The financial costs and benefits of supporting children since 1975

This project analyses how the amount of child-contingent support to which households are entitled has changed since 1975, and relates this to changes in taxes and benefits, the characteristics of households with children, and the costs of children. The main findings, by Stuart Adam and Mike Brewer of the Institute for Fiscal Studies, are that:

• Total spending on child-contingent support has risen from £10 billion to £22 billion per year since 1975.
• The largest increase has occurred since 1999, with spending rising by half since then. Child-contingent support now accounts for a higher proportion of GDP and total government spending than at any time since 1975.
• Changes to tax and benefit policies were responsible for only 40 per cent of the increase in spending per child between 1975 and 1999. The rest was due to the changing characteristics of families. The large increases since 1999, however, are almost all due to policy changes.
• Many programmes have been used to deliver child-contingent support since 1975. Over time, child-contingent support has become more related to parents' income, as means-tested programmes and tax credits have grown. Universal child benefit, although maintaining its real value, has declined in importance from a peak of 79 per cent of total support in 1979 to 42 per cent in 2003.
• The proportion of child-contingent support going to lone parent households increased faster than the proportion of children in such households between 1975 and 1997. Since 1997, this proportion, but not the level of support, has declined. Changes to programmes have also increasingly emphasised the first child in a household, favoured young children over older children, and paid support direct to the main carer in couples.
• Although few estimates exist of the costs of children since 1975, they suggest that the proportion of parents who receive child-contingent support in excess of the cost of their children is small but has grown over time.
• The McClements equivalence scale, frequently used to measure the costs of children relative to adults, has not been adjusted since it was estimated to reflect the changing costs of children relative to adults. If the cost of children is to be used as a guide to setting levels of child-contingent support, more research on how costs vary across household type and change over time is essential.

The project

How governments should direct money to families with children is a constant political and policy debate, and the new tax credits represent one of the largest changes for 30 years. This project used the Institute for Fiscal Studies' tax and benefit micro-simulation model, TAXBEN, to calculate the extra income that each household in the Family Expenditure Survey received because it had children. The definition of child-contingent support included any transfer that an otherwise-equivalent household without children would not receive, rather than being limited to those parts of the system that are explicitly labelled as being child-related.