In his Spring Budget, Chancellor Jeremy Hunt announced a shake up of the child benefit system, including raising the High-Income Child Benefit Charge threshold by £10,000 - but what does this actually mean for families who claim this benefit?
Child benefit is a payment from the government to help parents with the cost of raising their family. Payments are made at a fixed-rate (which is going up in April 2024), so everyone gets the same amount. Earlier this year, there was a major change to the child benefit system to make it easier to apply and quicker for parents to start receiving the money, but the system has long been thought to be unbalanced. Those who currently earn over £50,000 end up having to pay a High-Income Child Benefit Charge, which is the equivalent of one per cent of every £100 you earn over £50,000. That means if you or your partner earn over £60,000, you are effectively replaying all of your child benefit.
But as the Chancellor admitted, the current system is confusing and unfair. While delivering the Budget, he said: "The way we treat Child Benefit in the tax system is confusing and unfair... we currently withdraw Child Benefit when one parent earns over £50,000 a year. That means two parents earning £49,000 a year receive the benefit in full, but a household earning a lot less than that does not if just one parent earns over £50,000."
What child benefit changes did Chancellor Jeremy Hunt announce?
There are plans to move the High-Income Benefit Charge to a household (rather than individual) based system, but that proposed change won't come into effect until April 2026.
In a more immediate move to make the current system fairer, the Chancellor announced that the threshold at which the High-Income Child Benefit Charge kicks in will be raised from £50,000 to £60,000 as of April 2024. And the top end of the range at which the charge applies will be raised to £80,000, meaning those who earn between £60,000 and £80,000 will be eligible for a tapered payment (where they receive the benefit, but also pay the High-Income Child Benefit Charge).
Ultimately, this change means that no-one earning under £60,000 will pay the charge - a move that will take 170,000 families out of paying it altogether. Combined with the higher threshold for tapered payments, nearly half a million families will save around £1,300 in the next tax year.
The shake up has been welcomed. Alice Haine, personal finance analyst at wealth manager Bestinvest by Evelyn Partners, said the current system has been "particularly unfair for single-income families because one parent earning above £50,000 currently faces the HICBC, but two parents earning £49,000 each escape it completely and receive their child benefit entitlement in full. Similarly, a couple where one partner earns just above £50,000 loses out against a family with a total gross income of £99,000.
“But the unfairness won’t end entirely until the benefit is based on the overall household income rather than that of the highest earner, something that is not going to happen for more than a year.”
Helen Sachdev, working parent champion and director at WOMBA (Work, Me and the Baby), agrees, saying: “It is also encouraging to hear there will be a consultation on the structure of the benefit which has, to date, been grossly unfair for families. Keeping women in the labour market is crucial to the functioning of any healthy economy. The government must continue to listen to the voices of those directly impacted and chart a course towards genuine equality and opportunities for all families.”
You might also be interested in how you can get help with childcare costs if you are struggling to make ends meet, the stark warning for parents hoping to benefit from the expansion of the free childcare scheme, and our analysis on whether the government can actually deliver on its free childcare promise.
