Think tank slams child benefit cuts

MoneyChild benefit cuts will cause "incoherence" in the welfare system and undermine other Government reforms, a respected economic think tank has warned.

The Institute for Fiscal Studies (IFS) issued a highly critical analysis of the move to strip the payments from some higher earners from next week.
While it made sense to target universal benefits paid to the better-off as part of efforts to tackle the deficit, the way it was being done was "problematic", it said.

It warned that some families would end up losing as much as 65p of every extra pound they earned - making it more likely they would work less or put more into pension funds to avoid the hit.

And it said there were no plans to change the thresholds at which parents would start to lose the payouts, threatening to mean more and more would be caught by the means test.

Households where one parent earns more than £60,000 a year will have to return the entire amount through the self-assessment system unless they have opted out of receiving it in the first place. It will be taken away on a sliding scale where mothers or fathers earn between £50,000 and £60,000 - causing a significant rise in marginal tax rates for those families.

The system for recovering the cash has proved highly controversial, especially as families where both parents earn just under £50,000 each will keep their payments.

In its short report, the IFS said it expected the average loss to be £1,300 a year, with 820,000 families losing all state help and 320,000 having it cut. It said the marginal tax rate faced by those with an earner between £50,000 and £60,000 would rise by 11 percentage points for those with one child and another seven for each additional child.

For 40,000 households with three or more children it would jump as high as 65%. There were also a "series of administrative complexities" including the need for up to 500,000 more people filling in self-assessment.

It emerged this week that almost a third of families affected by the new means-tested rules have not been formally contacted by HM Revenue & Customs because of a lack of up to date information.
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