40 years on from its introduction, future of child benefit in doubt as its value falls to record low

Child Benefit – Britain’s most widespread benefit for working age families with around seven million families in receipt of it – turns 40 today. But it may not reach 60, according to new Resolution Foundation analysis published today (Tuesday).

The analysis, CB40, notes that Child Benefit (CB) was introduced on 2 April 1979. Unlike its predecessors, such as child tax allowances and the family allowance, CB was a universal benefit paid to all families, regardless of family size or income.

The value of Child Benefit was boosted significantly in 1991, 1999 and 2009. However, successive caps and cash freezes have meant that for the coming tax year on 6 April, the real-terms value of CB has fallen by around £210 a year since 2011-12, or £350 for two children.

The Foundation notes that the value of CB for a first child has now fallen back its 1999 level, while for a second child it will be lower in real-terms today than it was when it was first introduced back in 1979. As a share of average earnings, CB for a second child is now worth less than the family allowance, which dates back to 1946.

The analysis shows that, as well as being worth less, Child Benefit is no longer universal. The effect of tapering it away once someone’s earnings reach £50,000, and the complete withdrawal once earnings reach £60,000, is that one in five families no longer receive Child Benefit in full. The analysis also shows that families with a main earner between £50,000 and £60,000 can face marginal tax rates of over 70 per cent, due to the tapering of CB.

The Foundation warns that if these thresholds continue to be frozen, CB recipients will soon be overwhelmingly concentrated in the bottom half of the income distribution. At that point it says, the government could abolish Child Benefit and subsume it in to Universal Credit, as there is no point having two systems of means-tested benefits for the same group of families.

The Foundation says that rather than allow CB to wither and die, the government should instead consider raising it as a means to tackling child poverty.

It shows that increasing CB by £5 a week would reduce the number of children living in poverty by over 100,000. Such a boost would cost £2.7bn – the same as Entrepreneurs Relief, which the Resolution Foundation recently dubbed the ‘worst tax break in Britain’ for failing to support entrepreneurship even as its costs have spiralled.

Adam Corlett, Senior Economic Analyst at the Resolution Foundation, said “Today Child Benefit – Britain’s most widespread benefit for families – turns 40. But its anniversary feels more like a wake than a celebration.

“A decade of caps, freezes and restrictions have meant that the value of Child Benefit has, for some families, fallen to a 40 year low. A fifth of families are no longer entitled to it in full.

“If these trends continue, Child Benefit could be abolished in the coming years and subsumed into Universal Credit.”