The Conservatives have announced plans to abolish Child Benefit for people who pay Higher Rate Tax - but have already modified their position in light of the public response

Yesterday, the Chancellor Mr. George Osborne announced that any family where even just one of the parents pays "Higher Rate Tax" will lose Child Benefit from 2013.

So basically, if one parent earns more than £43,875, (using 2009/10 figures), then the family stands to lose tax-free income of at least £1,055. Which means that going just £1 into the "Higher Rate Band" can cost will over a thousand pounds - more, of course, if there is more than one eligible child in the family.

Given that entitlement to very many benefits depends on an assessment of the family's (or a couple's) total income, it is wholly unsurprising that there has already been considerable adverse reaction from across the country, to the news that just one parent's income falling into the Higher Rate Band triggers forfeiture of the entire benefit, whilst a couple can earn more than £80,000 between them and yet remain eligible, provided neither actually earns more than the £43,875 threshold.

David Cameron has been quoted as justifiying this approach on the basis that otherwise, it would require introducing a means-tesing system which would be "incredibly bureacratic, and expensive and, frankly, quite intrusive."

A bit like Tax Credits, then. Or Housing Benefit.

It is also interesting that Mr. Cameron has justified the change, effectively saying that other people should not have to subsidise Child Benefit for those paying "the top rate of tax." No doubt the very many people earning between £43,875 and £150,000, where the "Additional Rate" of 50% kicks in, would vehemently agree. (Or even up to 'just' £100,000, where the effectively higher marginal rate of 60+% arises with the graduated loss of Personal Allowances).

David Cameron has already tempered yesterday's announcement by suggesting that "Stay-at-home Mums" would get additional help in time for the planned withdrawal in 2013, (such as transferable allowances) whilst The Children's Minister also added that the thresholds might need revising to iron out anomalies.

In the meantime, couples which have one spouse earning just below the Higher Rate Threshold of £43,875 would perhaps rather not have that modest pay rise... ...or could get divorced!

Alternatively, they could perhaps make "salary sacrifice arrangements", or consider making pension contributions, or charitable donations, to 'extend' the Basic Rate Band and cover income which would otherwise by taxable at the Higher Rate - these assuming that no relevant anti-avoidance measures are introduced.

Article Added Tuesday, 05 October 2010 | 1382 Hits

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