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Trading Lessons

Child Benefit Cuts to be Tapered For Higher Rate Tax Payers, Coalition Government Benefits Culture Failure

Politics / Taxes Jan 15, 2012 - 06:21 AM GMT

By: Nadeem_Walayat

Politics

The government is seeking to amend the proposed Child Benefit cuts for families where there is a single higher rate tax payer, which is grossly unfair as in its current form would mean a family of 3 children with one tax payer earning £42,375 (Not £44k as stated in the mainstream press) would lose £2,200 in child benefit, whereas a family with two wage earners earning £42,000 each would retain their full child benefit despite having combined earnings of £84,000.


This gross disparity in fairness is prompting the Coalition Government to rethink its implementation where the most obvious and least costly would be for the tapering in of the amount to be cut / clawed back on child benefit payment, because the system for the full payment of Child Benefit would still continue, instead at the end of each tax payer an amount equivalent to child benefit paid would be clawed back through the PAYE system on the basis of taxable earnings.

How to Beat Child Benefit Cuts

The only way to beat the child benefit cuts in totality is for gross taxable earnings to be below the higher rate tax payer threshold, which effectively means taking a pay cut. Which for a 3 child family would make this viable under the existing proposed cliff edge cuts upto an taxable income of £45,455.

Pension - One of the best way to cut ones income is by boosting pension contributions so as to bring your gross taxable income to below £42,375.

Salary Sacrifice - Taxable pay can be cut by sacrificing part of your salary in exchange for extra days off work, company cars or childcare vouchers.

Self Employed - Have a variety of options to ensure that profits during a tax year do not exceed the 40% limit such as buying extra stock, machinery or the scheduling of business income receipts across tax years, or employing ones spouse.

Coalition Government Benefits Culture Failure

The bottom line is that Britain's topsy turvy tax and benefit's system is designed to over time turn virtually everyone into benefit claimers given the increasing disincentives to work and incentives not to work, so far the governments proposed reforms just further the progress of the benefits state by penalising the middle class as the child benefits cut illustrates, which in reality is not a benefit at all but a partial tax rebate for families. Britain's £170 billion benefits culture WILL eventually bankrupt Britain, or rather IS bankrupting Britain as evidenced by Britain's ongoing stealth debt default by means of high inflation (real rate above 6%).

The peoples of the rising eastern economic super powers laugh at Britain when they hear that the UK pays millions of those that could work to sit idle at home, acting as a huge drain on the economy.

The coalition government is attempting to address the benefits culture crisis, but it's focus on hitting those already in work is all wrong, instead it should be increasing the incentives to work but cutting taxes and benefits rather than raising taxes which is what the Child Benefit cuts ultimately are i.e. a tax hike.

Source and Comments: http://www.marketoracle.co.uk/Article32631.html

By Nadeem Walayat

http://www.marketoracle.co.uk

Copyright © 2005-2012 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 25 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis focuses on UK inflation, economy, interest rates and housing market. He is the author of three ebook's - The Inflation Mega-Trend; The Interest Rate Mega-Trend and The Stocks Stealth Bull Market Update 2011 that can be downloaded for Free.

Stocks Stealth Bull Market Ebook DownloadThe Interest Rate Mega-Trend Ebook DownloadThe Inflation Mega-Trend Ebook Download

Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication that presents in-depth analysis from over 600 experienced analysts on a range of views of the probable direction of the financial markets, thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

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Comments

Rob
17 Jan 12, 12:42
fairness" chestnut

Ahh, the "fairness" chestnut. Is it grossly unfair? The tax system is exactly the same. Family with two earners at £35k each pays far less tax than a family with one earner at £70k. Somehow that is deemed fair. They should be more assertive and just axe child benefit full stop. There is plenty of means tested support benefit for those that really need it.


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