Tuesday, 15 May 2012

Child benefit and the chaos of unintended consequences



It may not have escaped the attention of regular readers that the present writer has a book out (cough, cough, looks embarrassed).

It's about the unintended consequences of complexity - the manner in which governments 'puzzle', as well as 'power', and get tied up in loads of unexpected tradeoffs as they inch forwards into the quicksands of policy and an uncertain world.

Well, Child Benefit changes are a good example. Launched (chaotically) at a Conservative Conference to show that 'we're all in it together', at their heart they have the relatively good intention of making sure that upper middle-class earners pay for some of the deficit reduction that would have come whoever was in power.

But it swiftly became crystal clear that just withdrawing the benefit from all higher rate taxpayers - taking away a payment has always been a flat-rate payment to all mothers - was riddled with inconsistencies. It meant that a household might have £80,000 coming in, but still get the benefit as both earners were just under the threshold, whereas the £50,000 household next door would lose the lot.

So the Chancellor (above) has 'softened' his reforms.You only start to lose the benefit when you earn £50,000. And then there's a 'taper', as it runs out, to £60,000.

So far, so explicable. But what he's done is a classic 'complexity trap' - tying himself up in knots as he tries to correct a problem he caused in the first place. This is not to impute malign motives to anyone involved - simply to say that it's a recurrent dilemma as to how complicated, or how straightforward, policy should be.

Where does one start? Well, for a start the new 'taper' doesn't get rid of the fact that it's one person's income that we're looking at - so households with more money coming in might still keep Child Benefit, while those less well-off next door will lose it. So the fundamental problem hasn't gone away. The changes are expensive to administer - perhaps costing up to £100m. If you want to go into more detail, and the Institute of Chartered Accountants has published a report on the whole mess today, you can look at the problems up close and personal here. Have a think about just this one on its own: what happens if a couple breaks up, and the children are with the mother? She'll have to find out how much the father earns for at least one tax year. How will she do it? Answers on a postcard, because no-one else knows.

It's a foul-up. All governments have them - witness the 10p tax rate debacle under Gordon Brown. Though they're worse when an administration goes for 'breakneck government' - trying to change the public services all at once. It's rumoured that Mr Osborne thought that he might be able to row back from this one once the public finances improved. With the European outlook darkening markedly, there's no chance of that now.

So I think you'll see immediately what I think this means for Universal Credit - the Government's 'joined-up' welfare system 'fit for the twenty first century'. It's going to be an expensive disaster on both procurement and political grounds, and that's a prediction you can take away, laminate and wait for the storm clouds to roll up.

Complexity is a tough master. It makes fools of everyone in the end. That's why William Beveridge recommended flat-rate, as-of-right benefits in the first place. That's why the Government wants to return to a much simpler pension system.

It's just a pity that no-one told Mr Osborne when he was doodling his notes on Child Benefit.

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