Child benefit changes to kick in as government expands free nursery hours

Changes to child benefit are set to save higher earning parents an average of £1,260 a year as the high income charge threshold increases next week.

Parents earning over £50,000 are currently hit by the high income child benefit charge, which sees the taxman reclaim a sliding percentage of the payments, with those earning above £60,000 having to pay the full amount back.

However, Chancellor Jeremy Hunt announced in the Spring Budget last month that from April 8, the threshold would increase to £60,000, and no one earning below £80,000 would have their child benefit reclaimed in full.

The rate of the charge will also be halved to one per cent of the child benefit payment for every additional £200 earned above the threshold, as opposed to the previous £100.

The government estimates 485,000 families will gain £1,260 on average towards the cost of raising children in 2024/25 and that 170,000 families will no longer be paying the tax charge.

Ministers also want to move the system to one based on joint household income to avoid the current situation of two parents earning below the threshold not being penalised. In contrast, one higher earner would have to pay the charge.

It comes as the government rolls out 15 free hours of childcare over 38 weeks of the year for working parents of two-year-olds as the first step of wider childcare reforms.

Visiting a nursery, Prime Minister Rishi Sunak said: “This is a really positive week… to support families, giving them the choice of how best to juggle childcare and their career.”

But Labour warned of “childcare chaos” and stressed that parents and nurseries were facing 18-month waiting lists, high costs and extra fees, with some providers at risk of going bust as they couldn’t keep up with the demand generated by the government’s expanded offer.

Shadow education secretary Bridget Phillipson said: “After 14 years of Tory failure, it will be Labour who get on with the job and finally deliver the much-needed childcare for parents.”

Savings and retirement business Phoenix Group warned parents were currently having to sacrifice savings or paying into pensions due to childcare costs.

Their research found almost three in 10 adults with a child under five had reduced their hours or left work, with 34 per cent of them saying childcare expenses stopped them saving.

Patrick Thomson, head of research and policy at thinktank Phoenix Insights, said: “Childcare costs can be crippling.

“Alongside the immediate impact, it is also important to consider how this can affect future finances. 

“Parents understandably want to provide for their children today, but that shouldn’t have to be at the cost of their own financial wellbeing in the future.”