Think-tank warns of benefits ‘incoherence’ as 200,000 opt out of child benefit

AROUND 200,000 people have opted out of receiving child benefit as the government introduces cuts in payments that mean the top 15 per cent of earners will no longer be eligible to claim some or all of the cash.

The changes, which come into force tomorrow, will see cuts in payments to those families where one or both parents earn more than £50,000 a year.

The Treasury confirmed that around 200,000 had opted out of receiving payments under a scheme designed to minimise the impact of changes.

But up to one million families face having their child benefit clawed back through complicated self-assessment tax returns, it was warned last night. With an estimated 1.2 million families expected to be hit by the cuts, hundreds of thousands of people will find themselves having to declare the payments to HM Revenue and Customs.

Treasury Minister David Gauke said the opt-out figure was “slightly above” expected, and HMRC said the change was going ahead “smoothly”.

The scheme is aimed at reducing child benefit payouts to homes where one parent earns more than £50,000, and removing it entirely from those where a parent earns above £60,000.

Unless parents actively opt out of receiving the benefit by the end of today, higher earners will still get the money, but have to pay it back later.

Those parents who have already opted out will no longer receive child benefit and so will not be liable for any extra tax.

But for those families who continue to not opt out, the higher earner bringing home more than £50,000 will have to fill in self-assessment forms and pay a new tax.

Child benefit is most often paid to mothers, and the person repaying the funds through tax will not necessarily be the parent receiving child benefit. On Friday, leading think-tank, the Institute for Fiscal Studies (IFS), warned the policy created “administrative complexities” and could cause “incoherence in the welfare system”.

Gauke defended the changes. He said around 1.2 million people had visited the part of the HM Revenue and Customs (HMRC) website which explains the changes.

He said: “Something like 200,000 people have opted out, which is slightly above what we’d expected at this stage so there does seem to be quite a lot of awareness about it.”

Child benefit is currently paid at the rate of £20.30 a week for the first child, and then £13.40 a week for each subsequent child. Because child benefit is tax-free, analysts have suggested that the change for those losing all child benefit is the equivalent of a £4,000 salary cut for families with three children.

HMRC chief executive Lin Homer said officials had written to some 800,000 of the estimated 1.2 million people who will be affected by the changes. She said HMRC was already “well ahead of where we expected to be at this point”. Homer added: “Because it has worked better than expected, the administration charge of implementing this change we think is only going to be 50 per cent of what we expected.”

Meanwhile, Labour has warned that wide changes to tax credits could hit more than a quarter of a million working Scottish families. The party calculated that the average family stands to lose £279 under UK government plans.

Shadow Scottish Secretary Margaret Curran said the Conservative-Liberal Democrat coalition is prepared to cut incomes of about 261,000 families.

“Families across Scotland are struggling to make ends meet and in 2013 the government look set to make things even harder,” she said.

A spokeswoman for the UK Department of Work and Pensions said: “This was a tough decision, but it will ensure that the welfare budget is sustainable over the longer term.”