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UK Politics

Plan to cut child benefit 'fair'


Chancellor George Osborne today insisted that it was "fair" to ask high-income families to share the burden of cutting Britain's debt by removing their child benefit.

The Chancellor was challenged in the Commons by his Labour shadow Ed Balls, who said the plan would create a situation where a two-income family earning £84,000 will receive the benefit while a single-earner family on £43,000 will not.

The exchange came as speculation raged over whether Mr Osborne will use his Budget to water down the child benefit plan or to reduce the 50p income tax rate on earnings over £150,000.

Business Secretary Vince Cable today said there was an "understanding" within Government that if the 50p rate was scrapped, it would be replaced with a levy on wealth, such as the mansion tax favoured by Liberal Democrats.

But Labour leader Ed Miliband said that, while the Government should look at proposals for a tax on valuable homes, scrapping the 50p rate would be "absolutely the wrong thing to do".

Mr Osborne declined to reveal details of his Budget in his final appearance at Treasury questions in the Commons before the March 21 statement, telling MPs only that there would be no "unfunded giveaways".

Challenged over his plan - announced in 2010 - to remove child benefit from those earning over £42,745 a year from January 2013, Mr Osborne responded: "I think it is fair to ask those in the top 15% of the income distribution to make a contribution to the fiscal consolidation."

But the shadow chancellor told him that he could not "do the right thing" on child benefit because his economic policies had failed to deliver the growth he had been hoping for.

"The Chancellor's policy on child benefit seems to be that a two-earner family on £84,000 can keep all their child benefit, but a one earner family on £43,000 - whether a single-parent or where mum or dad stays home to look after the kids - will lose all their benefit," said Mr Balls. "What's fair about that?"

And Labour Treasury spokeswoman Rachel Reeves asked whether a single mother with three children on £42,000 should turn down a £1,000 pay rise which would cost her about £2,500 in lost child benefit under the new arrangements.

Meanwhile, there were growing signs of unrest on the Conservative backbenches over child benefit.

David Ruffley, a Tory member of the Treasury Select Committee, told the BBC he might vote against the plan, saying: "The child benefit proposal was flawed and I think the Chancellor needs to look at it again. It is an unsustainable proposal as he set it out."

Deputy Prime Minister Nick Clegg yesterday fuelled speculation that the child benefit cut-off could be raised to £50,000 or more, by admitting that the current plan created "anomalies" because it applies if one parent enters the 40% tax band, regardless of what the total household income is.

Today, Mr Cable confirmed that "a complex set of negotiations" on the future shape of the tax system were under way within Government ahead of the Budget.

Liberal Democrats were "not ideologically wedded" to the 50p rate, but were insistent that if it was scrapped it should be replaced by some form of wealth tax - whether a "mansion tax" on expensive homes or an extension of local taxes on property - to recoup more money from the super-rich.

The Business Secretary told the BBC Radio 4 Today programme: "There is a broad understanding... that if the 50p rate were to go - and I and my colleagues are not ideologically wedded to the 50p tax rate - it should be replaced by taxation of wealth because the wealthy people of the country have got to pay their share, particularly at a time of economic difficulty.

"How exactly that is configured is a detailed matter for negotiation but that principle must be upheld. Mansion tax actually is a very economically sensible way of doing it, but there are different ways of approaching it.

"There are different ways of doing it. It can be done through local government as well as central government, providing the principle is accepted that taxation should be related to the value of property."

The current system of taxes on property "doesn't work", said Mr Cable, adding: "There are vast numbers of extraordinarily valuable properties now around in the south of England netting very large gains for their owners - many of whom come from abroad incidentally - and it's not taxed at all. You get people with multi-million pound properties paying exactly the same council tax as someone in a semi."

Mr Miliband told BBC Radio 4's World at One: "I absolutely think it would be the wrong thing to do to cut the 50p tax rate."

Asked about the mansion tax proposal, he added: "I think it's an idea that the Government should look at but it shouldn't be used as an excuse for cutting the 50p tax rate."