- High income charge will still be calculated on individual, not household income
Many parents will be left out of pocket as the Chancellor quietly shelved planned child benefit reforms in her first Budget.
The Government will no longer proceed with reforms to base the high income child benefit charge on a household’s total income, rather than the income of the highest earner alone.
Many believe this system unfairly penalises higher-earning single parents.
A household that has two parents each earning £59,000 – a total of £118,000 – will receive child benefit in full, while a household with a sole parent earning £60,000 would see some or all of the benefit withdrawn.
Child benefit charge: Reeves quietly shelved plans to reform child benefit for high earners
Child benefit is currently £25.60 a week for the eldest and £16.95 a week for each additional child.
It is paid if you are responsible for a child who is under 16, or under 20 if they are still in school or on an approved training course.
However, the Government starts to claw back child benefit from households where the highest earner has an income above £60,000, after Jeremy Hunt raised the threshold from £50,000 in his last Budget.
Child benefit is then withdrawn completely once the highest earner makes over £80,000.
Hunt had pledged to significantly reform the charge and consult to move to a system based on a household, rather than individual income by 2026.
Since its introduction a decade ago, it has come under fire for placing an extra burden on working parents, particularly single parents.
However, Labour will no longer proceed with the changes, according to a document published by the Treasury on Wednesday.
It said that it ‘would have come at a significant fiscal cost of £1.4billion by 2029-30 if setting the threshold to £120,000 to £160,000, where no families would lose out.’
By keeping the HICBC based on total individual income rather than household, more parents will be left out of pocket.
As well as single parents, families where one parent earns more than £60,000 and the other does not can also lose out.
A couple earning £30,000 and £60,000 will have the higher earner start to pay back some of the child benefit, while a couple earning £55,000 each will keep all of their child benefit.
Had Labour kept plans to calculate the charge based on household income, a couple earning £55,000 each would receive no child benefit because they would collectively be over the £80,000 threshold at which child benefit payments are stopped altogether.
Keeping the child benefit threshold at £60,000 also doesn’t keep in line with inflation. If the original £50,000 threshold had been upgraded with inflation since its introduction, it would be £67,000. Meanwhile, if it had risen with average wages it would be £71,774.
Like the frozen income tax thresholds, it is creating a huge stealth tax raid on working parents.
The Government said it would make some tweaks to the system, including by allowing employed individuals to pay their HICBC through their tax code from next year.
This means that parents who are paid via PAYE will no longer need to complete a self-assessment tax return.
It also said it would pre-populate Self Assessment tax returns with child benefit data for those who don’t.
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