Children "sharing in the wealth of their parents"
Does it make sense for children to share the wealth of their parents?
Sharing wealth and the "Small Fortunes" research
Sharing wealth with the Treasury
How could and should wealth be shared?
Related topic - The cost of children
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Sharing wealth with the Treasury

"Children have a right to share in the income of their parents – this applies to the children of wealthy parents as much as those whose parents have more modest incomes." (CSA Reform White Paper)

"As for the parent with care of the children, there is the £10 maintenance disregard obviously going to those on income support. The children as a result will see their father paying directly for their maintenance... The proposals are cost neutral over the five year period.... The Treasury's position is protected... We would be hoping to get 85 per cent in which case the figures will be even better, but I think it has been accepted by the Treasury that, over the five year period, it is cost neutral because, though the costs are front end loaded because of the maintenance disregard, the extra compliance which comes in during the second, third, fourth and fifth year offsets that, so we would move into a slight edge with the Treasury." (Baroness Hollis evidence to Social Security Select Committee 22nd July 1998)

Who has the rights - the children or the Treasury? It won't be both!


The reformed scheme - the conflict between childrens' rights & the Treasury

The cases being considered here

It is right to consider the taxpayers' position when changing the way benefits such as Income Support are handled, but even the proposed reform of child support in the UK continues to be heavily influenced by Treasury concerns, and here this interferes with the concept that children should share in the wealth of their parents.

To be fair, this issue is primarily about PWCs on means-tested "out of work" benefits - Income Support and Job Seeker's Allowance (income based). These are a reducing proportion of the PWCs handled by the CSA - 41% in November 2000. This article is only about that 41% of PWCs - about 400,000 PWCs with about 630,000 children. It is further reduced to those cases where NRPs earn more than perhaps £140 per week gross, enough for the child support to be greater than the £10 benefits disregard.

What does "sharing the wealth of the parents" mean?

Presumably it should mean that as parents get better off, their children see the advantages of their parents' extra wealth in some continuous manner. Although there is no rigid formula for what happens in an intact family, there is no doubt that, on average, the children of better off parents are themselves better off in a number of ways.

The government's stated intention is that this should continue in some way even after the parents have separated. But for a PWC on Income Support, what will actually happen with the reformed scheme is shown below:

Circumstances: 1, 2 or 3 qualifying children, PWC not working, no other complications.

The horizontal axis is the NRP's net income per week. The vertical axis is in real money, not percentages. It represents the amount either the PWC/children's household or the Treasury is better off (depending on which curve is being examined).

Up to about an NRP net income of about £650 or so, the PWC/children's household is only better off by up to £10 pw. The Treasury gets steadily better off. The steep lines about that net income are the places where the child support causes the PWC to cease to qualify for Income Support. Suddenly (the lines are really vertical!) the PWC simply gets the whole of the child support and nothing else. (Passported benefits cease too - the PWC will actually suddenly become worse off, before recovering the value of the passported benefits).

The "improvement to the Treasury" levels off here, at the Income Support rate the PWC would be entitled to if there were no child support. Note that well under 1% of NRPs have a net income more than £500, so very few children with PWCs on Income Support will share the NRP's wealth by more than £10.

Discussion

There are 2 good reasons why the Income Support disregard should be limited, so that the PWC/children's household is not better off by the full amount of the child support:

First: it saves taxpayers' money! In fact, the amount is not large compared with the total benefits spend. (After all, if the average child support payment is about £30 pw, then this will only save about £20 pw for about 400,000 PWCs, or about £400m per year, which is probably less than 0.5% of the total benefits spend). But it is nice for the government to be so considerate to taxpayers (also known as voters!)

Second: it helps to make Income Support relatively less attractive than Working Families Tax Credit (WFTC). In other words, it is social engineering to encourage PWCs to get back to work, because once they work for at least 16 hours per week, they will suddenly be better off by the whole of the child support instead of just £10 of it. On average, about £20 per week of child support per case acts as a back-to-work incentive. There are lots of good reasons why this is typically better for PWCs, children, and society, in the long term.

But if the second reason is the main one, it may be useful to tweak the proposal for a £10 Income Support disregard. It is much harder for a lone parent to get back to work before the children are at school. They are likely to have to buy childcare, and while they can get a childcare tax credit as part of WFTC, it doesn't pay the whole amount, just 70% of it (capped at £70 credit for 1 child, and £105 for 2 or more). This counters the incentive supplied by the extra child support they will get. There is also some research (but no consensus) that it is better for the children to have a stay-at-home parent until the children are at school.

Perhaps the disregard should be shaped by the children's age, or by whether they are at school. For example, it could be £15 (or even £20) per week if there a child under the age of 5, and £5 thereafter. The £15 would be much better wealth sharing at the hardest time for a lone parent to work, while the £5 would emphasise the relative advantage of WFTC over Income Support once it becomes easier and cheaper for the PWC to get to work. This could be adjusted to be the same cost to the Treasury as the proposed flat £10 disregard.

Another possible improvement would be to vary the disregard according to the number of children. After all, the amount paid by an NRP increases as the number of children increases, so why shouldn't the disregard increase too?

Page last updated: 4 July, 2004 © Copyright Barry Pearson 2003