Top earners to lose child benefits

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Child benefit is to be stopped for all higher-rate taxpayers from 2013 to help pay for a massive overhaul of the welfare system, Chancellor George Osborne announced today.

The move will hit 15% of UK households - around 3 million families - and will result in middle-class parents losing out to the tune of £1,055 a year if they have one child and almost £2,500 for three.

Announcing the plan ahead of his keynote speech to the Conservative Party conference in Birmingham, Mr Osborne said the measure was "difficult but fair" and would raise around £1 billion a year.

The move ends the principle of universality enshrined in the benefit since its introduction as family allowance in 1946.

Advocates of universality say that child benefit is one of the few signs wealthier families have that they are receiving something back from the welfare state for the taxes they pay.

But Mr Osborne told BBC1's Breakfast: "It is a big decision for us but we think it is absolutely necessary and fair given the financial situation we face.

"It is very difficult to justify taxing people on much lower incomes in order to pay the child benefit to some of the better-off in our society.

"It is not a decision we have taken lightly but given the scale of the debts that Labour's left us with... we think this is fair and it means we are all in this together."

Aides confirmed that child benefit will be removed from families where either parent earns enough to pay the higher 40% rate of income tax - currently around £44,000.

But two-earner households where neither parent's income is above this threshold will continue to receive the benefit - worth £20.30 a week for the first child and £13.40 for each additional one.

In some cases, this could result in families with an income of almost £88,000 receiving child benefit, while others on little more than half this sum lose out because one of the parents stays at home to look after the children.

Mr Osborne acknowledged that his plan would produce "anomalies" of this kind, but said the only alternative would be a "very complicated means tests" of every household in the country, which would fundamentally change the nature of child benefit.

Money saved from the change will go towards paying the upfront costs of a new universal credit, due to replace a range of other welfare payments over the coming 10 years.

The universal credit scheme was agreed between Work and Pensions Secretary Iain Duncan Smith and the Treasury after a long battle over cuts to the welfare budget.

Mr Osborne said it would cut fraud and make it clear to all claimants that it is "worth going to work".

The Chancellor denied today that he had tried to block Mr Duncan Smith's proposed reforms.

"It's not that I didn't like the idea. It is just that my job is to make sure that the public finances are secure," he said.

Changes to child benefit will be introduced "in as simple a way as possible", based on existing tax bands, to avoid the need for a complex means test, said Mr Osborne.

He told the BBC Radio 4 Today programme that he hoped higher-rate taxpayers would simply stop claiming the benefit but added that, if they did not, the same amount would be deducted from them in taxes.

He explained: "I wanted the child benefits system to be like it is for many millions of people - something you claim, usually as a mother, just after the birth of your child.

"I looked at a way of doing this as simply as possible - and removing it from higher-rate taxpayers' households was the simplest way of doing it."

Pressed on whether the Government was beginning to "unravel" universal benefits, he said: "No, this is a one-off measure."

Mr Osborne also insisted that the cuts to public spending due to be unveiled in his October 20 spending review would put the country on course for a "steady and sustainable recovery".

The Chancellor would not rule out the possibility of a "double- dip" recession - something Justice Secretary Ken Clarke yesterday said remained possible.

But he said experts, including the new independent Office for Budget Responsibility, were predicting 2% growth.

"The real risk would be not taking action. If you look around the world, you can see other countries with real problems because they have got big debt problems which the markets and the international community don't think they are addressing," he said.

"We have managed to actually move Britain out of that financial danger zone."

The Chancellor will use his speech today to promise that the cuts will usher in a new age of prosperity, as he seeks to shore up public support for the divisive plans.

After Labour leader Ed Miliband last week accused the Tories of being pessimistic, Mr Osborne will maintain that the coalition's approach to the deficit will harness the country's "aspiration" and deliver "a better future for all".