- National Insurance and Child Benefit changes a significant boost for working families
- A couple each earning £60,000 with two children get an extra £5,229 a year thanks to the combined impact of both NI cuts and changes to child benefit
- That same couple with three children get an extra £6,110 a year from next month
- Most state pensioners miss out on both handouts
Laura Suter, director of personal finance at AJ Bell, comments:
“Middle income families were the biggest winners from the Budget this week, with working parents benefitting from two juicy changes that will boost their household income. A couple with two (or more) children where each partner earns £60,000 a year are the biggest winners from Hunt’s handouts – as they get the maximum National Insurance boost and can now claim child benefit in full.
“For a couple with two children the combined impact of National Insurance cuts and changes to Child Benefit totals an extra £5,229 a year, while a couple with three children get an extra £6,110 a year from next month. That includes both the National Insurance cuts announced at the Autumn Statement and Wednesday’s Budget.
“Clearly these figures can’t be taken in isolation: they come with a backdrop of frozen income tax bands, a huge increase in personal taxation and rising prices that outpace much of the handouts made at the Budget. Parents only have to glance at their childcare bills to see how much of these gains will be eaten up by that one rising cost alone. But regardless, the boost to working parents’ household budgets is significant and far better than if no changes were made at the Budget.
“On top of this many working parents will benefit from the government’s extended ‘free’ hours of childcare being rolled out from next month. It means parents of two-year-olds will be able to access 15 funded hours of childcare, which will extend to parents of nine-month-olds from September and is then upped to 30 hours next year. The actual financial implication of this will depend on how much your childcare costs and what extra fees your nursery charges on top of the funded hours, but it’s a potential saving of thousands for parents across a year.
“But where there are winners from government handouts there are usually losers, and in this case it’s those over state pension age. While the majority of these people won’t be paying for their children anymore, they have still faced a sizeable increase in costs from energy bills to food shopping to rent. They get no benefit from the changes to National Insurance, as it’s not paid by those over State Pension age. Very few will benefit from the child benefit changes as it’s only paid up until the child is age 16 or until they are 20 if they are in education or training.
“The chancellor will no doubt point to the meaty increase in the state pension this year as his boost for pensioners. And it’s not an increase to be sniffed at, with the full new state pension hitting £11,502 next month. The state pension has risen by just shy of £1,900 over the past two years so pensioners can’t claim to have received nothing from the selection on Hunt’s dessert trolley of handouts*.”
How the changes work:
“The cut to National Insurance for employed people means those earning more than the higher-rate threshold of £50,270 benefit from the biggest saving. They will see their National Insurance bill drop by £754 a year from April. But if we combine that with the savings made as a result of the changes in the Autumn Statement that increases to a saving of £1,508 per person. For a working couple where both of them earn £50,270 or more this is doubled to a £3,016 boost for the household.
“At the same time changes to child benefit mean a parent earning £60,000 will be entitled to the full amount from next month, where currently they get nothing. The change to the High Income Charge means that child benefit will be tapered out once someone earns more than £60,000, rather than the current £50,000 threshold. From April child benefit will be paid at £25.60 a week for the eldest child and £16.95 a week for any subsequent children**. If someone was previously getting no child benefit and now gets the full whack it equates to an extra £2,212.60 a year for two children, or £3,094 a year for parents with three children.”
You’ve got to be in it to win it
“The benefit of the National Insurance changes are that your payroll department will do all the hard work for you and you should automatically receive the boost to your income in your payslip. You don’t have to actively claim the tax cut or fill out any paperwork.
“It’s a different story with child benefit: you have to claim it and that will involve filling out forms. A huge number of parents who are already entitled to child benefit don’t claim it, because they either aren’t aware they are eligible or haven’t got around to doing the paperwork. The complexity involved in the child benefit system is understandably off-putting for many parents, but as the figures show it’s potentially lucrative putting in some time to claim it.”
*New state pension worth £185.15 per week in April 2022 will rise to £221.20 per week from April 2024.
**New child benefit rates: https://www.gov.uk/government/publications/rates-and-allowances-tax-credits-child-benefit-and-guardians-allowance/tax-credits-child-benefit-and-guardians-allowance
