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The case for cutting middle class benefits

22 October 2009

9:07 AM

22 October 2009

9:07 AM

Great work by my former colleagues at the think tank Reform today. In their latest report, they’ve figured out that the cost of "middle class benefits" to the Exchequer is some £31 billion. In other words, £31 billion worth of maternity pay, child benefits, fuel allowance and other transfers are dished out to middle income earners each year – that’s around a quarter of all spending on benefits.

Writing in the Times, Andrew Haldenby says that these middle class benefits should be an obvious candidate for cuts. It’s hard to disagree. If we’re all in this together, then it seems slightly perverse that money is being given out to people who – in many cases – don’t strictly need it.


Besides, you’ve got to remember that this money is taxpayers’ money – much of it paid by those same middle classes in the first place. According to Reform, the £31 billion is equivalent to a hefty 8 pence on the basic rate of income tax. So by cutting these benefits, you could have a situation where the deficit falls quicker and taxes are cut. Alternatively, you can keep them in place, and keep on taxing the middle classes to just give some of that money back in the form of wasteful payments. I know which option sounds more pro-growth to me.

Sure, it may not be as easy as it sounds at first. Ditching middle class benefits would mean an extension of means testing – which brings costs and complexities of its own.  And there are questions about how you define "middle class". But there’s little doubting that this approach could yield huge savings.

To be fair to them, the Tories seem to have recognised this, but they’re not going as far as they could with it. In his speech at the party conference, George Osborne pledged only to limit child tax credits and the child trust funds. You imagine he’ll have to look beyond them, towards other middle class benefits, if he’s to properly tackle Brown’s debt mountain. This Reform report can be his guide.


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