Senior Tory sources are predicting a compensating adjustment in income tax
tax rules in the next spring budget to defuse the fury that erupted after the
withdrawal of child benefit from families where either parent has income above
the higher rate threshold.
Pressure is mounting on Chancellor George Osborne to act on the pre-election
Tory commitment to a transferable married couple’s allowance to offset a claimed
benefit “hit” depriving stay-at-home mums with higher-rate tax-paying husbands
who are to lose entitlement to child benefit.
However, it remained unclear whether the allowance would apply to those
paying tax at the 40% rate and what the effect would be in terms of achieving
savings on the budget deficit.
The reform of child benefit has so far received scathing criticism
because it would mean benefit being withdrawn from a family where either parent
earns just over £43,875 but retained by a family “next door” with a joint
parental income just below £87,750 but with neither above the threshold.
Children’s Minister Tim Loughton suggested the benefit could be returned
the deficit is dealt with and said on television: “If there are ways we can look
at compensating measures for those genuinely in need that will be looked at in
And in a remark understood to refer to PAYE levels he said: “If the
thresholds need to be adjusted there’s plenty of time to look at that.”
The Institute for Public Policy Research issued a statement warning Osborne’s
proposals would create a “cliff edge” that will hurt middle class families too
much and called for Child Benefit to be taxed instead.
Osborne’s ‘anomaly’ would mean a loss of £1,000 for the first child ad £700
each subsequent child.
It would open up the likelihood of taxpayers using
stratagies to reduce taxable income by a small amount to avoid a larger benefit
loss for wives.
Osborne’s spokesman insisted the change is “fair” because it is in line with
rules disregarding spouses’ incomes, insisting this is the only way to avoid
introducing a means test administered by an expensive bureaucracy.
He said this was “tough but fair”.
The announcement was applauded by representatives who did not immediately see
the implications but which was greeted privately with dismay by delegates at
the Tories’ Birmingham conference where Osborne made the announcement in his
keynote economy speech.
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