I’ve read a few posts and a lot of comments on twitter about the governments announcements on the changes to child benefit and I suppose if you’re the sort that still picks up a news paper, you will see it plastered all over the cover for the rest of the week. I thought I’d do a brief summary of the changes and what they mean to me.
There is a freeze on the increase in child benefit for the next three years, so that will affect everyone. In practical terms, the real hit comes in after 5 April 2013.
Currently if you have one child, you get £1,055.60 a year tax free from the Government. For each subsequent child you get an additional £696.80, so a two child household would receive £1,752.40 and a three child family £2,449.20. This is received until they are 16 and continues to 19 if they are in full time education.
The Government has decided to stop child benefit completely for families where one parent is a higher rate tax payer from 5 April 2013.
The current threshold for paying tax at the higher 40% rate is £43,875. If you earn this or less, and your spouse is in the same position, you could have joint earnings of £87,750 and still get child benefit.
If you earn more than £43,875 but your spouse is for example a SAHM, you will get nothing.
If you earn more than £43,875 but your spouse doesn’t, you will still get nothing.
By 2013 the figure of £43,875 will have changed as future budgets alter the personal allowance and the tax boundaries but as of today it is a good ballpark figure to work with.
How much will it save the government? £1bn a year is the estimate. Is this a good way of saving £1bn a year? Last year The Public Accounts Committee found the Government was losing £1bn a year because the tax credit system wasn’t working properly- it was giving people too much credit. So the question has to be why the government have decided to save £1bn by cutting benefit to children instead of saving £1bn by fixing the appalling state the working family tax credit system is in.
The answer is depressing- it’s easier to cut the child benefit.
The coalition have already said it would be a logitiscal nightmare to calculate household income and picking on households with higher rate tax payers is easier, so I can imagine fixing the tax credit system would be harder.
Easier for them though. Our joint income is around £25,000 off the potential maximum joint income a couple could have and still get child benefit yet from April 5 2013 we will get nothing. Wifey works part time because of the children so gets a pro rated salary accordingly. The situation will be worse for full time SAHMs where their partner is a higher rate tax payer. They could earn as a couple over £40,000 less than a couple that still get child benefit. Crazy.
There is some talk of a married couple allowance being introduced as a sop but this misses the real point. Rather than cutting benefits, the system should be improved to stop waste.
It’s like the water companies urging us all to conserve water by sharing baths when their ageing system of pipes loses a fifth of the water supply.
Like a lot of the so called middle classes we actually use our child benefit to benefit our children. We paid for swimming lessons for our 3 year old last term, and the two of them often go to an art morning on a Friday. They’ve both been to music classes as well. All of this costs money, money which will be tighter from 2013.
There will be some crazy situations to come for people too. Can you imagine telling your boss you’re appreciative of the pay rise offered but actually you don’t want it because you’ll be out of pocket? If you have two kids and get a £2,000 pay rise that takes you over the threshold for losing your child benefit, chances are you’ll be out of pocket thanks to your pay rise. Personally, with two children, I’d need a £3,000 pay rise just to stay where I am once the cuts happen.