March 9 2014 Latest news:
Adam Aiken, Editor
Wednesday, March 21, 2012
The chancellor has bowed to pressure over his child benefit reforms – but he has failed to reverse completely the idea that higher earners should see their benefits scrapped.
The original plan would have seen any household where someone paid the 40pc rate of income tax losing child benefit entirely.
The so-called “cliff-edge” effect would have led to the benefit being scrapped as soon as the threshold was reached, and that had caused fears that some people would resist pay rises that would have taken them just over the threshold.
Under George Osborne’s revised plans, child benefit will now be phased out by 1pc for every £100 earned above £50,000, with the benefit completely withdrawn for people earning £60,000.
However, it does not get rid of the anomaly that sees a household with two people each earning £40,000 continuing to receive child benefit, but a single parent earning £50,000 or more losing out.
And campaigners said that while the cliff edge had gone, families were being thrown down the stairs instead.
The government said 750,000 parents earning between £42,000 and £60,000 a year would hold on to some or all of the benefit as a result of the changes announced in the budget.
Some 90pc of all families will continue to receive it, with 85pc of families receiving the full allowance.
Child benefit is worth £20.30 a week for a family’s first child until he or she turns 18 or leaves full-time education. There is a further £13.40 a week for subsequent children.
Mr Osborne said: “I simply could not justify asking those earning £15,000 or £30,000 to go on paying child benefit to those earning £80,000 or £100,000.
“And I stand by that principle. All sections of society must make a contribution to dealing with the deficit – without this measure we wouldn’t get the job done.
“But I said I wanted to do this in a way that is fair and that does not involve setting up some new means-tested tax credit system for millions of families.
“We want to avoid a cliff-edge that means people lose all their child benefit when they earn just £1 more.”
Alison Garnham, chief executive of Child Poverty Action Group, a charity, said: “This is better, as it hits fewer families, but it’s still not good.
“Rather than facing a cliff edge, family budgets of those affected now face being thrown down a flight of stairs, as child benefit is tapered away.
“We’re pleased our campaign has helped to persuade ministers to listen and act, but the new proposals still miss the point.
“Child benefit is a simple and popular system that provides much-needed support to families with children. The new proposals will mean that families with children lose less, but they will still lose out from this budget.
“Scrapping universal child benefit is a bad idea, as the government has found in looking for an escape route. Families with children have higher costs than families without, and children should not have to pay for the deficit.”
The budget announcement will cost the government about £500m a year, with the total child benefit bill falling by about £2bn a year as opposed to £2.5bn under the original proposal.