Home > Coalition government, Conservative, Economy, Liberal Democrat, Public sector reform, Tax and taxation, UK Politics > Solving George Osborne’s Child Benefit Problems.

Solving George Osborne’s Child Benefit Problems.

If you want to know why the changes to Child Benefit are generating more publicity than the wider cuts to other Social Security Benefits, look at who is doing the complaining. Very well paid people who get screen time on British tv sets.

The Chancellor has a simple proposal, those who pay higher rate taxes should not get Child Benefit. So those with a higher rate taxpayer in the household should lose their child benefit.

The problem. It all sounds very fair, until you realise that two working parents earning £43k each will still qualify but if one is a stay at home parent and the other is earning £44k they lose out. That however is a feature of the tax system and not a bug. Individual allowances were introduced by Nigel Lawson many moons ago. The result of that was to ensure that two members of a couple can individually earn just below the higher rate tax threshold giving them a lower tax bill individually than their single neighbour who earns just above, even though their combined income is higher.

The Telegraph, one of the loudest objectors to the Child Benefit changes applauded that as a great win for the rights of women.

The Child Benefit changes sound easy to implement. I can understand why the Chancellor saw this as an easy spending cut. One problem though. Whilst HMRC runs Child Benefit, in addition to collecting income tax, they do not currently data-share child benefit records with income tax records. The old “Inland Revenue” part of HMRC has no idea who has a child because they have no need to.

Another problem with 500,000 jobs to go from the Public Sector (at least) and many of those workers being top rate taxpayers, there is the added complication of wage fluctuation. Say you are working at a job paying £900 per week and then you lose it – can you reapply? Do you lose it if you start another well paid job?

The Child Benefit Service simply does not employ enough people to deal with a massive expansion of on/off claims and changes in circumstances.

There are however easy solutions to these problems but is the coalition open to them?

The first is a rather intrusive data sharing method, which would allow those who claim Child Benefit to continue receiving it but they then have that money deducted from their tax code.

So if you pay higher rate tax you repay it through your tax code. This deals with changes of circumstances. No need for new claims or changes in circumstance reports. Simple.

It would however be a further expansion of data sharing and the database state. Therefore it would go against the Liberal Democrat manifesto and the coalition agreement.

Or simply merge it in to tax credits. Include it as a premium within the tax credit award, which therefore reduces the numbers of payments being made anyway and you have an automatic way of removing it from top rate tax-payers. It is already means tested, it is also in the main paid to the mother, the staff are already employed by HMRC and almost all basic rate taxpaying families qualify for Child Tax Credit.

No additional staff. No additional data-matching. No additional forms. Win win.

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