference in Manchester exactly a year before. There was no hint then that the Tories would means test child benefit: "We will preserve child benefit, winter fuel payments and free TV licences. They are valued by millions."
In the election campaign, David Cameron sang the same tune, saying Labour was telling "lies" when it suggested the Tories might attack so-called "universal benefits" - those paid to all, regardless of income. But here were they were, doing just that.
To add to Cameron's and Osborne's discomfort, senior Tories complained they had not been informed, as attention focused not just on promises broken but on "glaring anomalies" at the heart of the reform. The most striking was that families would lose the benefit - worth £2,449 for those with three children - if one parent was a higher rate taxpayer earning £43,875 or over. But where both parents earned just below the threshold for 40% tax, and had joint earnings as high as almost £88,000 - they could keep it.
"Can it be right that a married man on £44,000 with a wife at home loses child benefit but two working parents on £87,000 keep theirs?" asked the Mail.
Ruth Chapman, a mother-of-three from Croydon, watched the events unfold with dread. She took a decision not to work after having her first child, Zoe, who is now two. She now has 17-week old twins, Elinor and Edward, and qualifies for almost £2,500 in child benefit. However, Chapman's husband earns just over the threshold for the higher tax rate and the family will lose child benefit as well as child tax credits.
"We use the money for things like nappies and milk. We have budgeted the money - it is built into our grocery bill and pays for one-and-a-half weeks of shopping each month. It is not an added luxury," she says.
Chapman also claims, like many other women, that the benefit makes her feel that she is somehow contributing financially despite having chosen to give up work. She says the family have chosen not to use credit cards but have no money left at the end of each month. Losing child benefit means she will have to consider opting for credit. "My husband will have to get a new job or I will have to go back to work and put the kids in nursery," she says. "I don't think that is fair on them because they will lose out. I have a bright, articulate two-year-old who benefited from me being around. But if this happens in 2013 then the twins are less likely to get that."
Chapman has links to the charity 4Children, which has been carrying out a major piece of research into family life in Britain. When the Family Commission reports next week it will reveal that families with a household income of £40,000 or more hardly consider themselves rich. One in four says that financial worries keep them awake at night.
As for the Netmums survey, it found that even among mothers unaffected by the change, only a third thought it was correct and fair. Of those who will lose child benefit from 2013, 38% say they used it for necessities not luxuries and 28% said they would have to rethink their lives. One single mother, working in London, told Freegard: "Right - I'm out of this city."
Among the Tory high command, holed up at the Hyatt hotel in Birmingham, the hostile reaction caused profound concern. If middle-class mums, many of them natural Tory voters, could protest like this, what would be the reaction when the full extent of spending cuts is known in 10 days' time? On 20 October, Osborne will deliver his spending review, fleshing out exactly how he will slash overall public spending by £83bn by 2014-15.
He has already identified, in his June budget, some £11bn of welfare savings during this parliament, mainly through a less generous formula for benefits and tax credits. Child benefit is already being frozen for three years and housing benefit payments are being capped. But the chancellor still needs to find another £10bn from the welfare bill. That means there have to be losers - and already the briefing has begun on all sides.
Take the decision to put all recipients of incapacity benefit through a "work capability assessment" - which starts tomorrow. Those who are found fit to work will be moved on to a reduced income from jobseeker's allowance.
The government talks of the "staggering" £133bn bill for incapacity benefits over the past decade. Chris Grayling, the employment minister, says it is nothing short of a "scandal" that people able to work have been cast aside on benefits, with their talents wasted.
But charities warn that such language risks demonising the most vulnerable people in society. According to a report by the thinktank Demos, funded by the charity Scope and the Barrow Cadbury Trust, the result of the new test will be that half a million disabled people lose £4.87bn in benefits over the next five years. The report, released this weekend, argues that rather than find jobs, hundreds of thousands will be forced into long-term unemployment and poverty.
Part of the reason that welfare is taking such a heavy hit is that Iain Duncan Smith has to fund his radical plans for a universal credit, which have been welcomed by many, from within. Duncan Smith is determined to bring in measures that will increase the incentive for work. Currently people can lose more than 90p for every extra pound they earn because of the sudden withdrawal of benefits.
In many ways Osborne's announcement on child benefit fits uncomfortably with Duncan Smith's plans - not least because it contains an enormous disincentive for those on the edge of the higher tax rate. Those with three children face losing a huge amount if they work harder.
Anomolies aside, the decision on child benefit has raised a wider question. Having obliterated the principle of payments for all, to save just £1bn, has Osborne set his sights on something much bigger - the beginning of the end of universal benefits and a redefinition of what "fairness" means in a Tory-run, modern welfare state?
Having taken the plunge on child benefit, a national debate is now raging. Cameron and Osborne are being pulled from all sides. Powerful voices on the right want them to seize the moment and widen the attack on universal benefits to include winter fuel payments and free bus passes. Some even suggest that in the longer term they should challenge the idea of a free NHS for all.
Andrew Haldenby, director of the centre-right thinktank Reform, believes the process of dismantling universal benefits is now unstoppable. "The country can't afford to provide benefits and services to all regardless of need," he says. "In truth the idea of universality is already being rolled back. Tuition fees are steadily moving the cost of university undergraduate education away from the taxpayer. The government has established the principle that people who don't need benefits shouldn't get them. The argument on the NHS and state education is some way off - but it is coming."
Fraser Nelson, editor of the Spectator magazine, insists "a fortune" can be saved through a wider assault on "middle-class" benefits, including winter fuel payments to the better-off.
Neil O'Brien, director of the centre-right Policy Exchange, says the entire welfare system was framed for a different age and needs to be dismantled. He argues for a joint assault on the workshy and middle-class benefit recipients. "The government should be more ambitious in taking out larger sums from middle-class benefits, and in driving down the number of people on out-of-work benefits," he says.
From the left, however, a staunch defence of universal benefits is being mounted around the argument that if payments are restricted to the poor, they become "poor benefits". Tim Horton, research director at the Fabian Society, says: "George Osborne claims it is wrong for someone earning £20,000 to be financing benefits for someone earning £45,000, but this is a complete misrepresentation of how our welfare state works. Over a lifetime, middle- and higher-income families not only pay for their own benefits and services through taxation, but put in a good deal more. Those on lower incomes are significant gainers from the system. So anyone on £45,000 has paid for their own child benefit - including through tax contributions when they don't have kids in order to get more support from the state when they do. That is why they should be entitled to it."
Horton believes the Conservatives are acting for "ideological" reasons, to shrink the state. "For the Tories, these cuts aren't about temporary belt-tightening; they are their vision of the good society. The restriction of child benefit is only one part of a jigsaw. In a variety of areas, middle-class families are being excluded from the protection of the welfare state. There are plans to remove Sure Start and tax credits from middle-income households - and of course the abandonment of Labour's plans to create a national care service and to extend the coverage of free school meals."
He argues that removing high earners from child benefit is the "thin end of the wedge". Those representing children also argue fiercely that only through universalism can you target the poor. Take Fran Bennett and Kate Green - former directors of the Child Poverty Action Group. Bennett argues that child benefit is important in that it is paid directly to mothers, who may not have had full access to a partner's income. And universality is cheaper to administer than a means-tested system. Green - now a Labour MP - adds that keeping the benefit for all guarantees that the middle classes will fight to protect it. "Compare child benefit to housing benefit, which is not universal and has been cut, cut and cut," she says.
In all of this the left sees an opportunity for Labour's new leader, Ed Miliband, to stand up for the welfare state and instead target the very rich. Neal Lawson, chairman of the Compass pressure group, says: "People like universal services and know they are affordable if there is the political will to make them so. If Ed Miliband stands up, breaks the New Labour taboo, and says it's the bankers' fault, they should pay, not the poor, then his poll ratings would soar."
However, while much of the left howls for universalism, it should be noted that the last Labour government did not believe in it across the board. In fact, it was Gordon Brown who spoke of "progressive universalism".
What that meant was that some groups - children and the elderly in particular - would receive universal benefits such as child benefit and the winter fuel allowance. But other benefits, such as child tax and pension credits, would be targeted towards poorer families.
And there are voices even on the left who think the party should go further. Take the thinktank Demos, whose director is former Labour MP and Treasury minister Kitty Ussher. She argues that child benefit should be abolished entirely and the child tax credit system used instead to target less well-off families.
Demos recently published a pamphlet by Peter Kellner, president of the polling organisation YouGov, arguing that the real prize was universal healthcare and education. "As a social democrat, I believe it is essential that we have well-funded universal services, schools, hospitals, perhaps care for the elderly - and if we are to afford those things we have to find savings elsewhere," he says. Kellner describes it as "absurd" that people like him qualify for freedom bus passes and a winter fuel allowance.
As such he argues "reluctantly but clearly" that universal cash welfare benefits "should be sacrificed because some thing needs to be sacrificed".
But for others, the decision about child benefit would not be necessary had the Conservatives taken what they consider to be a fairer route. John Hills, professor of social policy at the London School of Economics, argues that the government gave itself an almost undeliverable task of cutting progressively when it decided to tackle the deficit by a ratio of 20% tax to 80% spending cuts.
"It is extremely difficult to run deficit reduction where nearly four-fifths of it is coming from service withdrawal in a way that will not have a greater proportional impact on the poor and those with modest incomes compared with those on higher incomes," he says.
"By contrast, what the tax system generally does is to raise money from people in proportion to their incomes. With a means test the withdrawal can be very lumpy: you get a job and you lose your jobseeker's allowance, or if you move off income support, your children are no longer entitled to free school meals."
If the last week was difficult for the coalition, with the spending round 10 days away, it should brace itself for far worse to come.