This letter was sent by committee member Anne Fennell, to her local MP, also concerning the fact that Child Benefit cuts will be highly difficult to implement and very complicated.
You are probably aware of this document already as it is in the news but it is a good analysis of the Child Benefit problems by the Institute of Chartered Accountants for England and Wales (ICAEW). It documents not only how the bill is unfair in principle: household income is not taken into account; number of dependents are not accounted for; families in similar financial situations could be treated quite differently; it uses the tax system to claw back from one individual a benefit paid to another, but it also shows how it is seriously flawed in practice.
When the proposal was announced the justification for allowing one household where a single earner was in a higher tax threshold to lose their child benefit while a household where two earners were earning just below the threshold were allowed to keep it was that “a complex, costly and intrusive means test would have been required to avoid this”! This measure is proving extremely complex, extremely costly and most intrusive. A means test already exists in the tax credit system which takes into account the household income – why can this not be extended instead?
This proposal breaches the principle that an individual’s tax affairs are confidential. There is the practical problem that an individual may not know his financial net income until after the October deadline has passed. As I understand it if one elects not to receive child benefit one compromises one’s state pension. A wife will therefore have to collect it and the husband pay it all back in one go!
‘The imposition of the HICBC will have a serious impact on HMRC’s operational capability and will result in unacceptably high implementation costs…the operation of the HICBC is highly complicated…the likely resources and manpower requirements will be considerable…it will impose severe strains on the tax system and on its operation and is likely to bring the tax system into disrepute. This is likely to have a knock-on-effect on taxpayer compliance. Given the fact that a large proportion of the tax population is likely to be affected by HICBC, we suspect that there will be widespread non-compliance.”*
There will be no recognition in the tax system for a single earner (with a large family!) in the higher tax bracket for the cost of raising children. His tax will be the same as a person with no dependents. Pensions, nursery care and many other elements are recognised in the tax system but not having a family. It will exacerbate the problem where a single earner can not afford to support his family pushing the mother back to work earlier than the children are ready for her to leave. There will inevitably be a clamour for more affordable childcare as nursery fees particularly before the age of 3 is very expensive.
David Gauke has said “This year’s Finance Bill shows just how committed the coalition Government is to rewarding work, simplifying the tax system and tackling the nation’s debts. The measures in this Bill will create a tax system which supports a strong economy and promotes a fair society. In other words, a tax system that works for Britain”. Perhaps this anomaly can be taken into consideration in the lead up to voting on the Finance bill.
With best wishes,
*Finance (No.4 Bill 2012) High Income Child Benefit Tax Charge (HICBC) ICAEW