Child benefit cuts will leave some high earners 'below poverty line'

Child Poverty Action Group says child benefit cut will leave households regarded as well-off with £10 a person a day on which to survive

George Osborne's planned cut to child benefit will throw thousands of middle-class families below the official poverty line, according to analysis by the Child Poverty Action Group (CPAG).

The withdrawal of child benefit, which will be axed in January 2013 for anyone earning more than the current £42,275 threshold for 40% tax, will leave some high earners with disposable incomes below that of families on the minimum wage, according to the research.

CPAG estimated that as many as 8,000 families with 20,000 children will be pushed into poverty by the planned cut, with households traditionally regarded as well-off left with as little as £10 a person a day on which to survive.

Currently, child benefit is worth £20.30 a week for the first child and £13.40 for subsequent children. For a family where one person brings in £42,500 but the other looks after their three children, the loss of income will be £2,449.20.

CPAG said: "It is a common misconception that taking child benefit away from high earners will not cause an increase in poverty because they already have enough to leave them well clear of that danger.

"But once you consider typical mortgage outgoings, many of these families will be left with disposable incomes that put them below the poverty line – and some will have less disposable income than comparable families on minimum wage."

CPAG chief executive, Alison Garnham, is calling for the chancellor to scrap the child benefit cuts "in favour of a policy with no cliff-edges that ensures all higher earners contribute, rather than targeting the whole burden only on those with children."

Behind the spectre of middle-class poverty lies hefty monthly mortgage bills faced by many families with children. CPAG estimates there are at least 8,000 families struggling to repay mortgages of £197,000 or more where there is just one earner on about £43,000. Many were dual-income households that took out bumper-size mortgages but where one has since lost their job.

CPAG's figures were compiled by Landman Economics from data in the Family Resources Survey. In its example, the single earner has a salary of £43,000, worth £31,719 after tax and national insurance. Mortgage payments, assuming an interest rate of 5%, take up £821 a month on an interest-only basis, rising to £1,165 a month on a repayment basis.

That leaves them with just £9.72 a family member each day for all their food, clothes, transport, energy bills and other outgoings, which is comparable to families currently below the poverty line. This is defined as having net income below 60% of the UK median, which puts it at around £12 a day after housing costs.

"If the Bank of England raises interest rates in the future, the situation will become even more bleak for these families," CPAG said.

However, it acknowledged that families paying off mortgages are at least building up an asset. "We recognise they do still have the advantage of increasing their asset wealth through the purchase of their home."

The controversial cut to child benefit has become a major fault line in the coalition. Deputy prime minister Nick Clegg said he wants to tackle the "unintended consequences" of the current proposals. He included in this the central criticism of the current plans: that lone parents on £43,000 will lose their child benefit, while two-income households earning almost £85,000 would keep it.

There are some suggestions that in the budget the chancellor will raise the threshold for child benefit to £50,000, but critics say that would fail to resolve the main stumbling blocks or win back support.

Contributor

Patrick Collinson

The GuardianTramp

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