Tory tax rise means thousands more families to lose their child benefit
Up to an extra 750,000 people will become higher rate taxpayers tomorrow (Wednesday), meaning that thousands more families will lose their child benefit in 2013 Labour will warn today.
Following changes announced in last June’s Budget by George Osborne the point at which the 40p rate becomes payable will fall from just under £44,000 to £42,500 – hitting many families on middle incomes hard.
The changes mean that even more families will lose out in 2013 when the Conservative-led government scraps child benefit for families with a higher rate taxpayer. For a single income family currently on £43,000 and with three children, George Osborne’s changes mean that not only will they find themselves in the higher rate tax bracket tomorrow but in 2013 they will lose almost £2,500.
The Government has confirmed that from tomorrow (Weds):
- 160,000 households currently eligible for child benefit will enter the higher rate threshold
- 20,000 additional single-income families will enter the higher rate threshold
In 2013 all of these families will lose their child benefit. In total the Treasury estimates that 1.5 million families will lose child benefit in 2013.
Figures from the IFS suggest 750,000 people will enter the 40p income tax bracket tomorrow while the Treasury estimates a slightly lower figure of 600,000. A regional breakdown of these figures – obtained from the Treasury by Labour’s shadow Treasury team – can be found in the table below.
David Hanson, Labour’s shadow Treasury minister, said:
“Hundreds of thousands of families on middle incomes face a double-whammy from the Conservative-led government’s stealthy tax rise.
“Not only do George Osborne’s Budget changes mean up to 750,000 people will this week start paying tax at the 40p higher rate, but if they’ve got children they’re also set to lose all their child benefit in 2013 too. For a family with three children that’s almost £2,500 lost in child benefit alone.
“George Osborne says we’re all in this together, but he’s giving the banks a tax cut this year while families with children on low and middle incomes are being hit hard.
“Ministers claim they’re reducing income tax a little for those on lower incomes, but they’re actually just giving with one hand while taking lots more away with the other. The Treasury’s own figures show that a family with children will pay an extra £450 more on average each year because of the Tory VAT rise. And that’s before their cuts to tax credits, cuts to childcare support and a three-year child benefit freeze.
“There have to be tough choices to get the deficit down, but by going too far and too fast with spending cuts and tax rises George Osborne is hitting families hard and holding back an economy which should be growing strongly this year.
“But that creates a vicious circle because higher unemployment and slower growth means the government is now set to borrow £46 billion more over the coming years. It’s increasingly clear that George Osborne’s reckless policies are not only hurting, they’re also not working.”
The IFS has also said that if the government was to continue to fund increases in the personal allowance by reducing the higher-rate threshold – which the government did not do in its latest Budget but may choose to do in future – then a further 850,000 people would become higher rate taxpayers and so face losing their child benefit too.
Notes for Editors
1. The IFS said in its Green Budget in February 2011:
“Some workers will see their marginal effective tax rates increase more substantially as a result of these changes – the number of individuals paying the higher 40% rate of income tax will increase by 750,000. However, some workers will face a lower marginal effective tax rate as a result of these reforms, in particular those brought out of the income tax and National Insurance systems by increases in the thresholds at which these taxes start to be paid. If the government were to meet its aspiration of having a £10,000 income tax personal allowance in 2015–16, this would increase the number of higher-rate taxpayers by a further 850,000 and take another million people out of income tax altogether.”
IFS Green Budget, pg 9,http://www.ifs.org.uk/budgets/gb2011/gb11_summary.pdf
2. The government has lowered the level at which the 40p rate becomes payable from £43,875 to £42,475. Tables confirming tax thresholds for 2011-12 can be found here: http://hm-treasury.gov.uk/d/rates_thresholds_tables.pdf.
3. In October 2010 George Osborne announced that from 2013 families with a higher rate taxpayer would have their Child Benefit withdrawn:
“These days we’ve really got to focus the resources where they are most needed. We’ve got to be tough but fair. That’s why we will withdraw child benefit from households with a higher rate taxpayer.”
George Osborne, Speech to Conservative Party Conference, 4 October 2010
4. The Treasury estimates that “around 1.5 million households will be affected by the proposed change to child benefit”:http://www.publications.parliament.uk/pa/cm201011/cmhansrd/cm110209/text/110209w0002.htm#11020983005602
5. The following table sets out the total number of additional higher rate taxpayers in each region in 2011-12, based on the Treasury’s estimate of 600,000 extra higher-rate taxpayers in the new tax year.
|Government Office Region||2011-12||2010-11||Change|
|Yorkshire and Humberside||224||183||41|
|East of England||412||347||65|
|(1) Includes some taxpayers who reside abroad or region is not known.|
Source: Hansard, 30 March 2011, Column 364W
6. In answers to Parliamentary Questions the Treasury has confirmed that in 2011-12 there are estimated to be around 160,000 additional households with children aged 19 or younger in which one or more individuals is a higher rate taxpayer. Of these, the Treasury has estimated that the number of additional people in single-income families paying the higher rate of tax will be 20,000 from April 2011 and 15,000 from April 2012:
o House of Commons, written answer, 25 January 2011, Hansard Column 193W –http://www.publications.parliament.uk/pa/cm201011/cmhansrd/cm110125/text/110125w0003.htm#11012573001381
o House of Commons, written answer, 21 January 2011, Hansard Column 1002W –http://www.publications.parliament.uk/pa/cm201011/cmhansrd/cm110121/text/110121w0001.htm#11012147002013
o House of Commons, written answer, 20 January 2011, Column 932W –http://www.publications.parliament.uk/pa/cm201011/cmhansrd/cm110120/text/110120w0002.htm#11012056001843
7. The Treasury’s own figures show the estimated impact of the rise in VAT. The 2.5 per cent rise will cost, on average, a couple with children £450 per year and a pensioner couple £275 per year.http://www.publications.parliament.uk/pa/cm201011/cmhansrd/cm100705/text/100705w0004.htm#10070542000230