1 in 5 families set to lose child benefit

Frozen income threshold means 1.6m will be hit

one in five middle-class families will be hit by ‘stealth’ child benefit cuts within three years, a report has warned.

By 2022, all or part of the payment will be withdrawn from 1.6million families, the institute for Fiscal studies (iFs) said.

that is a rise of 370,000 since the policy was first introduced six years ago – when only one in eight families was affected.

this is because the income threshold after which child benefit begins to be reduced has been frozen at £50,000 a year.

Families without a higher rate taxpayer will be hit because the income level after which the 40p tax rate is levied has continued to rise, the iFs predicted.

Child benefit is currently worth £1,079 per year for the first born child and £714 each for the second and any subsequent children.

in 2013, as part of efforts to rein in public spending and reduce the deficit, the benefit began to be means tested.

Any family where one parent earned more than £60,000 a year lost their entitlement to it. Where someone earned between £50,000 and £60,000, they were entitled to a partial payment.

in 2013, the iFs said one million families were affected – about 13 per cent of the total. About 700,000 lost all their benefit. the cut saved the exchequer about £1.6billion that year.

But the earnings levels for the child benefit cuts have been frozen ever since, so inflation means more and more people have been hit. the iFs estimates that 1.4million families – 18 per cent of the total – will be hit this year, of whom one million will lose the entire benefit.

if the threshold were linked to prices, it would have hit £55,000 this year, the iFs said.

At first, the policy was linked directly to the higher rate threshold for income tax. But in the 2012 Budget, the then-chancellor George osborne set it above the level of the higher rate threshold, which was then £43,875. he said that, at £50,000, another 750,000 families would keep some or all of the benefit.

liberal Democrat mP Christine Jardine said: ‘Child benefit can be what makes the difference between families with young children making ends meet or not. But now, by stealth, tory plans mean this vital support will be taken away from millions of families. it makes a mockery of David Cameron’s pledge to not cut child benefit and tax credits in 2015.’

last year, the Daily mail reported that 100,000 middle class families would face unexpected tax demands as a result of a child benefit ‘fiasco’.

hm revenue and Customs was accused of ‘bullying’ families who fell foul of the rules by claiming the benefit despite earning more than £50,000.

in the worst cases, parents have been sent threatening tax demands after wrongly receiving payments for years.

A treasury spokesman said: ‘We are spending more than £90billion a year on working-age benefits and this will continue to rise. And we are helping families to earn more and keep more of what they earn by raising the personal allowance, increasing the national living Wage and doubling free childcare.’

‘Support taken away by stealth’