U-turn possible on child benefit cut

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The Government has announced it is considering watering down its controversial plan to strip child benefit from better-off families.

It came as disgruntled Conservative backbenchers warned of a rebellion to block the plan if Ministers seek to press ahead with the scheme unchanged.

Meanwhile, Labour turned its fire on another cash-saving benefit reform, urging George Osborne to drop changes to tax credits which Shadow Chancellor Ed Balls believes will leave thousands of low-income families better off if they quit work. The Treasury declined to confirm reports that the Chancellor is considering softening the impact of the child benefit reforms on middle-income families by raising the earnings threshold at which it will be withdrawn to £50,000 or even £80,000.

Mr Osborne announced at the 2010 Conservative Party conference that from January 2013 couples with at least one parent earning more than £42,745 a year – the 40 per cent tax rate threshold – would lose their payments, saving the Treasury around £1bn.

Details of how the change will be introduced are expected in the Budget on March 21. But the move has proved unpopular, sparking claims that lone parents and single-earner families are being penalised.

A family with one working parent earning £43,000 would lose about £1,750 a year if they have two children and £2,500 with three, but a couple who both work and each earn £40,000 would keep all their payments despite having a total household income of £80,000.

Deputy Prime Minister Nick Clegg said: “We have said as a Government that we are living in difficult times and asking people who earn much more money than others to give up child benefit is a fair thing to do.”

But the Sheffield Hallam MP added: “We do accept that what you do when you create these cut-offs is you create anomalies.

“There is a specific issue about how you administer the removal of child benefit from upper-rate earners and we have always said we will look at exactly the way that is administered.”

Tory backbencher Stewart Jackson said the child benefit policy was “barmy, tokenistic and unfair” and should be dropped unless it can be significantly amended.

“If Labour votes against it, the Government will be defeated as it presently stands,” said the Peterborough MP.

“We understand that tough decisions have to be made and that there has to be burden-sharing across all groups. What’s a problem for the Government is seeming to clobber hard-working people, including single parents, while at the same time uprating benefits by over five per cent.”

Labour yesterday staged a debate on proposed tax credit cuts in the House of Commons, as Mr Balls, the Morley and Outwood MP, said that if money could be found to protect higher-income families then the Chancellor should help poorer households too.

Under Treasury plans, 212,000 couples with children who work part-time will see tax credits worth £3,870 withdrawn next month unless they increase their weekly hours from 16 to 24 hours, said the Shadow Chancellor. “It actually makes it better off to be out of work,” he said. “That is really, really perverse. Stop this deep unfairness for low-income families.”

Family charity 4Children called on the Chancellor to use his Budget statement to defer both the child benefit and tax credit changes for two years.

Chief executive Anne Longfield said: “Many families, through no fault of their own, are struggling to get by.”