James Forsyth

Osborne’s benefit risk

Osborne's benefit risk
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George Osborne’s announcement that child benefit will be taken away from any family with a higher rate taxpayer in it to help fund welfare reform shows how far Cameron and Osborne were prepared to go to keep Iain Duncan-Smith on board. During the campaign and in the Budget, Cameron and Osborne had strongly implied that child benefit would remain universal.

The move carries it with considerable political risks. The measure takes effect from 2013, so before the country will have seen the benefits of welfare reform. Also families with one earner on £44,000 a year don’t consider themselves to be rich; there is already considerable irritation at how Gordon Brown’s policy of fiscal drag has pulled so many people into the higher rate — by the end of Brown’s tenure at the Treasury twice as many people were paying the higher rate than before — and now being told that you’ll lose your child benefit because you’re a higher rate tax payer will exacerbate this feeling. There are going to be lots of discrepancies for the press to report on; households with an income of £80,000 a year but without a higher rate taxpayer.

During the Labour leadership contest, Ed Miliband was an ardent defender of the need for universal benefits so we can expect him to oppose this measure. But if he backs the overall welfare reform package, as reports have indicated he will, then the Tories will claim there is another black hole in his fiscal plans.