Rumbles about Child Benefit
Cutting Child Benefit for higher rate taxpayers may be “unenforceable” a Treasury source has told Iain Martin at the Wall Street Journal blog. Child Benefit is normally paid directly to the mother; as Mr Martin points out, HMRC may have difficulty finding out whether she has a partner who pays higher rate income tax:
A mother fills out the form for Child Benefit when her child is born, and then the money is paid until her offspring hits 19. If it wants to proceed, the government will have to scrap that simple universal system of payment and try to construct a mechanism that keeps track of what millions of mothers’ partners are earning.
Things may be easier when the person who get CB is themselves a higher rate taxpayer, but that is likely to affect only a minority of cases. Mr Martin guesses that the most likely solution will be to drop the policy quietly some time before it is due to be implemented in 2013, arguing that the economy is going so well that it is no longer needed.
On the other hand, the Treasury expects to save £2.5 billion a year by 2015, so the economy would have to be very successful to justify this.
Over at the Independent, John Rentoul can’t see what the fuss is about:
The basic mechanism is simple: the mother will be required to declare whether she is living with someone paying higher-rate tax. It could be one question, answerable with a single tick, in an annual tax return.
I think the problem is genuinely more difficult than this. Supposing the claimant does not fill in a tax return? Or their partner has not told them they pay higher rate tax? Even if this is not true, how would HMRC prove it in case of a dispute?
We often discuss taxes and benefits as if they were part of the same system but they aren’t; they are calculated in different ways and have different objectives. This is a comparatively simple reform, compared with tax benefit integration, it gives the merest taste of the difficulties that would entail.