Child Benefits Revised to be More Fair

As part of his drive to tackle the budget deficit, George Osborne’s statement on the 21st of March announced revised details of his plans to cut child benefit payments, which will result in parents earning 60,000 pounds or more losing the benefit altogether. Osborne admitted that his original plans to take child benefit away from all households with a higher-rate taxpayer were unfair, but said he could not justify continuing to pay child benefits to people earning for instance £100,000 per year.

“Instead of withdrawing child benefit all at once when people earn more than the higher rate threshold – the benefit will only be withdrawn when someone in the household has an income of more than £50,000. And the withdrawal will be gradual, 1% of child benefit for every extra £100 earned over £50,000 so there is no cliff-edge, and only those with an income of more than £60,000 lose all their child benefit.”

He added that 90% of those families affected, or about 750,000 households, would continue to receive child benefits.

The change, which will be implemented from January 2013, will see the benefit taken back from the taxpayer as an income tax charge on the higher earner. This will add 11 percentage points to the marginal tax rate of families with one child and 18 points to those with two. A family with eight children will have to pay back as much as £5,933, pushing their marginal tax rate up from 42% to a whopping 101%.

The changes have been met with approval for the most part, although there is concern that more than 500 000 more taxpayers will be forced to complete the annual self-assessment tax returns if they want to keep their child benefit next year.

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