Universal unfairness

We’ve heard a constant refrain from the apologists of the Coalition’s decision to end universal child benefit: that “fairness” trumps “universality”, and thus “it is only right” that “the broadest backs take their fair share” of deficit-reduction pain. This mantra is so powerful that it can even ride rough-shod over the admitted unfairness of a system that will see some families with income of £80,000 potentially better off than some with income of £45,000. At one level it sounds so plausible, and even self-obviously true. How can it be right that a hard-pressed family struggling on £20,000 should pay some part of their taxes to provide a benefit to a millionaire’s child? But appearances can be deceptive. As Paul Waugh has shown clearly and graphically, the highest earners are the ones who are doing the subsidising, not families on £20,000. This is entirely as it should be, of course, but it’s nonsense to talk of one person’s taxes paying for another’s benefits. It’s the familiar individualism of Tory ideology. Followed to its logical conclusion, this model would show everyone paying a tiny part of their taxes for everything that the government spends. One might as well ask if it’s right for someone on the minimum wage to pay a little bit towards a rich person’s share of national defence, which they surely do. “Outrage of pensioners who pay for the rich to enjoy the safety of Britain’s nuclear deterrent.” The argument is simply a fallacy.

The universal system is nothing to do with who pays for what. We all pay for everything: the only question is whether we pay in proportion to our means. Rich people pay most into the total system, and they have as much right as anyone else to benefit from it. I personally do not believe that they pay enough relative to poorer people, but that is an argument that falls on deaf ears in the Coalition, whose talk of fairness is total obfuscation. If they were remotely interested in real fairness, they would ask not who pays for what, but rather what proportion of a person’s means they pay into the system. This would expose the disgraceful inequity (and iniquity) of measures such as the VAT rise which proportionately hits poorer people much more harshly. It would also require a much more sanguine look at the very rich rather than the simply better-off. Why doesn’t the government address these real issues instead of setting out plausible but fatally flawed logic such as we’ve heard this week?

It’s quite a difficult question to answer, since the child benefit announcement is politically as well as economically illiterate. Those most affected by it will be Tory voters rather than Labour ones. Universal benefits include a whole lot more than payments for children. The NHS, refuse collections, education – aren’t these universal too? Would the Coalition like to suggest, say, higher prescription charges for higher-rate taxpayers? A bin-levy for the better off? Why, after all, should a family struggling on £20,000 subsidise the removal of Waitrose’s posh food from the bins of those earning £44,000? Nonsense, of course. So why go down this foolish road at all?

The cynical answer is perhaps that suggested by David Hughes. David Cameron and George Osborne have never had to worry about money at any time in their privileged lives. They know no more about what it’s like to live on £100,000 a year than they know about living on benefits or the minimum wage. What they do know about is steeply progressive taxation, and the doleful consequences for them of a system that would take “from each according to their ability”. Perhaps that’s why they’d rather lecture the middle classes about broader backs: it leaves their mile-wide backs miles away from the danger zone.

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22 thoughts on “Universal unfairness

  1. I don’t agree with the cynical summary though I know you’re not alone in believing it. The most interesting aspect is that this cut hits, as you point out, Tory voters. I think they should at least be given credit for a measure that mainly hits one of their assumed core votes. The big argument is over whether universal benefits should exist at all – personally I think they’re nonsense – it is at least one of those areas where there is a very real divide between the two main parties!

  2. Right on! Great post. Fairness would be a universal tax increase. Why is this never discussed? I’d love to see how much could be generate by a tax rise, but I guess that wouldn’t play into the Tory ideology of reducing the state. Disgusting stuff

  3. Clearly people on £20k don’t pay to subsidise posh bin clearing. That’s from the council tax that is based on property size.

    It’s labours fault for giving out money they didn’t have.

    • I fear you have little understanding of how our tax system works. Most council spending is paid for by general taxation: the Council Tax is a relatively small proportion. And since you mention Council Tax, that is also steeply regressive, which is why the LibDems have always advocated a local income tax – until now, that is, obviously.

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  5. I bet I can do more cynical than any of you.

    Middle class parents who lose their child benefit will be able to pat themselves stoically on the back and tell the poor, disabled and unemployed how they’ve suffered from the cuts too, you know, and we’re all in it together aren’t we?

  6. Aside from the political noise associated with attempting to justify reducing child benefit I think this is a pretty good idea. It takes a cash benefit from people who really don’t need it and does it without dragging a large fraction of the population into a means testing framework. This does mean it’s unfair in some circumstances.

    The Greens were the only party going into the election who were not promising substantial cuts (and they got bugger all in terms of votes). It’s rather painful to see how much fuss is raised over removing £1bn from people who can afford it compared to many more billions from people who can’t.

    Local income tax is still LibDem policy, as far as I know, I’m pleased to see you like the idea! Unsurprisingly as junior coalition partners the LibDems have been unable to implement their entire manifesto.

    • Thanks Ian, and as ever it’s a pleasure to be challenged by your perspective! I think you’d agree though that my objection to the child benefit proposals is not that they take £1bn from the “better off”, and I’m obviously not suggesting that instead a further £1bn be taken from “the poor”. What I am saying is that this proposal doesn’t take anything of significance from the “broadest” backs, and its presentation as a “fair” contribution from the better off is, well, over-played at the very least. My argument is not that no cutting of expenditure is necessary, but rather that redistributive measures should be the major method of doing so. And the simplest way of doing that is to increase income tax and make it more steeply tapered, not to fiddle with universal social goods.

  7. I am having trouble working out why a means tested system would be prohibitively expensive and cumbersome – we have one already in place for Working Tax Credits. It’s one of the few places that I exist on bureaucratic paper and am recognised as a non-earning non-claiming individual – that and my Child Benefit.

  8. Thanks for the great post. The Coalition aim of empowering the already empowered even further as a way of improving the country is astoundingly short sited. If we plan on further out of dept, people of all means have to move forward equally.

  9. Good article, but there is another thing that people have simply not picked up on enough ?

    Any tax-payer, who has kids and is now approaching £44k will now be hit with a substantial regressive – drop in family income – if they get a pay rise from their employer above this £44k thresh-hold….

    My situation is that after almost 20 years with same company, I was told only last week that due to my continued hard work and commitment and dedication, I was in line for a promotion and a significant pay-rise after many years of derisory pay rises.

    I am already a higher rate tax payer, as I get paid £41k. Anyway, after this announcement from Little Lord G Gideon Osbourne, I had to phone my manager and query if the pay-rise would take me over the £44k threshold and potentially I would not be looking for another pay-rise for a very long time and here’s why ?

    Apparently, I get £295 in family benefit a month, for my 5 kids, ranging from 1 to 13. I didn’t actually know because it goes direct to my wife’s account and she uses it to primarily help with the kids. So, that works out at approx. £3,600 per year. Anyone who thinks someone with this sort of income, with a large family is well-off is in cloud cuckoo land, you need a large mortgage to house everyone, you need a large car – which you get penalized on because it is not an eco friendly noddy car, u try and get 7 into a smart car, child-care, food costs, clothing, shoes etc. ? My wife and I are always skint, we live off our over-draughts, we have one family holiday a year and normally stay in a caravan ???

    So in my simple mind, I would be really stupid to get any pay rise from my employer, between a very wide band between £44k and £51k as I would quite simply be financially worse off ? At the end of the day I believe most everyone works to be financially remunerated for their effort, i.e. the harder you work, extra hours, more responsibility you take on, more senior your role and experience, the more you are rewarded (paid) for your efforts ?

    My existing child benefit is £3,600. So to re-coup that gross I would require £7,500 approx gross salary increase, as it’s taxed at higher rate + NI.

    Currently, I am 41 and apparently will be paid with my promotion £43,200. So unless my next pay-rise is in region of 20%, which is never likely to happen, I am best never to accept a pay rise for the rest of my career, or at least until the kids have grown up, so my 3rd child will be 18 when I’m 49…. I suppose I could afford to take a pay-cut then, unless I have to pay kids through Uni, yippee…

    p.s. I simply cannot afford my wife to be a ‘stay at home’ mum, she would love to give up work, as managing a household with 5 kids in it is very very hard work. She works very hard and long hours as a part-time (50%) Primary school teacher.

    p.p.s. anyone who thinks serves me right for having kids, simply look at demographics of our country, we are an aging population, so who is going to be paying taxes in the future, to look after us in our dotage, when we are all retired. maybe we should just bring in the death ray out of Logan’s run, anybody over 55 I think jumps into that, simples. Don’t tell Little Lord Fontelroy about that idea, makes almost as much sense as this one…

    • Thanks for that excellent, practical example of the ill-thought-through stupidity of this hare-brained scheme. Universal benefits avoid these illogical and unfair edge-effects. If we need a greater contribution from the better off (and we do) then progressive taxation is the most transparent, and the fairest, way to get it.

      • I think all this proves is the stupidity of universal benefits ;)

        Universal benefits are the antithesis to a progressive tax system surely? The alternative would be to scrap the universal benefit entirely and make it part of the new universal credit scheme – there is something wrong with a system that gives benefits to people on £44,000 a year.

        And I say this as someone in a similar position & who will lose out – though I’ll probably have lost my job before then :(

        • Phil, you often talk a lot of sense on here, including when I disagree with you! :) But I just don’t follow your logic here. The two simplest (and therefore most effective and efficient) means of the state receiving the resources it needs, and the citizen receiving their proper portion of pooled wealth, are direct taxation and universal benefits. They avoid excessive edge effects (but of course tax bands introduce some perversity at the boundary that needs to be dealt with by judicious choices about both tax rates and band edges) and only have any serious disincentive effects at the very highest end of the earnings scale – a price I’m prepared to pay.

          Just don’t think of these things as “benefits”, but rather as “entitlements”, which rich people more than pay for.

        • Simple thing to do would be to increase income tax by a penny, for higher rate tax payers, at least then for every extra £1 I earn, I’ll be left with 48p or whatever instead of this stupid artificial ceiling between £44k and £51k, that will specifically penalize a family depending on how many kids you have ?

  10. Billy Gotta-Job, exactly, I now already pay 40% tax instead of 20% but to a certain extent anyway, I’m happy about that, as I firmly believe it is fair that the more you earn the more tax you pay, however, crucial thing here is that for each extra £ I earn I get to keep 49p !! This draconian loss in benefit entitlements, seems designed to hurt hard-working people that have got kids, if I got paid Doctors wages £80-100k on average not such a big deal but for vast majority of working families it’s going to have a huge hit on family income and introduce a ceiling at £44k where your family will have to suffer for several years until you can recover, in my case, I calculated – see below – I would require 18% pay rise to break even !!!!

    Anyway, here are my simplistic calculations:

    Scenario 1 – For me, i.e. a Higher-rate Tax Payer with 5 kids to actually receive any “pay rise” when my employer decides to reward my endeavors by paying me over £44k.

    I would have to get the following rise in Gross pay to cover loss in CB :

    extra Gross pay required = £7,997.60 ( (1211.60 + (696.80 x 4)) x 200%) )
    ( (CB1 + (CB2 x 4)) x 200%) )

    So I would require an 18% pay rise to break-even !!!!!!!!!!!!!!!!!!!!!!!!!

    Scenario 2 – based on employer wanting to pay an employee – on £43,999 or whatever the artificial ceiling is – more money, let’s say an extra £1000, 2.3% pay rise even though real inflation is 5% – so in real terms reward their employee with a 2.7% pay cut ;-) :

    Employee with 1 kid = £-711.60 worse off (NPR – CB1)
    Parent with 2 kids = £-1408.40 worse off (NPR – (CB1 + CB2))
    Parent with 3 kids = £-2105.20
    Parent with 4 kids = £-2802.00
    Parent with 5 kids (me) = £-3498.80

    Legend:
    Gross Pay Rise (GPR) = £1000
    Net Pay Rise (NPR) = £500 (1000 * 50%)
    Child Benefit 1 (CB1)= £1211.60 (20.30*52)
    extra Gross Pay required to recover CB1 loss = £2400 (CB1*200% – HR Tax + NI)
    Child Benefit 2 (CB2) = £696.80 (13.40*52)
    extra Gross Pay required to recover CB2 loss = £1400 (CB1*200% – HR Tax + NI)

    • Thanks once again for being prepared to take the time to demonstrate so emphatically that this idea is pernicious nonsense – and for being willing to be so open about your own personal circumstances. Yours is a really valuable contribution to the debate.

  11. I think, until an MP’s salary and ‘fringe benefits’ (including the lack of tax paid on tobacco and alcohol in the Houses of Parliament) are in line with the average man or woman on the street – and that would be a street outside Westminster or indeed London – we are never going to see any equality from government legislation.

  12. Have you noticed how “fairness” has been used as though it meant equality of proportion? To a man on 75K, a 5% reduction in standard of living means a reduction of about GBP 72 a week, which probably means one fewer holiday a year. He shouldn’t have to suffer that: nobody, however rich, should be forced to pay for the consequences of crimes he didn’t commit, so that’s hardly “fair.” But a man on 15K can barely feed himself and a family. For them a 5% reduction in standard of living, GBP 14 a week, might mean going without electricity or living on bread and beans. Fourteen pounds a week is real money if you’re on the breadline to start with. Cutting everyone’s standard of living by the same fraction isn’t “fair” at all. It only means that everyone suffers the same percentage reduction, which has very little to do with fairness.

    • You are, of course, absolutely correct. “Fairness” is now being used more as a political weapon than as a moral perspective. Frankly, I think that as a concept it is entirely useless in this debate: worse than useless – it’s an obfuscation.

      We should concentrate on the practical outcomes of tax and benefit changes, and ask if those outcomes are just – not at all the same test as the harlot called fairness. It is this that Coalition politicians fear – hence Mr Clegg’s breathtakingly arrogant (and ridiculous) dismissal of the IFS’ analysis as “nonsense”. Not of course that they talked nonsense when their reports were grist to his mill. So much for the LibDem leader’s vaunted talk of a new and transparent politics, free from spin. Rather, it’s free from moral vision.

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