So the notion of universal child benefit is finished, at least for now. The Conservatives have proposed to remove child benefit altogether from households with a higher rate taxpayer. But there remain some very serious doubts about how this will be implemented in practice. 

This is because the coalition proposes to remove child benefit from those families where there is one or more higher rate taxpayer.  Yet child benefit was always predicated as a payment that was made (ordinarily) to the mother regardless of household income or personal situation.  In doing so, it does more than almost any other benefit to improve child welfare.

And it's not hard to predict what harm this might do.  I'm reminded of Steven Levitt's "slaughter of the innocents" in which overnight seven million American children silently disappeared in 1986 when the IRS demanded, reasonably, that their parents provide social security numbers for the dependents for which they were claiming tax deductions.  As so many had simply been made up to claim the deduction, they were omitted from the forms in future filings.

Similarly, we should be aware of these intrinsic pitfalls when designing tax systems today.  It's madness to design a system that virtually persuades people to undertake tax evasion.  Even Ritchie thinks it's a bonkers idea.  Even those who fill in the forms correctly may find themselves claiming the benefit illegally if their income changes mid-year or if their circumstances change.  It will all rather depend on the way the law is drawn up, and it's pretty difficult to imagine a way that will be both fair and watertight.

Jon Stow portrays HMRC's proposal as an honesty box approach, and in the absence of other controls they rarely work.  We should be designing a system that encourages compliance, not evasion.

One such system, if Osborne is mad enough, would be to return to the family system of taxation abandoned absolutely yonks ago in the UK, but still alive and kicking in the US.  This allowed couples to file a joint household tax return and would be a massive sop to the middle classes by allowing a non-working or basic rate taxpaying person to pool income with their higher rate taxpaying spouse. This would have the advantage of providing a mechanism for forcing couples to share information on their earnings, which they are currently not required to do.  But HMRC would be able to remove child benefit only from those who elect to file jointly, which add to complexity and reduce the savings available.  Married filing jointly status would also reduce the overall tax take.

So we await details from HMRC on how they intend to navigate their way through this mess.  But it's looking pretty bleak for both the simplicity of the tax system and HMRC's ability to remove child benefit from those Osborne has singled out.

People who read this post also read:

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Filed under: Politics, Taxation with tags child benefit, conservatives, george osborne, higher rate, hmrc, jon stow, married filing jointly, richard murphy, steven levitt