Monday, October 04, 2010

Child Benefit and the rich

My immediate reaction to the news that child benefit was to be cut for those on the higher tax rate is very positive. It does seem odd to be giving benefits to people who can't possibly need them in the same way as those on lower incomes. Universal benefits can just end up subsidising extra recreational activities for middle-class kids, which can't be priority in the present climate. As I understand it, however, there will simply be a cut-off, so that when you hit the higher tax rate, it stops.

Not being in a position to do the maths properly, I had wondered whether it would make more sense to make child benefit taxable, but I guess that may yet come!


Revsimmy said...

I think it would make sense to have a cut-off when the higher tax rate is hit. Otherwise, I hope it remains as close to a universal benefit as possible, paid to the primary carer for the benefit of the child. I suspect that making it means-tested would damage its purpose, as we know that such benefits are often not taken up by many of those who qualify. the reasons for this are various and range from a perception of them as "charitable handouts", to the complexity of the forms and procedures for applying in the first place.

Then there are the costs of applying means-testing, coupled with HMRC's propensity to get it wrong in so many cases (Family Tax Credit), and consequent clawing back over-payments to the detriment of those who innocently assumed that they would get it right. So, no thanks, and please don't give them ideas.

gerrardus said...

Making Child Benefit taxable would result in us paying tax, to get a benefit, which would then be taxed. I suspect the only benefit as such would be to those that work in tax offices.
It makes no sense to take money off us in tax, and then give it back in benefits. It's bureaucratic and it makes well-paid people beholden to the Government when there's no need.
On the other hand, consider two couples - in Couple A, the wife stays at home while the husband earns £46K and as a higher-rate tax payer will lose child benefit. (feel free to swap the genders round etc as required). Next door, Couple B both go out to work and earn £40K each. Since they're under the 40% band, even though they get £80K per annum, they still keep the benefit. Not exactly fair...

Mike Peatman said...

No - that's the dilemma. The problem with an absolute cut-off is what happens at the boundaries. Also, the other issue is that child benefit is sometimes the only income one parent (usually the mother) has full control of in some households.

If you went with the tax suggestion (fully agree re bureacracy) at least you would eliminate the boundary problem, and non-working spouses of higher wage earners wouldn't be penalised.

You could even increase the basic benefit level, and fund that through the tax claw-back.

PS have you done a clergy tax form yet - that's all about money going in circles!