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Britain grows cautious about benefit cuts

LONDON – Every week without fail Lucy Elkin, a comfortably middle-class mother of two small children, receives a child benefit payment of just more than 33 pounds, or about $52, from the debt-plagued British government.

"It’s useful and it helps pay the bills, but it is not as if we are struggling to put food on the table," Elkin said as she led her children from the park to their house on the leafy fringe of Hampstead Heath, one of London’s most desirable neighborhoods.

Elkin, 40, is a freelance writer. Her husband is a computer programmer. Along with more than 3 million middle- to upper-income British families, they are among the recipients of 11 billion pounds ($17.2 billion) a year paid to mothers with children here. It is a universal benefit that not only costs taxpayers about twice as much as the total for unemployment payments but also represents the largest chunk of the estimated 30 billion pounds ($47 billion) the government pays each year to Britons with above-average incomes.

"It is one of those things that is quite hard to justify," Elkin said.

She is not alone in thinking that Britain can no longer afford such generosities. But even as civil servants and ministers are preparing to drastically cut most categories of government spending to help close Britain’s budget deficit, the government is so worried about alienating middle-class voters that it is proceeding very cautiously in limiting the subsidy for having children.

"There is a long history of universal welfare schemes here," said Patrick Nolan, an economist for Reform, a free-market-oriented research organization that has issued a report claiming that as much as 16 percent of total welfare benefits go to those who do not need them. "But it has become a very expensive luxury when hundreds of thousands are losing their jobs."

The debate in Britain highlights an issue that other advanced industrial countries are also beginning to grapple with: Who should bear the burden of the coming wave of austerity?

Unless politicians are prepared to dig into the pockets of middle- and upper-income families, experts say, the demands from bond market investors to get government finances under control can be satisfied only by cutting back even further on benefits for the poor and needy. But any serious effort to curb long-established middle-class entitlements risks setting off a public reaction that few political leaders are eager to face.

In Britain, the quandary is particularly stark. The social safety net that has been an essential feature of British life since World War II ended has been built largely on providing similar benefits to all, like health care and home heating allowances for the elderly, regardless of income.

Those earning up to 37,400 pounds a year pay income tax of 20 percent per year.

All told, about a third of Britain’s 61 million people claim either a child subsidy or winter heating allowance. Together they represent a formidable political bloc of families and senior citizens that Prime Minister David Cameron was loath to alienate during last spring’s election.

That helps explain why Cameron promised not to "means test" the child benefit by limiting it to the poor. He said payments to the elderly to subsidize television license fees, along with bus fare and heating allowances, would not be touched, either.

Lately, though, the government has begun to signal a harder line.

At the Liberal Democrat’s party conference in September, Cameron’s coalition partner, Nick Clegg, made the strongest call yet for cutting middle-class benefits, telling delegates he would be willing to give up the annual child benefits worth $3,850 that he and his wife, who is a corporate lawyer, receive for their three children.

It remains unclear whether the government will follow through on that suggestion. But there is little question that social protection, as it is labeled in government accounts, has been the locomotive behind the 53 percent increase in overall outlays, adjusted for inflation, over the past eight years.

This spending spike was driven by previous Labour governments supplying the extra padding to make the British welfare state one of the most accommodating in Europe.

Cuts for the middle class are now on the table throughout Europe, as governments struggle to close budget deficits and reduce debt levels that now average 84 percent of gross domestic product. In France, the government is planning to raise the retirement age from 60 to 62; in Greece, public-sector pensions have been sharply cut; and in Ireland government wages have been reduced by more than 10 percent.

But with protests mounting, most governments have said that any further cuts in benefits to the middle class were unlikely. And in the United States, where demands are rising from the right to cut government outlays, none of the advocates have proposed reducing such sacrosanct middle-class benefits as the tax deduction for interest on home mortgages or the tax breaks for pensions and retirement savings.

As for Britain, while universal child benefits are common in Europe, total payments to families here – including child tax credits and maternity allowances – are the third-highest among the 33 affluent countries that belong to the Organization for Economic Cooperation and Development, trailing only France and Luxembourg.

The child benefit pays 20 pounds a week to the oldest child and more than 13 pounds for each additional child until they reach the age of 20. The only requirement is that they continue to attend school.

Research shows that, although payments are promoted as a direct and simple means to allay child poverty by putting money into the hands of needy mothers, nearly half of the payments goes to families with above-average incomes.

According to a soon-to-be-published study by Ian Walker, an economist at Lancaster University, well-to-do families that received the benefit were more inclined to spend it on themselves, not their children – with alcohol and tobacco among the most notorious substitutes.

These findings make a "good case for means-testing the benefit," Walker said. "It’s clear that a number of universal benefits look vulnerable."

But many poverty experts strongly defend universal payments, arguing that, despite the excesses, the largest portion of the money goes to those who really need it and that paying benefits across the board is the best way to preserve political support for such programs.

At the other end of the age spectrum, the British government, apart from pensions, pays large sums to the elderly, much of which end up in the pockets of more affluent citizens. The government spends 2.7 billion pounds ($4.24 billion) a year to provide a winter heating allowance to everyone over the age of 60. It provides 1 billion pounds for free bus passes for those senior citizens and devotes 575 million pounds for complimentary TV licenses for people 75 and older.

Opposition to spending cuts is already building, and unions are banding together, promising a series of strikes. They are expected to culminate in a mass protest on Oct. 19, the day before the government makes public its spending review.

While the fear and anger about the coming cuts are certainly palpable here, there are signs that many Britons are reluctantly coming to the conclusion that the fairest way to deal with the need for austerity may be to bring the era of universal largess to an end.

"It would be nice to give everyone a nice slice of the cake," said Clare Drew, an unemployed mother of two, who has just moved back to London from Ireland and is staying at her mother’s until her housing and child benefits come through.

"But with the economy this way, you just can’t do that," she continued. "The benefits are going to be decreased."


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