Child benefit cuts 'tough but necessary' say ministers

Chancellor George Osborne on "tough but fair" changes to benefits

Ministers have defended plans to cut child benefits to higher earners amid criticism they represent an "attack" on already hard-pressed families.

From 2013, benefits will be removed from any family where one parent earns more than about £44,000 a year.

Labour said the move - aimed at saving £1bn a year - undermined the coalition's claim to be a family-friendly government.

But Chancellor George Osborne described the plans as tough but fair.

In a speech to the Conservative conference, Mr Osborne said he was determined to "stick with" the government's five-year plan to substantially cut the deficit, even though it would result in difficult decisions that ministers would not be taking otherwise.

'Makes sense'

He also announced plans to cap the maximum amount of benefits that any single family can claim at about £26,000 - the same amount that an average family gets from work.

Mr Osborne said the move - which it is estimated could see up to 50,000 workless families worse off by an average of £93 a week and some losing up to £300 a week - would signal to people that a life on benefits cannot pay.

But unions said it would stigmatise those unable to find work and harm the young in particular.

Start Quote

I will have to go to my boss and ask for a pay cut. I'm absolutely fizzing”

End Quote Iain from Basildon

As recently as a year ago, Mr Osborne said he would preserve child benefit - for decades paid to millions of families irrespective of their income - as it was "valued by millions" of families.

But he said he he could no longer defend paying out £1bn a year to better-off families and the one-off cut "made sense" given the scale of debt and welfare spending he had inherited.

About 1.2 million families - about 15% of recipients of child benefit - will lose out on payments currently worth £20.30 a week for the eldest child and £13.40 for subsequent children.

Families with three children no longer eligible for the benefits - which continue to the age of 19 - face being £2,500 a year worse off.

While critics said they accepted it was right that better-off families should be targeted, there was anger about apparent anomalies in the proposals.

Households where two parents each earning slightly less than £44,000 - adding up to a combined family income of over £80,000 - will keep the benefit while households where just one parent earns over £44,000 will lose it.

Parenting and anti-poverty groups said this risked penalising lone parents and mothers staying at home to look after their children.

Impact of child benefit cut
Tax rate Annual income Benefit Keep or cut?
1x Lower
£42,475 or less
£1,752.4
1x Higher
£42,476 or more
0
2x Lower
£84,950

(2 x 42,475)
£1,752.4
1x Lower
1x Higher
£84,951

(42,475 + 42,476)
0

Note: higher rate tax begins after earning £42,475 (£35,000 + personal allowance of £7,475)

Source: HMRC

"Ensuring that the 3.9 million children who still live in poverty in this country are not made worse off at this time of spending cuts must be the priority," said Save the Children's Sally Copley.

"Any savings from this move must be ploughed back into giving more assistance to the poorest children and ensuring families are better off when a parent takes a job or increases their hours."

'Not perfect'

Conservative MP and former shadow home secretary David Davis criticised the plans in an interview with the Daily Mail.

He said: "Although in principle I have got no problem with reducing child benefit for the better off, I am not sure this is the wisest way to do it.

"It would be fairer to consider family income rather than that of individuals. As it is, this does encourage wives or mothers to go out to work. It is an accidental piece of social policy."

Ministers said the alternative was to introduce a complex and expensive system of means testing for all household incomes which would undermine the whole system.

But the respected Instititute for Fiscal Studies also expressed doubts about the proposals.

"Some may think it...is unfair because child benefit is withdrawn where an individual in a couple is a higher-rate taxpayer, regardless of the joint income of the couple," it said.

It also said the changes could "seriously distort" financial incentives for some families as they would lose all their benefit if they earned slightly more money.

Work and Pensions Secretary Iain Duncan Smith said the government faced exceptional financial pressures and the plans must seen against wider plans for radical welfare reform.

"I don't love the idea of this, you know," he told the BBC.

"As far as I'm concerned it would be great to be in a perfect world where we didn't do this, but when you are paying £70bn a year just to stand still in deficit payments to banks and countries abroad you have to get that money out."

But Labour said the principle of universal benefits was now under threat and that families were paying for the government's over-zealous approach to cutting the deficit.

"Whatever people's income, it is families with children who are paying most - through cuts in child tax credit, maternity allowance, child benefit and housing benefit," said shadow work and pensions secretary Yvette Cooper.

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