The coalition had the perfect instrument to target family allowances away from the rich – had it not chosen to abolish it
Barely had the government finished refusing to rethink all those welfare cuts that will bite on the poor, when the deputy prime minister confirmed that it would now look again at its plan to snatch child benefit off the well-to-do. Nick Clegg belatedly promised to tidy up its "unintended consequences", which were warned about on the day the policy was announced 18 months ago. Better late than never, some will say. The maddening thing, however, is that the coalition would have had the perfect instrument to target family allowances away from the rich – had it not chosen to abolish this.
Before explaining how, it is necessary to step back and consider the big idea behind the child benefit policy. Namely, withdrawing payments for those who can get by without them, while protecting the so-called squeezed middle. It is a principle that Clegg reaffirmed, and one with wider potential application across the cuts debate. My colleague Polly Toynbee holds up her free older person's travel pass as an example of a freebie ripe for the chopping, and certain Liberal Democrat ministers have the winter fuel payments of warm and comfortable pensioners in their sights.
But even before the retrenchment there was a quest to find a middle way between universalism and aggressively means-tested payments. During New Labour's days Harriet Harman talked about "affluence testing", which is what Gordon Brown's tax credits eventually did. Their engineer-in-chief was Ed Miliband, who used the clunky phrase "progressive universalism" to describe an architecture that targeted big payments at the poor while also drawing a wider swath of society into the system through a modest flat-rate payment of around £10 a week. This was only gradually tapered away when household earnings went some way north of £50,000. The credits eventually achieved good take-up rates, the traditional weak point of benefits for the working poor.
If we weren't saddled with a political culture in which politicians feel obliged to rubbish the other side, the coalition might have outright abolished child benefit while greatly increasing the flat-rate element of the tax credits. That would protect the poor and the middle, withdraw cash from the rich, while also treating dual- and single-earner families equitably – seeing as everything would be assessed for households as a whole. Unfortunately, after the Conservatives and the Lib Dems had spent years ridiculing the credits for "ensnaring" families on decent pay in a "creaking" means test they were moved to abolish the flat-rate credit immediately on taking office.
Their rhetoric then was of simplication, but it has now run aground on the complexities of the real world. Months after axing the one proper affluence test in the system, the coalition resolved to take child benefit from any parent in the higher tax bracket, which is a desperately crude affluence test. It leads to those anomalies about which the coalition now frets – the fact that a couple on £40,000 each will get full child benefit while a sole earner on £45,000 will get nothing; and the financial cliff edge that parents will fall over where a pay rise pushes them up a tax band.
The coalition may taper the benefit gradually – but only by spending money, and introducing yet another means test. Preventing single-earning couples from being punished will be harder. Solutions are possible, but these rely on collecting information to link the earnings details of both parents – information that might have been collected for tax credit purposes, but which will not often be collected now. And this is a policy due to come into force in months.
By rushing to abolish a "creaking" tax credit structure without thinking about what happened next, the government has left itself up a particularly nasty creek – and without a paddle.
Tom Clark is the Guardian's leader writer on social affairs