Select Committee on Social Security Second Report

ICC and the costs of children

The relationship of Child Benefit to ICC

18. Integrated Child Credit will sit alongside Child Benefit, which is paid for all children regardless of means. The Treasury have described ICC as "building upon the foundation of universal Child Benefit,"[26] but what will be the relationship between the two? The Child Poverty Action Group pointed out that Child Benefit already achieved all of the stated aims of ICC: "it is portable and secure, spanning non-employment and work; administratively efficient; provides a transparent system of support; is paid to the main carer; and has a very high take-up rate."[27] Child Benefit achieved this, said CPAG, by virtue of being non means-tested, and because it recognised the importance of supporting all children.[28] However, by virtue of being non means-tested, Child Benefit is also expensive. In 2000-2001, the estimated costs of Child Benefit were £8.5 billion.[29] In contrast, ICC will offer selective support for children, related to income, with families containing a higher rate tax payer being excluded altogether. CPAG has described the proposal for an ICC as a "potential Trojan Horse"[30] for more means-testing, with Child Benefit being allowed to wither away, as more money is put into selective rather than universal support for children. Jane Millar commented, "I would not like to see Child Benefit withered away... at the expense of the Integrated Child Credit because I think both have a role to play. Child Benefit is society's recognition of the needs of all children."[31] Professor Millar highlighted the dangers which could arise if such targeted help became the main government instrument for supporting children. In Australia, a universal family allowance was abolished in the 1980s. One of the consequences was that "a terribly complicated system grew up afterwards". She concluded " I think one of the dangers if we get rid of Child Benefit is that we start to create a more fragmented, complex and difficult system."[32]

19. However, the Chancellor of the Exchequer has made clear his commitment to Child Benefit, arguing in his 1998 budget that "Child Benefit remains the fairest and most efficient and cost-effective way of recognising the extra costs and responsibilities borne by all parents...future support for children will be built around universal Child Benefit."[33] More recently, in evidence to us, the Treasury emphasised that Child Benefit has been a key part of Government strategy on child poverty.[34] Two years ago, in our report on Child Benefit, we acknowledged and endorsed the 'multi-purpose' role of Child Benefit in alleviating poverty; promoting 'horizontal' equity between people of similar incomes, with and without children; providing a contribution from society as a whole to the next generation; overcoming unemployment and poverty traps; giving a stable element at times of financial insecurity; and offering an independent income for women.[35] We value the role of universal Child Benefit and believe it should continue to play a substantial role in supporting the children of this country. We welcome the commitment from the Chancellor to Child Benefit. We recommend that the Government takes steps to ensure that, as integration develops a separately identifiable universal element, presently the Child Benefit, is preserved.

What is an appropriate level of support for children?

20. The introduction of Integrated Child Tax Credit takes place within the context of the Government's commitment to reduce child poverty by half within the next decade and to eliminate child poverty over 20 years. The number of children in relative poverty in the UK has increased threefold over the past 20 years and the latest figures show that 4.5 million children - one third of all children - were living in households with incomes of less than half the average in 1998-99.[36] Some children stay poor for long periods, and there is increasing concern about both the short-term and long-term consequences of this.

21. The introduction of ICC is unlikely in itself to reduce substantially the number of children living in poverty. It is essentially a structural change in the way benefits for children are delivered and will not necessarily result in higher levels of support. As IFS told us, "[ICC] can be introduced simply as a change in the way policy is delivered and does not require a change in distribution."[37] Illustrative figures to explain the new structure of ICC use 2001 benefit and tax credit levels,[38] but, as yet, no decisions have been taken on the level or levels of ICC.[39] The evidence from Australia and Canada shows that the introduction of integrated support for children has led to a reduction in child poverty.[40] But, as Jane Millar explained, the anti-poverty effects came from higher levels of support for children, as well as more efficient delivery - "one without the other is not enough."[41]

22. The Government has said that the more transparent system of support for children offered by ICC will "facilitat[e] public debate about the appropriate level of support in the context of the Government's commitment to abolish child poverty within a generation."[42] The implication appears to be that it is only when the new structure of ICC is in place, that a public debate will follow on appropriate levels of support. Sue Middleton, of the Centre for Research in Social Policy at Loughborough University, warned "a very great opportunity is being missed to look thoroughly at what we provide for children, what the purpose of it is, whether it is adequate, what the structure should be and so this understandable rush to get this reform through."[43] We believe that the introduction of Integrated Child Credit provides an opportunity for a long overdue review of the level and structure of financial support for children in Britain which should not be missed.

23. In pursuit of its anti-poverty goals, the Government has set itself a milestone target for 2004, that the number of children living in households with an income of less than 60 per cent of the median will be by then reduced by at least a quarter.[44] To that end, the rate of Child Benefit has been substantially increased,[45] as have younger children's rates within income-related benefits.[46] But experts queried whether the Government's anti-poverty targets, based on reducing the numbers of children living in households with incomes of less than 60 per cent of the median, are sufficient in themselves to establish whether levels of support for families with children give them enough to live on. CPAG's view was that the Government's use of various percentages of average incomes to measure poverty said a great deal about inequality but nothing about need.[47] Similarly, Peter Whiteford, whilst happy with a poverty measure based on a percentage of average income, considered that it should be supplemented with measures of absolute adequacy because the former "is a purely arbitrary line drawn across income distribution, and you need to have other evidence that families can actually cope."[48] Sue Middleton shared this view: "The income measure has been an immensely useful one and it is obviously there because it is easily comparable both within countries, [and] across countries...[but] it has no basis in any real understanding of what families need to keep out of poverty."[49] Professor John Veit Wilson commented, "no one knows if...60 per cent of the median is too high, too low or about right to achieve the intended objective of preventing deprivations and social exclusion."[50]

24. Despite the willingness of the Government in its discussion document on ICC to enter into a public debate on the appropriate level of support for children, the Government has said that it does not accept that there is a single research method which can be used to assess the adequacy of benefit levels.[51] Nick Macpherson of the Treasury told us during the course of the ICC inquiry, "my basic worry is that if you talk to academics, they tend always to have different views on what an adequate level is...I think there are potential risks in getting sidelined by a long debate on adequacy."[52] Professor John Veit Wilson, who had done work on seeking to define minimum income standards, agreed "there are many sources of information about what an inadequate income is, and a number of methods are available to calculate what an adequate income might be, at various different standards of adequacy."[53] He favoured a process of 'triangulating' or comparing a range of sources of relevant information about inadequate incomes to assist the Government in finding a yardstick. His view was that, given the Government's acknowledgement that "low income is a key aspect of poverty and social exclusion,"[54] it was important to establish what causal links existed between low income and various social deprivation indicators (for example, death rates, low birth weight, and educational attainment); and where causal links were found to exist, at what levels of income they became critical. We accept that lack of income is not the only dimension of poverty and social exclusion. Nevertheless it is a very important dimension. At present, the Government has no measure for judging what level of income is needed to abolish poverty in households containing children. In seeking to eliminate child poverty, we consider that such a measure is essential. We therefore recommend that the Government should establish a specific budget to fund a variety of research by different social scientists into the levels of income which are sufficient to keep families with children out of poverty.

25. We also recommend that the Government convenes an ongoing working party involving policy makers, academics and other interested parties to assist it to devise publicly acceptable measures of the levels of income needed to avoid poverty.

26. If ICC were to be based on existing children's rates of benefit and tax credits would it adequately meet the costs of children? The Government's illustrative model suggests that the maximum rate of ICC (at April 2001 levels) would be £34.50 for a first child, and £26 for a second or subsequent child.[55] When combined with Child Benefit, the total level of support would rise to a maximum of £50 for a first child and £36.35 for other children.[56] Sue Middleton has commented that these levels of child credit do imply significant increases in support for children in families on Income Support, if, as the model seems to assume, the same level of credit is to be payable irrespective of the reasons for low income.[57] The question of the adequacy of ICC does of course relate not only to the maximum amount available for families on very low incomes, but also to how far up the income scale this maximum amount continues, and at what rate it is withdrawn, tapering support away to the minimum.[58]

27. One approach to the question of the appropriate level of income for children is to consider what would constitute, in Sue Middleton's, words, "a completely low, really minimum standard of living."[59] She told us about her own consensual budget standards methodology, which involved setting up 'budget standards committees' consisting of mothers from a range of backgrounds and incomes, who came together to construct a list of goods, items, and activities which they believed were necessary for children of different ages to keep a child out of poverty. The figures they came up with for children were roughly 20 to 30 per cent above the Income Support levels pertaining at that time.[60]

28. The Family Budget Unit (FBU) have done similar work, constructing a 'low cost but acceptable' budget, below which families risk poverty. Their budgets are drawn up by experts (for example on dietary adequacy) using consultation with discussion groups on consumer preferences and draft budgets. At our request, they updated work carried out in November 1998 on a low cost but acceptable budget for working families, disaggregating the costs of children, aged 4 and 10. They also looked at the costs of a child of 16 years.[61] Ignoring childcare costs completely, their figures suggest that the maximum amounts of ICC would be sufficient to allow a low cost but acceptable standard of living for younger children, but not for teenagers, particularly those who were second or subsequent children. However, arguably an element of childcare should be included in the costs of a child, albeit diminishing as the child gets older. In the case of ICC, which at its maximum level is intended to go to families in low-paid work as well as those out of work, it does seem even more logical to acknowledge care costs. The FBU have included calculations showing the costs of registered childcare for a 4 and 10 year-old (less for the latter). Under present arrangements, which are likely to continue when ICC is introduced, a separate childcare credit is available which meets 70 per cent of childcare costs up to a limit. Parents therefore have to meet thirty per cent of child care costs themselves. If 30 per cent of the costs of childcare are taken into account as part of the costs of a 4 year-old and 10 year-old child, the FBU calculations suggest the costs of children at a low cost but acceptable budget level would be £47 for a child aged 4; £44.14 for a child aged 10; and £55.94 for a 16 year-old. These suggest that the maximum amount of ICC for an only or eldest child would be sufficient to allow a low cost but acceptable standard of living for younger children, but not for older, teenage children. ICC levels for second and subsequent children would fall below a low cost but acceptable standard.

29. Some people have criticised the FBU 'low cost but acceptable' budget standard as too low. Child Poverty Action Group have said the FBU "have erred very much on the side of caution": "they deliberately adopted [a very modest measure] because before with previous measures some people felt that we were setting too high standards."[62] The FBU themselves argue that most households, particularly two-earner households, aim above the low cost but acceptable standard. Indeed, when presenting their findings to the Committee, they argued that the 'poverty threshold' which the low cost but acceptable standard represented, was not suitable for people in paid work.

30. We were particularly interested in the work of Sue Middleton from Loughborough University. Her work in examining expenditure on children across a nationally representative group showed that, at 1998 prices, parents spent an average of £49.72 per week on a child.[63] Her analysis showed that there were degrees of variation according to age, family type (lone parent or a couple) or size, birth order or family income, but that the variation was surprisingly small. In the case of families on the lowest incomes, parents were spending a disproportionate share of their meagre income on their children, sacrificing their own consumption in order to provide for their children.[64] Unlike the Family Budget Unit, Middleton's study suggested that younger children were not significantly cheaper than teenagers. She has written, "This finding always seems to cause some concern among academics, particularly, it must be said, those who are the parents of teenage children...What seems to be forgotten is that there are areas of (higher) spending on young children that reduce or drop out of their budgets as they get older, to be replaced with other, possibly more visible expenditure. For example, shoes and clothes have to be replaced very much more frequently when children are young and growing rapidly. Disposable nappies are a major expense that also drops out of the child's budget."[65] Based on her 1998 average spending figure, only single and oldest children in families receiving maximum ICC would receive roughly the amount which parents actually spend on them. Families with more than one child would receive considerably less. The research by Sue Middleton suggests that the amounts parents actually spend on children differ remarkably little across income bands. Given that ICC is creating a framework where all families will be part of the same system, we believe there is a case for working towards a maximum award of ICC, paid to families on the lowest incomes, which reflects what parents on average need to spend on their children, an amount which is then tapered away as income rises.

31. We received specific representations concerning the levels of ICC which would be paid to children with disabilities.[66] At present, Income Support and income-related Jobseeker's Allowance give an extra premium where there is a disabled child. Similarly, there is a disabled child credit within WFTC and DPTC. Ms Pattison of the Department for Social Security admitted that it would be "a relatively straightforward thing" to roll up the disabled child premium and tax credit within ICC.[67] We are mindful of the risk of adding extra layers of complexity. Jane Millar drew attention to the Australian system, where "partly as a result of political pressures, different groups started saying 'we need additional support' and pushing for that. The system became very, very complicated with lots of small things intended to target particular groups instead of having a single universal benefit."[68] Having considered the matter carefully, we have however concluded that it is right that ICC should recognise the higher costs of disabled children. We therefore recommend that the disabled child premium within IS/JSA and the disabled child credit within WFTC/DPTC be incorporated within Integrated Child Credit.

26   HMT 2000, para 1.5. Back

27   CPAG, Ev. p. 46, para 5.2. Back

28   Ibid. Back

29   Social Security Departmental Report, April 2000. Back

30   CPAG, Ev. p. 47, para 5.5. Back

31   Q 7. See also Sue Middleton, Q 154. Back

32   Q 5. Back

33   HC Deb 17 March 1998, vol 308 col 1107. Back

34   Q 252. Back

35   Child Benefit, Fourth Report of the Social Security Committee, Session 1998-99, HC 114. Back

36   Monitoring poverty and social exclusion 2000, New Policy Institute, Joseph Rowntree Foundation, December 2000. Back

37   Q 183. Back

38   See Chart 2.6 in HMT 2000. Back

39   Ibid, para 2.27. Back

40   See Ev. p. 3, and Ev. p. 29-32.  Back

41   Ev. p. 3. Back

42   HMT 2000, para 2.25.  Back

43   Q 157. Back

44   DSS Public Service Agreement 2000 covering period April 2001 to March 2004. Joint performance target with HM Treasury. Back

45   There has been a 26 per cent increase in the rate of Child Benefit for the only or eldest child since 1997. Back

46   Income Support rates for children under 11 have increased by 72 per cent in real terms since 1997. Back

47   CPAG, Ev. p. 47, para 6.6. Back

48   Q 63. Back

49   Q 144. Back

50   Ev. p. 109, para 4. Back

51   Pensioner Poverty: Government Response to the Seventh Report of the Social Security Committee, Fifth Special Report, HC 952. Back

52   Q 240. Back

53   Ev. p. 109, para 3. Back

54   See Opportunity for all: Second Annual Report 2000, Cm 4865Back

55   In the March 2001 budget the level of the Children's Tax Credit, due to be introduced in April 2001, has been raised to £10. This means that if ICC were set at April 2001 levels, they would now be £36 for a first child and £26 for a second or subsequent child. Back

56   The March 2001 budget announcement of a higher Children's Tax Credit rate from April 2001 increases the illustrative rate of maximum ICC to £51.50 for a first child. Back

57   See article "An Integrated Child Credit: Benefits and Spending on Children" by Sue Middleton in Benefits, Issue 29, September/October 2000. Back

58   The minimum amount of ICC would be £8.50 per family, regardless of the number of children, payable up to gross incomes of around £33,935. Taking into account Child Benefit, minimum levels of support for children in families still eligible for ICC would thus be £24 for the only or eldest child and £10.35 for each additional child. Child Benefit would continue to be paid once ICC had ceased, up to the highest incomes.  Back

59   Q 141. Back

60   Q 144 and 149. See Family Fortunes: Pressures on parents and children in the 1990s, Middleton, Walker and Ashworth, CPAG, 1994. Back

61   Full details are given in Appendix 7. Back

62   CPAG, Ev. p. 47, para 6.6. Back

63   Small Fortunes: spending on children, childhood poverty and parental sacrifice, Middleton, Ashworth and Braithwaite, Joseph Rowntree Foundation, 1997. Back

64   Q 123. Back

65   See article "An Integrated Child Credit: Benefits and Spending on Children" by Sue Middleton in Benefits, Issue 29, September/October 2000.  Back

66   See Disability Alliance Appendix 2 and CPAG, Ev. p. 49, para 7.2.  Back

67   Q 220. Back

68   Q 5. Back

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