Reverse the child benefit cut and the politics of the 50p rate become irrelevant

by Kevin Meagher

Of all Gordon Brown’s decisions – both good and bad – the most questionable, perhaps the oddest, and certainly the most irritating, was to award a peerage to Digby Jones and invite him into his government as trade minister.

What on earth was Gordon thinking? Jones – a corporate lawyer and former head of the CBI – is also a blowhard’s blowhard and has snapped at the hand that once fed him ever since. He can be relied upon as a rent-a-quote Labour basher these days and was at it again, jowls a-quivering, at Ed Balls’ pledge to restore the 50p top tax band for those earning over £150,000 a year. Reaching new heights of self-parody, he claimed:

“In the last few months we’ve got, oh, ‘if it creates wealth let’s kick it’ – really go for energy companies, really go for house-building, bankers, this time it’s going to be the high-earners.

“I am amazed he’s going to keep it at 50[p]. I’d expect if he [Balls] becomes Chancellor of the Exchequer we could be looking at 55, 60 on the excuse he gave today.”

But the outriders for the wealthy like Diggers can’t have it both ways. If raising the 45p rate to 50p is an inefficient way of raising revenue, the contention of august institutions like the Institute for Fiscal Studies, then the well-heeled clearly aren’t losing out very much, so it can hardly be catastrophic.

The economics of making those with the broadest shoulders pay the most to reduce the deficit, Ed Miliband’s phrase to describe the move, is sound enough, but the politics of tax rates are, of course, tortuous stuff for Labour.

So the best way to show Labour rewards ambition and hard work, is for Ed Balls to send an unambiguous message to the genuine strivers – not the international business elite – but the everyday men and women – small business owners and middle managers – who are the backbone of the real economy.

He could do that by reversing the government’s means testing of child benefit. This is one of the most egregious of the government’s tax changes affecting 1.1 million families with a single earner on £50,000 a year or more. It means a family’s child benefit payments are reduced by one per cent for every £100 they earn above the £50,000 threshold.

This could mean a family with a single earner on £55,000 losing half of their child benefit, while a single-income family on more than £60,000 a year will lose it entirely. For parents with two children this means losing £1,700 a year or £2,500 a year for those with three. Yet a family with a couple each earning £49,000 are not affected by the changes at all.

This is manifestly unfair. Furthermore, the self-employed families who might not know their income at the start of the financial year, face the prospect of HMRC coming calling in order to claw back ‘overpaid’ benefit. This mess is likely to come as a nasty surprise as soon as the end of this week for an estimated 105,000 parents who will be hit with a £100 fine for missing the deadline to fill in self-assessment paperwork.

This is the real politics of division, pitting family against family and undermining faith in a universal benefits system as well as penalising ambition and hard work. Restoring child benefit as an entitlement to all families would cost about £1 billion – pretty much what raising the 45p rate raising to 50p brings in – as well as getting rid of a bureaucratic tax nightmare for tens of thousands of families, which is sure to loom large in MPs’ postbags from next week.

So if the Tories want a campaign based on fair taxes and rewarding ambition, Labour can make a grand old fight of it, battling for working families and Middle England while the Tories die in the last ditch defending the very richest in society.

Oh, and while we’re at it, they can keep Digby.

Kevin Meagher is associate editor of Labour Uncut

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4 Responses to “Reverse the child benefit cut and the politics of the 50p rate become irrelevant”

  1. swatantra says:

    Ed had Dave on the ropes today over the 40p cut for millionaires.
    Dave couldn’t deny it was on the cards, and Boris wants it cut to 30p.
    But Child Benefit and Pensioners Benfits do really need to be means Tested. We cannot afford to have high earners wherever getting perks and pin money to pocket.

  2. Richard Nabavi says:

    So, let me get this straight: you are arguing that the way for Labour to differentiate themselves from the Tories, who you say want to give tax breaks to the rich, is to propose giving a much larger total amount of money to the well-off, including the very rich, in welfare payments.

    Are you quite sure you’ve thought this through?

  3. Charles says:

    He seemed pretty clear to me: my priority is cutting taxes for people on low and middle incomes.

    That sounds to me like he is going to do something on the personal allowance and something on the 40% rate (moving the band would probably be better, but less politically beneficial).

    Labour needs to think ahead and plan for that rather than gloat about an apparent failure to rule out a hypothetical.

    (And, by the way, am I alone in finding EdM’s “yes pr no” tag immensely irritating? It just looks childish – I know what he is trying to do, but it doesn’t work)

  4. BenM says:

    Reversing the child benefit cut would be spot on politics and economics too (such cuts save nothing but a drop in the ocean).

    The point Richard Nabavi misses as usual is that the Child Benefit hit slams more people lower down the ladder than the justified introduction of the 50p rate.

    No, those people aren’t poor – they’re in the top 10pc of earners (whereas anyone on over £150k is definitely very wealthy being in the top 2pc).

    And society should be supporting children of all backgrounds. A universal ebenfit here makes sense.

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