New Budget blow for middle classes

1 in 4 families will lose some or all child benefit

One in four families will lose some or all of their child benefit within four years thanks to Rishi Sunak’s Budget.

In a further blow to middle-income families, who already face losing out thanks to a freeze on income tax thresholds, analysis shows that as many as 250,000 may lose their child benefit by 2025.

It is because the Chancellor has decided not to uprate the salary at which people stop receiving the full amount with inflation.

Households stop receiving the full child benefit when one of the parents’ salaries reaches £50,000. They lose it all when their pay reaches £60,000.

The upper limit was introduced by George Osborne in 2013, at which time it affected one in eight families.

But the salary has never risen with inflation, meaning the proportion losing the handout is on course to rise to one in four by 2025.

Last night financial expert Sir Steve Webb, a former minister and now a partner at consultants LCP, said: ‘ By freezing the £50,000 threshold, the Chancellor will bring hundreds of thousands of families into the child benefit tax net.

‘Many of these families are not rich but will now have to go through the hassle of registering for self-assessment and will face additional bills as their wages rise.

‘The £50,000 threshold was set in 2013 but has not been increased since, which means that the policy is steadily biting on more and more families. If the child benefit tax charge is to be retained, the threshold should be set on an objective basis, and not simply bite more heavily in an arbitrary way year after year.’

At present, child benefit is worth £21.05 a week for the eldest child and £13.95 for subsequent children.

The ‘high income child benefit tax charge’ introduced by Mr Osborne brought in a tax charge for families where one person earns £50,000 per year or more, and who are getting child benefit. The charge is 1 per cent of their child benefit for every £ 100 above the £50,000 threshold. So for those on £60,000 per year or more, the tax charge wipes out the value of the child benefit.

The £50,000 threshold was set in 2013 and has not been increased since to take account of rising earnings.

Sir Steve said that if the threshold is frozen to the end of the Parliament, an estimated 250,000 will be drawn into the net. This is based on an assumption of a 3 per cent per year increase in nominal average earnings for the next four years.

He said that, in addition, those paying a tax charge of less than the full amount of their child benefit will face a steadily increasing tax charge over the coming years.

Hundreds of thousands of families, many of whom may not currently file a tax return, will have to declare their liability to a high income child benefit charge. These families will have to register for self-assessment.

Some families have reacted to the charge by not claiming child benefit in the first place. The number of families on child benefit has declined every year since the charge was introduced.

Where families make no claim at all, the parents (often mothers) miss out on potentially valuable national Insurance credits towards their state pension.

Two years ago the Institute for Fiscal Studies estimated that between 2013 and 2019, another 360,000 were dragged into the child benefit trap.

A Treasury spokesman said: ‘We have a responsibility to target our support to those most in need, which is why it’s fair that we are maintaining the current high income child benefit charge threshold.’

MIDDLE-CLASS TAX RAID LAID BARE Yesterday’s Mail