Support ‘overly generous and no longer justifiable’

A REVIEW could be launched into reducing the maximum age for family allowance credits for a child from 16 to five years old, after Employment & Social Security said the current situation was ‘excessively generous’.

Employment & Social Security president Peter Roffey. (Picture by Sophie Rabey, 31291138)
Employment & Social Security president Peter Roffey. (Picture by Sophie Rabey, 31291138)

The proposal formed part of the ESS contributory benefit and contribution rates for the 2023 policy letter.

Until the start of this year, family allowance was a weekly universal benefit. But earlier this year a cap was introduced, meaning people with a combined household income of £120,000 would no longer be eligible.

Family allowance is available until a child leaves school, or until they turn 18.

Family allowance credits refer to non-employed persons getting a contribution credit – for the purposes of death grant, survivor’s benefits and States pension – in respect of any week in which a family allowance is payable for a child under the age of 16.

This type of credit was introduced in 2004 as part of reforms to the Social Insurance Scheme to address gender inequalities that existed in the scheme at that time.

The credit safeguarded the contribution record of non-working parents with childcare responsibilities, with the policy aiming to support lower income households for whom a voluntary contribution was unaffordable.

The current cost of a voluntary contribution is £22.34 per week.

Separately, under changes in 2014, eligibility for income support was changed, and saw parents expected to return to work when their youngest child reached five years old, and do more hours as the child gets older.

ESS said this led to different expectations, with lower-income parents required to work and pay social insurance contributions when their youngest child reached the age of five, while middle- and higher-income parents, who could afford not to work while raising their family, being awarded family allowance credits, potentially until their youngest child turns 16. This saves them £1,162 per annum if they were to remain non-employed.

‘While the rationale for the introduction of the family allowance credit was sound at the time it was introduced when fewer mothers worked... the committee is of the view that the award of these credits beyond the point at which a family’s youngest child turns five (and is, therefore, in full-time education) is excessively generous and can no longer be justified in the context of societal changes,’ the committee said in its report.

The States has been looking at ways of putting the Guernsey Insurance Fund on a sustainable financial footing.

‘Therefore, the fairness of the awarding of family allowance credits must be viewed in the context of the wider population of contributors who are bearing higher contribution rates.

‘Fairness must also be assessed against income support’s work-focused approach. The committee’s view is that it is unfair and inequitable to award family allowance credits to non-employed persons until their youngest child turns 16 while requiring parents of school-aged children in receipt of income support to work (and, therefore, pay social insurance contributions).’

ESS now plans to investigate the age change and give consideration for how to protect any groups that could be adversely affected.

ESS noted that the change might increase the number of economically active people.

‘In mooting this policy change, the committee would like to stress that it considers it a very valid personal choice for parents, who can support themselves financially, not to work.’

Firm proposals will be announced in the contributory benefits and contribution rates for 2024.

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