Deputy Prime Minister Nick Clegg says the government is considering how to avoid the “unintended consequences” of planned changes which would see higher rate taxpayers stripped of child benefits.
From January 2013, parents earning more than £42,745 a year – the 40 per cent tax rate threshold – are set to lose their payments.
But the move has been criticised for unfairly targeting the “squeezed middle” and penalising single parents and families on a sole income.
Under the planned changes, two parents earning £40,000 each would keep their payments while a single parent on £43,000 would receive nothing.
Child benefit, which is not taxed, is worth £20.30 each week for a first child, and an additional £13.40 per week for a second or third child.
Nick Clegg says that asking those who earn more money than others to give up benefits is fair and it remained “a priority” to provide tax cuts to lower income families.
“There’s an issue about how you do that, so you make sure you don’t create these unintended consequences where, say, a family with one upper-income earner get child benefit removed when there’s another family with two income earners who collectively earn more but keep the benefits,” he said.
You make sure you don’t create these unintended consequences where, say, a family with one upper-income earner get child benefit removed when there’s another family with two income earners who collectively earn more but keep the benefits. Nick Clegg
The Treasury has previously said the child benefit changes would save £2.4bn in 2013-14 and £2.5bn in 2014-15, but ministers have hinted at changes to the policy.
One of the options being considered is to raise the threshold to £50,000 to allow more families on middle incomes to keep the benefit, according to The Daily Telegraph.
Under the current proposals, the Treasury says that about 1.2 million families will be affected ,while 6.6 million will see no change to their child benefits.
The Treasury has previously said the child benefit changes would save £2.4bn over the next two years.
It comes as the government faces mounting pressure over planned changes to working tax credits.
The employment minister, Chris Grayling, has admitted that with the changes to tax credits, thousands of families would be up to £728 a year better off on benefits.
On Monday, Shadow Chancellor Ed Balls is leading a debate in the Commons, where he will urge the government to end the “deep unfairness” of proposals to change tax credits for low-income families.
Under the planned changes to come into force in April, low-income couples with children will have to increase their minimum working hours from 16 to 24 hours a week to continue to qualify for tax credits.
Mr Balls said it would leave some families better off if they quit work.
“On tax credits, what he is doing, for families on £17,000, he is saying unless you can work a lot more hours, we will take away £3,000 – it actually makes it better off to be out of work, that is really, really perverse.
On tax credits, what he is doing, for families on £17,000, he is saying unless you can work a lot more hours, we will take away £3,000 – it actually makes it better off to be out of work, that is really, really perverse. -Shadow Chancellor Ed Balls
“That is partly why unemployment is going up and he is not getting the deficit down. If they can move on child benefit for families on £40,000, they should move on tax credits for families on half those incomes,” he said.
‘Postpone tax credit changes’
Charity groups and unions have urged the Prime Minister to delay changes to working tax credits.
Alison Garnham, Chief Executive of Child Poverty Action Group, warned that the changes should not be made in the current economic climate.
“It would be reckless to carry on regardless with a policy that puts 470,000 children at risk of being plunged into poverty,” Ms Garnham said.
“The policy change was designed for an economy that has returned to growth with plenty of options for claimants to increase their hours of work.
“Unfortunately our economic recovery is not there yet. As the system will change in 18 months anyway, the sensible thing for government is to postpone this change.”