Some 750,000 parents earning between £42,000 and £60,000 will hold on to some or all of their child benefit as a result of today's Budget.
Chancellor George Osborne rowed back on controversial plans to scrap child benefit for all households where one parent earns enough to pay the 40% higher rate of income tax, following complaints - including from Conservative backbenchers - that it would hit families in the "squeezed middle".
Instead, the benefit - worth about £1,000 a year to parents with one child, £1,700 with two and £2,500 with three - will be withdrawn in April 2013 from those earning £50,000 or more.
And to prevent the "cliff-edge" effect created by the plans which he originally unveiled at the Conservative conference in 2010, the withdrawal will be tapered so families lose 1% of their benefit for every £100 earned over £50,000.
Mr Osborne told MPs that only parents earning £60,000 or more will lose all of their child benefit. Some 90% of all families will continue to receive the previously universal benefit, including 85% who receive it in full.
The change will be funded by bringing the threshold for the 40p tax band down from £42,476 to £41,450, bringing an additional 200,000-300,000 workers into the higher-rate tax.
However, Treasury sources acknowledged that the new arrangements would not get rid of the anomaly that a family with two parents earning £40,000 each will keep all of their child benefit with a total household income of £80,000, while neighbours where one parent stays at home and the other earns £50,000 or more will lose out.
Overcoming this issue would have involved bringing millions of people into the tax credit system at considerable administrative cost, which was not considered a good use of money, said a Treasury source.
Announcing the change, Mr Osborne told the Commons that the decision to remove child benefit from wealthier families was "difficult".
But he added: "I said then that I simply could not justify asking those earning £15,000 or £30,000 to go on paying child benefit to those earning £80,000 or £100,000.
"And I stand by that principle. All sections of society must make a contribution to dealing with the deficit - without this measure we wouldn't get the job done.
"But I said I wanted to do this in a way that is fair and that does not involve setting up some new means-tested tax credit system for millions of families. And I said I would set out exactly how this measure would be implemented in this Budget.
"We want to avoid a cliff-edge that means people lose all their child benefit when they earn just a pound more.
"So I can today confirm that 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."
The changes announced today will cost the Treasury around £500 million a year, as the total child benefit bill will fall by around £2 billion, compared to £2.5 billion envisaged under the plans set out in 2010.
The chief executive of the Child Poverty Action Group, Alison Garnham, said: "The Chancellor has taken a step in the right direction, showing he has listened to our campaigning, but the new claw back will be complicated and costly to administer.
"In the end, we are still asking families with children to pay for tax breaks for the very richest. This does not pass the fairness test - it would be fairer to ask all high earners to make a contribution than just to target families with children."
Ms Garnham said that families at the lower end of the income scale were still facing "multiple raids" on tax credits, with a £2 billion "bombshell of cuts" due to hit the poorest working families next month.
"The Budget will do nothing to change the dire warnings from the Institute for Fiscal Studies that child poverty is set to rise from now on, with another 400,000 children in poverty by the end of the Parliament," she said.
Family Action head of policy and campaigns Rhian Beynon said: "We do welcome the announcement that households with incomes up to £50,000 will now continue to receive child benefit, meaning the vast majority of families will keep this.
"Our recent Family Fortunes research report found this was a vital element of income for squeezed middle families who were really struggling with food, fuel and childcare costs - meaning that, in common with the poorest families, they were unable to save for their children's future.
"However, families are struggling to move into or stay in work with sky-high childcare costs and the Budget hasn't addressed this, with no reversal of the cut to the childcare element of Working Tax Credit."
Shan Nicholas, interim chief executive of The Children's Society, said: "This Budget has fallen a long way short of putting vital pounds into the pockets of low-income families. Instead of producing a roadmap to meet its commitment to end child poverty by 2020, the Chancellor is considering slashing a further £10 billion from the welfare budget.
"Coming on top of cuts being introduced this year and next, this will make the future for some of this country's poorest families even bleaker."
Anne Longfield, chief executive of family charity 4Children, said: "One speech has wiped away a principle held over 35 years, and in other forms before that, of valuing and recognising the importance of children in every British family.
"This isn't simply a case of low-income families paying into a benefit received by others on higher incomes.
"Child benefit has been at the heart of a choice we all make over how we value the bringing up of all children in this country. My fear is that society may become less cohesive as a result of George Osborne's Budget today.
"This Budget has failed to deliver the relief that families need. Changes to child benefit really need to be deferred until 2015. Such uncertainty in this financial climate is not fair on parents struggling to make ends meet.
"It was also hugely disappointing that this Budget has done nothing to help parents with the spiralling cost of child care.
"George Osborne missed an opportunity to return the childcare element and help parents remain in sustainable employment.
"As any working parent knows, affordable childcare is difficult to find and the Government needs to being doing much more to support them."
Netmums founder Sally Russell said: "Cutting child benefit can never be described as family-friendly, but the new changes announced in the Budget are fairer.
"Although no family wants to lose income, shifting the starting point for removal of child benefit from £42,475 to £50,000 lifts the burden upwards and means more hard-working families will keep their cash.
"These changes will undoubtedly make a big difference to many families who were wondering how they were going to cope.
"However, it remains unfair that a two-earner family on an income of just under £99,000 will keep their child benefit, but a family on just over £60,000 will not."
Budget documentation makes clear that full child benefit will still be paid to families where one parent earns more than £50,000.
However, the payment will be offset by a new income tax charge levied on the higher earner.
"For taxpayers with income between £50,000 and £60,000, the amount of the charge will be a proportion of the Child Benefit received," the document states.
"For taxpayers with income above £60,000, the amount of the charge will equal the amount of Child Benefit received."
HM Revenue & Customs said administering the policy would cost up to £118 million over the next five years.
IT spending was expected to be between £8 million and £13 million, while staff costs were estimated at £100 million and another £5 million would go on public information about the system.
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