Osborne raids on child benefit to hit half a million families
MORE than half a million families will be stripped of child benefit over the next five years under a series of “stealth” tax raids by George Osborne to help balance the books, the Institute of Fiscal Studies has warned.
The respected think tank warned that by 2020, 1.5 million households will lose some or all of their child benefit because their pay will rise above £50,000, the level at which it is withdrawn.
The IFS warned that tens of thousands of people will be dragged into paying the highest rate of income tax as the economy improves. It also said that fuel duty will have to be raised over the next five years or the Chancellor will face a £3 billion black hole in his plans to run a surplus by 2020.
The think tank concluded there was a one in four chance that Mr Osborne will raise taxes or cut spending at short notice to meet his targets. It warned that “public support” for child benefit could ultimately be “eroded” as there will be so few families receiving it.
The report said: “If continued indefinitely, child benefit would be received by fewer and fewer families over time.
“But if this is the Government’s intention, it would again be better to state this clearly rather than achieving it by stealth.”
Tim Loughton, a former Conservative education minister, said the findings were a “double whammy” for families who are already paying the 40p higher rate of income tax. He said: “This is hardly helpful for hardworking families trying to do the right thing for their children – if you don’t index up the rates and if you have a very complicated formula that doesn’t accurately reflect household income, it’s a double unfairness.” The IFS said that middleclass families will lose out on child ben- efit as pay rises because the threshold for losing the payments is frozen.
Those earning £50,000 will lose some benefit and those earning £60,000 or more will lose it all.
The think-tank also said the threshold for the additional rate of tax – the 45p band – will drag in tens of thousands of extra people because it is fixed at £150,000.
It said Mr Osborne has been “boxed in by his own rules” and must now “pull off a precarious balancing act”. It said that with a surplus of just £10 billion – equivalent to 0.5 per cent – forecast for the last year of this parliament, he had very little margin for error and could be knocked off course by bad news on GDP growth, share prices or wages.
Carl Emmerson, one of the authors of the report, warned that Conservative plans to increase the tax-free personal allowance at the same time as raising the threshold for higher-rate tax to £50,000 amounts to an “£8 billion unfunded tax cut kicking around in the party’s manifesto”.