The Spending Plan policy 7 : abolish child benefit and increase the child element of the child tax credit

April 14, 2015 5:35 PM

Each day we are publishing a blog on one of the policies from our Spending Plan. Click here to read the previous policy.

There have been efforts to ensure that better-off families stop receiving child benefit. George Osborne announced at the 2010 Conservative party conference that child benefit would tapered away from individuals earning over £50,000 and withdrawn at £60,000. But there were problems with that policy which quickly came to light, not least that households with two earners who were on each on, say, £50,000 would keep the benefit in full. The Institute for Fiscal Studies showed how inefficient the proposals were in a 2012 report:

170,000 families could increase their net income if an individual in that family managed to lower their pre-tax income; a further 200,000 families could find themselves with a lower net income if their pre-tax income were to rise slightly.  It would mean removing Child Benefit from some couples whose joint earnings were £43,000 but not removing it from other couples whose joint earnings were £84,000.

A more sensible option would be to integrate child benefit into the Child Tax Credit:

Combining child benefit with tax credits (or, from October 2013, with universal credit) would allow a more sensible withdrawal against the combined income of a couple, rather than against that of the higher-income individual. Consequently, it would lead smaller losses amongst one-earner couples and lone parents than the government’s proposal.

Once administration costs are taken into account, this measure would save more than £3 billion a year by 2020–21, assuming a consistent rate of increase in costs.

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