Capping benefits (and families?)
As predicted, the chancellor had some more bad news for families on benefits in his speech this afternoon: from April 2013 there will be a cap on the amount that any non-working family can receive. I've now got some more details of this policy - and some initial thoughts on the implications.
The Treasury is talking about an "indicative" level of the cap of around £500 per week - or £26,000 a year - which is its forecast of what the median working family will be earning, after tax, in 2013-14. If the cap were set at this level, they reckon that up to 50,000 families would be affected, and the savings would be in the region of £300 million a year.
So, we should say first that we're not talking big bucks. For reference, Mr Osborne is expecting to save £3.9bn - £3900m - in 2013-14, simply from uprating benefits to CPI rather than RPI. The total benefit bill this year will be around £270bn.
There are three reasons why families end up receiving a lot of benefits. First, they have special needs - for example, a disability - and are therefore thought to face extra costs. Second, they have very high housing costs which are subsidised by the government. Third, and most important, they have a lot of children.
By excluding families claiming Disability Living Allowance, the government is giving some protection to families in the first category - though it's worth pointing out that other benefits such as Carer's Allowance and Industrial Injuries Disablement Benefit will be included.
Housing benefit is the second way that the benefits for a single family can add up. There will probably be many among those 50,000 families who live in south-east England or live in those very large houses in Chelsea which feature regularly in the Daily Mail.
But, remember that 50,000 is the number the Treasury expects to be affected in 2013 - after the introduction of sweeping cuts to housing benefit which, among other things, will cap the amount that families can receive from this single source at £290 per week for a two-bedroom property and £400 per week for four bedrooms or more. The implication is that rather more than 50,000 families would be affected if the cap were introduced now.
One key conclusion is that most of the families who now earn a lot of benefits will see their payments cut long before 2013, as a result of the housing and other cuts already in train, which by 2013 will be saving £8bn a year.
Seen in that light, the cap on the total amount of benefits any one family can receive is almost a "mopping up exercise" - a symbolic effort to ensure there aren't any shocker case studies left knocking around for the Daily Mail.
The other key conclusion is that the vast majority of the families who will be affected by this cap will be households with a large number of children. After all, the cap will be set with reference to the net earnings of the "median working family", not the median working family with the same number of kids. By design, families with an above-average number of children will be relatively penalised.
That will not concern the editorial-writers at the Daily Mail or, perhaps, many in the hall in Birmingham. But it could provide some awkward case studies when the reform comes in.
Mr Osborne says he wants to cap the total amount of benefits that non-working families can receive. The effect will also be to cap the number of children that the government is willing to support, in households in which nobody goes out to work.
Update 1637: As suspected, the child benefit change hasn't gone down well with tax and benefit purists, who don't like the idea that a couple with a combined income of £80,000 will still get the benefit, whereas households with one earner on a similar amount will have it taken away.
As I said earlier, this is because the Treasury was looking for something simple. But if you remember, child benefit was originally introduced to compensate families for the loss of the child tax allowance. In effect, it was supposed to be the state's way of saying that (a) society benefits from people having children, and (b) families with children face higher costs.
Today the largest extra costs are usually child-care expenses - and those, in turn, are often higher in families where both parents work. So you could argue that there is some rough justice in allowing dual-earner households to keep the benefit, even if their total income is more than £45,000. But high earning single parents will still lose out.
A bigger objection, to the likes of the Institute for Fiscal Studies, is the odd earnings barrier that it creates for people who are now earning just below the higher rate. Under the new system, a person in that situation would have to think hard before taking a better-paid job or accepting a raise. In fact, if they have two children, they would need to be making an extra £2,975 a year to see any increase in their net income at all.
Mr Osborne could have avoided this problem - and raised a similar amount, £1.1bn - by simply taxing child benefit. That would have maintained the universal principle, but it would also have created a lot of losers further down the income scale, who only pay basic-rate tax. You can see why he wouldn't want to do that. But it's ironic that he's introducing a more-than-100% marginal tax rate for people just below the the higher-rate tax threshold, just as Iain Duncan Smith is pledging to get rid of high withdrawal rates for people on benefits.