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 and the "Small Fortunes" research

"Overall, there are indications that the cost of a child represents between 20 per cent and 30 per cent of the budget of a family with one child." (CSA Reform Green Paper)

"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)

"We also found, at first sight strangely, that average spending did not vary greatly with income of a family; about 20 per cent from the bottom quartile to the top income quartile." (Sue Middleton, co-researcher of Small Fortunes, in evidence to the Social Security Select Committee)

What does the Small Fortunes research suggest about the extent to which children share in the wealth of their parents?


Basics

Sue Middleton is one of the researchers of the Small Fortunes work. This is probably the most credible research available in the UK into the cost of bringing up children. Sue Middleton, from the Centre for Research in Social Policy, Loughborough University, and colleagues have been pursuing a particular survey method ("methodology") for years, and she is a regular contributor of evidence to government policy. This research identified an average expenditure (during 1995) at about £57 per week (of which 10% came from people other than the parents and some came from Child Benefit). At 2001 prices this is probably about £67 per week (there is no need to be precise here).

Does her statement "we also found, at first sight strangely, that average spending did not vary greatly with income of a family; about 20 per cent from the bottom quartile to the top income quartile" mean that the children of wealthy parents don't benefit from that wealth? The following is my interpretation (and, no, it doesn't!)

First, how do quartiles work?

Second, how else do children benefit from their parents' wealth? Small Fortunes is mainly about direct expenditure - food, clothes, pocket money, childcare, toiletries, nappies, telephone calls, travel costs, holidays, etc. It does not cover such things as whether the children are living in their parents' more luxurious house and have the use of their parents' swimming pool, etc.

Small Fortunes is more about the left hand side rather than the right hand side of this diagram.

Discussion

The key is to understand what government policy on child support isn't admitting. Wealth sharing isn't simply about using extra money to buy things specifically for the children. Yet that is how both the current scheme and the reformed scheme treat it. Indeed, the reformed scheme takes it further by capping the wealth-sharing at a higher value.

Rule of thumb

According to Sue Middleton [1][2], parents try to spend the basic amount on their children, even if they have to sacrifice their own well-being to do so. So they will (unconsciously) try to ensure that they spend close to the Small Fortunes amount - about £67 at 2001 prices, of which about £15 is supplied as Child Benefit, and perhaps about £7 is supplied by people other than the parents. If the latter is excluded (because a child support scheme can't rely on such other people contributing), it appears plausible to assume that up to about £52 of child support will be spent on the first child. (There is still the question about what the PWC is contributing if the NRP is paying about £52 and the state is paying about £15 - and why).

Many NRPs paying much less than this believe their child support payment is going on "gin & fags & foreign holidays". It probably isn't! They simply don't know what children cost - or don't want to know.

But according to Sue Middleton, the average direct expenditure for wealthier people is only about 20% higher than for poorer people. Although this probably means that the poorer people pay less than the "Small Fortunes" amount and the wealthier people pay more, this article is being generous and using a figure of £67 expenditure on average by better-off parents, of which about £15 is Child Benefit. So up to £52 on average of child support may be spent on the first child in these cases. It may depend on the sort of household which has the children in it - a poor household needs about less from the parents, and a better-off household needs more from the parents - on average.

Beyond these amounts, the best assumption is probably that that the PWC can divert the money to other things. Some of these may benefit the qualifying children, but hardly to the full amount. It will be spread around other people in the household, at least to the PWC (a sort of spousal maintenance) but also to any new partner and any extra children.

PWC/children's circumstances Wealth sharing in the reformed scheme

Lone parent on Income Support

These are about 40% of CSA cases. These are among the poorest children in society, and those most in need of poverty relief.

The PWC/children's household is only better off by up to £10 pw!

The rest of the child support is "benefits reduction" to save taxpayer's money.

This applies unless the NRP earns at least £650 pw net, when the PWC will suddenly come off Income Support. At that point, the PWC will lose passported benefits, and will be worse off. But if the NRP's net income is significantly higher than this, the extra child support will compensate, and eventually overtake benefit levels. Extremely few NRPs earn this much.

Lone parent on Working Families Tax Credit (WFTC)

These are about one-quarter of CSA cases. This is a major part of the government's anti-poverty strategy.

The PWC/children's household is better off by the full amount of the child support.

In effect, any child support above £10 is acting as an incentive for the PWC to work for at least 16 hours per week and switch from Income Support to WFTC.

The first about £52 of child support per child can be assumed to be spent on the children. In fact, if getting to work requires that the PWC uses childcare, this is likely to be an additional requirement to the need for £52 pw per child - perhaps an extra £30 pw, depending a lot on circumstances, The first extra amount of child support beyond £52 pw will help to cover the 30% (or more) of childcare costs not covered by WFTC.

Once the child support is higher than the £52 per child plus the amount needed to cover the childcare costs, any extra will tend to shared between the PWC and the child - it will be a mixture of child support and spousal maintenance. (Note - the above doesn't discuss whether the PWC is helping to pay for the child).

Lone parent earning above the WFTC level

In about one-third of CSA cases the PWC doesn't claim either Income Support or WFTC. However, some of these are re-partnered cases, see below.

The PWC/children's household is better off by the full amount of the child support.

The first about £52 of child support per child can be assumed to be spent on the children. In fact, if getting to work requires that the PWC uses childcare, this is likely to be an additional requirement to the need for £52 pw per child - perhaps an extra £100 pw, depending a lot on circumstances. The first extra amount of child support beyond £52 pw will help to cover the childcare costs.

Once the child support is higher than the £52 per child plus the amount needed to cover the childcare costs, any extra will tend to shared between the PWC and the child - it will be a mixture of child support and spousal maintenance. Few NRPs are likely to earn enough to pay enough child support to cover both the basic expenditure plus significant childcare costs. (Note - the above doesn't discuss whether the PWC is helping to pay for the child).

PWC has re-partnered; household claims WFTC

 

The PWC/children/new-partner's household is better off by the full amount of the child support.

The first about £52 of child support per child can be assumed to be spent on the children. If getting to work requires that the PWC uses childcare, this is likely to be an additional requirement to the need for £52 pw per child - perhaps an extra £30 pw, depending a lot on circumstances, The first extra amount of child support beyond £52 pw will help to cover the 30% (or more) of childcare costs not covered by WFTC.

Once the child support is higher than the £52 per child plus the amount needed to cover the childcare costs, any extra will tend to shared between the PWC, the new partner, any other children, and the qualifying children - it will be a mixture of child support and spousal maintenance and general household income. (Note - the above doesn't discuss whether the PWC is helping to pay for the child).

PWC has re-partnered; no WFTC.

 

The PWC/children/new-partner's household is better off by the full amount of the child support.

The first about £52 of child support per child can be assumed to be spent on the children. In fact, if getting to work requires that the PWC uses childcare, this is likely to be an additional requirement to the need for £52 pw per child - perhaps an extra £100 pw, depending a lot on circumstances. The first extra amount of child support beyond £52 pw will help to cover the childcare costs.

Once the child support is higher than the £52 per child plus the amount needed to cover the childcare costs, any extra will tend to shared between the PWC, the new partner, any other children, and the qualifying children - it will be a mixture of child support and spousal maintenance and general household income. Few NRPs are likely to earn enough to pay enough child support to cover both the basic expenditure plus significant childcare costs. (Note - the above doesn't discuss whether the PWC is helping to pay for the child).

Conclusion

Wealth sharing fails in two important cases:

  • where the PWC is on Income Support (hence poor and in need of extra)
  • where the PWC has re-partnered (hence the extra money will be diluted)

References

[1] Sue Middleton
Evidence to the Social Security Select Committee in November 2000
(Integrated Child Credit)

[2] Small Fortunes: Spending on children, childhood poverty and parental sacrifice.
Sue Middleton, Karl Ashworth and Ian Braithwaite
Published by the Joseph Rowntree Foundation.
ISBN 1 85935 032 1

Page last updated: 17 December, 2003 © Copyright Barry Pearson 2003