What the government is prepared to pay for children in benefits & tax credits

"The government's own cost of children is the "child allowance" in Income Support, £31.45 or £32.25 per week (depending on age). So that is what child support should be based on".

This is a frequent cry from NRPs paying lots more than this. (They may go on to say "and each parent should pay half of this amount"). What is the government prepared to pay someone "simply" because they have a child? And should child support be based on these amounts anyway?

Benefits and tax credits

For simplicity, the parents below are all mothers. The numbers would be the same if they were fathers. The benefit / tax credit amounts are pre-June 2001.

5 women live near one-another, all of them the only adult in the household. Some potential benefits (such as Housing Benefit and Council Tax Benefit) are ignored for simplicity.

Anne is childfree. She is expected to work (she is not entitled to Income Support), and currently gets no specific tax credit to top up her earnings.

Brenda is a lone mother with one young child. She is on Income Support for that reason. She is also entitled to some passported benefits.

Carol is a lone mother with one young child. She works for 16 hours per week at the National Minimum Wage. She claims Working Families Tax Credit.

Diane is a lone mother with one young child. She works for 30 hours per week at the National Minimum Wage. She claims Working Families Tax Credit. She spends £100 per week on childcare.

Erica is a lone mother with one young child. She is in the "Herb Girls" pop group and earns too much for means-tested benefits or tax credits. She spends £1000 per week on childcare.

Anne receives nothing, so everything the government pays to others is because they have a child, not for any other reason.

Brenda receives £99.00 made up from the following:

• Personal allowance (lone parent) - £53.05
• Family premium - £14.50 (let's assume she doesn't get the £15.90 version)
• Child allowance - £31.45 (with an older child it could be £32.25)
• (Child Benefit doesn't make any difference, because it is subtracted from the Income Support)
• Passported benefits (no money value provided here)

Carol receives £95.50 made up from the following:

• (She earns £59.20 per week, which is also her net income)
• Basic tax credit per family - £54.00
• Child allowance - £26.00 (with an older child it could be £26.75)
• Child Benefit - £15.50 (let's assume she doesn't get the £17.55 version)

Diane receives £167.72 made up from the following (with the tax credits reduced by 55p in the £ for earnings beyond £91.45):

• (She earns £111.00 per week, and has deductions of £2.77 per week)
• Basic tax credit per family - £54.00
• Child allowance - £26.00 (with an older child it could be £26.75)
• 30-hour tax credit - £11.45
• Childcare tax credit, 70% of £100 - £70.00
• Child Benefit - £15.50 (let's assume she doesn't get the £17.55 version)

Erica receives £15.50 made up from the following:

• Child Benefit - £15.50 (let's assume she doesn't get the £17.55 version)
• (Plus a lottery grant for services to lone motherhood - £100,000!)

Discussion

Why bother to mention Brenda's Income Support personal allowance? It is for her, not the child, isn't it?

It is "cheap childcare" - it is a service for the child. If it was not intended for the child, she wouldn't be entitled to Income Support. (Compare it with Diane's childcare - that costs £100 per week of which the government is prepared to pay £70). It is arguable that older children don't need full time childcare, and so their lone parents shouldn't be entitled to such a personal allowance, and perhaps not be entitled to Income Support. Sooner or later a government will probably act accordingly. But, in the meantime, the personal allowance is part of the cost which the government recognises for a child. The fact that it also keeps the lone mother alive doesn't alter this fact - the costs of childcare includes the cost of keeping the childcarer alive! (When lone mothers with older children cease to qualify for full Income Support, they can act like Carol and claim Working Families Tax Credit instead).

How much of what is paid to Carol and Diane is for the child, and how much is simply an incentive for them to work? Is the question meaningful? (How much of Anne's personal allowance is an incentive for her to stay at home?)

Note also that the government quite deliberately doesn't pay all of the indisputable costs of the child incurred by Diane - the childcare tax credit falls short by £30 of her actual expenditure. So what the government is prepared to pay certainly doesn't give the full figure of what a child costs.

Suppose the government introduces an "earnings top-up tax credit" which Anne could claim. Suddenly, some of the above amounts received by Carol and Diane cease to be for the child - childfree Anne would be getting perhaps the basic tax credit (or some other amount). So the picture isn't simple, nor is it static.

Conclusion

The government is prepared to pay about £99 or £95 or £167 or £15 per week. No definitive cost of a child can be deduced from government payouts!

No one in government is going to set child support amounts according to the child allowance component alone - it is too obvious that it only tells a small part of the story.

And typical NRPs certainly don't want to start paying a large proportion of certain of the amounts that the government is prepared to pay someone because of their child!