4 Oct 2010

Child benefits axed for top rate taxpayers

Child benefits will be axed for higher rate taxpayers from 2013, George Osborne tells the Conservative party conference. One Minister tells Channel 4 News other universal benefits are safe.

The decision to scrap child benefits for higher earners will hit those on incomes higher than around £44,000, who pay the top rates of income tax of 40 and 50 per cent.

Chancellor George Osborne said: “These days we’ve really got to focus the resources where they are most needed. We’ve got to be tough but fair. That’s why we will withdraw child benefit from households with a higher rate taxpayer.”

Mr Osborne estimated that around 15 per cent of families will be affected by the benefit cut, representing tens of thousands of people.

The move is expected to save hundreds of millions of pounds, as higher rate taxpayers currently get up to £1 billion a year in child benefits.

Osborne's bold measure
It's a bold measure, writes Channel 4 News Political Editor Gary Gibbon, and it cannot just stand there on its own, as 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!

Read more from Gary Gibbon on scrapping child benefits

The cut does not apply to families whose combined income is over the tax threshold. Instead, it applies if one member of the family with children earns more than £44,000.

As such it could hit single parent families harder.

Fiona Weir, chief executive of single parent support charity Gingerbread, said: “Child benefit plays a key role in supporting all families with children in the UK.

“This cut will unfairly impact on working single parents and single earner couples – compared to couples where both work.

“A single parent will lose child benefit if she or he earns more than £44,000 per year; whereas a working couple could earn up to £87,999 and still keep their child benefit. It is very unfair that single parents will lose this vital family support at a much lower income than working couples.

“By any standards, the loss of £88.96 per month (if one child) or £146 (if two children) will be a bitter blow for families on middle incomes, already facing a financial squeeze as bills rise.”

Mr Osborne said scrapping the payments would enable the government to pay for wider reforms of the benefits system.

Ministers have launched a damage limitation exercise tonight.

Tim Loughton, the Children’s Minister, told Channel 4 News: “If there are ways we can look at compensating measures for those genuinely in need that will be looked at in future budgets. If the thresholds need to be adjusted there’s plenty of time to look at that.”

And in an interview with the programme, the Transport Secretary, Philip Hammond, said the Government had avoided introducing means-testing and denied that other universal benefits – such as winter fuel payments and free TV licences for pensioners – would be capped in the same way.

“The Prime Minister made a very clear statement about the benefits for pensioners – that they would continue, they would remain. The Deputy Prime Minister made a similar statement and both statements stand,” he added.

What do you think? 
Channel 4 News spoke to parents to get their reactions to the scrapping of child benefits for higher rate taxpayers.

Michelle Goldsmith from North London has a 2-year old son. She said: "I presume our child benefit would be cut and yes we might notice a little bit but I think in light of cuts across the country everyone has to take a hit in some aspect and I'm willing to do that."

Tessa Boase from North London has two young children.

"My husband and I don't have a regular income and this is something that we know is coming in every month," she said.

"It's money to buy them shoes or to do football classes or buy books and it's just that little extra. It seems a recompense for being a mother or a parent which is really hard work. It's not that I spend it on myself but it does seem to be an acknowledgement from the state."

Alex Shingles from North London has a young daughter. She said: "I think I'm a high rate tax payer and my husband definitely is. I suppose in the past you think it's our one little thing back for paying tax all these years but at the end of the day we don't need it as much as other people do so I do understand why it's being cut."

The Chancellor also introduced a cap on the amount of benefits any one family can claim in his party conference speech.

“When the debts left by Labour threaten our economy, when our welfare costs are out of control, this measure makes sense. So, for the first time a cap on benefits,” he said.

“No family on out of work benefits will get more than the average family gets by going out to work. No longer paying £1bn of child benefit to households with a higher rate taxpayer. A new welfare state where it always pays to work. Tough but fair. Because we are all in this together.”

The reform of child benefits fits into a wider benefits revolution, led by Iain Duncan Smith, who plans to scrap welfare benefits in favour of a “universal credit”.

Critics said it was unfair to target children with the tax rise.

Alison Garnham from the Child Poverty Action Group told Channel 4 News she was “appalled” by the announcement on child benefit.

“I don’t see why families with children should be paying for cuts. It means that large families will lose out – that’s not fair.”

What is child benefit?
It is a tax free payment which parents can claim for their child. It applies for children under 16 in the main, but also when the child is over 16 and in education, or 16 and 17 years old and registered for work with an approved body. People who are responsible for a child, even if they are not the child’s parents, can also claim.

How much is child benefit?
Claimants receive £20.30 a week for the eldest child, and £13.40 a week for other children. It is usually paid monthly into any bank or building society.

What is changing?

At the moment, everyone in the UK with children, who fit the criteria above, can apply for child benefit. Under the Chancellor’s reforms, only people who earn less than the top tax bracket – less than around £44,000 – will be eligible.

Source: Her Majesty's Revenue and Customs on child benefit