Child benefit overhauled to end unfair bills and boost workforce

Half a million working families will save more than £1,000 as repayment threshold raised to £60k

CHILD benefit is to be overhauled to end unfair tax bills being levied against middle-class parents and boost workforce numbers.

The threshold at which child benefit is paid back via the so-called High Income Child Benefit tax charge will be raised from £50,000 to £60,000.

From April 6, families will not be forced to pay back their child benefit in full until they earn £80,000. Currently, parents start paying back child benefit once one parent earns more than £50,000. Once earnings exceed £60,000, all the benefit is lost.

It would mean an average saving of £1,260 for about half a million working families, the Government said.

It is the first time the threshold has been raised since 2013, when it was introduced. The charge has come under fire, with campaigners arguing it traps families with children into punishing effective tax rates.

A perverse quirk of the current system meaning lower-earning families lose their benefit while wealthier families can still claim, would also be reviewed, the Chancellor said in his Budget yesterday.

Under the system, a family with two parents earning £49,000 a year each, or £98,000 annually as a couple, would not pay the charge, whereas a household with one parent earning £50,000 would pay it.

A consultation will also be held on allowing HM Revenue and Customs to collect data on a “household level”, rather than an individual one, Jeremy Hunt said, which would mean parents could be charged as a unit. But this reform is not expected to come into force until April 2026.

The Chancellor said that the overhaul would mean 170,000 fewer families would be caught by the charge, first introduced by George Osborne, and that it would encourage the equivalent of 10,000 more workers back into the economy.

Claire Trott, of St James’s Place, Britain’s biggest wealth manager, said “the complexities” of the system “have for many years created confusion” and impacted families “in completely different ways depending on how the family earned their money”.

Alice Haine, of wealth manager Bestinvest, said: “The unfairness [of the system] won’t end entirely until the benefit is based on the overall household income rather than that of the highest earner, something that is not going to happen for more than a year.”

Shaun Moore, a tax expert at Quilter, the wealth management firm, said: “Such a change will support families equitably and efficiently, encouraging career progression without the fear of losing essential financial assistance and better aligning with the economic and social shifts in family structures. However, the Government’s 2026 implementation target will leave families facing this same issue for some time yet.”

The Chancellor also announced nurseries

‘The unfairness won’t end until the benefit is based on household income not the highest earner’s’

and preschools will be “protected from rising costs” over the next two years through a guarantee that future funding will rise with a combination of inflation, earnings and the National Living Wage.

It said this would provide the “certainty the sector needs” to expand and deliver the roll out of the expansion of the 30 hours free childcare scheme designed to save parents up to £6,500 a year and boost the number of women going back to work.

The changes, announced at the Budget last year, will mean that eligible families of children as young as nine months will be able to claim 30 hours of free childcare a week by 2025.

The roll out will be staggered, with working parents of two-year-olds able to access 15 hours of free childcare from April. Campaigners have previously criticised the Government over lack of clarity on funding, saying that it has led to nursery closures.

Neil Leitch, chief executive of the Early Years Alliance, said: “The Budget hints at a renewed approach to how the early years sector is recognised – but rather than being viewed as a solution to the early years crisis, it must be seen as the first step of many that need to be taken to safeguard the future of our vital sector.”