The Conservatives have pledged to double to £120,000 the pay threshold at which child benefit payments start to be taxed, amounting to an average annual saving of £1,500 for families.
Under the proposed changes as the Tories try to focus the election battle on taxation, the threshold would apply to entire households rather than individuals, and people would receive at least some child benefit up to an income of £160,000.
The party is likely to face criticism for the fact the change would benefit higher-income people – the doubling would provide a benefit to people in the top 20% of UK earners, with the new ceiling representing the top 2% – and for an apparent lack of certainty over funding. The Tories have said it would be paid for by cracking down on tax avoidance.
Currently the weekly child benefit payment starts to be gradually reduced when one parent earns £50,000, and disappears altogether at £60,000. Under changes announced in March’s budget, the threshold is moving next year to £60,000, with the taper moving more slowly, up to £80,000.
The new plan would see child benefit continue to be paid in full from £60,000, at which point people are in around the top fifth of earners, and begin to taper for a household income of £120,000, which is about the top 3%.
Under the current system, because the thresholds are individual, if two parents earn £49,000 each – a household with an income of £98,000 – they would receive full child benefit, but a household where one parent earns £60,000 and another is unemployed would receive nothing.
The Conservatives said the combined net cost of the changes would be £1.3bn a year by 2029-30, and they would benefit 700,000 families by an average of £1,500.
The party says the money would come from a plan to raise £6bn a year by “clamping down on tax avoidance and evasion”, with the rest of this sum used to pay for the proposal to introduce national service for 18-year-olds and to keep state pensions outside the threshold for income tax.
Some experts have doubted whether this funding plan – or a parallel Labour proposal to raise £5bn a year from the same means – is credible.
The Institute for Fiscal Studies thinktank has pointed out that while there is scope for a crackdown on tax avoidance and evasion, it requires investment in HMRC enforcement, and could be politically sensitive given that much of this would come not from rich individuals or offshore trusts but from smaller businesses and traders such as plumbers and electricians.
Another potential pitfall for a taper starting at £120,000 is that it would steepen the already very high effective tax rate of 60% for individuals who earn such amounts, given the way the personal allowance also tapers out between £100,000 and £125,140.
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Announcing the plan, Jeremy Hunt, the chancellor, contrasted what he said was “bold action to cut taxes for working families under the Conservatives” with the idea of a £38.5bn spending deficit under Labour, a figure Labour says is fictitious.
A Labour spokesperson said the plan was “another chaotic scattergun announcement from Rishi Sunak, adding to his list of desperate and unfunded policies that he knows can’t be delivered”.
The Liberal Democrats’ Treasury spokesperson, Sarah Olney, said: “These Conservative tax policies aren’t worth the paper they are written on after years of hiking taxes on hard-working families.”
Source: theguardian.com
