Tax concession to soften child benefit blow

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because it would mean benefit being withdrawn from a family where either parent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

future budgets.”

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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