Families urged to accept pay cut to avoid losing child benefit

Many families would be better off it they accepted lower wages or waived a pay rise to avoid being hit by the Government’s child benefit cuts.

Campaigners estimate that 370,000 families will be thousands of pounds worse off from January 2013, when the Government will bar anyone earning more than £42,745 a year from claiming the benefit.   They said that families with one parent who earned just above or below the 40 per cent tax threshold have been left in “limbo” about their pay next year.

The cuts have been heavily criticised for punishing families where one parent stays at home to look after children.  A family with two people earning £40,000 — a total of £80,000 — will keep the state benefit while one with a single earner on £43,000 will not be entitled to claim.

The Coalition is preparing to water down the plans to avoid offending middle-class voters and triggering a back-bench Conservative rebellion.

High earners just below or just above the 40 per cent tax threshold would have to work out whether to take a pay rise or not for the 2012-13 financial year, which starts next month.

The Institute for Fiscal Studies suggested that 170,000 families with a single earner just above the top rate would be better off taking a pay cut. Similarly, 200,000 families with one parent earning just below the cap would be better off waiving a pay rise.

It is expected that the cap would save the Treasury about £2.4 billion in 2013-14.

Mr Clegg said the Government would to try to mitigate the “unintended consequences” of the child benefit cap.

But Kenneth Clarke, the Justice Secretary, yesterday insisted that families with someone on the higher rate could afford to lose their child benefit.

He said: “It is quite wrong that some people are firstly paying the higher rate of income tax on the basis that they’re above-average earners and at the same time receiving a social benefit to help them pay for their children. It’s an anomaly which, at a time of acute financial crisis, was bound to be addressed.”

However, family groups are urging the Chancellor to rethink the plans.

Last night Justine Roberts, a founder of the mothers’ website Mumsnet, told The Daily Telegraph: “The cliff edge means it could disincentivise people to get a promotion or a pay rise. It needs to be rethought through.”

Chief executive of 4 Children, the national family charity, Anne Longfield said: “The planned cuts will feel very unfair to parents feeling the pinch and looking at career progression.

“It gives them a perverse incentive to hold themselves back so that their salary doesn’t cross the threshold.  There will also be a real fear that this could be the thin end of the wedge towards using the proposed cut-off point for any future changes to the tax and benefit system.”

Tory backbencher Stewart Jackson MP said the child benefit policy was “barmy, tokenistic and unfair” and would be blocked by rebels unless significant changes were made.

Fellow Tory MP Christopher Chope warned the Government plans would lead to “lot of unfairness and injustice” and urged ministers to think again. Mark Reckless, another Conservative backbencher, has described the policy as being “in serious trouble”.

However, ministers stood firm against the criticism. Mr Clarke, a former chancellor under John Major, told ITV News last night that it was an “anomaly” that families with a higher rate tax payer received the benefit.

A Treasury spokesman said last night: “The Government has been clear that it is fair to ask those who are better off in our society to make a contribution to paying down the debts that we have built up over the last decade in Britain.

“It is not fair to ask someone earning £20,000 to pay for the Child Benefit that goes to someone earning £80,000 or £100,000. We will set out details of how we will implement this in the coming months.”

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