Tax and benefit support for children ‘worth more than double the level 30 years ago’
State financial support for families with children has more than doubled in real terms since the mid-1970s to reach £22 billion a year – with the most dramatic increases taking place in the past four years. But the expansion of means-tested programmes and the introduction of the Child Tax Credit mean that Child Benefit, paid universally to all parents, has become steadily less important to families’ finances.
Tax and benefit modelling carried out by the Institute for Fiscal Studies for the Joseph Rowntree Foundation suggests that child-contingent support in 1975 was worth the equivalent of £10 billion at current prices. Significant subsequent increases in its value occurred in the late 1970s and early 1990s, but since 1999 it has grown by 52 per cent in real terms.
As a consequence, state financial support for children accounts for a higher proportion of Gross Domestic Product (2 per cent) and overall government spending (4.7 per cent) than at any time in the past 30 years. Since the number of children in Britain has fallen over the same period, spending per child has risen even faster: from £13.41 per week in 1975 to £32.57 (at 2003 prices). The analysis also shows that:
- Adjustments to tax and benefit policies were responsible for only 40 per cent of the increase in financial support for parents up to 1999. Other factors, such as higher numbers of workless households entitled to claim benefits, were more important. However, almost all of the substantial increase since 1999 has been the result of policy changes.
- The tax system played a large part in delivering financial support for families in the mid-1970s, but was little used between 1979 and 1999. It has re-emerged as the main delivery vehicle through the introduction of the Child Tax Credit.
- Support for children in two-parent families has increasingly been paid to mothers as ‘main carers’. In the mid-1970s, tax allowances for working fathers were still the biggest single source of financial support provided by the state.
- Child-contingent support has increasingly been paid at a higher level for a first child than subsequent children, and has favoured younger children over older ones.
- Lone parents, on average, receive more support than couples with the same number of children. This partly reflects their generally lower household incomes.
The study compared what families received through the tax and benefit system with existing estimates of the direct costs to parents of having children. Although none of these was fully satisfactory, they provided a rough benchmark to emphasise that state support makes an increasingly important contribution to family budgets. They also pointed to a growing minority of parents who receive more support than the cost of their children suggested by these estimates.
Mike Brewer, a senior research economist at the Institute for Fiscal Studies and a co-author of the report, said: “Parents are now receiving much more financial support from the state to help them bring up their children than at any time in the past 30 years, with much of the increase occurring under the current Government. But if policy makers wish to use the costs of raising children as a guide to setting levels of financial support for children, we need to understand better how these costs vary across different sorts of families and change over time.”
