No matter how much money you earn, raising a child is expensive. Factor in high average childcare costs, with a generally high cost of living, and parents can quickly feel the squeeze on their family budgets.
The government offers help with the cost of raising a child in the form of child benefit, which has been a hot topic in recent government announcements. Back in the Autumn Budget 2023, Chancellor Jeremy Hunt announced that child benefit, along with a host of other benefits, would be going up in 2024, while 2024's Spring Budget saw the government pledge to shake up the child benefit system.
But what exactly is unfair about the current system, and what's changing and when? Here's everything you need to know.
What's unfair about the current child benefit system?
The are a couple of factors that make the child benefit system, in it's current guise, unfair, and thanks to changes that have been introduced overtime, the system is not as straightforward as it used to be.
How child benefit is assessed
Right now, the system is assessed on an individual basis rather than a household basis. This means that, if one half of a couple earns over a certain threshold, they no longer get the full child benefit allowance, even if the other half does not work, whereas a couple who individually earn under the threshold, but collectively earn way more, still get the full amount. Let's take couple A for example, where one half earned £50,000 while the other didn't work. They would have to start repaying some of the child benefit they received thanks to the High Income Child Benefit Tax Charge. But Couple B, where each partner earned £49,000, would receive the full amount of child benefit, and not be subjected to the high income charge, despite collectively earning almost double the amount of couple A.
The High Income Child Benefit Tax Charge
Since 2013, if you or your partner earn more than £50,000 a year, you have to start repaying some of the child benefit you receive through the High Income Child Benefit Tax Charge. Think of it like tapered payments. The charge equates to 1 per cent of every £100 you earn over the threshold, and means that by the time you earn £60,000, you are effectively repaying all of your child benefit. But the threshold at which the tapered payments start and end haven't been revised since they were put into place. Pensions and legal expert from Royal London, Clare Moffat says: “The earnings threshold hasn’t changed since it was introduced 10 years ago. If it had increased with inflation then the starting amount would now be over £63,000.”
How you apply
Until the start of 2024, you used to have to apply for child benefit via a paper form, which meant that parents had to wait weeks for their first payment.
How is the child benefit system changing and when
Earlier this year, the government changed the child benefit application system, meaning parents could apply online, and speed up how quickly they could receive their first payment, with it arriving in days rather than weeks.
But then in his Spring Statement 2024, Chancellor Jeremy Hunt announced two other major changes to the child benefit system to make it fairer. Firstly, he announced that, as of April 2024, the threshold at which parents start paying the High Income Child Benefit Tax Charge would be raised from £50,000 to £60,000, and that the upper threshold would be extended from £60,000 to £80,000. This means that those earning between £50,000 and £60,000 will no longer have to pay the charge, which according to the government is around 170,000 families. By extending the upper limit, the window for tapered payments is increased.
While announcing the threshold changes, Jeremy Hunt also explained that the government had plans to move the High Income Child Benefit Charge to a household-based system rather than an individual based one to better assess incomes, but that proposed change is not due to come into effect until April 2026, so there is a long while to wait before that element of the system becomes fairer.
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.
