Child benefit cuts will cause "incoherence" in the welfare system and undermine other Government reforms, a respected economic think tank has warned. Around a million households where at least one person earns over £50,000 will have it cut or stopped
The Treasury has defended itself following criticism from the Institute of Fiscal Studies (IFS) over its new Child Benefit system.
A spokeswoman for the department said it had disagreed with an IFS proposal to "abolish child benefit completely and (subsume) it into the tax credit system".
Responding to the claim from the IFS that families affected by the new Child Benefit system stand to lose an average of about £1,300 a year, the spokeswoman said:
We are having to take some difficult decisions to reduce welfare spending and it is important that those with the broadest shoulders bear the biggest burden.
She went on to challenge the criteria by which the IFS had to judge the reforms:
Looking at marginal rates in this way is misleading, as the charge simply withdraws some or all of the money that has been paid in child benefit - no one will be taxed more than the benefit they receive.
Withdrawing child benefit on the basis of the combined family income would require intrusive means-testing of all eight million households getting child benefit. The way we are doing it is simpler for the vast majority of families and significantly removes the potential cliff edge effect of the change.
Perhaps the biggest concern 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 within 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in each case: based on family income in one case and the income of the highest-income family member in the other; withdrawn at different rates as income rises; and with the withdrawal starting at very different income levels.
It is estimated that around 820,000 families, in which at least one adult has a taxable income exceeding £60,000 per year, stand to lose all their Child Benefit via a new income tax charge.
Additionally about 320,000 families in which the highest-income adult is on between £50,000 and £60,000 would have some, but not all, of it clawed back.
The remaining 85% of families currently receiving Child Benefit will be unaffected for now, although more will be affected in time because the £50,000 threshold is planned to be frozen in cash terms, the IFS added.
Speaking to ITV News Political Correspondent Alex Forrest, Treasury Minister David Gauke said that people will have any child benefit they wrongly receive reclaimed through their tax, even if they did not know they should no longer be getting the payments:
The newspaper says that as a result more than 300,000 people will have to begin completing tax returns for the year ending this April or face substantial fines.
A spokesman for HMRC told the newspaper: "There may be cases where people’s circumstances have changed, for example their income may have increased or address may have changed, and we will not yet have up-to-date information.
"However, to ensure people know about the changes we are also using extensive advertising, media and online activity, as well as written communication.
Deputy Prime Minister Nick Clegg has admitted that axing child benefit for the richest families was an "excruciatingly difficult" decision.
Letters will be going out from HM Revenue and Customs from today to advise around one million households on £50,000 or more how their payments will change.
Mr Clegg said:
"I perfectly understand why people who don't feel wealthy don't like this change but I will ask them just to reflect for a minute there are many, many others, the vast majority of people in this country who are on much lower incomes than them, who are also having to make sacrifices."
Responding to a Conservative poll, that revealed that 82% of respondents backed plans to cut child benefit for high-earning families, a Treasury spokesman said:
In a period when the Government is having to reduce welfare spending, it is very difficult to justify continuing to pay for the child benefit of the wealthiest 15% of families in society.
The unprecedented scale of the deficit has meant that the Government has had to make tough choices to reduce public spending; but we have always been clear that those with the broadest shoulders should carry the greatest burden.
Eighty-five per cent of all families with children are unaffected and will continue to receive child benefit in full. Ninety per cent will benefit in full or in part.