Conservative pledges, made late last night, to make child benefits available to more families have met with questions about how they will fund the changes.
The party has said it will raise the earnings threshold to receive child benefit to £120,000, up from £60,000.
However, one commentator said the promise to change child benefit rules was “sensible but perhaps too little too late”.
Shaun Moore, tax and financial planning expert at Quilter, said: “The Tory’s announcement that they will peg the high-income child benefit charge to household income will be music to many parent’s ears.
“However, this is not a new problem, and it has taken years for the penny to drop in government that the current rules create a perverse environment where a high earning single parent could lose their full child benefit entitlement despite having a much lower household income than two parents earning just below the lower threshold.”
Long-awaited but sensible policy
He acknowledged that Rishi Sunak’s government had started looking at moving to a system pegged to household income. He added: “The reasonably high thresholds just announced will mean the tax take from the high income child benefit charge will reduce significantly and the vast majority of parents would not suffer the charge.
“Whether this long-awaited but sensible policy will see the light of day is yet to be seen though. Although this will certainly add more complexity for HMRC into the child benefit system, the benefits of rectifying the current system’s unfairness far outweigh these challenges.”
Moore explained that a couple with two children where one person earns £80,000 and another earns £20,000 will now be able to keep all £2,212.60 of their child benefit when they previously would have kept none. Similarly, one parent earning £70,000 while the other earns roughly the average salary in the UK of £35,000 will be over £1,106.30 better off and receive the full child benefit under these proposals.
Keen to replicate goodwill
Danni Hewson, head of financial analysis at AJ Bell and founding ambassador of Money Matters, said: “The Spring Budget boost for parents, which raised child benefit thresholds, was a crowd pleaser then and the Conservative party is clearly keen to replicate that goodwill ahead of the general election on 4 July.
“Unfairness has been baked into the current system which allows two-parent households with combined earnings of up to a penny under £120,000 to keep their full entitlement, while others lose the benefit entirely because one parent tops £80,000. But testing this cap against households rather than individuals is likely to prove a massive headache for HMRC and raises the question about how long it would take to implement such a change.”
Hewson also pointed out that many voters will be wondering why this couldn’t have been done at any other point over the last 14 years “during which time frozen income tax thresholds and inflation have gnawed away at families’ incomes”, he said.
He said the government may respond to this question by highlighting its more recent record and increases to free childcare provision, which will have helped families – in particular mothers who have struggled to afford to return to the workplace.
Women’s return to work
“Research carried out for AJ Bell’s Money Matters campaign before the latest changes came into place found only 55 percent of women returned to work full time after having their first child and just 26 percent did so after having child number three. But the childcare cliff-edge has penalised people who have wanted or needed to have one parent stay at home while the other carries the economic burden.
“Then there’s the issue of where the money will come from, with the Tories claiming the plans would cost £1.3 billion. Cracking down on tax avoidance and evasion appears to be the favoured method of cobbling together the funds for these proposals, a strategy that feels more akin to rifling down the back of a sofa already stripped of all its cushions than a sure-fire revenue raiser after the election.
“Elections are a time when promises are plentiful and this is certain to grab headlines, but promises don’t pay the bills and voters know it.”
