Should the government’s policy to cut child benefit for higher earners be welcomed?

Sam Bowman

These reforms are the next step to rolling back the culture of benefits for all, and they should be applauded. Nobody earning more than £50,000 a year needs extra money from the state. Arguments against withdrawing benefits for the poor may be compelling, but it is hard to feel the same way about benefits for people earning over £50,000 a year. It may be awkward for some to adjust, but it will not impoverish anyone. We need similar reforms for all welfare. Only those who have no other choice should get money from the taxpayer. The biggest problem with these reforms is that they add to the high marginal tax rates faced by these earners, discouraging work. Instead of making more people dependent on the state, taxes should be lowered. The era of state handouts for everyone, regardless of need, is over.

Sam Bowman is a policy director at the Adam Smith Institute.

John Whiting

The highest earners in households in receipt of child benefit face a higher effective tax rate from today, thanks to the new high-income child benefit charge. Assuming they do not elect to stop receiving the benefit, a higher tax bill looms: every £100 over the £50,000 threshold means an amount equal to 1 per cent of child benefit will be lost. A person with two children, receiving £1,750 in annual child benefit, will lose £17.50 per £100 (17.5 per cent) in a full year. On top of the 40 per cent higher tax rate that already applies to such incomes, it implies an effective marginal rate of 57.5 per cent – something to strongly consider when thinking about other actions to mitigate the effect of the charge. More children will mean a higher effective marginal rate. It could even exceed 100 per cent, although you would need eight eligible children.

John Whiting is a director at the Chartered Institute of Taxation.