Introduction and summary

This chapter explores the role of child benefits in protecting European children from financial poverty. By ‘child benefits’ we mean regular cash payments made to parents or other carers on behalf of children who are dependent on them. These benefits can take many forms. They may be taxable or non-taxable, income-and/or wealth-tested or universal, contributory or non-contributory. They may vary by the age or parity of the child, or be the same value for all children. The simplest benefit – a universal unconditional flat-rate benefit for all children – can be seen as having many functions in addition to reducing the rate of child poverty (Brown, 1988). For example, it performs a similar role to child tax allowances in contributing to horizontal equity in the net taxation of families of different types. It helps secure some degree of lifetime redistribution by enhancing family incomes during a period of additional need. It has the potential to redistribute resources towards mothers, which is likely to improve the welfare of their children (Lundberg et al, 1997).

A particular design of benefit will reflect the balance of priorities given to each objective. A benefit that is means tested can be seen as prioritising short-term income maintenance with a lesser regard for the possible adverse consequences of this form of targeting. These include negative effects on work incentives, a reduction in horizontal equity at higher income levels, inequities introduced due to the stigma associated with means testing, and the ‘unfairness’ of high effective marginal tax rates (see Atkinson, 1998a). In this chapter we consider the poverty reduction properties of child benefits at the same time as recognising their other functions. Thus we choose not to explore poverty reduction through policy measures that rely on targeting by income (ie by means testing) but instead seek other ways of using cash benefits to target children living on low incomes.

We consider the children of the European Union (EU). They are of interest as a single group for two reasons. First, although social policy co-ordination in Europe has not yet reached the stage of common benefits across countries, comparisons with other EU countries are a major influence on national policy development.