Welfare reform dominated the Chancellor’s Summer Budget, and one of the most significant areas pinpointed for an overhaul is Child Tax Credit payments. As well as being frozen for four years, the Government announced changes to eligibility criteria, which will mean that only the first two children in a family will be eligible to receive Child Tax Credits. Why did Government choose this approach, and what does a change in nature mean for those who receive it?
The Chancellor hopes the changes to Child Tax Credit will reap the Government an estimated £1.35bn in savings a year. While families that already have three or more children will not be impacted – there are currently around 870,000 families of more than two children currently benefiting from Child Tax Credit – any family that does so after April 2017 will stand to lose around £2,780 per year, per extra child.
When we consider the scale of the state pension and housing benefits in the welfare bill, this new approach may seem more tinkering than reform – nonetheless, Child Tax Credit has been singled out in a way that dwarfs many of the Budget’s other welfare proposals (even restricting housing benefit to over-21s will save just £35m a year).
It is plausible that the Government sees these changes to Child Tax Credit as bringing other benefits. For example, the chance of a woman returning to work after having two children is much higher than the chance of returning to work after three or more; in this respect, the reforms could create a disincentive not only towards high birth rates, but also against economic inactivity – something the Chancellor was keen to champion during the previous Government as well.
However, what is new about these changes is that they take the State deeper into territory where it makes decisions about family life – in this case how many children it is willing to help families support.
There are many arguments in favour of increasing women’s involvement in the labour market: both for the benefit of individuals, the economy, and society at large. The issue is that simply removing a financial incentive to abstain from work alone cannot compensate for ensuring that women are equipped with the skills and confidence they need to re-enter the workforce and find good quality jobs.
These planned changes to Child Tax Credit take this conditionality one step further – through seeking to change behaviour at the household level, and influence family decision-making about private matters.
There is something in common here with the Budget’s proposed changes to Housing Benefit, which will, as of April 2017, no longer be available for people aged 18-21. Again, the impetus is to direct more young people into either work or education. Contained in this is another assumption about families: that adults aged 21 and under remain the responsibility of their parents before they enjoy entitlements from the State.
This assumption also raises practical questions. If young adults are unable to find good quality jobs – with consistent working hours and decent pay – they may find themselves needing to stay longer at home, and unable to take on more appealing positions in other towns. Similarly, for those without the option of living with their family, particularly if they live in areas with high property prices, there is a danger they could start their working lives in a position of ‘working poverty’.
It makes sense to attach conditions or expectations to some benefits, incorporating the idea of civic rights and responsibilities to the welfare state, and delivering savings and efficiency along the way. The tax and benefits system has always acknowledged mutual dependence within families too – means testing is often done at a household level, for example. But it is also important to acknowledge what these specific changes represent for the relationship between individuals, families and the state, and the role that the Government plays through welfare provision in helping to shape people’s decisions.
In practical terms, it also matters that changes assumed to increase participation in the labour market do not, in fact, restrict people’s ability to find the jobs that are right for them.