Child Beneft Changes

Apart from the unfairness of a simple higher rate tax link, does anyone know what the situation would be for someone on high rate tax with a 15 year old child with a baby?

As there is no lower age limit for entitlment to child benefit i’d advise the 15 year old to claim the child benefit for her child.

Interesting article by Iain Martin in the Wall Street Journal (which I read for the gardening column)

“The government is struggling to find a way of making George Osborne’s plans to remove child benefit from those paying 40% tax work.

A Treasury source says the policy is “unenforceable” and likely to be ditched before its scheduled introduction in 2013. Another source at the heart of government says the expectation is that it will eventually not happen. Elsewhere I hear that it is “panic stations in the Treasury.”

At root is a problem that should have been apparent to those designing the policy, if detailed advice had been sought from civil servants before it was announced at Conservative party conference.

Child benefit is generally paid to the mother. She is under no legal obligation to tell the father that she receives it. The Treasury confirms this. It is her benefit. The father’s tax status is irrelevant. 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.
...
How can the government easily prove the connection between mothers who pay no tax or earn less than £44,000 and the higher rate taxpayer she might live with? And then keep tabs on the situation on a monthly basis for almost two decades — with millions of taxpayers involved (moving in and out of work, having new children, some separating, getting divorced, finding new partners who may or may not be higher rate taxpayers, etc).
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This is what is causing “Thick of It” style panic in the Treasury and HMRC. I hear that ministers are considering (and tell me which part of the rest of this sentence might provide cause for concern) “a new government database” to try and match up mothers with their partners.

In theory it would enable cross-checking of the child benefit claims of mothers with the national insurance numbers, tax codes and addresses of fathers/husbands/partners. What could possibly go wrong? The government’s record with new databases is not great.

I sought guidance from the Treasury. They directed me to HMRC. Then HMRC said that this was the Treasury’s business. Asked about a potential new database, a Treasury spokesman responded:

“HMRC will need to check applications (for Child Benefit). They are considering the most effective method of doing so.”

...  the mother is under no legal obligation to tell the father. The father can simply say he doesn’t know and that his wife/partner won’t tell him. Is there a way round this? Not easily. Does the coalition have plans to legislate to force husbands, wives and partners to know each other’s finances inside out and tell the truth about them at all times. If so, good luck with that.

What are the government’s options “going forward” (in that terrible phrase of the moment)?

1) Scrap the policy now and admit it was a rushed job. This would be embarrassing for the Chancellor.

2) Stick to the line that HMRC is trying to find the most effective way of implementing the policy in 2013, and then quietly ditch it nearer the time (saying economic conditions have improved). Probably the best way out.

3) Plough ahead. Construct that vast new database and hope that it is cheap to build and police. Again, good luck with that.

4) Scrap child benefit completely, and replace it with a combination of child tax credits (or bolt it onto the forthcoming IDS universal benefit/credit) and transferable tax allowances. But David Cameron has expressly committed himself to Child Benefit.

5) Er… that’s it.

It will be interesting to see which option they choose.”

Always nervous about proposing benefit changes because I’m not an economist and can’t be bothered to do the sums, but I don’t understand why CB cash cannot be dumped into CTC with the the appropriate tweaks and tapers. CTC is usually paid to the main carer - mums, so aside from broken political promises, what’s the technical problem? Would there not be an obvious admin saving?

.Anyone know the answer? I’m waiting to be shot down in flames for missing some blazingly obvious point.

Very interesting Steve.  But I anticipate some real problems because of the inflexible (to use a polite word) tax credit computer system & the difficulty in getting people to claim who have been put off by previous horrendous experience of problems with tax credits.

Like you, I haven’t done the maths but the tax credit system is one which brings together info. on both members of the couple & their incomes so - if the problems of resources (staff & computers), training, acceptance by a sceptical section of society - could be overcome it might turn out to be the best way.

I too have been suggesting this to my colleagues (during heated discussions!). It would be far easier to add a ‘child benefit element’ to tax credits, no huge implementation costs and all the CB staff could be transfered over to tax credit office so the phone might get answered.
Getting some people to claim would be an issue but at least no higher tax rate payers versus couple just below threshold unfairness.

IDS has indicated that come Universal Credit child benefit is likely to be dumped into the general pot, so whatever happens now is a short-term interim solution; and like most short term interim solutions, half-baked.

It is a very long time since fully independent taxation of married people was introduced: one reason why tax credits, which have all the hallmarks of a means-tested beneit including aggregation of income,  never looked happy sitting in HMRC.

I guess the holy grail we are searching for is a system that (a) has software that works, and (b) can deal with fluctuating incomes/circumstances.  Perhaps we should ask Stephen Hawking, looks like an astro-physics thing to me!

Why not just add the CB amount to the CTC element rate?  The first child extra might have to be averaged but this would be simple.

the problem would then be that with the changes coming to withdraw the family element after the child element in a couple of years time means that child benefit will be loost at a far lower income - one child, no childcare and wages of 26k will loose all tax credits in 2012 - far lower down the income scale than higer rate tax payers

So what will happen with UnCredit (working label)?  The intention is to roll CB into UnCredit and it’s technically going to be difficult to achieve the proposed CB change in that benefit.  CB is also one of the benefits that’s going to be capped and, because capping is going to really hit families with lots of kids, that will be a double whammy in many ways.

Following on from what Gareth and others have said why not add it on in the same way that the family element is added now, after all the tapers have been applied. This would keep it as a fixed amount for couples under a given income and stop it for those that are well paid.

Apologies if I’ve missed something and it isn’t workable, it was a spur of the moment thought . I don’t suppose HMRC would be coming to me for policy guidance anyway!