CutsCheck: the end of a universal benefit
The cut
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?
The background
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.
The analysis
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.
There are 35 comments on this post
It will be tough being a high earner earning more than £43,999.
They will have no choice but to get rid of the au pair/nanny, sell the kids for experimentation, and put the wife on the streets to earn her keep – but at least they won’t need to get rid of the Lamborghini or give up winter skiing in St Moritz!
Its enough to make one vote Labour.
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So, it’s ‘fair’ that the family in a single income, higher rate tax-paying household should lose their child benefit whilst their double income £86K standard rate paying neighbours retain theirs?
This is ideology – pure and simple. This government move simply underlines their intention to drive a wedge between ‘them’ and ‘us’ – between those who receive benefit and those who do not. It drives us further and further apart. Those of us not receiving benefit becoming more and more resentful of those who do. Until those who do not receive benefit feel no need for a state at all – feel no sense of investment in that state – no sense of being part of the same country…
It penalises mothers and hard-working families.
It reneges on election promises.
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“And this cut means that families who also claim tax credits could find they’re being hit from two sides.”
Why on earth someone on £44’000 should be entitled to claim tax credits is frankly beyond me!
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This is similar to the way support for first time buyers is offered. My wife and I have a joint income of just over £80k, so don’t qualify. My schoolfriends who earn £60k but who are still not married/in a civil partnership do qualify because their partners’ income isn’t factored in.
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I have long felt that universal child benefit needs reviewing, But surely there should be some Consultation on the best way foreward. The benefit system also needs reviewing but with consultion; This Government is in danger of throwing out the baby with the bath water.How can they say that the average wage is 500 pound I don’t know any one who earns £500 a week
Obviously they mean London;So are these universal plans because there are plenty of other places who are a great deal poorer.
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By “£500″, they mean the average family income, not the average worker’s income
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Why are we waiting until 2013 to do this? Surely this could be easily implemented from the beginning of the new tax year. It’s time we moved away from our ridiculous handout culture as soon as possible.
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This is yet another attack on single parents by the Nasty Party. especially those trying to improve their standard of living by working hard.
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they should could benefits for higher earners, we are pensioners with a joint income of 16,000. and pay council tax of 2000 per year but we accept that we will probably lose winter fuel and tv license we are over 75 and know that cuts have to be made. The greed of people today is beyond my comprehension they expect several holidays a year, meals out, wine, lovely houses all from the moment they are married, get real the country and taxpayers can’t afford it.
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Im glad to see that the condems are not just taking the food from the mouths of the poor and elderly in this country.
what about the bankers are they being let off scott free???
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A question: currently a stay at home mother does not have to top up her NI during the period she is paid child benefit in order to recieve a full state pension on retirement. Will she now have to top up her NI payments during the peiord she stays at home to bring up her children? [In the case where her husband earns >£44k]
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What about childless couples in this country who contribute through their taxes to the child benefit system? A high earning couple with children can still earn up to £80,000 between them and receive child benefit subsidised by a childless couple who may have a joint income of less than £25,000 and who receive no benefits or credits of any kind. Child benefits or tax credits should be for the needy and not for those who arrive at the post office in their Mercedes, Porsche or Range Rover to collect.
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Agree totally. I am a single person and I don’t mind giving up my taxes for the needy with children. But Labour adopted the ridiculous policy of handing out child benefits to millionaires. So my taxes, as a basic rate taxpayer, were going to subsidize those on incomes I could only dream of. And this was supposed, according to Labour, to be “fair”! The only argument used by defenders of this grotesque arrangement is that it ensures a high take up. But hold on! By this self-same logic, why not make ALL benefits universal, so that they will all have a high take up? The answer is simple – it would bring the economy to its knees. So the only “argument” they come up with is inconsistent and illogical; not forgetting that it doesn’t correspond to the real world of scarcity or the reasons for benefits in the first place. This is one policy I think the Tories are dead right on.
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I wanted to hug Jon Snow for asking”what about a woman whos husband has died “? I am one of those invisible “anomolies” Mr Hammond ,who is already under terrible strain because the state opportunistically takes the childrens tiny pension from their father at 40% because he has no tax allowance (as a died at 40 from a brain tumour dad)and because i just tip into the 40% band as a full time working mum of 3,shelling out 1000 on childcare a month to work (as no husband to share with).No median income of 75k for me as claimed by Mr Hammonds colleague on channel 4 a moment ago.Why can a couple earn 86k and keep CB and i have to lose it ?.They promised fairness .Can a Tory explain to me what is fair about that?To the lady above I hope a little bit of what i have said tells you why 44k gross is not always easy to live on if the childcare costs are so high to enable work for only living parent left and the net amount once the 40% has been taken.The changes will mean it costs me to work which is what the nice Iain Duncan Smith wanted to avoid (i really mean that-a man of integrity-iam really hoping he did not realise what he was doing to me otherwise i will need to review that opinion)
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Louise Bagshawe blithely said that people earning £75000 (the top 15%) should not be claiming child benefit. She may be right but it is those earning £44000 who are being targeted. A world of difference and she needs to come into the real world. Maybe the higher rate of tax should start with those earning £75000.Children are our future -all of us. They are the teachers, doctors, nurses of tomorrow and we need to invest in them.
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But no matter where you draw the line, you will end up with winners and losers. Because of my savings, I’ve been unable to draw most state benefits for years, even though the savings are only just above the threshold level. Every time you have threshold rules on eligibility, this will happen. It’s all subjective, and where to draw the boundaries is one of the jobs we elect politicians for.
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When it was suggested that the child benefit will be frozen ..I agreed because that seemed to be fair. However now what the government is doing is soooo unfair. We studied hard and worked hard to get where we are today and what do we get from the government a kick in the teeth. There is a myth that being in the 40% tax rate you are suddently megga rich, have fancy cars and holidays (i’ve not had a holiday in the last 5 years). Do people forget that you are paying 40% tax to the government for working hard…!!! Child benefit for me meant that I could pay for my childs activities in order to help them benefit themselves and be in a good postion in the future in this competitive world of employment. I guess I should prehaps teach my children to do nothing and they will gain more. Working hard does not means nothing anymore… the conservatives are breaking the back bone of this country.
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the comment that Karen stated “I guess I should prehaps teach my children to do nothing and they will gain more” is so like the high earners of this country they are under the impression that being on benefits whatever the reason gives you a life of luxury. in fact you dont have enough to do the weekly food shopping let alone take your children to activities. she should be thanking her blessings that she is well enough to be a high earner and that she do not become too ill to work in the future
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why is 44,000 mentioned as far as i’m aware you start paying higher rate tax at 36,401
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Hi, just to clarify. The £37,400 refers to the amount of taxable income. Add to this your tax-free personal allowance (currently £6,475)and this will give the £44k figure.
Also, remember that the withdrawal of child benefit only kicks in when one household member is in the higher tax bracket. It is not worked out on the basis of total household income (as is the case for tax credits). Sorry for any confusion.
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ive been wondering that -why 44 as,when the man above says, the threshold is around 37k now.
does G Osbourbne intend pushing the 40% threshold up at the same time ?
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seems sensible to me, those earning top dollar dont need it, why should they get it?
any arguments i should like to hear them…
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a hard working 45k single parent amount, divided by 2 = 22.5k for dual income couple who retain benefit.
@billy the kid, £22.5k each is top dollar too! More dollars infact.
Real disposable income is less for the single 45k earner due to higher income tax. The two 22.5k earners are richer and also enjoy more tax allowance.
@Ian Crew, in that light it’s the duo £22.5k earners that should get rid of the Lamborghini or give up winter skiing in St Moritz first!
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Surprisingly or not most non doms will get to keep their child benefit because they have low UK income for tax purposes, whilst a widow of a soldier from the Iraq war with £44K income and three children to support will lose her child benefit. Tory fairness I guess!
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I wonder how many people criticising this decision voted for the Conservatives or LibDems in May? Those of you whote voted Conservative should recall that they were promising to remove the deficit by 2015. How did you think they would do this if not by taking painful decisions like that would affect you? Cuts in public expenditure on the scale proposed will affect everyone. That’s what you voted for!
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What you are paid and what you earn are two very different things. Nobody earns what they get, especially the high “recievers” and that is why this country is sinking rapidly. Where does all the money come from, because there are very few people producing anything anymore. Gp’s are a good example, the only thing they are any good for is sick notes and antibiotics. Anything else and it’s off to the hospital, if they are fortunate enough to recognise that you need to go,and what do they “earn” recieve 150k+. On the other hand the 6 million unemployed (yes the true figure is nearer 6 than 2.5) if you take them “ALL” off benefit and pay them to clean the streets, all you will have is cleaner streets. No more wealth will be created, to pay the high recievers. This country is sick and the sickness starts at the very top. Royally sick. The last 24 years of tory rule and capitalism(greed) is certainly responsible. And you lot keep voting for them. 18m a year Tony and his barrister wife are not labour people, they simply used that as a way to power to further their own ends. Smart eh and you lot keep voting for em. Truth is, your a nation that’s disappearing up up it’s own…
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The difference between a couple earning £22,500 each and a couple with one higher rate taxpayer and a partner looking after kids at home is that the couple who are both working need to pay for childcare. I am one of those who will lose out to this, and personally believe that if our family have to do without this money then so be it. We aren’t on the breadline. However, we live in an area in the SE that has the lowest per capita disposable income in the country, despite being in the high tax band because the cost of living around here is so high. Example: Average rents £900 pcm for a small 3 bed. No we don’t drive lambourghinis and go to St. Moritz on our holidays – we drive a 6 year old and 10 year old car and go to Hunstanton for 5 days every other year if we can afford it.
I would like to see the rules changed so the benefit is based on family income, exclusions for child care and support for single parents…
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I think it is absolutely fare. People who earn so much money, like 45,000 or more will not even notice that Child benefit has been taken away, I do not think that 20 or 30 quid will make a differet to them.
Poor families realy need Child Benefit, and the Governemet must pay even more.
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All those on middle incomes criticising the move should state which of the benefits for those on the breadline they would cut in order to keep their child benefit. Or do they not realise the mess the economy’s in??
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We would lose out if joint income was used, but not if a single high earner. And joint income *should* be used, because it’s the fairer measure. I am arguing myself poorer because it’s right. And tax credits already considers household income so a system is in place by which to easily means test.
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@Dave C, not cuts to those on the breadline, but also cut child benefit for couples with combined income of £44k in order to be “fair” – this is a ‘family’ cut is it not?
Cut operations and involvement in overseas war – the cost of sending troops, equipment etc for Iraq/Afghanistan must be in the region of 21 billion.
Current Afghanistan cost for fiscal 2009-10 is estimated to be about £4,200,000,000 alone…Can our messed up economy really sustain this, considering we are implementing harsh austerity measures.
Bankers bonuses are a joke too, particularly since they doesn’t seem to be performance related (forgive my polarisation, since I’m not a banker).
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I understand but these other things aren’t going to happen, at least not in the short to middle term. So living in this situation we’re in,and knowing that none of them ainstream parties are going to quit Afghanistan, etc., the basic problem remains that if these middle earners want to keep their child benefit, then deeper cuts will have to be made on benefits for those on the breadline. The other point is that the Daily Mail brigade who whip up feeling against the unemployed are all too ready to demand that benefits be cut from workless households, all in the name of self-reliance and independence from the state. Seems now, from this reaction, that the middle classes are every bit as attached to “their” state benefits as are the unemployed. The phrase double standards comes easily to mind.
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If David Cameron honestly stated before the election that they were going to withdraw child benefit as one of the measures to cut the country’s deficit, the Tories wouldn’t have gained any seats. Just to show how shallow this coalition is.People who voted Tory or Lib-Dem – you wanted change and this is what you have. DC calls it “fair” What else next…?
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I agree there should be a revision to universal benefits but do not agree that the proposal is fair as it penalises single earner families. Given this is the first £1bn saving of the £85bn cuts we can expect I guess this issue will be long forgotten when we hear the whole sorry tale at the Spending Review later this month. Drastic cuts will inevitably lead to school closures, longer NHS waiting times not to mention the impact on consumer spending as the hundreds of thousand of public servants are made redundant For those who voted Tory or Lid Dem I hope you are ready for this!
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This is quite clearly an attack on the traditional family and dual standards to boot. When considering my wife and I for tax purposes we are seperate; our marriage counts for nothing in tax terms. However when considering us for child benefit we are suddenly assessed as a family unit. I would be perfectly happy if the rules were consistent; as it is they are selective; the government takes according to one set of convenient rules that maximises their take; the government gives (ever such a small amount of the huge anount of tax I pay) it uses a different set of convenient rules that minimises the give. If I could use up my wife’s unused tax allowances I would be happy for her to lose the child benefit. Traditional families are supposed to be a priority for the government, but they are the hardest hit by the child benefit rule change. I will not vote labour but I suspect many will be alienated from the political process by this change.
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