Child benefit is to be stopped for all higher rate taxpayers from 2013 to help pay for a massive overhaul of the welfare system, Chancellor George Osborne announced today.
The move will hit 15% of UK households – around three million families – and will result in some parents losing out to the tune of £1,055 a year if they have one child and almost £2,500 for three (see the Benefits Check-up guide).
Announcing the plan ahead of his keynote speech to the Conservative Party conference in Birmingham, Osborne said the measure is "difficult but fair" and would raise around £1 billion a year.
The move ends the principle of universality enshrined in the benefit since its introduction as family allowance in 1946.
Advocates of universality say that child benefit is one of the few signs wealthier families have that they are receiving something back from the welfare state for the taxes they pay.
But Osborne told BBC1's Breakfast: "It is a big decision for us but we think it is absolutely necessary and fair given the financial situation we face.
"It is very difficult to justify taxing people on much lower incomes in order to pay the child benefit to some of the better-off in our society.
"It is not a decision we have taken lightly but given the scale of the debts that Labour's left us with we think this is fair and it means we are all in this together."
Money saved from the change will go towards paying the upfront costs of a new universal credit, due to replace a range of other welfare payments over the coming 10 years.
Who is hit?
Child benefit will be removed from families where either parent earns enough to pay the higher 40% rate of income tax – currently around £44,000.
But two-earner households where neither parent's income is above this threshold will continue to receive the benefit – worth £20.30 a week for the first child and £13.40 for each additional one.
In some cases, this could result in families with an income of almost £88,000 receiving child benefit, while others on little more than half this sum lose out because one of the parents stays at home to look after the children.
Osborne acknowledges that his plan would produce "anomalies", but says the only alternative would be a "very complicated means tests" of every household in the country, which would fundamentally change the nature of child benefit.
Changes to child benefit will be introduced "in as simple a way as possible", based on existing tax bands, to avoid the need for a complex means test, said Osborne.
He also told the BBC Radio 4 Today programme he hoped higher-rate taxpayers would simply stop claiming the benefit but added that, if they did not, the same amount would be deducted from them in taxes.
He explained: "I wanted the child benefits system to be like it is for many millions of people – something you claim, usually as a mother, just after the birth of your child.
"I looked at a way of doing this as simply as possible and removing it from higher-rate taxpayers' households was the simplest way of doing it."
Further reading/Key links
Boost income: Benefits Check-up, State Pension Boosting, Top Savings