Ed Balls risks pushing more families into poverty with child benefit plan

Ed Balls or Margaret Thatcher? It’s sometimes hard to tell. Peter Byrne/PA Wire/Press Association Images

Ed Balls has kicked off the annual Labour conference in Manchester with an ill-judged announcement that his party would increase child benefits by just 1% a year until 2017 if elected to government next year.

Labour needs to convince the electorate that it is serious about getting the deficit down and this is symbolic of that intention but to nominate child benefit as the first cut seems deliberately provocative. Balls risks losing the support of mothers, women and families as well as those concerned with poverty and inequality in British society at a time when a mountain of evidence shows that the coalition government’s austerity measures since 2010 have been particularly unfair to households with children and especially poor children.

Child benefit is £20.50 per week for the first child and £13.55 for the second and subsequent children. The system replaced the family allowance in the late 1970s and, by April 1979, was worth 9% of average earnings for a two-child family. But the benefits were left to wither on the vine by the Thatcher and Major governments, falling to 5.3% of average earnings by 1998.

Gordon Brown rescued child benefits in his 1999 budget as part of the child poverty strategy but, as soon as the coalition came to power in 2010, it froze the benefit for four years and said it would be increased by 1% rather than in line with inflation for three subsequent years. Families are getting around £6 less per week than they did in 2010 as a result.

There is no doubt that whoever wins the next election will need to continue to tackle the deficit. But it was hoped that a Labour government might approach the problem more fairly, as it did between 2008 and 2010. Fairness would imply a better balance between cuts to spending and increases in taxation instead of following the path taken by the coalition, which has been to carry out around 85% of its deficit-reduction by cutting spending rather than raising taxes. Fairness would also require achieving a better balance between the poor and the rich and between pensioners and children.

Last year the Children’s Commissioner for England undertook a detailed evaluation of the impact of the austerity measures on children and concluded that families with children were losing a greater share of their income than those without. The most vulnerable families with children were losing proportionally the most.

Then, the Equality and Human Rights Commission published an analysis that showed the same. Couples with children, lone parents and those with the lowest incomes have had the biggest percentage reduction in their net disposable incomes since 2010.

Combined impact of tax and welfare reforms as percentage of net household income according to family type. Equality and Human Rights Commission

The report also showed that if services cuts were added into the mix, it was still couples with children, lone parents and elderly singles that were experiencing the biggest cuts.

Combined impact of tax, welfare and other public spending changes as a proportion of total household living standards (net income plus the value of public services in the base year) by family type. Equality and Human Rights Commission

The nominal disposable income of families with children has been falling since 2009-10. Pensioner incomes, on the other hand, have continued to rise and have been protected by the triple lock – which guarantees pensions will increase either in line with prices, earnings or by 2.5% per year, depending on which is higher. So in 2014, the basic pension increased by 2.7% while child benefit went up by 1%. The real living standards of families with children have fallen as price inflation has exceeded income growth in every year for the last six years in part because of the freeze in child benefit.

Mean equivalent net disposable income £ per annum.

The coalition’s failure to increase child benefit and benefits for people of working age in line with real-world prices is precisely why all the progress of the Labour government in reducing child poverty is being swept away. The policy is unjust, short-sighted and in the long term very costly.

To hear Ed Balls stride out with this as his flagship pre-election promise is alarming. It is not the first thing a Labour shadow chancellor should do. It’s quite possibly the very last thing Balls should do.

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