Obstinacy rules

There are times when the obstinacy and wilful blindness of governments is amazing. In this case it is the complete dog’s breakfast made of the changes to the tax status of child benefit, explains Simon Sweetman.

Readers of a certain age will remember that child benefit used to be called family allowance and that you used to collect it from the Post Office – my mother used to send me to collect it in those far off days when you could do that sort of thing without photo ID and a signed affidavit from the person entitled to it. It was 8/- per child in those days, but was only paid for the second and subsequent children.

Family allowances were a vital part of Beveridge’s planning for social security (which is its proper name, not welfare, which is American and has to be said with a sneer).

Originally they formed part of taxable income. In 1975, when Barbara Castle was the secretary of state, child tax allowances and family allowance were merged into the new payment of child benefit which would be tax free, payable for all children, and paid to the mother.

Now a major problem – which reared its head in the introduction of child tax credits – is that UK income tax has been based on the income of individuals, but social security payments are paid to a family unit.

So the coalition decided that where an individual earned over a certain amount he or she would lose the entitlement. They could have made them taxable, or taxable at higher rates, but of course in many cases they would be the income of a mother with no or little income, and that would not produce income for the government.

But the solution adopted has many problems, and as soon as the announcement was made people pointed them out. The limits were shifted upwards but apart from that no changes were made.

Now there is a fundamental problem, which is that if the male partner is the high earner he is supposed to be able to take child benefit into account, even though it is the mother’s income and he had no legal entitlement to know about it. If you (the earner) earn more than £50,000 a year you can opt out of child benefit (the HMRC site suggests it is the taxpayer who opts, but that cannot be right if it is not the taxpayer’s income) or can complete a self assessment return and include it. Not to be taxed (too simple) but to be clawed back in its entirety if your income reaches £60,000.

And so it is estimated that 500,000 extra people will have to complete tax returns.

Now it is not news that this is a total shambles and will get worse. The point is that this was made overwhelmingly clear to the government from the time the charge was announced and they’ve gone ahead and done it anyway. This is entirely typical of this government, which appears totally to distrust informed opinion and prefers its own gut instincts (see education, drugs policy, law enforcement etc.). 

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coolmanwithbeard's picture

Independant Taxation?

coolmanwithbeard | | Permalink

I remember the introduction of independant taxation - where there was designed privacy between spouses - this seems to fly in the face of that too - how many will have to own up to earning more than their partner thought? or how many couples will both pay back some benefit via tax when only one needed to?

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Simon Sweetman was an inspector of taxes for 18 years. He left the Inland Revenue in 1989 to join Chartered Accountants Scrutton Goodchild & Sanderson, later part of Scrutton Bland, where he was successively a senior manager and later a partner. He has been an independent consultant since 2001. He is a former member of the tax policy unit of the Federation of Small Businesses and the small business working group of the Chartered Institute of Taxation.