Ahead of the Conservative Party Conference, the Chancellor George Osborne has announced a significant cut to child benefit. Here's what you need to know about how you will be affected.
How does child benefit work at the moment?
Child tax benefit is currently a universal benefit – in other words, one available to all of us, no matter our financial position. Parents are paid £20.30 a week for the first child, and £13.40 a week for any other children.
For a family with three children, that’s in the region of £2,500 a year in benefit payments from the Government.
What is changing?
The Chancellor has decided that child benefit will be scrapped entirely for higher rate taxpayers, those paying the 40% rate of income tax.
In other words, if you earn £44,000 a year or more, you will no longer be eligible for such payments.
When is this happening?
The Government’s plans are set to come into force in 2013.
Why are they doing this?
The Chancellor’s main task at the moment is to rectify the nation’s deficit, and he believes this is a fair way of improving our bottom line.
Currently, child benefits cost the Government around £12bn a year. The Government reckons that by implementing this change they can save around £1bn.
There is also a moral argument. Osborne believes that it is not right that the tax paid by lower income families should go towards the upkeep of the offspring of the rich.
How many of us are affected?
According to ministers, around 1.2 million families across the nation will be hit by this benefit cut. That’s around 15% of all families in the UK.
Is this the fairest way of changing child benefits?
The Chancellor argues that this is a simple way of reforming the child benefit system. However, it does leave open a glaring loophole.
Find out everything you need to know about your children's savings and tax
The change only affects those families where one worker earns in excess of £44,000. It makes no provisions for the household income, though.
As a result, a family where both parents earn £43,000, giving them a total household income of £86,000 would still be able to claim the benefit, while a family where only one member is working and earning a salary of £45,000 would not.
What can I do to prepare for this change?
Start saving now for your children. With the right account, you can earn as much as Earn 6% on children’s savings.
There are also easy ways to Protect your kids from the taxman. And did you know that, with a bit of careful planning, you can Turn your kids into millionaires?
So don’t despair – fight back now against the cuts, no matter which rate of tax you pay!