Fuzzy Logic – New Rules for Child Benefit

As of 7th January 2013, Child Benefit payments became dependant on an individual parent’s income and ceased to be a universal welfare payment paid to all parents with the care of a child. This means that people with annual income over a certain level will no longer receive automatic Child Benefit payments.

For many parents the cuts will result in a major reduction in vital income for what has been termed “the squeezed middle” families.

The rules are somewhat confusing and have been criticised for being inconsistent and seemingly illogical.

Ed Balls, the Labour shadow chancellor has described the reforms as “totally unfair” and “a complete shambles”. Both the Prime Minister and George Osbourne have defended the cuts and have been at pains to point out how they are essential; it is estimated that they will save the taxpayer £1.5 billion a year.

In summary, if one parent in a household earns more than £50,000 per year, then Child Benefit payments will cease. It doesn’t make any difference how much the other parent might earn because the test is only against one income.

The anomaly of this calculation screams out to you when you consider that two parents each earning £49,000 will still qualify for Child Benefit payments, whereas two parents will not qualify where one earns £50,001 per year and the other doesn’t work.

Bizarrely therefore, a joint income of just under £100,000 will qualify for Child Benefit, whereas a joint income of just over £50,000 won’t.

The head scratching doesn’t end there though, because the Government have given parents the option of “opting out” of Child Benefit. Letters were distributed (but not to everyone, with an estimated 300,000 liable parents not having received the letter) to give those threshold parents the option to opt out of the payment before the cut-off date of 7th January 2013.

If the decision was not taken to opt out then those parents face a tax charge against the Child Benefit received, together with having to fill out a self-assessment tax return.

I don’t really know where to start with all of this. Surely somewhere down the line somebody said: “Hold on a minute; that means that a family earning double the amount of income of another will not face any cuts, whilst the other family will?”

Interestingly however, on a radio phone-in this morning the representative for Labour refused to state that they would not reverse the decision if they were to regain power, even though the party have been so vocally against the reforms.

You may be aware that cuts to Legal Aid will commence in April of this year. This will mean that the vast majority of family cases will no longer be funded by Legal Aid. Added to the cuts to Child Benefit, it is highly likely that a huge majority of people will not be in a financial position to fund the costs of a solicitor to deal with their family law issues.

Thankfully however, it is estimated that the government will invest an extra £10 million into Legal Aid for Family Mediation, bringing the total investment so far to £25 million since the cuts were announced. In the months to come we predict that many more people will turn to Mediation as a more affordable option to resolve their disputes, rather than taking the issue through the Courts.