Child Benefit changes make welfare system incoherent, says IFS

4 Jan 13
Imminent changes to eligibility for Child Benefit will create ‘incoherence’ in the welfare system, the Institute for Fiscal Studies has warned.
By Vivienne Russell | 4 January 2013

Imminent changes to eligibility for Child Benefit will create ‘incoherence’ in the welfare system, the Institute for Fiscal Studies has warned.

From Monday, families with one parent earning over £60,000 will lose their entitlement to the previously universal benefit and those where the highest earner is on £50,000–£60,000 will lose part of the benefit.

In an observation published today, the IFS estimated that more than 1 million or 15% of UK families stand to lose an average of £1,300 from their yearly income as a result of the changes.

About 820,000 families include at least on one adult with a taxable income of £60,000 or more and a further 320,000 families include an adult earning between £50,000 and £60,000, the IFS said. The remaining 85% of families with children will be unaffected, although in time more will be captured by the restriction as the £50,000 threshold is being frozen in cash terms.

The IFS said the new system created a ‘series of administrative complexities’, including the need for half a million more individuals to complete a self-assessment tax form.

Taken together with the child elements of Universal Credit, the government had created two parallel and ‘completely different’ systems of income-related support for families with children, the IFS noted.

‘Perhaps the biggest concern [about the Child Benefit changes] is the incoherence it creates in the welfare system. We already have the Child Tax Credit, and soon its imminent replacement, namely the child additions with Universal Credit.

‘The reform to Child Benefit will mean that we have two systems of income-related support for children. But the relationship to income will be completely different in each case: based on family income in one case and the income of the highest-income family member in the other; withdrawn at different rates as income raises; and with the withdrawal starting very different income levels.’

The institute added that, while it was supportive of the government’s aims to simplify the welfare system by including most means-tested benefits in Universal Credit, it was ‘unclear’ what the net effect of a new and separate means test for Child Benefit would be.

The Child Benefit changes were first announced in the 2010 Spending Review. Then Chancellor George Osborne proposed that the benefit should be withdrawn completely from any household with a higher-rate taxpayer, anyone earning more than £42,475 a year.

However, following criticisms that this would unfairly penalise some single-parent or sole-earner households, the proposals were modified to remove the benefit from households with a parent earning over £60,000 and taper withdrawal for those in the £50,000–£60,000 range.

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