Child Benefit to be scrapped for higher earners from 2013
In a speech to the Conservative party Conference on Monday 4th October, Chancellor of the Exchequer George Osborne announced that Child Benefit would be scrapped for families where one or more parent is a higher-rate taxpayer. The change will come into effect in 2013.
The move has drawn some criticism as families with a single income of £44,000 will lose the benefit, while those with two earners just under the threshold – amounting to a household income of up to around £87,500 – will keep it.
The reason for the anomaly is that the benefit will be clawed back through higher-rate taxpayers’ tax returns, to avoid the cost and administrative burden of means-testing all families.
Child Benefit is currently paid at a rate of £20.30 a week for the first child and £13.40 a week for each subsequent child. This means those households with a higher-rate taxpaying parent will be worse off by £1,056 a year if they have one child, £1,752 with two children or £2,449 with three children.
The decision to scrap Child Benefit comes on top of the withdrawal of Child Trust Fund vouchers, which comes into effect at the end of 2010. The vouchers have already been reduced in value from £250 to £50 (from £500 to £100 for the lowest-income families). However, these moves need not mean parents are prevented from saving for their children.
F&C Investments, iChild’s Children’s Savings partner, has promoted the use of Child Benefit as a way of building a nest-egg for children, who face a future of rising education costs and economic uncertainty. For those who will still receive the benefit, this continues to be a worthwhile option as long as the benefit is not needed to fund day-to-day expenses.
A long-term investment of £80 a month could grow to a sizeable amount over an 18-year timeframe, though returns from stockmarket-based investments are not guaranteed and their value can go down as well as up. Invested in an existing Child Trust Fund, the money will grow free of income tax and capital gains tax too. If your child does not have a CTF, there are other options such as F&C’s Children’s Investment Plan.
Those families who will lose the benefit still have until 2013 to get into the habit of saving it, giving them the chance to kick-start their children’s savings with ‘free’ money before taking over contributions themselves later.
Visit www.fandc.co.uk to find out more about F&C’s savings schemes for children.
