Child Benefit and Guardian's Allowance: Policy changes
This section of the website explains policy changes that have been announced for child benefit and guardian’s allowance.
Freeze on child benefit rates
Withdrawal of child benefit for higher rate taxpayers
- Change to the way overpayments of Child Benefit and Guardian’s Allowance are recovered
In the June 2010 emergency Budget, the Chancellor announced that child benefit would be frozen for three years (2011/12, 2012/13 and 2013/14).
You can find the current and past child benefits rates in our ‘how much can your client get’ section.
At the Conservative Party conference in October 2009, George Osborne announced plans to withdraw child benefit from higher rate taxpayers. He withdrew this proposal in the March 2012 Budget and replaced it with a proposed ‘High income child benefit charge’ which will came into effect from 7 January 2013.
The cost and savings of this now obsolete proposal can be found in the Comprehensive Spending Review 2010 policy costings document. The House of Commons library produced a useful briefing paper Child benefit for higher rate tax payers which outlined the history of child benefit and the potential impacts of this change. The Government expects that the number of individuals subject to Self-Assessment will increase by up to 500,000 as a result of the measure.
A number of problems and issues were raised with the proposal, including:
- The fact that a dual earner couple each earning just below the higher rate threshold would retain their child benefit in full, while a single earner couple or lone parent earning just above the threshold would lose it;
- The "cliff edge" problem whereby child benefit would be withdrawn completely at the higher tax rate threshold, with a potentially damaging impact on incentives;
- The scope for families to avoid the charge by “tax planning” or other means, including transferring the claim to someone outside the household;
- Administrative problems, including the need to link individuals’ tax records and child benefit records;
- The implications for independent taxation, including whether couples would be forced to disclose financial details and details of benefits received to each other;
- How to claw back child benefit – which paid on a weekly basis – through the tax system, where calculations are on an annual basis;
- How to deal with changes in circumstances over the tax year – eg where a partner moves in, or a couple split up;
- How to identify who is a higher rate taxpayer – eg where a person receives a bonus at the end of the tax year which pushes them above the higher rate threshold;
- How to determine whether two people are “living together” for the purposes of the charge – and when two people are to be regarded as no longer living together;
- How HMRC would ensure compliance with the new charge, and cost of doing so;
- The fact that the charge would be a “couple penalty” – eg it could be disincentive for a lone parent to move in with a higher rate taxpayer;
- The impact on women and children of the loss of an independent source of income, if they are encouraged by their partner to give up their claim for child benefit; and
- Implications for future entitlement to State pensions, given that people who are not in work and who are receiving child benefit for a child under 12 receive National Insurance credits.
The following documents, written by a range of people and organisations, also offered information about the potential impacts of the change and outlined concerns that the plans would be unenforceable in practice.
- Wall Street Journal Blog (October 2010)
- Gingerbread press release (October 2010)
- IFS Observations (October 2010)
- Low Incomes Tax Reform Group BBC article (October 2010)
- Child benefit and tax – uncomfortable bedfellows? (Low incomes tax reform group - January 2012)
- Withdrawal of child benefit for higher rate tax payers – problems ahead (revenuebenefits - Feb 2012)
- Withdrawing child benefit from better-off families: are there better options? (Chapter 11 from the January 2011 Institute for Fiscal Studies Green Budget)
- Save Child Benefit (Child Poverty Action Group briefing published in March 2012)
Child Benefit (ChB) is paid to around 7.8 million families at an annual cost of around £12 billion. At the end of 2010/11 the outstanding ChB debt balance rose to £35.59m for around 40,000 individual cases - up from £21.65m in 2009/10.
Where a person is overpaid Child Benefit or Guardian’s Allowance (GA) and it is as a result of either misrepresentation or the failure to disclose information by the claimant, whether fraudulently or not, the overpayment can be recovered from the claimant. When ChB and GA were transferred to HMRC, the provision to recover an overpayment of Child Benefit or Guardian’s Allowance from an ongoing award of one of these benefits was inadvertently lost. The provision in section 107 of the Welfare Reform Act 2012 re-enables overpayments of Child Benefit and/or Guardian’s Allowance to be recovered from future payments of these benefits.
This change has been in place since June 2012 and provides the powers to recover overpayments of ChB and GA directly from ongoing awards, in the same manner as other recoverable overpayments.
HMRC anticipate that between 4000 - 6000 ChB customers will have their overpayment of ChB and/or GA recovered by deductions from their ongoing award of these benefits.
Updated 2 May 2014