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Child benefit

First you pay income tax. Then they pay some of it back as child benefit. Then you pay some of the child benefit back as the higher income child benefit charge.

That really is how it works.

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7 comments to Child benefit

  • Paul Marks

    I believe it is called “churning” – taking money from people, using some of it to fund admin, and then handing what is left back.

    Not all Welfare States are quite the same – for example (I am told) in Australia and New Zealand “churning” is much less (i.e. if you are on benefits you are not likely to pay direct tax) and such things as the “national insurance” myth (in the United States the payroll tax or “Secial Security” tax).

    In Australia and New Zealand (I am told) welfare (including government provided “pensions”) are funded partly by income tax (which is not applied to most of those on benefits) and partly by the the sales tax (which is lower than the 20% sales tax or “VAT” that exists in the United Kingdom).

    So “churning” is less.


    If the government follows a Milton Friedman style policy – i.e. “targets” benefits on the poor and finances the payments (and services) by taxing those people who are in work, the problem of the “Underclass” emerges.

    For example, New Zealand had a series of what were described as “radical free market” governments (they even viewed themselves that way) and they followed the “targeting” policy – welfare just for the poor, to be financed by the not poor.

    The amount of money spent on the Welfare State (and the number of people dependent upon benefits), I am told, greatly INCREASED.

    “That was because the Labour party took over and ruled for a decade, Paul”.

    Was that the only reason?

    Was it really?

  • Runcie Balspune

    I cannot understand how (as shown in the BBC example) a person is stung for CB clawback because of someone unrelated to their children decides to move in with them.

    It also seems that, because it is done on individual income not combined income, a couple earning £49,000 each gets full CB, whereas a single parent on £60,000 gets none.

    If this had been done properly they’d use the combined total of income for the biological (or adopted) parents.

  • Jaded Voluntaryist

    As someone who has been on the receiving end of these “churned” benefits for much of his adult life (since I’m a married postgraduate student with kids), I can tell you another reason why the government has a vested interest in having most of the working age population being in receipt of some form of state largess: nosiness.

    If you don’t take the benefits you’ll end up paying a functional tax rate that would put even the Netherlands to shame (if you include all taxes). But if you do take them, you have to provide all sorts of personal and financial information to the government whenever they ask.

    How else would they force anyone they please to show them their bank statements without ordering an audit or obtaining a court order?

    The money comes back, but it comes back with strings attached.

    And since I am largely dependant on this money I am qualified to say without being accused of bias, that I would gladly trade them all to be “free”. For example without a Housing Association property (which to be fair is a charity) and benefits, we’d probably have to move in with my father. However in a true free market my wife would be free to found that business she’d wanted to found without the onerous regulatory hoops which currently prevent her from doing so. Additionally childcare would be cheaper.

    Childcare in Britain is some of the most expensive in the world right now, averaging something like £12,000 a year per child. My wife and I have 4 children – you do the math regarding how much she would need to earn to make putting them in daycare cost effective…..

    So in some sort of minarchist utopia, we’d be worse off at first. But I think we’d be better off in the long run.

  • guy herbert

    “If this had been done properly…”

    Hm. Who’s to say it hasn’t? I have a long post coming on about this one, but the ostensible goals of the government and the revealed preferences of Whitehall may be different. This is being done in the most complicated, intrusive way imaginable. That’s a feature, not a bug, viewed from HMRC’s and the DWP’s perspective. They get more powers. They collect more information. If everyone simply complies, they get an expanded clientele.

    (There are some signs that people will drop out of claiming benefits child benefits rather than run on HMRC’s treadmill, which is a good thing – but not, I think, part of the plans of either ministers or civil servants.)

  • Snorri Godhi

    An interesting side effect of such policies is that both income per person and public spending are made to look bigger than they actually are.
    Willem Adema did some research on this about a decade ago, and found that, if the accounting is done properly, welfare spending per person in Denmark is hardly larger than in the UK.
    Things might be different now.

  • chuck

    One might think it increases the velocity of money but there is no purchase of new goods. Nevertheless, it does increase the velocity of abstract money. Abstract money is what comes with a game of Monopoly.

  • Snorri Godhi

    A correction to what I wrote yesterday: figures for GDP per person are not increased by this recycling; only the apparent public spending and the apparent tax receipts are increased.