Chancellor Rachel Reeves has quietly dropped the former Conservative Government’s plans to reform the High Income Child Benefit Charge (HICBC), which could cost families hundreds of pounds each year.
Child Benefit is worth £25.60 per week for the eldest or only child and £16.95 for each additional child for the 2024/25 tax year.
Eligibility for the full amount applies if both partners earn less than £60,000 each year, a threshold upped from the original £50,000.
The HICBC affects families where one parent earns more than £60,000 per year. For every £200 earned above this threshold, 1% of the benefit must be repaid. At £70,000, half the benefit is repaid, and at £80,000, the entire benefit is wiped out.
Controversially, the HICBC is assessed based on the highest earner in the household – rather than the combined household income. Critics claim this is unfair because a family with a total income of £119,999 could get the full Child Benefit, while a single-parent household earning more than £60,000 would not be eligible.
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In the Budget in March 2024, then Chancellor Jeremy Hunt confirmed plans to calculate the HICBC on household, rather than individual, incomes by April 2026.
But small print in yesterday’s Budget document stated that this reform is being reversed, with plans to calculate the HICBC on household income scrapped.
System ‘punishes single earners’
Critics said the decision leaves single-earner families “at [a] cliff edge of benefit”.
Laura Suter, director of personal finance at AJ Bell, said: “Labour has scrapped plans to assess Child Benefit on household income, undoing the Conservatives’ reforms to simplify the system and stop cliff-edge cut-offs penalising single-earner families.
“In his last Budget in March this year, former Chancellor Jeremy Hunt announced plans to base eligibility for Child Benefit on a couple’s income. However, it kicked the can down the road on sorting out how exactly it would implement it – saying it will consult and then implement in two years’ time. This left the door open for Labour to drop the plans, and it has done just that. There’s no doubt that it would have been a huge administration task for HMRC to assess couples on their household income rather than sole income, meaning there is no easy fix.
“Put simply, Labour say the move would be too costly. Currently, you’re eligible for full Child Benefit if you earn up to £60,000, but Labour claim changing the system to base Child Benefit on a household income of £120,000 would cost £1.4bn by 2029/30. It means the system that punishes single earners will remain. Currently, a sole earner on £80,000 gets no Child Benefit, while two workers each on £59,000 get the full benefit.
“One change that Labour says will make it easier for families is that Child Benefit overpayments can be repaid through someone’s tax code from next April – improving the admin side of Child Benefit. However, that’s merely fixing one problem with the system when in reality it needed larger-scale reform. The complications in the system mean it is underclaimed and not well-understood.
“According to the latest figures, a total of 741,000 families opted out of getting the payments, accounting for 1.12 million children. The figures show that the number of families getting Child Benefit is at its lowest level since records began in 2003.”
