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Child Benefit Cut Cliff Edge Tapered, Middle Class Can Continue to Have Babies

Personal_Finance / UK Tax & Budget Mar 21, 2012 - 01:15 PM GMT

By: Nadeem_Walayat

Personal_Finance

Best Financial Markets Analysis ArticleAs widely expected, George Osbourne performed a major u-turn today on the proposed cliff edge Child Benefit cuts that would have seen any family with a higher rate tax payer (Gross income of £42k) have their child benefit scrapped (£2,450 per year for a 3 child family) whilst a family with two joint earners on £41k per annum (total £82k) would have retained their child benefit payments in full.


The change in implementation of Child benefit cuts positively impacts 90% of families that faced the cliff edge cut, where now families with single tax payers earning upto £50k per annum will retain child benefit in full, thereafter child benefit cuts will be tapered by 1% for every £100 earned over £50,000. Therefore an income of £55,000 would result in a 50% cut, and £60,000+ would result in a 100% cut. However this still results in anomalies such as a couple earning £49k each to total £98k would retain their child benefit in full against a single earner family on £60k who would receive no child benefit.

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 £50k per earner. The system of tapering for earners upto £60k will result in a cut of 1% for every £100 earned, which means a £10.56 cut for 1 child per £100, 2 children £24.50, 3 children £31.47, 4 children £38.44. and so on at the rate of £6.97 per each additional child per £100 earned.

Some of the options available to maximise child benefit payments are:

Pension - One of the best way to cut ones income is by boosting pension contributions so as to reduce gross taxable income to towards or below £50,000.

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 £50k such as buying extra stock, machinery or the scheduling of business income receipts across tax years, or employing ones spouse.

End Discrimination Against Families with Children, and Scrap Child Benefit

At the end of the day child benefit for higher rate tax payers is not a benefit but a tax rebate, they are only getting back some of the money that is being taken via income tax. The same holds true for changes to tax credits that means many basic rate tax paying families are seeing it being scrapped for them. The UK tax system is designed to punish families, and very heavily those with one earner as the child benefit cliff edge illustrates. Instead of taxing individuals the family should be taxed as a single unit, this would at stroke do away with the cliff edge anomaly.

However from an economic point of view, It is far better and cheaper to manage if child benefit were scrapped in totality and the money saved to result in tax cuts. This would save a huge amount of money that is currently being wasted on administering the child benefit system. The government likes to employ people who do nothing more the shuffle paper in administering and managing, monitoring and evaluating systems such as the child benefit system, instead all of these workers could be put to productive use in actually performing work that generates positive economic activity rather than act as a drag on the economy, and it is only then that the economy will actually start to grow! Scrapping many more benefits coupled with cutting taxes would also result in greater incentive to work as workers would be retaining more of every extra pound earned rather than relying on the likes of tax credits and child benefit via expensive administration to give them some of the money back that they have had taken away from them.

The bottom line: Cut government spending, Cut benefits and CUT TAXES and you will see the economy boom.

Source and Comments: http://www.marketoracle.co.uk/Article33729.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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