4 Oct 2010

Scrapping child benefit for higher rate taxpayers

Well the distant views of the sunlit uplands promised at this Conference probably don’t look so sunny for the higher rate taxpayers right now.  And they will be pondering how their loss of Child Benefit in one drastic swoop through the breakfast interviews this morning by George Osborne could be but the beginning.

This is bolder stuff than the Coalition’s predecessor’s have dared, including Margaret Thatcher.

Ever since Beveridge’s universal Family Allowance paid out of general taxation (5 shillings a week) came in after the War, Chancellors in tough times have eyed this universal allowance. Surely you could do something more targetted with the money, they argued.

Peter Thorneycroft resigned as Chancellor in 1957 when Macmillan refused to countenance his proposal to drop payments to the second child. Jim Callaghan as Chancellor looked at diverting money to a means tested Family Supplement in 1967. In 1968 he actually clawed back some money from better off families through the family tax allowance and Labour thought at the time they paid a political price for that.  Keith Joseph in 1970 went along a similar track introducing the Family Income Supplement. The plan was that the government would forgo increases in the universal Family Allowance and put the savings in the targetted, means-tested FIS instead. Barabara Castle then introduced the universal Child Benefit in the mid 1970s and until today that had “sacred cow” status. Margaret Thatcher’s government’s looked over the files repeatedly but never did anything fundamental – to save money they introduced lower payments for the second child, but that was it.

So it’s a bold measure and it cannot just stand there on its own you might think. Other universal benefits will be looked at as well. I asked one government figure about the anomaly of two couples on £40,000 each still getting child benefit while a one-earner household with a worker on £44,000 loses the lot. Ah, I was told, when we have the mighty combined tax and benefits database with all the info in one place we’ll be able to deal with that too!

Meanwhile, what’s the incentive for a couple where the husband earns £44,000+ and the wife doesn’t work to get married?

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44 reader comments

  1. Amitmidha says:

    I think we have to keep some sense of proportion here. As a higher rate taxpayer with 2 children, I will lose out but I can think of little by way of justification for having received it in the first place. Moreover, for a higher rate taxpayer, the amounts involved are little more than icing on the cake – unlikely to make any difference to any major economic decisions undertaken.

    1. Graeme says:

      Why is that people with children seem to be paying the price. Childrens trust fund GONE !, Child tax credits GONE !, now child allowance GONE !. A couple without children on the same income haven’t lost a thing in fact they’ve gained overall with a increase in the personal tax allowance. Perhaps just increasing the tax rate for all would have made more sense at least “everyone” is making a contribution not just families.

    2. Ishara says:

      It might be “icing on the cake” for you, but for those of us who will be just over the threshold and the sole earner, it’s a very significant proportion of the cake and something that keeps the wolf from the door. If they had distinguished between dual income higher rate households and single income higher rate households – potentially an income difference of some 40k – I would have agreed with you.

  2. worried says:

    I am a sinlge mother of three children and in 2013 will be just above the threshold so that I loose the child benefit. For me it is the difference between just keeping my head above water or drowning. It is people like me who always loose out I earn too much to be helped by benefits but not enough to not worry about money, so please do not take this away from me.

    1. Ishara says:

      I completely agree – I’m a single mum of two and will be in the same situation. I work really hard to provide for my kids and I try hard to balance our need for money with their need for time. I can actually see an argument for means tested benefit in these cash strapped times, but implementing it in this blunt and unsophisticated fashion discriminates against single parents like us who are prepared to work for a living. As you say, it’s the difference between keeping your head just about and drowning. But then the Tories never did care much for single parents or women anyway, so it’s hardly surprising that their fiscal policies affect us negatively more than others.

  3. Tom Wright says:

    Can’t quite believe the coalition would hand Ed Milliband something so concrete to campaign on quite so early into his leadership. I am dismayed.

    The theshold for the 40% bracket is lower than people think – £28k. So, a parent of two children just a tiny touch over £28k loses the benefit, effectively cutting their pay to £25k – an actual real terms income deduction of £1768 (numbers courtesy of my current account).

    I will be affected, and this is going to cause me hardship. I have to account for every penny spent – there is no lovely cushion of expendable income, just salary, and things to pay for. I’m not in the middle income bracket that allows me to live in a big house, send my children to public school or visit Chiantishire for the summer holidays.

    I’m just ordinary middle Britain, getting along as best I can in the face of real terms income drops from pay freezes and rampant food inflation whilst carrying the burden of the cost of raising children. That would be the sort of people who voted for you George, you fool.

    Think I need to stop watching the news. Nothing changes and I just feel depressed. Might go and join Saltaire at this rate.

    1. Duck van Duck says:

      Tom – the threshold for the 40% tax bracket is £37,400, not £28,000.

  4. A Deeprose says:

    “Moreover, for a higher rate taxpayer, the amounts involved are little more than icing on the cake”

    Nothing could be further from the truth. Being a higher rate taxpayer in a single income household hardly makes one well off.

    Families were one adult stays at home to care for the children are already heavily penalised by a tax system that sees them pay a disproportionate percentage of income in tax compared to dual income households.

    This measure will only compound that situation and bring genuine hardship to many families just over the threshold.

  5. Ebon Orca says:

    Sorry, but what has ” the mighty combined tax and benefits database with all the info in one place” got to do with a great big hole in the policy / legislation. Yes it will be able to tell who’s claiming what, for who, and where. But if it’s a legitimate claim it’s not going to do much good now, is it?

  6. George says:

    earn a pound over the threshold and your marginal tax rate is over 175,000% – that must be some sort of record!

  7. margaret brandreth-jones says:

    At first I thought yes , this should be, however there are always those who will be hit hard. Those on average THPay with a mortgage they can just afford, mothers and fathers where a parent will want some time out to look after a baby, but wont be able to.

    The money is for the child , not the parents.

  8. Ray Turner says:

    I’m really annoyed to hear people on £44K or above whingeing about being unable to keep their heads above water. They should try working 47 hours on the minimum wage, before they whinge too much. There’s little or no sympathy from this end of the remuneration scale…

    Well done George. You have my full support. These measures, no matter how unpopular, are absolutely essential…

    1. Tom Wright says:

      The unmistakable smell of schadenfreude Ray – you are enjoying the discomfort of others who are more highly paid, and you thereby infer that it is unjust that some people are paid more than you.

      Quite the reverse is true: people in all walks of life perform at different levels. Better or worse, from plumbers to lawyers to football players. Is it just that Arsenal players earn more than Barnet FC? They do the same job after all. Should consultants not be paid more than doctors? Prime ministers more than MPs? Anyone more than you? Should the govt set pay levels?

      You imagine that being a higher rate taxpayer makes someone rich, but there is an enormous gulf between total income and expendable income. Perhaps you imagine we all work in banks?

      Many, many middle class families make enormous sacrifices in living standards to further life for their children – particularly single income families (which these days includes a good number of house-husbands) who have deliberately sacrificed their standard of living by having one parent at home. These people already pay a higher portion of household income in tax, have done nothing to earn your contempt, and will be hit very hard.

    2. Paul says:

      That is a typical reply from a person who it won’t effect. Everyone is happy to cut the defecit as long as it doesn’t effect them.

      I have three children and a wife that works part-time on a low wage. My wages can go over the £44,000 mark if I do a lot of overtime. This is overtime that I am forced to do, not that I want to do.

      If I go £1 over the £44000, I lose £2256 in family allowance. That can’t be fair.

    3. worried says:

      Yes I do earn more than the average person but why am I penalised when a couple can earn around £80 K and still keep the benfit. I work so that I don’t have go on benfits and take more off of the government. So while the money that I get isn’t a lot it is around a 1/3 of the income that I have every month to cover all other expenses like travelling to work, feeding my children. I also work long hours and take odd jobs to make ends meet, so I can buy the school uniform that I have to provide. So yes I am not happy with the government taking away the money.

  9. Rob.B says:

    A bit peed off (to put it mildly), I earn exactly 44K after years of striving, and have 2 kid’s. I’ll loose out while the idle thief who has broken into my home and got off because of his 8 kids will continue to benefit.

    Good job I can’t sware on here. A life long Conservative, I’ll abstain next time rather than vote for either Labour of this bunch.

    Rob.B (Derby)

  10. Lady Stum says:

    I will not be affected by this change, but I think it is very unfair. They should combine it with child tax credits, every household with an income below about 70k fills one of them in I believe. These changes are being rushed through with little thought or consideration. It is outrageous that a household with an income of 86k could still receive this benefit, whilst it is cut for a household with an income of half that amount. This isn’t an ‘anomaly’ as Hammond puts it, it is an outrage. Tories wouldn’t understand fairness if it hit them between the eyes. They just want to get rid of universal benefits so that they can dismantle the welfare state. If not everyone has a stake in it, less will want to preserve it.

  11. K Wallis says:

    I can’t quite believe this. I have worked my whole life and have recently had a baby so the child tax credits have been a real help.

    I’m now being told that because I earn above the basic rate band I now do not qualify to receive this small benefit.

    Nevermind the fact that if you’re working you have to pay huge childcare fees which reduces your income significantly. The government do not give anything to those working, yet people on benefits have housing benefit which is capped at £1600 a month, child benefit and many many other benefits which those who work do not get.

    I think this just encourages people to be lazy and do nothing for the rest of their lifes. I think you’re better off being one of those on benefits. I mean they’ve capped the benefits to £26k a year. That is more than some get working. What is the point??

    Where is this fair government? How are we in it together? They’re all filthy rich….they have no worries do they?

    The government should stop taking from the hard working class people. Give the lazy people a kick up the behind and STOP bailing out the untalented idiots that run the banks!!!!!

  12. Bill, Newcastle says:

    As a (just) high rate taxpayer with full time mother wife looking after our 3 kids I have no problem with sharing the pain. What I resent strongly is that a dual income household with up to £86,000 combined income each earning under the threshold will continue to receive £2,500 even though they earn £40,000 more than us.

  13. Sandra says:

    Surely tough but fair should change a universal benefit to a means tested benefit alongside tax credits. We are already jumping through hoops to collect any help with returning to the work force enabling us to be able to pay tax into the “coffers”.
    David Cameron even before he came into power was negatively biased to single parent households and is seemingly actively finding more imaginative ways to punish us.

  14. Phyllis Lowe says:

    Why doesn’t the Government introduce a similar tax system as in France – each adult gets 1 part of the allowance, and are then taxed as one – that way it would be a fairer way to calculate how much tax is paid and also make it easier and fairer when applying such benefits as child benefits. Also if they also counted each child as half a part (as in France) they probably wouldn’t need child benefit.

  15. Mark Goodge says:

    I find it really hard to comprehend the selfishness of those who want to carry on paying child benefit to the better off. And I say that as a higher-income parent of two, with a non-working wife. We will be the losers from this – and rightly so.

    The value of child benefit to me is approximately a Chinese takeaway and a bottle of wine a week. If there is anyone on my salary who can’t afford that then they should take a long, hard look at their own financial competence rather than blaming the government.

    1. Kevin Wright says:

      What a disgusting comment. How you feel you can comment on other people financial circumstances with such assurance is extremely small minded. If you spend that much money on a chinese takeaway and a bottle of wine then maybe you should be looking at your finances, child benefit is a huge amount of money to people like me and one which we cannot afford to waste on frivolities like takeaways and alcohol. If this took into account both parents wages then I might find it a bit easier to swallow. I’m glad you have so much money that you won’t miss child benefit, but please don’t push your horrendous views on to those of us that haven’t been so lucky in life.

  16. John says:

    Absolutely disgusting as a higher rate tax payer I already pay over a £1000 per month and I am not far over the threshold and being treated the same as someone earning double or more!

    I see it as another step to erode the benefits of hard working people who try to look after themselves and their families. I appreciate that might sound selfish but I do not work hard to subsidise those that don’t.

    its also extremely unfair I have friends who have just the same level of household income who will not lose theirs, as the distribution is different. How can that possibly be fair?

  17. Nadine Clarkson welfare rights solicitor says:

    No one has pointed out that by introducing an income limit there has to be means testing, inevitably involving complicated written forms meaning that the most vunrable children of the disabled, illitrate and English as a second language are going to lose out. The government should come clean about the amout of savings they are banking on from the savings made by the failiure to take up means tested child benefit from thouse who most need it.

    1. Mark Goodge says:

      We are not talking about people on the breadline here, it’s only going to affect those of us who are already earning significantly more than the national average. I’d expect that most of us can cope with the odd form or two.

      In any case, anyone it will affect will already be giving the government all the information they need via their tax return or PAYE data. So there are unlikely to be any extra forms to fill in, anyway.

  18. Gary says:

    This country is a big joke… Seriously! Where in earth people who do work their all life paying taxes and working hard are not allowed to receive benefits and who actually don’t work, never did and are not bother to do so will receive all type of benefits as such child benefits, child tax credit house and etc… This is ridiculous and unacceptable. A lot needs to be change here!
    People should receive benefits in accordance of how much they have contributed to the systems so that means if you do work and always did but at the moment you need help because you are in maternity leave or lost your job you should receive an amount based on your contributions and who never worked or keep using benefits as excuse of don’t get out and get a job should receive a fair amount for some sort of period and should be engage in a kind of training to be able to go back to work, unless you are on benefits because of illness. There are loads of jobs out there and you can find one if you really want and the proof is that foreigners find all type of work but of course it is easier stay at home because I am sure that my lovely government will provide me a house and everything I need using…

  19. gary says:

    I don’t think is fair with people who do work every day and have no right to receive benefits and when do receive it will be the minimum amount so one more time here is clear as water that that you should stay at home watching TV, eating and getting fat and using honest and hard work people money contributions.
    If you do pay taxes you are more than enable to have any type of benefits and if you do not pay one penny whatsoever why should us have to keep working hard and sponsoring people that actually don’t really care in go back to work and intent to have as many children as possible to make sure they keep they pockets full.

  20. Ray Turner says:

    Lets see. Somebody on the minimum wage working 47 hours a week will have an annual salary circa £14,492. They pay tax on that, some which goes to subsidise other families earning £44k and more. I cannot see anything remotely fair about that…!

    I completely agree that if you pay loads of tax for decades it is reasonable to expect to get some return for it, I’ve been a victim of that problem myself, but I also firmly believe that it is wrong that the hard-working taxpayers on the minimum wage should be subsidising the better off.

    As has been said above, the whole system needs to change, but scrapping child benefit for higher rate taxpayers is a sensible first step.

    If you can’t manage on £44k you shouldn’t really be in a £44K job…!

  21. Olivia says:

    I am a full time mum of twin girls (aged 2) and my husband works around 50 hours per week to bring home our annual income of £39,000 plus £5k company car allowance which pushes him into the 40% tax bracket. We are already pushed to the limits to afford the mortgage on our average 3 bed house. As I am looking after the girls full time we do not benefit at all from my tax allowance, and we have already been told that we are to lose our child tax credit. With this new proposal, I estimate that we will be over £3200 a year worse off than a couple with the same family income who are both working part time. And the Tories said that they value full time mums – aye, right!

  22. Paul says:

    I can understand why the government has had to take drastic action to cut child benefit but the whole process has been badly thought out.The threshold for the cut-off for payment should be based on combined household income and the threshold set higher than 44,000 to be fair to all.I thought the tory manifesto pledged to help families not penalise those where one parent chooses to stay at home to look after young children!

  23. Andy Roberts says:

    During these tough times we all need to be prepared to pay more to ensure the deficit is wiped out. The way we pay needs to be fair. The anomolie of 2 familys both with 3 children, one with a lone worker earning over £44,000.00 seeing there family allowance reduced while the other with a combined income of as much as £85,000.00 receiving the family allowance is simply unjust.

    Unjust, unfair, anti family, anti conservative.

    With fairness David Cameron can take the country with him, moves like this will divide and topple his coalition

  24. Malcolm, Warwickshire says:

    This is an apallingly misjudged decision that will (hopefully) cost the Conservatives a significant number of votes. Until now I have always voted tory, but no more.
    I’m sure my £1100 will be well spent subsidising the schooling and healthcare of recent immigrants who have not contributed a penny. I earn fractionally over £44k and my wife earns a much lower salary so this will greatly affect our quality of life.
    I am fuming.

    1. Mark Goodge says:

      So who are you going to vote for instead? Milliband Minor and his socialist future? Nice Nick Clegg who will cut better-off benefits even more? Or maybe just give up the idea of having any influence and vote UKIP (sorry, I have no idea who their leader is today so I can’t make a joke about his name) instead.

  25. Paul Begley says:

    Many comments here, pointing out how unfair it is that once there’s a threshold for withdrawing Child Benefit, they’ll lose all return on extra earning – effectively 100% marginal tax rate at some points on the income scale.

    This is true. However, do these commentators not realise that for people at or near the minimum wage who qualify for means-tested tax credits, that is the situation they already face? Further, at the bottom end of the income scale, people who don’t qualify for tax credit are effectively priced out of competing for work, because the rates paid assume support through the benefit system.

    Wouldn’t it be better to live in an economy where the wages paid allowed everyone in full time work to live without taxpayer subsidy – ie to earn a living?

  26. EDDIELOCO says:

    WHEY HAT A CLEVER BUNCH OF POLITITIONS WE HAVE,44000 POUNDS IS ONE HELL OF YEARLY WAGE,IF THE MAIN BREAD WINNER EARNS THIS AMMOUNT,HE CAN ALSO HAVE ANOTHER £40,000,OFF HIS PARTNER,NOT BAD GOING FOR A MARRIED COUPLE ,EXEPT,DOES ANY BODY OUT THERE,WHO ARE WORKING CLASS,HAVE A WIFE EARNING £40,000 A YEAR,THOUGHT NOT BUT YOU CAN BET YOUR BOTTOM DOLLAR THAT IF THEY HAVE THAT AMMOUNT COMING IN THEY ARE CONNECTED TO OUR BRILLIANT PARTY MEMBERS,OR OTHER RICH PARTY MEMBERS,TO DAY WE HEARD THE PRIME MINISTER SAYING HE WANTS A FAIR FOR EVERY ONE,RIGHT START WITH THE ARMED FORCES,WHY DOES A PRIVATE SOLDIER WHO LOSES HIS LEGS GET LESS THAN AN OFFICER WHO HAS THE SAME INJURIES UNDER THE SEVICE INJURIES CHARTER????AND WE ARE ALL ADVISED TO JOIN THE POLICE SPECIALS IN OUR AREA,NICE ,SO WE CAN EXPECT TO SEE SOME MEMBERS OF PARLIMAENT JOINING THE COMMUNITY POLICE IN FUTURE….DONT HOLD YOUR BREATH!

  27. Chloe says:

    My husband been offered a company car with a BIK of around £10,000 a year he has a salary of around £37,000. We have four children and worry if we accept the car it will push him into the higher rate tax bracket and end up costing around £500 a month if we lose our child benefit.

  28. Kelly says:

    just because we slightly fall into the higher tax bracket because of a company car we stand to lose £242 a month in child benefit. We are by no means rich and somtimes finding school dinner money is hard. We do have 4 children and yes that was our choice,but me and my husband both work hard and I do not see why we should be punished when there are people out there who have loads of kids and have never done a days work in their lives. My husband only takes home around 24,000 after tax and yet because we have a company car we are deemed rich! Might as well give it back but he only got the car this year after working his way up in the company for 25 years. really pissed off

    1. Mark says:

      Well, at least you have the option to give the car back and keep the child benefit. If you think the car is worth less to you than £242 a month then that’s the obvious solution. But I don’t really think you can expect much sympathy, given that you’re already earning significantly more than the average salary and it’s entirely your own choice to have four children.

  29. Paul says:

    There will always be the people who it doesn’t effect who will not have any sympathy with those that it does effect. They are just glad its not them.

    Its a fact that the people they are taking the money off are not rich. By the time 40% tax is taken, pension, national insurance etc etc they are not left with much of their gross wages. Many families rely on their family allwance and it will be missed.

    Families live to their means and no one expects to have a large chunk of their salary taken off them… so no, its not right!

    1. Mark says:

      Actually, it does affect me. I think it’s perfectly fair. And it’s just ludicrous to say that people on my salary aren’t rich, at least by comparison with the average wage.

      Anyone who is earning enough to be in the higher tax bracket and yet is relying on benefits to support their lifestyle needs to learn how to manage their finances effectively rather than expecting the state to subsidise them.

  30. Paul says:

    Everyone’s entitled to their opinions… and just like politics there will be people who are entrenched on both sides. I just happen to think that if you earn £44,000 and have 3 or 4 children, and you are the sole earner, then your not rich and shouldn’t have it taken away.

    I have friends at work who are married and each earn £42,000. So on an income of £84,000 they will still get their child benefit. How can anyone think that is fair.

  31. Kelly says:

    Well I don’t think it is fair. Fistly the company car already cost £250 a month in tax which is fair enough. Secondly I dont think £24,000 is a lot, people with four kids on benefits can bring in around that for staying at home. Why should hard working families be punished?

  32. GILL says:

    I agree with Kelly, people with company cars are already taxed twice on them. firstly we pay tax on them and we also lose child credits if we have one, now they are effectively taxing us a third time. And my husband does not have a choice, he has to have one as the company says so, it is part off the job.We do not have a lot of money after all deductions have been taken.Some of us have tried to better ourselves and have mortgages.If I lived in a council house with the rents they have to pay I would be ok,but most peoples mortgages are higher than council rents.The government do not take into account the difference between people on low rents and people with mortgages.I have 3 children with a supposedly modest income and a family member on a supposedly low income with 3 kids and living in a council house.They are much better off than I am.They both smoke, drink, and gamble.We cannot afford to do any off those things,in fact the way things are going we will be lucky to afford our mortgage or for my son to go to college.(We have to pay £660 for him to travel to college).The middle income family will soon become the low income family and vice versa.

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