Labour needs a big, credible promise in its manifesto that will get the party noticed. Families need a big lift in their living standards after a decade of stagnant incomes. Put the two together and the logic takes you to a really significant election offer for parents. And that offer should be Child Benefit: Labour should pledge to increase it, a lot.
Here’s the plan. The party should promise to raise child benefit by £15 per child per week over the course of the next parliament: £3 in every Budget. For a family with two children that equates to £1,500 a year extra, tax free. The policy would cost £10bn annually, which shouldn’t come as a surprise: any reform that’s going to make a serious difference to living standards will cost a lot of money.
But there’s a way to pay for it without raising tax rates. The increase in child benefit can be funded by freezing all income tax and national insurance thresholds for five years, which the Institute for Fiscal Studies has calculated would generate £10bn by the final year.
Child benefit is the right way to spend this money because it is a unifying, universal payment which goes to almost all parents to support the costs of raising kids. The plan therefore echoes recent proposals to give free school meals to all primary pupils, but goes much further. By supporting virtually every child it is a social security reform that can bind people together rather than sew division.
Raising child benefit will help the very poorest families with little or no work, who are really struggling. It will help families with low earnings: the sort of people who the statistics say are in poverty but who would never say it about themselves. And it will help people in the middle and upper-middle who are getting by okay but have not seen their living standards rise for a long time.
Of course, the money could be more precisely targeted if it was spent on strictly means-tested benefits. But raising child benefit will still lift a lot of children out of poverty and Labour needs to show that it is a party for everyone. And the international evidence, examined by the London School of Economics, proves that putting money into parents’ pockets directly improves child wellbeing, just as much as spending the same on public services.
Parents and children are the winners from the plan but no one would be left out of pocket. With tax thresholds frozen workers would pay a little more tax on any future pay rises, but no one would lose what they already have. This is not just a convenient wheeze, but a strategic attempt to realign and integrate the tax and benefit system. Since the Conservatives came to power their policy of cutting benefits and raising tax allowances has transferred money from poor to rich and from households with children to those without.
This proposal deliberately puts that into reverse, by directing the extra tax proceeds generated by future pay rises back only to families with children. It is redistribution, through universalist means, from households with above average incomes to every parent, whatever their income. For when tax thresholds rise households with good pay benefit the most; but when child benefit goes up it helps all families equally, whether their earnings are £5,000 or £50,000 (only families with a parent earning over £60,000 are excluded, after the coalition’s decision to claw-back child benefit through an income tax charge).
You can therefore think of this as tax reform as much as new spending. Child benefit was originally created by the amalgamation of a tax relief and a benefit so has always been a hybrid allowance. It is designed to leave parents with more disposable income than childless households with identical pre-tax earnings: a cash-back on taxes paid to recognise the cost and value of parenting and to give each child the best start in life. Compare that to the basic tax-free allowances which, for full-time workers, are now equivalent to a cash payment of around £60 per week. They are indiscriminate to people’s family circumstances and the Conservatives plan to raise them even more. So this is a switch that makes sense.
In fact, a big rise in child benefit is a practical, miniature version of the newly fashionable idea of turning tax reliefs and benefits into a universal basic income. A basic income for adults faces all sorts of financial, behavioural and political barriers, but boosting child benefit does not. And paying £35 per week for each first child no longer feels so much, when set alongside a tax allowance system that already gives childless workers a lot more.
There’s an election on, so a utopian debate about paying everyone a basic income can wait. Labour needs answers to the nation’s living standards crisis that are practical, immediate and fully-costed. An extra £15 on child benefit is a promise of real help for families, right now.