UK Politics

Cameron predicts 'no problems' with child benefit cuts

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Media captionDavid Cameron: ''I don't start from the proposition that we're all appalling cheats and liars''

Prime Minister David Cameron says he does not "predict a problem" in implementing child benefit cuts, amid claims plans are unenforceable.

He was quizzed about plans to stop payments to families with higher earners, after it emerged they could face fines if they do not declare it.

The Treasury has rejected reports the policy is unenforceable as "nonsense".

But Labour say there is confusion over how it would work and the policy has become a "shambles".

Shadow Chancellor Alan Johnson has written to Chancellor George Osborne demanding "clarification" about a series of scenarios, including what happens to single mothers who meet new partners or move back in with their parents.

Mr Osborne announced plans to end child benefit payments to households with a higher rate taxpayer from 2013 in the week of the Conservative Party conference. It is aimed at saving £2.5bn a year as part of the government's plans to tackle the deficit.

But a report in The Wall Street Journal suggested some government figures felt it was unenforceable and would be dropped - because the government taxes individuals, not households and because mothers, who generally receive child benefit payments, are under no obligation to declare it.

'Generous revenues'

The Treasury rejected that and said on Thursday the policy would be introduced, and child benefit payments reclaimed through taxes - with new legislation planned to implement the changes.

Higher rate taxpayers - currently those on about £44,000 a year but due to drop to £42,000 due to changes to personal tax allowances - would be asked to declare whether they or their partner claimed child benefit. Those who refused to do so could face "penalties", the Treasury said.

Mr Cameron was asked about the policy during a press conference in Brussels on Friday and suggested that top rate taxpayers would be honest enough to give up the benefit voluntarily.

"I don't start from the proposition that we are all appalling cheats and liars and tax evaders, and the rest of it, and I am quite sure this change will secure the very generous revenues that the Office for Budget Responsibility have pencilled in. So I don't predict a problem."

Mr Osborne has previously said the hope is that higher rate taxpayers will choose not to claim the benefit - currently paid to all mothers who claim it until their child reaches 19 - rather than do so, only to have it clawed back through tax.

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Media captionEd Miliband said the government's policy is a ''complete shambles''

The chancellor told BBC News the change would affect the richest 20% of families - and using the existing tax system to implement it meant he did not have to resort to "means testing" the other 80%.

"I have done it in a way I think is as simple as possible, I'm not creating a new means testing system, I'm not changing the way the vast majority of families are going to claim their child benefit. I'm using the tax system ... people of course are expected to comply with it ... The government is being tough but fair."

But Conservative MP, Iain Liddell Grainger, who chairs the Parliamentary group on taxation, said he had concerns the current tax system would struggle to cope with the change.

"One of the big difficulties the government has got is that the system they have got is not a real-time system and therefore this is going to be virtually unenforceable," he told the BBC.

Shadow Chancellor Alan Johnson has written to Mr Osborne demanding more details of how it would work, saying it "does not seem to reflect the realities of how modern families live their lives".

He asked what would happen in scenarios where a couple split, and the mother moved in with her wealthier parents - or met a new partner, who was a higher rate taxpayer but continued living in separate properties.

Labour leader Ed Miliband said the policy was a "mess" and had not been "thought through". "It's a complete shambles frankly and the government should be explaining why they didn't think the policy through when they announced it at the Conservative Party conference.

The policy has proved controversial. It means a couple with one higher rate taxpayer - currently paid a salary of more than about £44,000 but due to fall closer to £42,000 by 2013 - would lose the benefit but a couple with two basic rate taxpayers collectively earning about £80,000 a year would keep it.

The government argues it is the simplest way to do it without resorting to "complex" means testing.

Impact of child benefit cut
Tax rate Annual income Benefit Keep or cut?
1x Lower
£42,475 or less
1x Higher
£42,476 or more
2x Lower

(2 x 42,475)
1x Lower
1x Higher

(42,475 + 42,476)

Note: higher rate tax begins after earning £42,475 (£35,000 + personal allowance of £7,475)

Source: HMRC

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