The Family and Parenting Institute has commissioned some interesting research from the Institute for Fiscal studies on "The Impact of Austerity
Measures on Households with Children."
The title gives you some idea of where they are coming from, as do previous controversies over the FPI's stance and government funding.
According to the report, people with children will be much more affected by the government's attempts to bring its spending under control.
While the report is scathing, and the press release suitably blood-curdling ("Grim predictions"…"financial pain") I can't see any recommendations, about how the FPI would like to do things differently.
Which is a shame, because the report raises interesting issues.
One question that has been on my mind for a while is about whether the tax system should respond to the number of children you have.
You might think that it already does, because of "Child Tax Credits". But since 2003, you don't need to be working to get these. In effect, they are simply a larger, means tested version of Child Benefit. For clarity, the government should probably rename them as such.
The Government is increasing the personal allowance and so taking lots of low-earning people out of paying income tax. George Osborne has already increased the allowance twice, with a target of getting it up to £10,000 within the parliament.
I am a big fan of tax cuts for low earners. And I quite like the idea of the personal allowance, which represents the idea that you have to be able to provide for yourself before you start being taxed to provide for others (though everyone pays taxes like VAT).
The only weakness of the rising personal allowance is that it it blind to the number of children you have, and the wider "ability to pay". For example, a single childless person on £40,000 a year would be better able to pay
£15,000 in tax than a lone parent of two children on that same £40,000.
This seems fair to me. However, as my former colleague Andrew Lilico has pointed out, "From the tax system’s point of view, you could choose to spend £200,000 on a second-hand Ferrari, or a
yacht, or a child — it’s all the same, as far as the taxman is concerned."
But allowances that took account of family status existed in the tax system until not so long ago (1999/2000). Perhaps it is time to restore tax allowances for dependent children?
There are two broad ways of funding such a move. One would be to concentrate the planned increases in the personal allowance onto only those with children.
The second would be to shift funding over time from means tested benefits (like the Child Tax Credit) or universal benefits (like Child Benefit) into Child Tax Allowances.* This would strengthen the financial incentives to work. For this reason, I think it would reduce child poverty over time.
Polls show that the public are quite split about how much help people with children should expect from the rest of society. By more than two to one (66%-27%) people agree that “People who have more than three children should not get extra child benefit if they have a fourth”.
But they are much more sympathetic to the idea of tax breaks rather than benefits for kids.
By a margin of 55%-36% people disagree with the idea that “People with children should be given higher benefits to compensate for the costs of bringing them up.” Tax breaks for children are more popular than benefits, but people are quite evenly split on the parallel statement that “People with children should have to pay less tax to compensate for the costs of bringing them up”, with 44% in favour and 47% against.
I think the government are doing the right thing in focussing on people on low incomes. But for the same reasons that I think this is a good idea, I think the first people Government should try to help are people on low incomes with children.