Approaching budget day
Now, I find myself approaching budget day with a mix of anxiety and ambivalence. There’s always that worry that it’s not going to come out well for you, but it is combined with a sense of confusion as I struggle to understand just whether I gain or lose. Because the thing about budgets is, while they may give on the one hand, they invariably take on the other, and working out which way the balance tips for you is not always easy.
The most glaring, and much talked about issue for families was what George Osborne was going to do with child benefit. This once universal benefit – one of the few left that was given regardless of income – had been flagged-up as being cut, so it would be limited to those paying basic rate tax, or earning around £40,000 a year and less.
The outcry about why a household with two earners bringing in £80,000 (so just under the threshold each) should continue to get this benefit, while a family with just one earner bringing in £43,000 would lose it, was clearly heard all the way to No.11 Downing Street.
Impact of child benefit
Mr Osborne's solution has been to stagger the effects of child benefit. So now, instead of removing the benefit entirely when one earner falls into the higher tax bracket, the reduction will be tapered, losing 1% per £100 when one parent earns £50,000. By the time one parent earns £60,000 they won’t be receiving any child benefit.
Osborne claimed this got rid of the “cliff edge” loss for families, but in effect it means it’s shifted the edge upwards. A couple earning £49,000 a year each will get full benefit, but families with one earner on more than £60,000 will get nothing. The change will be introduced in January 2013, and child benefit currently stands at £20.30 a week for the first child and £13.40 for subsequent children.
"While this softening of the blow with child benefit clearly seems fairer and will help some families, it brings with it a far more complex system."
While this softening of the blow with child benefit clearly seems fairer and will help some families, it brings with it a far more complex system. As a freelancer with a variable income, I can only guess at how complicated it will become for those whose earnings fluctuate around £50,000. I’ve not seen anything yet on what the cost of running this new quasi means-tested benefit will be but some analysts have warned that it may cost more to administer than it’s worth.
Child benefit aside, the other budget announcement most relevant to working families was the rise in the personal allowance of tax-free income. It will go up to £8,105 in April, and then again to £9,000 in 2013. People most likely to benefit from this are those paying standard tax. But if you are at the top end of that threshold, which has just been lowered, it may be a classic case of giving with the one hand and taking with the other.
The 40% tax rate will now kick-in for those earning about £41,450 (down from the previous £42,475).
So it’s now down to your individual situation – high earner, lower earner, large family, single-parent and so forth – to pick through the details and work out if this budget has helped or hindered your household finances. It’s at about this point my ambivalence usually kicks in, as I become dazzled by percentages, and gains or losses seem to come down to a few pounds a month.
Ultimately, the biggest issue for most working parents is about having a job and keeping that job in this financially tumultuous climate. The greatest pain comes when an income disappears entirely through redundancy or contract-termination, rather than the tinkering around the edges that budget day proffers.
George Osborne says this budget is about stimulating growth by encouraging businesses to invest in the UK, which means providing jobs for people. I suspect it will be whether it delivers on that promise that matters most to people in the long run.
Note: Whilst we take care to ensure Hub content is accurate at the time of publication, individual circumstances can differ so please don’t rely on it when making financial decisions. OneFamily do not provide advice so it may be worth speaking to an independent financial advisor about your own circumstances.