Westminster Blog

I wrote earlier this week about the options open to ministers for solving the child benefit conundrum.

To recap, the government’s current proposals to axe child benefit for higher earners lead to two problems:

1. Families with one person earning above the threshold (around £42,000) will lose their benefit, but those with two earning just below it will keep it.
2. The lack of any tapering means it will become a disincentive to earn a promotion that takes you just above the £42,000 mark.

The most likely answer appears to be that George Osborne will find some extra money to move the threshold to £50,000 instead. But that solves neither issue, only moves the problem higher up the income scale.

But another proposal is floating round the Treasury: to reverse the plan altogether and instead cap child benefit at a certain number of children (most likely to be three).

At the moment, parents receive £20.30 a week for their first child and £13.40 a week for each additional child. This proposal would see an end to those additional payments once a family reached three children.

This would solve both of the problems with the income threshold, and could be sold to the public as a policy to make sure parents don’t have more children than they can afford – something bound to appeal to the Tory right.

Treasury officials have been running the numbers on how much the policy could raise and who would be affected. What they found is that capping child benefit at two children would raise a significant amount of money, but would penalise a lot of low- and middle-earners. Because larger families are rarer, less money would be raised but the outcry would be more muted.

The problem with the policy however, is that it lacks the prima facie fairness that has made the current proposals relatively popular (despite their problems). Taking child benefit from higher earners seems fair, limiting it for larger families less so.

For that reason, the chancellor isn’t particularly keen on the idea, but if the prime minister insists on solving the “cliff edge” issue (number two in the above list), it might just see the light of day.