Saturday, 19 May 2012

Child Benefit changes 2012

The coalition's policy on child benefit has changed over time.

The original plan:
  • In 2010  Chancellor George Osborne said that child benefit would be cut for high earners. if anyone in a household earned over approximately £42,000 a year, the household would stop getting child benefit (actually they get it but would have to pay it back by the taxman). Cameron defended this plan by saying that it was unfair for high earners to get benefits.

Why was there an uproar about this original plan?
There were two main controversies:

1. The cut was based on household income which would mean that if both parents earnedless than £42,000 (up to a household total of £88,000), they will continue to get child benefit.  However, in families with one earner on the above £45,000 (with a household income as low as £45,000), the child benefit will have to be repaid. Many thought this was unfair.

2. The "cliff-edge". That meant someone earning £42,475 or below would receive the full child benefit. As soon as they earned £42,476, they would lose every penny of the child benefit. Some argued that there should be some kind of gradation of loss.  The government defended the "cliff edge", by claiming that it would be cheaper to implement and some sort of graded loss of benefits.

What changes have been made to the child benefit plan?
Under the new plans, announced in Chancellor George Osborne's 2012 Budget, the child benefit will be phased out when someone in a household has an income of more than £50,000.
The benefit will fall by 1% for every £100 earned over £50,000. That means those earning more than £60,000 will lose the entirety of the benefit. Some 7.8 million families receive child benefit, of which 1.2 million would have lost their entitlement under the original proposals. The number affected will be lower under the renewed plans.

Why did they change?

  • Politically, the original plan was quite damaging.  It angered many Liberal Democrats within the coalition and gave ammunition to Ed Miliband's Labour opposition.
  • Osborne claimed that the expense of organising the more complex cut of 1% of child benefit every £100 and over £50,000, would be covered by other efficiency savings given in the budget.
This has done a lot to quell the political disquiet over the original plan, but it does still equate to an end of the universal child benefit.

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