MSE News: Budget 2012: what the child benefit overhaul means for you

EFC-DAVE-EFC

Whilst calculating how worse off I will be as my salary moves between £50k and £60k I need to take into account that child benefit is pay as a tax free benefit and therfore the actual cost of the loss (or the cost to replace it) has to be the gross amount before tax.

i.e. A family with two children and an earner of £60k would lose £1752.40 per annum NET income. In order for them to replace that income and pay tax and NI they would have to earn GROSS £3021.

Therefore my simple maths says that a two children family is effectively paying 40% Income tax, 2% NI and 30% in lost income from child benefit, (plus any pension contributions). I make that 72% tax.

If you carry this on for 3, 4 or 5 children then the picture obviously gets worse, to the point where the 4 children example means that for every pound you earn over £50k (upto £60K) you will only be putting 3.75pence in your pocket.

As I said.....surely this can't be right..:eek:

RedSky

Incorrect on two points:

• 30% of £60k is £18k not £3k
• Removal of a benefit is not a tax

sly_dog_jonah

EFC-DAVE-EFC wrote: »

Whilst calculating how worse off I will be as my salary moves between £50k and £60k I need to take into account that child benefit is pay as a tax free benefit and therfore the actual cost of the loss (or the cost to replace it) has to be the gross amount before tax.

i.e. A family with two children and an earner of £60k would lose £1752.40 per annum NET income. In order for them to replace that income and pay tax and NI they would have to earn GROSS £3021.

Therefore my simple maths says that a two children family is effectively paying 40% Income tax, 2% NI and 30% in lost income from child benefit, (plus any pension contributions). I make that 72% tax.

If you carry this on for 3, 4 or 5 children then the picture obviously gets worse, to the point where the 4 children example means that for every pound you earn over £50k (upto £60K) you will only be putting 3.75pence in your pocket.

As I said.....surely this can't be right..:eek:

I worked out the marginal rate of tax as 73.47% for a 2 child family with a single earner on between £50-60k in this previous post (although subsequently I was corrected down to 73.46% by thelawnet).

I'd classify the partial clawback of a universal benefit by means of a Self-Assessed Tax Charge as a tax, but each to their own Redsky.

RedSky

sly_dog_jonah wrote: »

I worked out the marginal rate of tax as 73.47% for a 2 child family with a single earner on between £50-60k in this previous post (although subsequently I was corrected down to 73.46% by thelawnet).

I'd classify the partial clawback of a universal benefit by means of a Self-Assessed Tax Charge as a tax, but each to their own Redsky.

Child benefit may continue to be distributed universally for ease of administration but if the ultimate benefit has limitations then it can no longer be classified as a universal benefit. I therefore wouldn't include it in any marginal tax calculation.

EFC-DAVE-EFC

RED-SKY- I'm not really bothered if you don't wish to call it a tax or not. The point I'm clearly trying to make is that after I've paid back the CB, I really only receiving around 28p in the pound, compared to where I am now.

If you take the example of a family with 5 children and an earner on a £50k salary now. For every £100 pay rise they receive they would actually be £8 worse off as a net household income.

Doesn't feel right to me. Let's face it £50k income to a house is NOT a huge wealthy amount in today's world.

EFC-DAVE-EFC

RedSky wrote: »

Incorrect on two points:

• 30% of £60k is £18k not £3k

I think you've missunderstood red sky, the point was that the 3k is the equivalent of gross income reduction, spread over the £10k between 50 and 60k. Therefore 3k is a 30% reduction of gross pay. I called it tax but hey ho, I think you get the point.

RedSky

EFC-DAVE-EFC wrote: »

RED-SKY- I'm not really bothered if you don't wish to call it a tax or not. The point I'm clearly trying to make is that after I've paid back the CB, I really only receiving around 28p in the pound, compared to where I am now.

Of course, if you remove one of your income sources (CB in this case) then your overall income is reduced. Would you still regard it a loss of earnings if the CB was not distibuted universally and clawed back but only distibuted to those proving their income was below the threshold?

EFC-DAVE-EFC wrote: »

Doesn't feel right to me. Let's face it £50k income to a house is NOT a huge wealthy amount in today's world.

Our politicians obviously disagree.

EFC-DAVE-EFC wrote: »

I think you've missunderstood red sky, the point was that the 3k is the equivalent of gross income reduction, spread over the £10k between 50 and 60k. Therefore 3k is a 30% reduction of gross pay. I called it tax but hey ho, I think you get the point.

Point taken.

EFC-DAVE-EFC

RedSky wrote: »

Of course, if you remove one of your income sources (CB in this case) then your overall income is reduced. Would you still regard it a loss of earnings if the CB was not distibuted universally and clawed back but only distibuted to those proving their income was below the threshold?

Yes, I'm afraid I would. At the end of the day its an income to my house that will reduce as other incomes increase. Therefore devalueing that increase. Its irrelevant if its paid to me and then paid back, just like its irrelevent if its called an increase in tax/reduction in benefit/not a universal benefit etc etc etc.

I refer you back to my basic examples previously quoted. Are you honestly telling me that you believe this to be a correct policy?

JimmyTheWig

RedSky wrote: »

Our politicians obviously disagree.

That's not how I would put it. It's not, for example, a salary that they think high enough for themselves!

I'd say it was a salary that our politicians want us to think is a huge wealthy amount in today's world.

RedSky

EFC-DAVE-EFC wrote: »

Are you honestly telling me that you believe this to be a correct policy?

I believe we are fortunate to receive CB and as it is a benefit we should never assume we will always receive it or how much it will be. So whatever awarding criteria is determined by the political party in power at any time, if we receive it then we are fortunate and have gained yet if we do not receive it we have not lost.