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Tough but fair! Really?

Today the Chancellor of the Exchequer, George Osborne, announced a major welfare reform. From 2013, higher rate taxpayers will no longer be eligible for child benefit. Guessing that it is now too late to return the children, 1.2 million families will be hit in their piggy banks.

Those who will lose out are couples where at least one parent earns above the 40% tax level, which is currently around £44,000. Sounds fair to me, you cry. Yes, it sounds fair, but is it really. This will now mean that we can have a scenario where both parents earn about £40,000 each and will still retain child benefit. However, a single parent earning £45,000 will lose all their benefit. So, in one case household income of £80,000 means child benefit is retained, but in the other case a lone parent with a ‘household’ income of £45,000 will lose child benefit. Not quite so ‘fair’then.

At the moment child benefit is paid to 7.7 million families with children, and costs the government £12bn per year. Mr Osborne estimates (or at least got someone to do it for him) that this will save the exchequer £1 billion.

Child benefit is currently a universal benefit, which means that it is received by right, and is not means-tested. This was always seen in the past as the easiest option for paying child benefit. However, it will be ‘means tested’ from 2013. This means that people that find themselves moving into the higher tax bracket will be hit. However, many self-employed people may not know until well into a financial year what their income is likely to be. Even employed people, may receive bonuses or wage increases during the year which will push them into the higher tax bracket.

What happens then? The money which has been given out in child benefit will have to be reclaimed through the pay as you earn system. Given the recent record of the Revenue in getting taxes and tax credits right, this will probably end up costing more than the £1bn being saved in payments.

But, and here is the irony, the Conservatives are passing a measure which will hit the middle and upper classes most. How does the Labour Party respond? With three cheers for the Tories? Oh no, Yvette Cooper, the shadow work and pensions secretary said: “We support child benefit for all children and all families.” How dare those sneaky Conservatives take money away from those that are earning the most?

Perhaps we should have a childrens’ parliament? What’s that you say? Oh, we already do have one.

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Posted in government spending

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