The Effects of the New Child Benefits System
Arjun Jairath 120237551
In 2013 changes in child benefits came into effect in the UK. In particular, child benefit was gradually withdrawn from individuals earning over £50,000 a year and completely withdrawn for individuals earning more than £60,000 a year. Investigate, using the standard labour supply model, how this change in benefits will affect labour supply decisions for a single mother with two children who is able to find work at £30/hour. Assume that she would opt-out of maximum working time regulation in case this becomes relevant. Finally, the measure of income used in the actual calculation is “adjusted net income”, which is equal to gross income minus pension contributions and several other things. For this essay assume that all of these are zero, i.e. the relevant income is simply the individual’s salary before income tax.
Introduction
In January 2013 the government introduced a child benefits policy which reduced the income for a person with an individual’s income of over £50,000, and either they or their partner receives Child Benefit. The amount of the charge will depend on how much that person 's individual income exceeds £50,000. Where a person has an income between £50,000 and £60,000, the charge applied to their income tax will be 1% of their Child Benefit for every £100 of income between £50,000 and £60,000. The income tax charge will never be more than the amount of Child Benefit they receive. Where a person has an income of over £60,000 the charge will be equal to the full amount of their Child Benefit so they are no better off for receiving the benefit. The current rate for child benefits it £20.30 for the eldest child and £13.40 for any additional child. For example, if the mother has an income of £55,000 and receives Child Benefit for 2 children of £1752.40 for a whole year (£20.30+ £13.40 multiplied by 52), the charge will be 50% (£55,000- £50,000 divided by 100) of the Child Benefit which is £876.20. If, however, the mother has an
In 2013 changes in child benefits came into effect in the UK. In particular, child benefit was gradually withdrawn from individuals earning over £50,000 a year and completely withdrawn for individuals earning more than £60,000 a year. Investigate, using the standard labour supply model, how this change in benefits will affect labour supply decisions for a single mother with two children who is able to find work at £30/hour. Assume that she would opt-out of maximum working time regulation in case this becomes relevant. Finally, the measure of income used in the actual calculation is “adjusted net income”, which is equal to gross income minus pension contributions and several other things. For this essay assume that all of these are zero, i.e. the relevant income is simply the individual’s salary before income tax.
Introduction
In January 2013 the government introduced a child benefits policy which reduced the income for a person with an individual’s income of over £50,000, and either they or their partner receives Child Benefit. The amount of the charge will depend on how much that person 's individual income exceeds £50,000. Where a person has an income between £50,000 and £60,000, the charge applied to their income tax will be 1% of their Child Benefit for every £100 of income between £50,000 and £60,000. The income tax charge will never be more than the amount of Child Benefit they receive. Where a person has an income of over £60,000 the charge will be equal to the full amount of their Child Benefit so they are no better off for receiving the benefit. The current rate for child benefits it £20.30 for the eldest child and £13.40 for any additional child. For example, if the mother has an income of £55,000 and receives Child Benefit for 2 children of £1752.40 for a whole year (£20.30+ £13.40 multiplied by 52), the charge will be 50% (£55,000- £50,000 divided by 100) of the Child Benefit which is £876.20. If, however, the mother has an
References: HM Revenue & Customs. (2012). Child Benefit: Income Tax Charge for Those on Higher Incomes. Available: http://www.hmrc.gov.uk/budget2012/tiin-0620.pdf. Last accessed 21st March 2013. Hilary Osborne. (2013). Child benefit changes and what they mean. Available: http://www.guardian.co.uk/money/2013/jan/03/child-benefit-changes-what-they-mean. Last accessed 21st March 2013. HM Revenue & Customs. (2012). Income Tax rates and allowances. Available: http://www.hmrc.gov.uk/rates/it.htm. Last accessed 21st March 2013. Parkin, Powell & Matthews (2008). Economics. 8th edition. Bedfordshire: Pearson Addison-Wesley. James Chapman. (2013). Child benefit 'shambles ' drags hundreds of thousands more families into tax return misery Read more: http://www.dailymail.co.uk/news/article-2258207/Child-benefit-shambles-drags-hundreds-thousands-fa. Available: http://www.dailymail.co.uk/news/article-2258207/Child-benefit-shambles-drags-hundreds-thousands-families-tax-return-misery.html. Last accessed 21st March 2013.