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Taxing Child Benefit is better way of making savings and reforming system, says ippr
George Osborne's proposal to axe Child Benefit for every family where one parent earns above £44,000 a year is a crude cut and creates a 'cliff edge' that will hurt middle class families too much, according to leading think-tank the Institute for Public Policy Research (ippr).
Instead ippr says a better idea is to tax Child Benefit, which would mean that there was a 'tapering effect', so that as families earned more the level of the benefit they received would be reduced.
Under the Osborne proposals, families with one child would lose more than £1,000 a year, and for larger families there will be an additional penalty per child annually of nearly £700.
The ippr system would mean a one-child family paying higher rate tax would lose £416 a year in the value of their Child Benefit, rather than having the benefit removed altogether.
ippr argues that taxing Child Benefit is preferable to introducing a means test because it would raise the same amount of money – £1 billion – but would keep middle-class families in the welfare system.
Kate Stanley, Deputy Director of ippr, says:
George Osborne's proposals go further than even Mrs Thatcher dared to go. The welfare state will only survive if it has the support of the middle classes and Child Benefit is their key payback. If you take away a thousand pounds from families with one child the moment one of the parents earns around £44,000 a year it is a very big step and could seriously undermine the welfare system. But that is not to say that better-off families should receive the same level of child benefit as poorer families, which is where taxing the benefit comes in. It is a more graduated and progressive process and avoids the cliff edge that Osborne's proposals will bring in.
Note to editors
'Welfare spending: Time to reassess universal benefits?' by Kayte Lawton and Kate Stanley is available for download here.
The report Opportunities in an Age of Austerity: Smart ways of dealing with the UK’s fiscal deficit, which includes the Lawton and Stanley article, is available for download here.