Government considered £20,000 income ceiling on child benefit

The state of the public finances in 1987 prompted an examination of whether the government should impose an income ceiling of £20,000, above which child benefit would no longer be paid.

Finance officials consulted "informally" with the Department of Social Welfare in February, weeks after Garret FitzGerald's government had collapsed and before the new Fianna Fáil administration was in place. One memo on file indicates they had chosen to consult on the feasibility of dropping payment for the first child "before putting anything to Deputy Haughey".

The officials indicated cuts to child benefit by ceasing the State payment for the first child could save £21 million in 1987 and some £85 million in a full year. The spend on the allowance was to be £217 million in 1987, paid to an estimated 463,000 families in respect of an estimated 1.17million children.

Maurice Doyle of the Department of Finance wrote to Mr Haughey in February "further to our recent discussion on alternative public expenditure reductions" saying it had occurred to him that consideration might be given to "some curtailment of child benefit payments which, as you know, are paid on a universal basis".

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Mr Doyle said the original thinking behind the former children’s allowance was to support larger families and he suggested consideration could now be given to ceasing payment for the first child.

It was considered that making the child benefit scheme “selective” would require either means testing it or making it subject to income tax. But either system would involve matching up information on child benefit and income, which posed problems because of the different data held by the Department of Social Welfare (DSW) and the Revenue Commissioners.

“The principal underlying difficulty was that while DSW records on child benefit were of claims made by wives, income tax records were based on husbands’ RSI (now PPS) numbers,” one note said.

Officials also commented that means testing by interviewing all families claiming child benefit was “probably unrealistic”.

In a memorandum for the government on an income limit for child benefit in July 1987, then minister for finance Michael Woods said there was no comprehensive data available on the incomes of families in receipt of child benefit.

“Furthermore, the information is not fully reliable, particularly as far as the self-employed, including farmers, are concerned.”

The minister estimated that imposing an income ceiling of £20,000 for child benefit would affect 50,546 families (over 135,000 children) and save about £26 million in a full year. An income ceiling of £17,500 would hit 205,064 children, or 75,900 families and save £39 million.

The minister did note that the loss of child benefit would be significant for those families, particularly where there were a number of children involved.

Taxing the benefit, on the other hand, would ensure it was worth more to people on lower earnings.

The files note that the previous government had intended to introduce a unified system of child benefit involving a higher rate, which would be taxable.

This was deferred because of the difficulties in matching the Revenue and welfare files and also because of “the fact that in the absence of a mechanism for taxing child benefit in the hands of farmers they would gain disproportionately”. Particular difficulties would also exist in applying an effective income limit to self-employed people.

Finance official Philip Hamell, in a note of August 4th 1987, said there were "difficulties of principle" in applying an income ceiling for child benefit, including that the actual circumstances of people earning over £20,000 may vary considerably from case to case.

The proposal would penalise those with several children.

There would also be very serious problems of equity between those just over the limit and those just under. For example, a couple with one child and £19,000 would lose nothing. Those with five children and £20,100 would lose £900.

Couples with children with incomes over £20,000 were already heavily taxed and would find it very difficult to manage without the benefit, he noted.

For example, a man and wife, each on the average industrial wage, would be over the threshole. The proposal implies that, for such people, State aid for the raising of their children is unjustified. “Is this a defensible proposition?”

Ultimately, in his budget speech in January 1988, Mr Woods said the government was making a start on the rationalisation of the rates of child dependent allowances payable with social welfare weekly payments.

This involved the rate for the first and second child being “averaged”, among other changes.