Child benefits in the United Kingdom

Last updated

Child benefits in the United Kingdom are a series of welfare payments and tax credits made to parents with children in the UK, a major part of the welfare state.

Contents

The child tax allowance

The first modern child tax credit was introduced in David Lloyd George's 1909 'People's Budget'. This introduced a £10 income tax allowance per child, for tax payers earning under £500 per annum. Following extensive Parliamentary debate, the Budget became law as the Finance Act (1909–1910) 1910 on 29 April 1910. [1] Since the income tax rate was then 1 shilling and two pence in the pound (5.83%), the value of the tax credit was therefore 11 shillings and eight pence per child. Since most people did not earn enough to pay tax, this was a subsidy for middle-class parents. The nominal value of these tax credits were generally, though not always, increased in line with income tax rates. For instance, by 1916, income tax had increased to five shillings in the pound (25%), and the tax credit to £25, giving a value of the tax credit of £6 5 shillings.

Family Allowance

Calls began for a specific family payment in the early part of the 20th century. These were successfully opposed by those who saw men, earning higher wages than women, as bread-winners, supporting the family through their wages – family allowance payments were seen as socialist and/or feminist in nature. [2] In addition, eugenicist arguments perceived the poor as unworthy of support.

Over the 1930s, growing evidence showed that large numbers of children were born into poverty, with 47% suffering five years or more of malnutrition. Higher wages would not effectively target these children, as the majority of male workers had no dependent children. A White Paper of Family Allowances was published in May 1942, giving costings for various levels of family allowance. These were not immediately adopted, and following the publication of the Beveridge Report, which called for subsistence levels of payments, uprated with the cost of living, the Family Allowances Act 1945 was passed. This provide for a five shilling per week payment for each child, after the first. This was designed to support large families, and was set well below the nine shilling a week subsistence level (further devalued by inflation) recommended by Beveridge. [3] In 1952 the rate was increased to eight shillings per week. In 1956 the rate for the third and subsequent children was increased to ten shillings per week, and the maximum age for payments for dependent children was increased from 15 to 18.

In 1968 the rates were increased from 8 to 15 and then 18 shillings and from 10 to 17 shillings and then £1 respectively, [4] [5] but this was paid for in part by a reduction in the value of child tax allowance, so that the poor would benefit, but the middle classes did not. [6]

In 1975, the rate was increased to £1.50 for each child after the first. [7]

Family Income Supplement

Family Income Supplement was introduced in 1970 by the new Conservative government of Edward Heath, following a child poverty campaign, effective from August 1971, and provided for a payment to families on low wages. Claimants were required to provide payslips, to prove they were in employment, for a minimum of 24 hours per week. Take-up of the benefit was initially poor, with less than half of those eligible claiming. [8] [9]

Rates were raised largely in line with inflation to 1979, but several above-inflation increases followed under the Conservative government of Margaret Thatcher. By November 1984, rates had risen to a maximum £23/week for one child, and an additional maximum of £2/week for each subsequent child, based on a maximum income threshold of £90/week, plus £10/week for each additional child. In addition, the numbers of families in receipt of the benefit, which showed no increase in the number of recipients over the 1970s (in 1972, there were 89,000 in receipt, and in 1980, 88,000), increased sevenfold over the course of the 1979–1997 Conservative governments.

YearClaimantsAnnual Growth rate [10]
197289,000N/A
198085,0000%
1985199,00018.5%
1990300,0009.8%
1995600,00013.6%
1999780,0006.8%

The Social Security Act 1986 provided for Family Income Supplement to be replaced with Family Credit, a similar scheme.

Child Benefit and the end of child tax allowance

The Child Benefit Bill was introduced in 1975 by Barbara Castle, based on the child credit element of the rejected previous Heath government's Tax Credit proposal that would have replaced PAYE, integrating tax and benefits. [9]

Child benefits introduced for the first time a universal payment, paid for each child, doubling the number of children within its scope. Like the family allowance, which it replaced, the new benefit was not means tested; an attempt by the Callaghan government to introduce this was thwarted in 1976 when cabinet papers were leaked to the Child Poverty Action Group. [11]

The rate payable was £1/week for the first and £1.50 for each subsequent child. An addition 50p was payable to lone-parent families. Unlike the family allowance, provision was made for the rate to be uprated, at the Secretary of State's discretion, each year. By the end of 1978 the rate had been increased to £3/week for each child, with an additional £2/week payable to lone-parent families.

In 1979 the Child Tax Allowance was removed, the value of the allowance taken up in higher child benefit payments, now £4/week, plus £2.50/week extra for lone-parent families.

Child benefit rates were uprated roughly in line with inflation until 1988, but subsequently was frozen until 1990, in order to curb welfare spending. [12] A new higher rate of child benefit, payable for the first child only, was introduced in 1991. This was £1 higher than the rate payable for subsequent children, which was again frozen, at £7.25/week. From 1991 Child Benefit increased in line with inflation, until 1998, when the new Labour government increased the first child rate by more than 20%, and abolished the Lone Parent rate.

New Labour oversaw the biggest increase in child benefit in UK history, with over 7.2 million mothers and 12.8 million children benefitting from a 25% rise above inflation. This rise in child benefit directly contributed to the lifting of over 1.8 million children out of poverty. [13]

Rates increased again in line with inflation until 2010, since which time they have been frozen.

Effective from 7 January 2013, Child Benefit, a universal benefit since its introduction, became means tested – those earning more than £50,000 per year would have part of their benefit withdrawn, and if earning over £60,000, would receive nothing at all. The charge was based on individual, not household income, hence a household of two earners each earning £50,000 would receive full child benefit, while a single-earner household earning £60,000 would receive none. [14] [15] However, the reduction or elimination for higher-earners does not take the form of a reduced weekly child benefit amount but rather the state is reimbursed by the higher earner via a tax charged on the higher earner (or if in a couple where both parties earn over £50,000 then the person earning the higher amount) in the amount that they were overpaid over the course of the previous year. [16] Couples can choose to "opt out" of child benefit if they estimate that this would be easier than paying back the overpaid amount each year. [17] In the summer of 2023 it was announced that a new way of paying the charge would be available via their PAYE tax code, though this isn't possible yet and a date for rollout has not been announced. [18]

Current rates

The following are the rates that apply as of 27 February 2024. [19]

Who the allowance is forWeekly rate
Eldest or only child£24
Additional children£15.90 (per child)

See also

Related Research Articles

A tax credit is a tax incentive which allows certain taxpayers to subtract the amount of the credit they have accrued from the total they owe the state. It may also be a credit granted in recognition of taxes already paid or a form of state "discount" applied in certain cases. Another way to think of a tax credit is as a rebate.

<span class="mw-page-title-main">National Insurance</span> Tax and social benefit system in the UK, introduced in 1911

National Insurance (NI) is a fundamental component of the welfare state in the United Kingdom. It acts as a form of social security, since payment of NI contributions establishes entitlement to certain state benefits for workers and their families.

A pay-as-you-earn tax (PAYE), or pay-as-you-go (PAYG) in Australia, is a withholding of taxes on income payments to employees. Amounts withheld are treated as advance payments of income tax due. They are refundable to the extent they exceed tax as determined on tax returns. PAYE may include withholding the employee portion of insurance contributions or similar social benefit taxes. In most countries, they are determined by employers but subject to government review. PAYE is deducted from each paycheck by the employer and must be remitted promptly to the government. Most countries refer to income tax withholding by other terms, including pay-as-you-go tax.

Child benefit or children's allowance is a social security payment which is distributed to the parents or guardians of children, teenagers and in some cases, young adults. A number of countries operate different versions of the program. In most countries, child benefit is means-tested and the amount of child benefit paid is usually dependent on the number of children one has.

<span class="mw-page-title-main">Payroll tax</span> Tax imposed on employers or employees

Payroll taxes are taxes imposed on employers or employees, and are usually calculated as a percentage of the salaries that employers pay their employees. By law, some payroll taxes are the responsibility of the employee and others fall on the employer, but almost all economists agree that the true economic incidence of a payroll tax is unaffected by this distinction, and falls largely or entirely on workers in the form of lower wages. Because payroll taxes fall exclusively on wages and not on returns to financial or physical investments, payroll taxes may contribute to underinvestment in human capital, such as higher education.

A child tax credit (CTC) is a tax credit for parents with dependent children given by various countries. The credit is often linked to the number of dependent children a taxpayer has and sometimes the taxpayer's income level. For example, with the Child Tax Credit in the United States, only families making less than $400,000 per year may claim the full CTC. Similarly, in the United Kingdom, the tax credit is only available for families making less than £42,000 per year.

<span class="mw-page-title-main">Taxation in the Republic of Ireland</span> Irish tax code

Taxation in Ireland in 2017 came from Personal Income taxes, and Consumption taxes, being VAT and Excise and Customs duties. Corporation taxes represents most of the balance, but Ireland's Corporate Tax System (CT) is a central part of Ireland's economic model. Ireland summarises its taxation policy using the OECD's Hierarchy of Taxes pyramid, which emphasises high corporate tax rates as the most harmful types of taxes where economic growth is the objective. The balance of Ireland's taxes are Property taxes and Capital taxes.

Working Tax Credit (WTC) is a state benefit in the United Kingdom made to people who work and have a low income. It was introduced in April 2003 and is a means-tested benefit. Despite their name, tax credits are not to be confused with tax credits linked to a person's tax bill, because they are used to top-up wages. Unlike most other benefits, it is paid by HM Revenue and Customs (HMRC).

In 2004, the New Zealand Labour government introduced the Working for Families package as part of the 2004 budget. The package, which effectively commenced operating on 1 April 2005, had three primary aims: to make work pay; to ensure income adequacy; and to support people "into work".

Income Support is an income-related benefit in the United Kingdom for some people who are on a low income, but have a reason for not actively seeking work. Claimants of Income Support may be entitled to certain other benefits, for example, Housing Benefit, Council Tax Reduction, Child Benefit, Carer's Allowance, Child Tax Credit and help with health costs. A person with capital over £16,000 cannot get Income Support, and savings over £6,000 affect how much Income Support can be received. Claimants must be between 16 and Pension Credit age, work fewer than 16 hours a week, and have a reason why they are not actively seeking work.

<span class="mw-page-title-main">Welfare in New Zealand</span> Overview of welfare in New Zealand

Social welfare has long been an important part of New Zealand society and a significant political issue. It is concerned with the provision by the state of benefits and services. Together with fiscal welfare and occupational welfare, it makes up the social policy of New Zealand. Social welfare is mostly funded through general taxation. Since the 1980s welfare has been provided on the basis of need; the exception is universal superannuation.

This is a list of the maximum potential tax rates around Europe for certain income brackets. It is focused on three types of taxes: corporate, individual, and value added taxes (VAT). It is not intended to represent the true tax burden to either the corporation or the individual in the listed country.

Social security, in Australia, refers to a system of social welfare payments provided by Australian Government to eligible Australian citizens, permanent residents, and limited international visitors. These payments are almost always administered by Centrelink, a program of Services Australia. In Australia, most payments are means tested.

A baby bonus is a government payment to parents of a newborn baby or adopted child to assist with the costs of childrearing.

Pension Credit is the principal element of the UK welfare system for people of pension age. It is intended to supplement the UK State Pension, or to replace it. It was introduced in the UK in 2003 by Gordon Brown, then Chancellor of the Exchequer. It has been subject to a number of changes over its existence, but has the core aim of lifting retired people of limited means out of poverty.

<span class="mw-page-title-main">June 2010 United Kingdom budget</span>

The June 2010 United Kingdom Budget, officially also known as Responsibility, freedom, fairness: a five-year plan to re-build the economy, was delivered by George Osborne, Chancellor of the Exchequer, to the House of Commons in his budget speech that commenced at 12.33pm on Tuesday, 22 June 2010. It was the first budget of the Conservative-Liberal Democrat coalition formed after the general election of May 2010. The government dubbed it an "emergency budget", and stated that its purpose was to reduce the national debt accumulated under the Labour government.

<span class="mw-page-title-main">Taxation in South Africa</span>

Taxation may involve payments to a minimum of two different levels of government: central government through SARS or to local government. Prior to 2001 the South African tax system was "source-based", where in income is taxed in the country where it originates. Since January 2001, the tax system was changed to "residence-based" wherein taxpayers residing in South Africa are taxed on their income irrespective of its source. Non residents are only subject to domestic taxes.

Carer's Allowance is a non-contributory benefit in the United Kingdom payable to people who care for a disabled person for at least 35 hours a week. It was first established as Invalid Care Allowance in 1976, and married women were not eligible. This policy was held to be unlawful sexual discrimination by the European Court in 1986 in the case of Jackie Drake. See Carers rights movement In May 2020 around 1.1 million people in England were entitled to Carer’s Allowance, of which 780,000 people were being paid it, according to the National Audit Office.

<span class="mw-page-title-main">Social Security Scotland</span>

Social Security Scotland is an executive agency of the Scottish Government with responsibility for social security provision.

The United States federal child tax credit (CTC) is a partially-refundable tax credit for parents with dependent children. It provides $2,000 in tax relief per qualifying child, with up to $1,400 of that refundable (subject to a refundability threshold, phase-in and phase-out). In 2021, following the passage of the American Rescue Plan Act of 2021, it was temporarily raised to $3,600 per child under the age of 6 and $3,000 per child between the ages of 6 and 17; it was also made fully-refundable and half was paid out as monthly benefits. This reverted back to the previous in 2022. The CTC is scheduled to revert to a $1,000 credit after 2025.

References

  1. ↑ "Finance (1909–10) Act 1910". legislation.gov.uk. Retrieved 2014-01-11.
  2. ↑ Family, Dependence, and the Origins of the Welfare State: Britain and France – Susan Pedersen
  3. ↑ "The Cabinet Papers – The Beveridge Report and child benefit". nationalarchives.gov.uk. Retrieved 2014-01-11.
  4. ↑ "Family Allowances and National Insurance Act 1967". legislation.gov.uk. Retrieved 2014-01-11.
  5. ↑ The Committee Office, House of Commons (3 March 1999). "House of Commons – Social Security – Report". publications.parliament.uk. Retrieved 2014-01-11.
  6. ↑ "Family Allowances: 15 Jul 1968: House of Commons debates – TheyWorkForYou". theyworkforyou.com. Retrieved 2014-01-11.
  7. ↑ "Social Security Benefits Act 1975". legislation.gov.uk. Retrieved 2014-01-11.
  8. ↑ Documents on Health and Social Services: 1834 to the Present Day – Brian Watkin
  9. 1 2 Sloman, Peter (1 June 2016). "'The Pragmatist's Solution to Poverty': The Heath Government's Tax Credit Scheme and the Politics of Social Policy in the 1970s" (PDF). Twentieth Century British History. 27 (2). doi:10.1093/tcbh/hwv042 . Retrieved 21 August 2018.
  10. ↑ "ff/taxcredits". ifs.org.uk. Retrieved 2014-01-11.
  11. ↑ "Late Labour MP Malcolm Wicks admits child benefit leak". BBC. 20 January 2014. Retrieved 2014-01-20.
  12. ↑ "Child Benefit" (PDF). Revenuebenefits.org.uk. Retrieved 2013-02-23.
  13. ↑ "Nigel has written a key list" (PDF). Paultruswell.org.uk. Archived from the original (PDF) on 23 October 2006. Retrieved 23 July 2015.
  14. ↑ "HM Revenue & Customs: The High Income Child Benefit charge – the basics". hmrc.gov.uk. Retrieved 2014-01-11.
  15. ↑ "Child benefit cap is tough but fair - FT.com". ft.com. Retrieved 2014-01-11.
  16. ↑ "High Income Child Benefit Tax Charge". GOV.UK. Retrieved 2019-12-16.
  17. ↑ "High Income Child Benefit Tax Charge". GOV.UK. Retrieved 2019-12-16.
  18. ↑ "New PAYE process for High Income Child Benefit Charge". bgm.co.uk. Retrieved 2024-02-27.
  19. ↑ Gov.uk (last updated 27 Feb 2024). Child Benefit rates. Retrieved 27 Feb 2024.
This page is based on this Wikipedia article
Text is available under the CC BY-SA 4.0 license; additional terms may apply.
Images, videos and audio are available under their respective licenses.