Monday, October 04, 2010
Child Benefit Shock - my first reaction
Monday mornings are bad enough without waking up to the news that this Government is continuing on its quest to screw our financial planning up. First of all, they raise retirement age to 66 in the year my husband reaches 65, secondly they are going to take our child benefit off us at a time when for the first time ever we are likely to stray in to the higher rate of tax for pension type reasons.
I have 3 issues with the plans to take Child Benefit from higher rate taxpayers George Osborne told the nation over its cornflakes this morning. I will take the least important first:
Why, in the name of the wee man upstairs that I don't think exists, are we learning about this at a Tory Party Conference and not announced to Parliament? Heavens, this looks like an act of spin so sneaky that it's worthy of Alistair Campbell. Over the weekend stories circulated about Child Benefit being taken from those over 16 and Education Maintenance Allowance, which allows and encourages kids to stay at school after 16 would be scrapped. That worried me greatly to the extent that today's announcement seems an improvement. I don't like my head being messed with by anyone and especially not George Osborne, thank you very much. I didn't like it when Labour ministers announced things in the media and I don't like it when Coalition ministers do either.
The second, and now we're getting into the important stuff, and one of the first things I thought of. If this is to affect households with one or more higher rate taxpayers, families with one earner are going to be heavily disadvantaged. Let me show you how: One family with one parent earning £44,000 while the other stays at home to look after the kids will lose their Child Benefit. The family living across the road where both parents earn £43,999 each, with a combined income of £87,999, will get to keep their Child Benefit. That is completely unfair. Or even a closer example. One family with stay at home parent earning £44,000 would not qualify, the household across the road with a joint income of £50,000 made up of £25,000 each will. That just doesn't seem right or fair and we need to address that.
Why don't they just take it away from all families with a household income of £50,000 or even £60,000 or more? That would be fairer than the initial proposals and I'd feel more comfortable about it.
I've often thought that taking 40% of your income in tax at £37000 and keeping it that way until £150,000 is not fair. I wonder if we actually need an interim tax band of maybe 28% up to around £55,000-£60,000 and then pump it up to 40%. Decent housing doesn't come cheap, especially in some areas of the south of England. While for the highest earners in that band, Child Benefit might pay for extras, to a family just over the 40% tax band, it can be essential.
The final point - if there is a drop in income, if someone loses their job, for example, Child Benefit must be restored immediately - none of this mucking around as there is with the Tax Credit system, that they've had all they're entitled to for that year. Similarly, in cases of a marriage break up, the parent with the children can't be kept waiting for ages to get the vital Benefit.
There is a case that we should all pay for the raising of children,and Child Benefit is often the only income paid to the woman. The Government does need to look at the impact of this. During the Liberal Democrat Conference, I listened to one speaker describe situations where women who, for whatever reason couldn't work, had Child Benefit as their only source of income. Putting an arbitrary age limit would have adversely affected them, but removing from higher rate taxpayers will have no impact.
Ultimately if I have to choose between everyone losing child benefit at 16, and restricting it to basic rate taxpayers, I'd choose the latter because it is fairer. If we lose it, we won't have to make any choices about whether we eat or heat our homes. If our losing it means freeing people from real poverty, then I can live with it.
Of course, I have to see where it fits into the context of the whole welfare reform package which I'm still very concerned about. My support for this measure is conditional on them sorting out the household income issue, but if they do that, I will back it.
Update: Next Left has come up with another question that I hadn't considered, but it needs answering. Basically if you are not earning and you have a child under 16, you automatically get NI credits called Home Responsibility Protection. Under new child benefit arrangements, it's important to make sure that stay at home parents in the same household as higher rate tax payers continue to receive those credits. If they don't, then their state pension could be reduced as a result. That's unfair in principle, but it will impact on women most whose lifetime earnings potential is often lower anyway.