CARE (Christian Action Research and Education) has today published new figures (sent to key parliamentarians last week) ahead of today’s debate on the Finance Bill which show how unfair the tax system will be for one-earner families when the High Income Child Benefit Charge (HICBC) comes in on 7 January next year. Many of the 1.2 million families affected are not well-off. Some will even be in the less well-off half of the population.
At present, a one-earner family with two children on an income of £60,000 pays 60% more tax than a comparable two-earner couple, each earning £30,000. With the introduction of the HICBC charge, the one-earner couple will pay 80% more tax.
One-earner couples already pay far more tax than two-earner couples with the same income. A one-earner couple with two children with an income of £60,000 pays income tax of £13,950. A comparable two-earner couple, each earning £30,000, pays £8,768. After the HICBC is added, the one-earner couple’s tax bill rises to £15,667. This is £6,899 more than that of the two-earner couple.
The charge will increase the one-earner two-child family’s annual tax bill by £1,717. Over the lifetime of the children, if child benefit is claimed for each child up to the age of 18, this represents a £30,000 increase in the family’s tax bills. A two-earner couple with a combined income of £60,000 will not suffer the charge so long as the income of neither partner goes above £50,000.
‘Figure 1’ shows the tax that will be paid by eight different families on £60,0000 per annum when the HICBC charge applies:
The Chancellor’s original justification for the charge was that it was difficult to justify taxing people on low incomes to pay for the child benefit of those earning so much more than them. However, even though the starting point of the charge has gone up to £50,000, a single-earner couple on that income with children will be far from well off compared with many others on a significantly lower income.
Families on £60,000 per annum
£60,000 is not a low income, but some families affected by the charge (depending on the number of people that have to be supported by that income) will not necessarily be rich. Many are likely to be in the middle of the income distribution. If, as the Chancellor suggested on 6March 2011, the aim of the charge is to require families who are in the top 15% of the income distribution to contribute more it clearly fails this test. One-earner families on £60,000 will lose all their child benefit on 9 January. No family on £60,000 would be in the top 20%, let alone the Chancellor’s top 15%.
‘Figure 2’ shows where eight different families on £60,000 per annum fit into the income distribution:
Families on £50,000 per annum
A one-earner couple with four children earning £50,000 is already in the least well-off half of the population, with a higher net income of more than only 45% of the population. At £50,000 the HICBC charge will apply to families who are in the least well-off half of the population whilst other families who are much better off will not suffer the charge. See ‘Figure 3’ below which shows how eight different families on £50,000 per annum fit into the income distribution:
Don Draper, one of CARE’s consultants asks ‘Is the way the tax system treats one-earner families at all fair? Should a family’s tax bill depend so heavily on whether the family has one income or two? Did the Treasury realise that the child benefit change was going to affect families who were in the least well-off half of the population who are already paying far more tax than other households with the same income? If not, questions have to be asked about the quality of advice Ministers have received. If they did know and Ministers decided to go ahead anyway it is for them to explain why they think it is fair that one-earner families should pay so much more tax than other families.’
Nola Leach, CARE’s Chief Executive said, ‘The government should not be making life so much harder for one-earner couples and their children. The fact is that the fiscal arrangement they inherited already gave one-earner couples a very bad deal. Their message before the election suggested that they would support family life and the choice of parents to invest in child development. Rather than fixing “Broken Britain” this policy will only compound it.’
For further information contact: Dan Boucher on 07768 165543.
1. George Osborne’s comment that ‘the top 15% should contribute more was said in a House of Commons Treasury questions debate on March 6th 2012 in response to a question from Ed Balls regarding the Coalition Government’s child benefit policy.
6 Mar 2012 : Column 708
‘Ed Balls (Morley and Outwood) (Lab/Co-op): The Chancellor’s policy on child benefit seems to be that a two-earner family on £84,000 can keep all their child benefit, but a one-earner family on £43,000—whether that is a single parent, or where mum or dad stays at home to look after the kids—will lose all their child benefit, which is £2,500 if the family has three kids. What is fair about that? For the benefit of Labour Members, the Deputy Prime Minister, the Justice Secretary, the Prime Minister and Government Back Benchers, will the Chancellor tell the House what is today’s policy on child benefit?
Mr Osborne: What I would say to the right hon. Gentleman is that I think it is fair to ask those in the top 15% of the income distribution to make a contribution to the fiscal consolidation. I happen to think that that is fair. If we now have a Labour shadow Chancellor who thinks it is not fair to ask people in the top 15% of income distribution to make a contribution to cutting a 9% budget deficit, he has completely lost sight of his party’s values.’
This response was given when the proposal was that all higher rate tax payers should lose child benefit. The figures in this press release, however, are based on the Government’s compromise proposals announced subsequently.
2. The original proposal was for child benefit to be withdrawn from households where there was a higher rate taxpayer. The proposal in the Finance Bill is for an income tax charge on taxpayers with an income of more than £50,000 and who or whose partner receives child benefit. There will be a tapering provision so that 1% of the value of the child benefit will be removed for every £100 of income above £50,000 so that the full value will be removed where the income is £60,000 or more. Where both partners in a couple have incomes more than £50,000, the charge will apply to the taxpayer with the higher income. A couple will include a married couple, civil partners and two individuals living together as a married couple or as civil partners. The charge will be collected through self assessment and PAYE, but if they wish people will be able to choose not to receive child benefit.