So the Tories are going to cut child benefits for any couple where one is a higher rate tax payer.
I agree the principle sounds sensible.
The result will be a nightmare.
Let’s consider some obvious issues.
First there is no legal obligation on a couple to tell each other their income.
Second it encourages divorce!
Third it will create a marginal tax rate of well over 100% at around £44,000 of income for many people.
Fourth, many people do not know at the start of a year if they will be higher rate tax payers.
Fifth, many will not know at the year end either — partly because of benefits in kind.
Sixth, the reporting mechanisms will be a nightmare — and the penalties will have to be high.
You can go and and on with the craziness of this from a pro-family ant- bureaucracy pro-middle class party. And I’ll guarantee this — Osborne is creating his 10p tax rate fiasco before our eyes. It’s almost amusing to watch it is such a disaster in he making.
And all this to save a billion of so when I have shown him time and again easy ways to raise that money. Which proves it is politics, not economics, driving this.
Why say that - because he wants the link between the middle class and benefits broken for good so they never again vote to protect those on benefits. That's why. But I doubt his own will forgive him for this. Taking something away is very hard - always - and deeply resented, as any parent knows. And Tory parents will behave like their kids on this one.
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I have often wondered why child benefit was not made taxable like unemployment benefit. It would be fair then to increase the benefit to a level where poorer households would not be disadvantaged. This would keep the benefit universal plus reduce the cost.
@Carol Wilcox
Absolutely….
Especially if 50% rate started at £100k
@Richard Murphy
Isn’t Child Benefit paid to the mother? Would you tax the mother? Father? Married Couple? Co-habiting couples? What about income splitting? Osbourne’s plan has the same problems as you’ve already pointed out.
For too many families, and not just poor families, the child benefit is the only money that the non-working mother has any control over. In my line of work, I can think of women who are going to be frightened about how they are going to feed and clothe their children.
@Noel Scoper
If the income is the mother’s the mother should be taxed
@Richard Murphy
Of course, but hardly fair for a couple if the income is booked to the mother who may be working with a stay at home husband who loses out compared to the opposite situation. (Again, Osbourne’s solution is no better either).
I’d be interested to know if you are in favour of joint assessment options for married, civil partners or co-habiting couples. It certainly simplifies things here in Hong Kong (married couples only) and would solve Osbourne’s problem of one of a couple on higher rate tax compared to a couple earning 99% of higher rate each.
http://www.ird.gov.hk/eng/ese/st_comp_2010_11/stcfrm.htm
This could sow the seeds for a Tea Party movement here, because once you start removing benefits from the middle class they then will tun against the Welfare state.
Why have child benefit at all? If you want to bring up children, fine, but why expect the state to subiside you?
@Syzygy
I am sorry, Syzygy, but I find it difficult to comprehend what you are saying here. First any low income families are not going to be affected. Also, frankly, if you are depending on child benefit to feed and clothe the family, you are already in deep trouble. CB is not that good. A family, where there is someone earning enough to pay higher rate tax but where the wife is reliant on CB is also clearly so dysfunctional that losing CB is probably the least of their worries.
@Harry Lyons
Let’s be indifferent to poverty, shall we?
Is that what you want?
@john
Which would tear the Tories apart….
@Harry Lyons
There’s a very good reason for this, Harry. Those who don’t have children may have a substantial pension fund when they get old, but they will need people to turn that cash into goods and services. Today’s kids in fact. We all need a next generation even those who for their various reasons do not themselves have children.
This idea that having children is some sort of self-indulgent lifestyle choice is on the far end of the absurd.
@James from Durham
Precisely
That is the fundamental pension contract
Neoliberals think it’s just cash
And where will it end? “Comfortable” OAPs to be denied a full pension? Middle class people with disabilities to have their allowances cut? Thin end of the wedge.
Perhaps I am naive, but what precisely is the link between child benefit and the divorce rate?
I am presuming that the government currently taxes “households” in various forms and therefore the fact that there may or may not be a legal requirement to disclose earnings to your spouse is surely irrelevant as the tax man should be capable of calculating “household” benefits or taxes without the individuals disclosing information to each other. Having said that – one of the arguments for universality of the CB is precisely to protect a small income for the child (via the mother) because a father/spouse (regardless of wealth) may not be prepared to provide for the child (assuming of course that the mother is prepared to provide for the child).
Why not just scrap Child Benefit completely and give relief to parents through the tax system on the form of child allowances or rebate.
your first point is flawed – its on a single income being over the threshold, not joint incomes. Still no need for couples to share details of their income – the taxman goes for the recipient.
actually so is your second point. the tax and benefit system already encourages divorce – this only adds to it at the margin
and as it happens there are avoidance mechanisms available at the margin relating to pensions contributions, which is yet another reason why, at the margin, it will be hard work to implement.
I agree it is nonsense. It would be much simpler to scrap the whole thing, and make adjustments to the benefits and tax scheme to compensate, but I think the principle is right, and in that regard it looks like we are in agreement.
You are quite correct that it is about politics – the problem with unravelling the spending conundrum this Government (any government) faces is entirely political. Its relatively easy to add spending – but virtually impossible to remove it – which is one reason why the state continues to grow.
And your final analysis is entirely correct – it is a stated aim to remove welfare dependency.
@JayPee
Because the poorest parents don’t pay tax
That’s why we have benefits
@alastair
The principle is wrong
That’s what’s so bizarre about this
The principle is that the state should support and encourage the well being of children – all children
That seems to have been forgotten
Why should the poor be taxed to pay for a higher rate taxpayer’s child benefit?
Trotting out the “universality” line is just lazy thinking. A proper welfare system should have elements that are universal (e.g. NHS) and elements that are not (such as some benefits already are – eg tax credits).
This is effectively a tax on having children. Universal child benefit was enjoyed by my parents and grandparents: even Thatcher did not touch this. Bringing up children is very expensive and the hardest hit will be the majority of middle class familes just on the border-line of the 40% tax band – especially where one parent looks after the children.
This is a big hit (£1700 per year for 2 children) for many hard working families. The Tories (and Liberals) would be naive to think there will not be a back-lash from a large group of articulate members of society.