Child benefit - Looking over the edge
- 5 March 2012
- From the section UK Politics
The prime minister is looking over the child benefit cliff edge and he doesn't like what he sees.
Mums who stay at home married to men earning £43,000 or more complaining that a Tory government has taken away thousands of pounds from people who are "doing the right thing". (and yes the same holds true for house husbands with high earning wives, or unmarried parents where one is a higher earner)
That's why ministers are desperately searching for a way to deal with the problem before the Budget on 21 March.
It must have seemed to many like a good idea at the time: George Osborne announced that in 2013 the better off - those paying higher rate tax - would no longer receive child benefit.
It was presented as the government sharing out the pain fairly. What's more, it didn't involve putting up taxes so wouldn't offend Tory MPs who hoped that by the time it came to be implemented we'd all be getting better off and those hit would scarcely notice.
It has not turned out that way.
What the prime minister has called the "cliff edge" problem is this. Under the Treasury's current plans if you or your partner earns more than £42,475 you fall over it. Your household has a higher rate tax payer so you will not receive child benefit. However, if you and your partner both earn £42,475 or less - a household income of up to £84,950 - you can claim child benefit. It's an unwanted side effect of the fact that tax is determined by personal not household income.
Today's papers suggest the chancellor might announce a new threshold of £50,000. This, of course, is still a cliff edge - just a higher one. Other ideas being discussed are to withdraw the benefit only after children reach the age of 5 or take away half of it from families where there is only one higher rate earner. You could even claw back the benefit as people's incomes increase using the tax code. Finally, the change could be phased in.
David Cameron could be forgiven for feeling a bit nauseous as he looks over the child benefit cliff edge. The more he wants to deal with it or the so-called "anomalies" the more complex and difficult and costly the changes will be.
Labour are trying to make him feel worse by staging a debate on the issue in the Commons this evening.
Their focus on cuts in tax credits has got less attention - perhaps because those who write headlines sometimes forget that only 15% of people earn enough to be higher rate taxpayers.