Fairness in benefits could save billions

A single claimant of Jobseeker’s Allowance or Income Support aged 18-24 receives £51.85 a week. This goes up to £65.45 for those aged 25 and over.

Tax credit and child benefit payments for a first child are significantly higher at £75 per week, while subsequent children will earn claimant households an additional £58 per week.

It would seem to be unfair that child-related benefits are paid at a higher rate than those for young adults. In particular, young adults may have to spend around a third of their income on utility bills, whereas families will enjoy the economies of scale resulting from shared living space, meals and transport etc. Moreover, it is inconsistent that the benefits system recognises economies of scale within families (hence the first child premiums) but not in its treatment of families vis-a-vis single households.

A fairer system would standardise first child payments at the young adults’ rate of £51.85 per week, with lower payments for additional children. This could be achieved in practice by halving the child element of child tax credits. The measure would have the additional advantages of improving work incentives and cutting billions from the annual £24 billion tax credits bill.

Interesting how these different and completely arbitrary rates grow up and are maintained without query, updated each year for inflation. There is certainly scope for juggling around with them. Depending on the numbers in each category, it may be possible to standardise on a rate with winners as well as losers but still make a big overall saving. Such a situation may be easier to handle politically than cutting all rates simultaneously.

The issue of housing benefit and the space entitlement should also be reviewed. Ideally, once one is on benefit, one should not automatically gain extra allowances for each child, especially as those funding the allowances often cannot afford children.

Tim makes an excellent point. There are many perverse incentives in the benefit system which allow households to profit from a change of circumstances in a way that never applies to those in paid employment. The whole idea of ‘premiums’ for particular circumstances ought to be questioned and the system made much more neutral.

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