As we move closer and closer to the government’s October do-or-die spending review, the Fiscal Muse has decided to bring you a weekly highlight concerning the politics of economics.
Although we’re a little bit late on this one, we unfortunately can’t go ahead with our new series without first taking a step back to last week’s shock announcement that child benefit is to be cut for those on higher rates of income. If ever the economy was connected to politics, then this is the money shot.
Proposal: During the height of the Conservative Party Conference the new Chancellor of the Exchequer, George Osborne, announced that those on the higher rate of tax, meaning those earning over the £44,000 per year threshold, would no longer be entitled to child benefit payments as of 2013.
Controversy: No decision in politics is without controversy, but it appears that the coalition scored a humdinger of an own-goal with this one when it was revealed that a couple earning £35,000 each would still be eligible for child benefit payments; whereas a couple with one income provider earning over the £44,000 threshold would lose their child benefit payments, despite having a total household income of nearly£30,000 less than the couple with a combined income of £70,000.
The Politics: The coalition took a hefty beating over this one, the remaining three days of the Conservative Party Conference was dominated wholly by the child benefit announcement. As a result of which the PM was forced to defend the policy in a number of television interviews during which he stated: “As we work to balance the budget, fairness includes asking those on higher incomes to shoulder more of the burden than those on lower incomes.”
Fairness is unfortunately the crux of the matter and the reason why the child benefit proposal will probably come back to haunt both parties at the next general election. Political analysts have suggested that the real aim behind the child benefit cut is political cover. By hitting the more affluent middle class first the coalition has given itself a degree of manoeuvrability and justification with those on lower incomes for when the real pain of fiscal cuts hit in October.