Budget 2012: Child benefit changes are softened

Child benefit changes in the Budget

Child benefit changes in the BudgetFamilies have been fretting over the Government’s plans to reform the child benefit system for months, with the proposals throwing up a range of potential loopholes, as well as questions over fairness. So what has actually been announced?

Thankfully, today’s Budget appears to have provided parents with some much-needed clarity, as Chancellor George Osborne has opted to soften the reforms so that they won’t come as such a major shock to families.

Original child benefit proposals

The Government had originally indicated that, from January next year, households where one parent earns more than £42,475 would no longer be able to receive child benefit.

However, this reform would have created a confusing situation. A single-parent household with an income above £42,475 would not have received child benefit, while a household with two parents each earning just below the threshold  – up to around £80,000 between them – would have been able to get it.

Child benefit reforms

While the loophole has not been fully dealt with, the Budget does include some positive news for parents whose incomes hover around the £43,000 mark.

In his Budget announcement, the Chancellor revealed that child benefit will now only be withdrawn from parents in households where one person earns more than £50,000.

Experts had also warned that the Government’s original plans could have created a ‘cliff-edge’ effect, by suddenly yanking child benefit away from families as soon as one parent’s earnings breached the £42,475 threshold.

Again, Mr Osborne seems to have recognised the potential hardship this could have caused families up and down the UK.

Speaking to the House of Commons, he said that once a parent earns more than £50,000, child benefit will be gradually taken away from them, rather than it being removed all at once.

No child benefit ‘cliff-edge’

He explained to MPs in Westminster: “The withdrawal will be gradual, 1% of child benefit for every extra £100 earned over £50,000 so there is no cliff-edge.

“This means an extra 750,000 families will keep some or all of their child benefit.”

Households will only lose all of their entitlement to child benefit once one parent starts to earn £60,000 a year or more.

As a result of the higher threshold and the plans to prevent a financial cliff-edge, the Chancellor said that 90% of the country’s families will still be able to access child benefit once the reforms take effect next April.

Sean McCann, personal finance specialist at NFU Mutual, was cautious in his reaction to the announcement: “We sort of welcome what he [Mr Osborne] said in that he avoided this cliff-edge and it will only kick in where one of the parents has an income of £50,000.”

He added: “It’s not a perfect solution but it certainly goes a long way to addressing some of the cliff-edge effect.”

How much is child benefit?

Parents are currently able to claim £20.30 in child benefit a week for their first youngster, and an additional £13.40 for any further kids they have. The benefit is worth around £1,000 annually to parents with one child, £1,700 to those with two youngsters and £2,500 to parents with three.

The benefit is not currently means-tested by the Government, and there is no cap on the number of children which parents can claim the support for.

Other impacts of the Budget 2012:

Budget 2012: Tax changes – will you benefit?

Budget 2012: Misery for millions of motorists

Budget 2012: Chancellor champions help for first-time buyers

Budget 2012: Case studies – meet the winners and losers