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Child Benefit Reforms Could Leave 'Up To Million' Families Struggling To Claw Back Income, Warns Labour

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Osborne's reforms could leave up to a million families struggling to reclaim benefits | PA

Up to one million families face having their child benefit clawed back through complicated self-assessment tax returns, Labour warned on Saturday.

The Treasury has confirmed around 200,000 parents have opted out of claiming the benefit ahead of reforms due to come in on Monday that mean the top 15% of earners will no longer be eligible to claim some or all of the cash.

But around 800,000 families are known to be affected by the reforms with a further 400,000 potentially hit through changes in income over the next financial year.

Shadow Treasury minister Chris Leslie said: "These figures mean up to a million families now face having all their child benefit clawed back through complicated self-assessment tax returns at the end of the year.

"This is a costly administrative nightmare that could also lead to family rows as couples decide who takes the financial hit. And it's unfair too, because single earner families on £50,000 will have their child benefit cut while some couples earning as much as £100,000 keep all of theirs and millionaires actually get a tax cut.

"With every passing day it's clearer and clearer that David Cameron and George Osborne totally failed to think this policy through."

HM Revenue and Customs chief executive Lin Homer said twice as many families had already opted out of receiving the payment than had been expected, and insisted the changes were going "better than expected".

But the Centre for Social Justice (CSJ) warned the cuts risked "pouring further fuel on the fire" of family breakdown.

Managing director Christian Guy said: "UK family breakdown is spiralling out of control - the chaotic child benefit reforms being introduced on Monday risk pouring further fuel on the fire.

"The new rules will mean that married couples where one earns over £50,000 pa will be unable to avoid losing some or all of their child benefit. Meanwhile similar couples who are cohabiting will face unenviable choices: a severe financial penalty if they marry or breaking the law if they deny their relationship status.

"This creates a potential 'marriage penalty', despite evidence showing how crucial marriage is to stable families and children. Research illustrates that break-up rates are three times higher for couples who cohabit compared with those who marry.

The CSJ warning follows a report by the Institute for Fiscal Studies yesterday that said families would end up losing as much as 65p of every extra pound they earned - making it more likely they would work less or put more into pension funds to avoid the hit.

Households where one parent earns more than £60,000 a year will have to return the entire amount through the self-assessment system unless they have opted out of receiving it in the first place.

It will be taken away on a sliding scale where mothers or fathers earn between £50,000 and £60,000 - causing a significant rise in marginal tax rates for those families, according to the IFS.

The system for recovering the money has proved highly controversial, especially as families where both parents earn just under £50,000 each will keep their payments.

Ms Homer told Radio 4's Today programme the changes were going "smoothly" and administration costs were lower than expected.

She said: "I think we have been very proactive. We have written to 800,000 people. 1.2 million is the estimate and of course things like people's income changes during the year so we have written to everyone we know is affected by the change."

Asked if HMRC would pursue families that did not register that they were above the threshold she replied: "We are going to talk to those people and that's what we have been doing since this autumn."

Ms Homer told Today: "Twice the number of people we expected to opt out have done so already so we are well ahead of where we expected to be at this point."

She added: "Because it has worked better than expected the administration charge of implementing this change we think is only going to be 50% of what we expected. We think it will cost us £11 million to raise the £2bn that this change will raise."

The Treasury said 85% of the population will continue to receive child benefit as they do now while 90% would still receive some of the benefit.

Anne Longfield, chief executive of 4Children, which runs Sure Start centres, said: "Universal child benefit has long been recognised as a symbol of the value our society places on children.

"Cutting this support for families where someone earns over £50,000 per year seriously undermines that commitment, especially at a time when others earning similar amounts who do not have children are not being asked to contribute more.

"Hard working families are already worried about how they will accommodate the rising cost of many day to day necessities such as childcare, rail fares and food. Removing their child benefit will be a damaging blow for families already feeling stretched to the limit. Government has difficult decisions to make but families with children should not be on the frontline of cuts once again."

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