The government will withdraw child benefit payments from all households containing at least one higher rate taxpayer by 2013.
CutsCheck is getting wind of a ministerial revolt over George Osborne’s announcement this afternoon. One minister told me just now he had four emails from constituents complaining about it within an hour of the chancellor leaving the stage. He said: “We’re p***ing off our core vote. We’re supposed to be the party of the hard-working family.” He went on to protest that the chancellor had sprung the decision on ministers, and that it appeared to have been hurriedly put together. A cabinet minister has just told me the cut was a “complete bombshell” – he hadn’t been given any advance warning either. Are MPs right to be worried about a backlash in the Tory heartlands?
Child benefit is a tax-free payment usually paid every four weeks. The payment can be claimed by anyone who qualifies, whatever their income or savings. Currently it’s what is known as a universal benefit and starts at £20.30 per week with further payments per child. The Conservatives ruled out changing child benefit plenty of times before the election. David Cameron said at one of his Cameron Direct sessions in Bolton: “I wouldn’t change child benefit, I wouldn’t means test it, I don’t think that is a good idea”.And at the party conference last year, his chancellor also affirmed he wouldn’t mess with it: “We will preserve child benefit, winter fuel payments and free TV licences. They are valued by millions.”
But in its bid to be seen to be fair, the government has decided to take away child benefit when at least one person in the family is in the top tax band which is a shade under £44,000 a year. At the moment, around 10% of workers are in this higher tax band.
Child benefit has an extremely high take up rate – 97% of those entitled to it claim it, which amounts to about 7.8 million families. 1.2 million of those – some 15 per cent – are families with at least one high earner and it’s this group which will see its benefit cut. The Treasury says taking away this benefit from those families will save it £1bn a year from 2013. The Institute for Fiscal Studies (IFS) told CutsCheck that in practice, the change would cut around £1,000 per year from the budget of those families.
As far as concerns go Will Hadwen, rights adviser at the Working Families charity, told CutsCheck: “There may be cases where taking away child benefit could be an issue, for example where the husband is a high earner but his wife who may do most of the childcare does not have any income of her own apart from child benefit. This move may take away that money from those women.”
There are a couple of oddities about the change. The new rule means that technically a household with two people earning just under the higher tax band threshold, say £43,000 per year each (total income = £86,000) could still claim child benefit. But a family with one person earning £45,000 would lose it.
And this cut means that families who also claim tax credits could find they’re being hit from two sides. The Chancellor’s already announced he’s lowering the tax credit threshold over the next few years until only families earning under £30,000 per year will be entitled to the benefit. Currently households with income up to around £58,000 can claim some tax credits. So those high earner families who currently enjoy tax credits and child benefit will see both of those benefits removed from their family income.
Cathy Newman’s verdict
This is going to be politically painful. Ministers are pretty gobsmacked by the chancellor’s announcement, and they fear a backlash. It might not sound like big numbers in the scheme of things but this is a cut which will affect very vocal middle England voters. Mumsnet is also on the warpath. I’m off to a reception hosted by them now. David Cameron and George Osborne are invited – will they dare to turn up? I’ll report back.
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