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In next week’s Budget, Chancellor of the Exchequer Jeremy Hunt has acknowledged the “unfairness” of the child benefit system that hits middle-income families and single parents, but says the system cannot be fixed because it is unaffordable. Not likely.
The Chancellor was developing a policy to eliminate “distortions” caused by a policy that meant parents earning between £50,000 and £60,000 a year had to pay back their child benefit in stages.
This also applies to households, so if one partner earns more than £50,000, they will have to pay back part of their benefit. Importantly, this bill punishes single parents more than married couples. For example, if you are single and your parent earns £51,000, you will need to repay part of your child benefit, but if you are a married couple, each earning £49,000, and her household income is £98,000, you will need to repay part of your child benefit. No need to.
Benefits will stop completely at £60,000. According to Statista, the average annual salary in the UK in 2023 was £34,963, rising to £44,370 in London.
According to HM Revenue and Customs statistics analyzed in a Commons Library study published in August, 373,000 people paid this fee in 2019/20, raising £416m for the Treasury that year.
The policy also affects people who are eligible for child benefit benefits but refuse to receive them due to fees.
According to HMRC figures highlighted by the Commons Library, around 624,000 people chose not to receive benefits in the August 2020 snapshot.
The Chancellor has indicated that he would like to change the Child Benefit Contribution to High Earners Allowance once there was £30bn of extra funding in the public finances, but this would mean that it would become a liability within five years. This is the amount that must be spent on a promise to reduce
But that figure has since been compressed by the budget watchdog to £13bn, meaning there is currently no headroom for the plan as the government prioritizes tax cuts.
Mr Hunt has failed to act, despite admitting that the policy creates “huge distortions” in “marginal tax rates” that hit middle-income households hard.
If there is another Budget before the election, it could be revisited at a future fiscal event, such as the Summer Budget or Autumn Statement.
But unless the Office for Budget Responsibility (OBR) significantly increases Mr Hunt’s leeway in Friday’s final outlook, he will only have £7bn of money available for tax cuts and his desire to keep the £6bn will prevent him from acting. would not be possible. Secure his spare capacity to reassure the market.
A Finance Ministry official said that correcting the policy’s inequities would “effectively result in tax cuts for middle-income earners.”
“Given we have around £7bn of funding, we have bigger priorities,” the source added.
According to the Resolution Foundation, the policy also forces an annual increase in marginal tax rates (taxes paid on the highest portion of income) as child benefits increase with inflation, meaning that as income increases Once the criteria is met, more people will be affected.
Hunt said in an interview that he was likely to reconsider the issue in light of his concessions. martin lewis money show live Speaking on ITV in January, he claimed the accusations created a “distortion”.
“We consider these standards in our budget every year and we will continue to do so,” the Prime Minister said.
“I fully accept that there are huge skews in the marginal tax rates people earn and that there are inequities in what happens in working families.
“All I can say is that this is one of many distortions in the overly complex tax system that I observe.
“There are many things I would like to change.
“If it’s affordable, we’ll do it, but it’s too early to tell at this stage.”