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- The high income fee will continue to be calculated on individual income, not household income.
Many parents will be left out of pocket when 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.
Many believe this system unfairly penalizes single-parent families with higher incomes.
A household with two parents earning £59,000 each (a total of £118,000) will receive full child benefit, while a household with a single parent earning £60,000 would see some or all of the benefit withdrawn.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
Currently, child benefit is £25.60 per week for the eldest and £16.95 per week for each additional child.
It is paid if you are responsible for a child under 16 years of age, or under 20 years of age if they are still at school or on an approved training course.
However, the Government is starting to claw back child benefit for households where the highest earner has an income of more than £60,000, after Jeremy Hunt raised the threshold to £50,000 in his latest budget .
Child benefit is withdrawn completely when the highest earner earns more than £80,000.
Hunt had pledged to significantly reform the charge and consult to move to a system based on the household, rather than individual income, by 2026.
Since its introduction a decade ago, it has been criticized for placing an additional burden on working parents, particularly single parents.
However, Labor will no longer proceed with the changes, according to a document published by the Treasury on Wednesday.
He said it “would have resulted in a significant fiscal cost of £1.4bn for 2029-30 if the threshold had been set at between £120,000 and £160,000, where no family would lose out”.
By keeping the HICBC based on total individual rather than household income, 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 paying part of their child benefit, while a couple earning £55,000 each will keep their entire child benefit.
If Labor had stuck to its plans to calculate the charge based on household income, a couple earning £55,000 each would not receive any child benefit because together they would be above the £80,000 threshold at which it is stopped. child benefit payments in full.
Keeping the child benefit threshold at £60,000 also does not adjust for inflation. If the original threshold of £50,000 had been improved for inflation since its introduction, it would be £67,000. Meanwhile, if it had risen with average salaries it would be £71,774.
Like frozen income tax thresholds, it’s creating a huge stealth tax raid on working parents.
The Government said it would make some adjustments to the system, including allowing employed people to pay their HICBC through their tax code starting next year.
This means that parents who are paid through 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 do not do so.
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