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Why the child benefit cut may not happen

Treasury warns that plan to abolish child benefit for higher earners is “unenforceable”.

Has universal child benefit been saved? The Wall Street Journal's Iain Martin reports that the Treasury has warned that the coalition's plan to abolish the benefit for all higher-rate taxpayers " is "unenforceable". Government sources believe that the measure is likely to be abandoned before its scheduled introduction in 2013.

The spanner in the works is the fact that the benefit is paid directly to the mother. This means that she is under no obligation to tell the father that she receives it, and that his tax status is irrelevant. As Martin explains: "If a mother claims it there is nothing forcing her to flag up to the taxman that her husband earns above the level that Osborne stipulates should mean no child benefit."

In those cases where the mother pays at least 40 per cent tax that's not a problem. But in those where she doesn't, the Treasury will struggle to find out if she lives with a higher-rate taxpayer. The only solution is either the creation of an expensive new database to match mothers with their partners, or the abolition of child benefit altogether.

There was talk of merging the benefit with Iain Duncan Smith's universal credit, but since then Cameron has promised that it will survive as an independent payment. As for the creation of a new database, the precedents aren't encouraging, to say the least.

David Cameron and George Osborne will be extremely reluctant to change course now. The child benefit cut is one of the few measures they can cite as evidence of their "tough but fair" approach, and it would save the government £1bn. To admit that all that heavy lifting was for nothing would be too painful.

But as the Treasury mandarins scramble around for a solution, here is a cautionary tale of the dangers of policy made on the hoof. Iain Duncan Smith must be furious.

24 comments

Sue Davies's picture

So the incompetence of Osborne/Cameron is yet again revealed. At least everyone knew where they stood with Margaret Thatcher et al, however awful.

It increasingly seems that Martin Rowson's Guardian cartoons, portraying the Tories as malevolent,spoilt children and the LibDems as the fall-guys, is terrifyingly true.

Tessa Harding's picture

I am not at all surprised that this policy is viewed as unenforceable. How could HMRC find out who such couples were without having to ask all taxpayers to fill in more forms, a move which the Govt would define as intrusion. When one considers how many staff HMRC has lost and will lose it is surprising that they can function at all. As a part qualified chartered accountant I remember that at one time it was possible to sort out people's tax affairs by telephoning or visiting the local tax office, now everything is handled by call centres and computers it is a complete shambles, so much for efficiency savings. I repeat a previous comment, that members of this government have never managed anything and therefore are completely unaware of the managerial/ admin consequences of their policy decisions.

Left Is Forward's picture

Incompetent fools and their liberal tools.

Cheats like them will never prosper - even if they blame an imaginary legion of "welfare cheats" for all their problems, while they sip champagne with their investment canker chums. Hopefully the welfare state will be saved, if all their other reforms turn out to be physically impossible to implement!

I'm cautiously optimistic that the universal credit will fall apart - the complicated database and formula it involves sounds like a disaster waiting to happen.

Bob1112's picture

So, if bright eldest son, of the same surname as mother who is receiving Child Benefit for the siblings, earns over £40k and there is another man living at the the same address (lodger)and earns more than £40k, and the father of the younger children is separated from the mother and has a different name and address anyway but earns more than £40, and they are not married, so therefore has yet a different surname, it would seem to be a nightmare to sort out. The light at the end of the tunnel is that public servants threatened with loosing their jobs, could find a new career employed on sorting out this mess.

Chris Yapp's picture

I suspect that they've fallen into the same trap with the limit on total household benefit capping.
Consider 2 single parents each with 2 children on benefits living in separate homes. If they form a family unit they will be worse off after hitting the cap, so their best way forward to protect the children will be to live apart. How will they decide if they are or are not a single household?
The unintended consequence of the cap may be to prevent family units forming which is hardly family friendly!

REPAY's picture

How could this have got this far without checking this out. I am afraid that it smacks of sofa government by press release...so much for new politics.

Sue Davies's picture

@ Chris Yapp

Another one, inviting couples to separate, is the withdrawal of lower rate ESA after a year for married couples where the healthy partner is employed. The choice seems to be divorce or the healthy partner gives up work!

Homo Sapiens's picture

When the coalition's "plan" to abolish the benefit for all higher-rate taxpayers was announced, it reeked of being merely a propaganda ploy to portray the subsequent attack on the poor as balanced and fair, and intended to be quietly abandoned when it had served its purpose, never to be implemented. I'll be astonished if it ever happens.

Phil's picture

A man with 3 children earning £ 47 k will take home just £ 500 more than if he earned £ 41,999.
Not only hit for 40%, he also has to pay £ 2,500 extra tax for child benefit loss.
Why work hard for a promotion when it will all disappear as extra tax?
The tax system should not disincentivise hard work.

Neville Peters's picture

It feels like the country has been handed over to a bunch of sixth formers who have lots of ideas to change things radically but don't actually work in practice. It's a similar thing with Gove and education policy.

'Bungling' and 'incompetent' are the words that spring to mind. I just hope this shambles of a government collapses before it does any lasting damage, although that might be too late already.

bonk's picture

Like the blind leading the clueless..

Cant wait for dopey danny's explanation of this cock up if it comes to pass

Jane's picture

If I claim child tax credit, I have to put my partner's salary on the form and if I did not, I'd be prosecuted for benefit fraud, so how is this any different?

Duncan's picture

I think there is a clear reason why this policy, now clearly unmasked as rushed, poorly considered and unworkable in practice, was created on the hoof and delivered in haste as it was.

It was a Coulson diversion.

http://dhothersall.blogspot.com/2010/10/coulson-diversions-unravelling.html

Sigh's picture

Anomaly of the two earner household still getting it apart, the obvious initial glaring fault was the fact that Osborrne thought that all higher rate tax payers filled in a tax return. All those over £100,000 do I believe. Is this any clue to the sort of people who surround him?

Andy's picture

As Jane puts it, this won't derail the measure at all.

If the law makes not being a HR taxpayer, or not being the partner of one, a condition of entitlement then there will be question about this in the claim procedure. If the claimant refuses to answer it then the HMRC will be within their rights to refuse the claim. If the claimant lies then there will be a recoverable overpayment and possible prosecution.

The benefits system already has numerous situations where membership of a couple is a material factor in the amount of benefit or even whether it is payable at all. It's also used to rigorously enforcing it.

ang's picture

Let's face it folks! They couldn't organise a piss-up in a brewery.

oldlady's picture

Jane is wrong you just send the birth certificate in. What about couples where the woman doesn't know what he earns or he's told her he earns less than he does?

Sigh's picture

It's the cross-checking I don't get. Sounds so simple out like that.

'Lies' will be uncovered but knowing past debacles presumably false 'lies' too!

Carrie-Ann's picture

If you feel that Child Benefit reforms are unfair, check out this group...
http://www.facebook.com/?sk=2361831622#!/group.php?gid=159664614058240

Carrie-Ann's picture

Apologies, it's this one.....
http://www.facebook.com/?sk=2361831622#!/group.php?gid=159664614058240

cc's picture

what happens to the person who does a little more overtime than usual in Feb/March to clear their xmas credit card bill without realising its taken them above the threshold

Nick's picture

I've said elsewhere why this crazy plan would never take off. Before this lot talk of changing things, they should look at the practicality of what it is they are changing.

There was always the danger that claimants wouldn't declare their partner's earnings. This lot will be quite happy to play big brother over lower level claimant groups with intrusive databases, but never in a month of Sundays will they do it to the middle classes. (A) It would be a certain vote loser (B) It would start to create a snooper society which creeps a little closer to the real cheats; the top earners!

This lot should face up to it, the only way with Child Benefit is to means test it

jie4v7i14's picture

ConDems are trying to look like clever canoes, but it id obvious they are failing.

Yes, they are looking like a bunch of amateur canoounts, they are. Just look at them mun.

Mrs.Josephine Hyde-Hartley's picture

Looks like we'll have to trust one another for a change. Surely it'd save a lot of time and energy and it'd be quite big too for the more well off citizens to kindly ring up the child benefit people in order to opt out of this provision. One wonders if such a simple opt out could be acheived without further explanation other than perhaps keying in one's relevant details eg NI number into a telephone keypad and perhaps the date of birth of any children who might otherwise automatically benefit.

Easy isn't it? And just imagine, our privacy, dignity and autonomy could all be preserved for posterity by a sensible and sensitive use of available communications technology..with no need for anyone to treat anyone else less favourably by asking lots of nosey and intrusive questions about one's private and domestic affairs.

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