When George Osborne announced that he was abolishing child benefit for all families on higher earnings on the BBC this morning it took some by surprise. The chancellor says the move will save about £1bn a year.
But it does not exactly come out of the blue. Politically it would be hugely dangerous for Osborne to be cutting benefits to the poor without him making this type of hit towards the more affluent.
The chancellor’s decision to axe from 2013 child benefits for households containing a 40 per cent higher rate taxpayer – anyone earning more than £44,000 – is likely to mark the beginning of a wider assault on middle class benefits such as winter fuel payments.
It is not a perfect measure. Osborne admitted on the Today programme that it will hit families with only one working adult on £44,000-plus – but would not affect households where both parents are earning just under the threshold. But the alternative, as he pointed out, would be a hugely complicated means test. Fair enough.
We will hear more on this at midday when Osborne makes his flagship conference speech; Alex and I will be live blogging. The chancellor’s macro challenge is to balance tough talk on the deficit with a promise that the coalition has not lost sight of the need for growth.
On child benefit, he can expect a backlash from some middle-class parents who will lose what has – until now – been a universal benefit. Middle-income families with several children could lose £2,000 a year or more. He is also expected to lower the upper threshold for the payment from 18 to 16.
Yet it is essential to his narrative that “we’re all in this together” and that the deficit-reduction programme is not simply a case of Tory MPs pulling the rug from under the poor. It will please the Liberal Democrats, who have been stung by analysis by the Institute for Fiscal Studies that Mr Osborne’s emergency Budget in June was not “progressive”, as the chancellor had claimed.
Mr Osborne is looking for welfare savings to help fund a shake-up of the benefits system and also to help offset departmental spending cuts ahead of the October 20 deadline for settling Whitehall budgets.
Other universal middle-class benefits under the spotlight include free bus passes, winter fuel payments and free television licences.
It is estimated the change will affect about 15 per cent of the population, about 1.2m families. Mr Osborne said: “It’s very hard to justify taxing people on much lower incomes in order to pay the child benefit to some of the better off in our society.”
Jim Pickard
Kiran Stacey