Budget 2012: Child benefit cliff-edge tackled

Planned child benefit changes have caused considerable debate

Government plans to withdraw child benefit from parents who earn higher levels of income have been altered.

Chancellor George Osborne said that the benefit would only be withdrawn entirely from those where one partner earns more than £60,000 a year.

The benefit will be withdrawn gradually from those where one parent earns more than £50,000.

Child benefit totals £20.30 a week for the first child, and then £13.40 for each subsequent child.

There is no limit to the number of children that can be claimed for.

So, for a family with two children, one parent would receive £33.70 per week or £1,752.40 per year.

The equivalent in terms of earnings, taking income tax into account, would make it worth £2,190.50 for a basic rate taxpayer, and £2,920.67 for a higher rate taxpayer.

Anomaly

The government had planned to remove the benefit from households in which someone earns more than £42,475 in January 2013.

The perceived problem was an anomaly that a family with a single earner taking home more than £42,475 would lose child benefit, but a couple each earning slightly less than this could take home £80,000 and keep the benefit.

The other issue of debate was the "cliff-edge". That meant someone earning £42,475 or below would receive the full child benefit. As soon as they earned £42,476, they would lose every penny of the child benefit.

Under the new plans, announced in Chancellor George Osborne's Budget, the child benefit will be phased out when someone in a household has an income of more than £50,000.

This does not deal with the first issue directly, but does address the cliff-edge issue.

The benefit will fall by 1% for every £100 earned over £50,000. That means those earning more than £60,000 will lose the entirety of the benefit.

Some 7.8 million families receive child benefit, of which 1.2 million would have lost their entitlement under the original proposals. The number affected will be lower under the renewed plans.

Three million taxpayers earning over £50,000 will be sent letters in the autumn asking if they or anyone in their household receives child benefit - in order for some to be clawed back through tax from January 2013.

The income tax charge could be levied from monthly pay cheques, via people's personal tax codes. Otherwise, the first tax bills for child benefit will have to be settled by the end of January 2014.