Supporting Families: The Financial Costs and Benefits of Children since 1975

Supporting Families: The Financial Costs and Benefits of Children since 1975

Supporting Families: The Financial Costs and Benefits of Children since 1975

Supporting Families: The Financial Costs and Benefits of Children since 1975

Synopsis

How governments should direct money to families with children is a constant topic of political debate. But the complexity of the ever-changing tax and benefits system makes its overall impact on families anything but transparent, and trends in government support for children hard to distinguish. This report provides a comprehensive, quantitative analysis of trends in child-contingent support from the mid 1970s to the introduction of the new tax credits, and relates this to changes in tax and benefit policy, the characteristics of households with children, and the costs of raising children.

Excerpt

Financial support for children in the uk has seen many changes since the introduction of extra income tax allowances for dependants in 1909. These reforms have changed whether financial support for children is delivered through the tax or social security systems, whether it is universal or means-tested, whether it is paid to the main earner or the main carer in couples, how it treats small and large families, and how it differentiates between old and young children. the aim of this chapter is to describe and quantify trends in child-contingent support since 1975. the end point of our analysis is 2003, when the new tax credits were introduced .

Chapter 2 set out both how we define government financial support for children, or child-contingent support, for the purposes of this report, and our methodology for providing estimates of the amount of child-contingent support over time and across households. It also presented a summary of the key demographic trends among households with children since 1975, as they will be important determinants of changes in the level of child-contingent support. in this chapter, we take a preliminary look at the core features of child-contingent support in Britain and how they have changed since 1975. We discuss changes in the generosity of support relative to prices, earnings and gross domestic product (GDP), its importance as a source of household income, and how it varies with the number of adults and children in a household.

In Chapter 4, we go on to explore variation in child-contingent support in more detail and relate it to the changes in the programmes providing support since 1975.

As explained earlier, the estimates of childcontingent support presented in this chapter reflect changes in both government policy and the characteristics of households with children since 1975. At various points in this and the next chapter, we attempt to separate the impact of policy changes from population changes. of course, households will alter their behaviour in response to policy changes, and governments have made policy changes in the light of changes in the characteristics of households. But we can attempt such a decomposition by estimating child-contingent support paid under different years’ tax and benefit systems with an unchanging sample of households with children . We show these results, where they aid understanding, in the analysis later in this chapter.

Finally, when comparing changes in childcontingent support over time, we need to account for the changing cost of living: £1 of support in 2003 is not equivalent to £1 in 1975, since it buys less. As discussed in Chapter 2, we make this adjustment using household-specific inflation rates rather than the rpi. in particular, we calculate the average inflation rate experienced in each year by different types of households with children, and we use these numbers to adjust the nominal estimates of child-

Appendix C presents a detailed description of the programmes that have supported families with children since 1975.

See Appendix a for details of how this is done.

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