The government has scrapped plans to assess child benefit eligibility based on household income.
One of the final acts of the Tory government was to announce an overhaul of the controversial high income child benefit (HICB) charge.
Currently, child benefit - worth up to £1,248 a year – starts to be withdrawn when one parent earns more than £60,000 a year.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Parents re-pay the benefit at a rate of 1% of the benefit amount for every £100 they earn over the £60,000 threshold, known as the HICB.
Critics said this was unfair as it meant a couple earning £59,000 each are exempt but a single parent on £65,000 would get hit.
Former chancellor Jeremy Hunt pledged to address this by moving to a system of household income, rather than based on individual parents from April 2026.
However, the Labour government has been looking at the books and chancellor Rachel Reeves used her Budget yesterday to state that the change at £1.4 billion by 2029/2030 would be too expensive.
The Budget document said the government will not proceed with the reform due to the “significant fiscal cost.”
Rachael Griffin, tax and financial planning expert at Quilter, says: “Seeing through this reform, while complex, would have better reflected the financial realities of modern families, ensuring those most in need are not unfairly penalised.
"The inherent unfairness in this complex system, where a single £60,000 earner starts to lose their child benefit while a household earning nearly £120,000, split between two earners, keeps it all, will therefore remain a focus for campaigners and consumers alike.”
What is the government doing about child benefit?
The higher income child benefit charge is here to stay for now.
Labour is trying to simplify the system though and said it would let employed individuals pay the charge through their tax code from 2025 and pre-prepopulate self-assessment tax returns with child benefit data for those not using this service.
The Budget document said the government will also explore how better data use and sharing across government departments can improve the targeting of economic support to households, especially in times of crisis.
Laura Suter, director of personal finance at AJ Bell, acknowledged that it would have been a “huge administration task” for HMRC to assess couples on their household income rather than sole income, meaning there is no easy fix.
She warned that addressing the admin side is “merely fixing one problem with the system when in reality it needed larger scale reform.”
Suter adds: “The complications in the system mean it is underclaimed and not well understood.”
Griffin says one way parents can reduce their liability though is by increasing their pension contributions to reduce their income, which also allows them to take advantage of the favourable tax relief available on pensions.
She says: “Although this does mean that someone has to increase how much they are saving for retirement, the benefits mean that the ultimate gain far outstrips the spend."
-
The higher earners targeted for tax rises – and how they could be hit in Autumn BudgetFrozen income tax thresholds and the high cost of housing is squeezing many Britons, and their finances could suffer from further tax hikes aimed at the wealthy
-
Unloved alternative trusts are going cheap – should you buy?Opinion Alternative trusts like infrastructure and real estate funds are trading at huge discounts. Investors should take advantage, says Rupert Hargreaves
