Warning over looming child benefit cuts

Child benefit cuts will cause “incoherence” in the welfare system and undermine other Government reforms, a respected economic think tank has warned.

The Institute for Fiscal Studies (IFS) issued a highly critical analysis of the move to strip the payments from some higher earners from next week.

While it made sense to target universal benefits paid to the better-off as part of efforts to tackle the budget deficit, the way it was being done was “problematic”, it said.

Sign up to our daily newsletter

The i newsletter cut through the noise

The IFS warned that some families would end up losing as much as 65p of every extra pound they earned – making it more likely they would work less or put more into pension funds to avoid the hit.

Households where one parent earns more than £60,000 a year will have to return the entire amount through the self-assessment system unless they have opted out of receiving it in the first place.

It will be taken away on a sliding scale where mothers or fathers earn between £50,000 and £60,000 – causing a significant rise in marginal tax rates for those families.

In its short report, the IFS said it expected the average loss to be £1,300 a year, with 820,000 families losing all state help and 320,000 having it cut.

It said the marginal tax rate faced by those with an earner of between £50,000 and £60,000 would rise by 11 percentage points for those with one child and another seven for each additional child.