IoS special report: Families hit by freeze in child benefit

Failure to match inflation will affect those on low and middle incomes

Wendi New, 44, a single mother: 'I'm self employed and trying to make a living, but at the same time, I'm penalised' (Mark Pinder)

British families with two or more children will have lost more than £1,000 in child benefit by the end of 2015, according to the first comprehensive report of its kind. When Chancellor George Osborne announced a freeze and real-term reduction in child benefits, the spotlight turned on those earning more than £50,000; they will have their benefits withdrawn from next week.

But fresh analysis finds that middle- and lower-income families with two children will be more than £300 a year worse off in three years' time, as a result of their child benefits being frozen and suffering real-term cuts under the coalition. Critics say that the failure to keep benefits in line with top-rate inflation will throw the Government's pledge to protect people on lower incomes "completely into reverse".

Currently, 7.8 million households receive child benefit, getting £20.30 a week for their first child and £13.40 for each subsequent child. The payment, which is not means tested, will be frozen until 2014. After that, it will rise at 1 per cent, lower than the predicted level of inflation.

A family with one child will lose £650 in total in child benefits. A family with two children will lose more than £1,000, and a family with three children will lose more than £1,500 by 2016, found the new study, Child Benefit: A Bad Case of Neglect?, by the Trades Union Congress (TUC).

Donald Hirsch, the director of the Centre for Research in Social Policy at Loughborough University, said lower-income families will be hardest hit, because they will also face cuts to their tax credits. Some families could lose over £3,000 as a result of the Government's ongoing tax credit cuts, the TUC suggests.

"I think there is a real change in direction, away from giving full protection to the worse off," Mr Hirsch said. "Under the last government, benefit raised was used to try to tackle child poverty, and it was constantly increased faster than inflation, even faster than earnings. The idea was to try to get people to catch up in relative terms. The Government's commitment to protect people on lower incomes has completely gone into reverse."

The TUC's general secretary, Frances O'Grady, agreed that those on the lowest incomes will be worst affected. She said: "Cutting the value of benefits for families means those in greatest need will get less, with the poorest children suffering the most."

Child benefit has been frozen since 2011, and according to the Child Poverty Action Group, now covers only 20 per cent of the cost of a child for a couple and 18 per cent for a single parent. Fiona Weir, chief executive of the single-parent-family charity Gingerbread, said: "For many single parents, child benefit and tax credits are a lifeline. If the link between benefits and inflation is broken, the consequences will be devastating.

"It's single-parent families, whether in or out of work, who are being hit hardest. If the benefits uprating Bill is passed next month, we will see many more children pushed into poverty."

A Treasury spokesperson said changes to child benefits should not be looked at in isolation, adding that "measures announced at this Autumn Statement will mean working households are, on average, £125 a year better off next year". She said: "The Government is delivering child benefit reforms as simply and fairly as possible. Those with the broadest shoulders should carry the greatest burden, and 85 per cent of all families with children will continue to receive child benefit in full and see cash rises from April 2014."

Charities said the figures were a "cause for concern". Citing the fact that more than six million working families live in poverty, including two million children, Julia Unwin, chief executive of the Joseph Rowntree Foundation, said: "There is a serious risk that, after a decade of national debt, a growing number of people will face a decade of destitution."

From next month, child benefit will start to be withdrawn if a parent, or a partner cohabiting, earns more than £50,000. If one member earns more than £60,000, the benefit will be removed completely. Catherine McKinnell, Labour's shadow Treasury minister, said: "Millions of parents are paying the price for this government's economic failure as their child benefit is cut year after year. Working families on modest incomes will be hit harder. It tells you everything you need to know about David Cameron and George Osborne that they are hitting striving working families, while giving an average tax cut of £107,000 to 8,000 millionaires."

How does it work now?

Child benefit is currently a universal benefit, worth £20.30 a week for the first child, then £13.20 a week for each additional child.

How is it going to work?

From 7 January, any family in which one of the parents earns more than £60,000 net, after pension contributions and charity donations, will have their benefit withdrawn.

Additionally, if a parent earns more than £50,000 (again net of pension payments and charity donations), they will face a new income tax charge. The charge will be equivalent to 1 per cent of child benefit for each £100 over £50,000. For example, if your income is £56,000 (net), your charge would be 60 per cent of the child benefit received.

HMRC estimates that up to half a million people will have to enter self-assessment as a result. Families with the option to contribute more to their pensions may be able to avoid self-assessment by reducing their income to below the threshold.

Case studies...

'I'll lose the same child benefit as my friend who earns £45,000'

Wendi New, 44, a single mother, lives with her daughter, Hollie, five, in Northallerton, North Yorkshire. She is a self-employed mural painter, who worked for years as an art and design teacher, before giving it up to set up her own business. She receives £330 in working tax credits a month, £284 in child tax credits and £85 in child benefits. She is set to receive about £650 less in child benefit by the end of 2015 than she could have expected before the freeze.

"I'm self-employed and trying to make a living but, at the same time, I'm penalised. When child benefit comes in, I use it for anything Hollie desperately needs. Maybe a school trip, or school dinners – they cost me almost £10.50 a week. She also grows so fast; it just means I won't be able to buy her that new coat, or those new shoes.

"It's the children that suffer in the end; it's like they're taxing children. I'm not frivolous with what I spend on food, and I sacrifice putting the heating on. But I'll lose the same child benefits as my friend who earns £45,000. I don't think they have weighed up how people like me are living."

'What we have goes on nappies, clothes, gas and electric. It's just enough to get by'

Zeph Brown, 35, lives with her husband, Neil, and their son, Liam, three, in Launceston, Cornwall. Neil works as a taxi driver, but stopped working for a few months recently because of illness. They have been surviving on £150 a week in tax credits and child benefit, and get help from a local food bank. Mrs Brown is not sure how they will cope without hundreds of pounds of child benefit.

"What we have to pay out every week goes on nappies, clothes, gas and electric. It's just enough to get by. We've had help from the food bank because when my husband was off work, we were struggling.

"It would be devastating to lose child benefit. I don't know how we'd cope. We're on pay-as-you-go electricity and gas, and, in the past, my husband and I haven't eaten a couple of times so that the little one can be fed. He comes first. It makes me angry because there are others who have nothing. It makes you feel sick inside."