Cutting child benefit but increasing free childcare – where is the poverty test?

2nd Jun 2015

Cutting the deficit while reducing poverty and improving prospects is a mighty challenge – is anyone checking policies for their impact on people in poverty? asks Helen Barnard.

Yesterday there were two big stories about state help for families. First, there is the Prime Minister’s plan to double free childcare so that all three- and four-year-olds can access up to 30 hours a week. Second, Iain Duncan Smith is reportedly considering plans to limit Child Benefit to the first two or three children, and to reduce the amount of benefit for the first child from £20.70 to £13.70, the rate currently paid for subsequent children. This is presented mainly as a contribution to the £12 billion cuts the Government plans to make to the benefits bill, with a secondary argument that it might deter some families from having more children than they can support. The Prime Minister’s rejection of cuts to Child Benefit suggests that this may be a battleground over the course of the Parliament. The key question both the Prime Minister and the Secretary of State should be asking is ‘How will this affect people in poverty? Reducing the benefits bill by £12 billion will certainly mean making some very difficult choices.

Research from the Institute for Fiscal Studies and JRF last week showed that, after taking protected pensioner benefits out of the equation, the Government must cut remaining benefits by almost 10 per cent.

Capping the number of children eligible for Child Benefit would save £1 billion. Reducing Child Benefit for the first child would save £2.5 billion. Either of these changes would affect families across a large part of the income spectrum. Capping the number of eligible children would only affect larger families, who are already disproportionately likely to live in poverty.

Providing 30 hours of free childcare would cost up to £1.7 billion under current funding arrangements and could rise to nearly £2 billion if the Government makes the funding formula more generous, as the childcare sector is demanding.

The Government has set out a number of goals which it aims to meet simultaneously:

  • reduce the deficit, in particular through cuts to the benefits bill;
  • reduce poverty;
  • improve people’s prospects for the future, especially by improving access to childcare, education and jobs.

Balancing these goals is a mighty challenge. To have a chance of doing so, the Government should consider how policies will affect people in or at risk of poverty, whether they will improve opportunities for adults and children living in poverty, and how much of the extra spending goes to better-off people.

A large proportion of the £1.2 billion investment in free childcare benefits better-off families and, unless quality is also improved, the effect on children’s development is likely to be negligible. If reducing the cost of childcare is the main concern, low-income families could be helped much more cheaply by increasing the amount of support they receive through tax credits.

Cutting the amount of Child Benefit received for the first child affects families across a large part of the income spectrum. If the policy goes ahead, the Government could protect low-income families by increasing their child tax credit by the same amount.

This illustrates how difficult it is to reduce benefits spending without also tackling underlying poverty. Fundamentally, our research shows that the only way to sustainably reduce both the benefits bill and poverty is to tackle the underlying causes of low incomes – poorly paid, insecure work, high living costs and a lack of genuinely affordable homes.