Chancellor Jeremy Hunt has unveiled proposals to reform child benefit, allowing any household with an income of up to £120,000 to qualify.
Prioritising High Earners and Addressing Tax Cliffs
Hunt has given priority to workers earning £100,000 or more, should the Conservatives win the next election. The move comes after Hunt, who faces a tough re-election battle, faced backlash for describing a six-figure salary as ‘not huge’ earlier this year.
To support this demographic, which makes up a large part of his Surrey constituency, Hunt intends to change the tax and benefit system. At present, child benefit is only fully available to households with a single income of less than £60,000.
The allowance decreases as income rises above this threshold, and ceases altogether at £80,000. Mr Hunt’s proposal would extend eligibility to households earning up to £120,000.
In addition, Hunt has expressed interest in other changes to the tax system designed to attract core Conservative voters and counter the threat posed by Nigel Farage’s Reform UK party. One such change is to widen access to free childcare, which is currently available to two-year-olds for 15 hours a week.
However, this benefit is not available to households where one member earns more than £100,000, whereas it is available to households where both members earn slightly less.
Hunt Pledges to Address Childcare Reform Issues in Godalming
Mr Hunt told The Sunday Times about the popularity of the childcare reforms in his constituency of Godalming, and acknowledged the frustrations of the income threshold, which excludes some households from benefits.
He noted that budgetary constraints had limited the scope of the initial reforms, but stated his intention to tackle these issues. Importantly, Mr Hunt also targeted the 60% marginal tax rate, which affects those with six-figure incomes.
Under the current taper rate of personal allowance, individuals lose £1 of their allowance for every £1 earned over £100,000. Hunt stressed the need to eliminate such ‘cliff edges’ in the tax system in order to boost economic productivity.
He elaborated on the negative impact of high marginal tax rates, citing the view of economists that these rates are among the most damaging elements of the tax system. Consequently, reducing these rates is a key objective for future policy changes.
Conservatives Face Fiscal Challenges with New Manifesto Pledges
The inclusion of these measures in the Conservative manifesto may resonate with their traditional electoral base, but raises questions about the funding of these initiatives. Economists have warned that the main political parties are not adequately addressing the tough fiscal decisions ahead, particularly with regard to the reluctance to raise key taxes.
To add to the budgetary challenges, the next government will face new public sector pay demands. The Conservatives’ plan to limit departmental budget increases to one per cent in real terms from 2025 suggests there will be little room for substantial pay rises for junior doctors, teachers, nurses and police officers.
Hunt said Labour would struggle to manage public sector pay because of its union affiliations, suggesting that tax rises would be inevitable under a Labour government.
