Thousands more families will end up losing their Child Benefit in the coming years because the threshold for receiving it will remain frozen, a leading think tank has said.
The Institute for Fiscal Studies (IFS (SES: E1:I49.SI - news) ) said that although 85pc of families will continue to receive the benefit after the Government begins a new means-testing policy on Monday, this percentage will fall as wages rise in line with inflation but the threshold for losing the benefit remains at the same level.
Unless the Government changes its mind about the threshold or inflation begins to fall, eventually even families on an average wage will receive no child benefit help from the Government, said Robert Joyce, from the IFS. "The number who will lose at least some child benefit will just increase indefinitely as you go further and further into the future."
Just over eight hundred and twenty thousand families in the UK stand to lose their entire benefit from Monday January 7, while another 320,000 will lose part of it. The affected families will lose an average of £1300 a year.
Under the new system, any family where one earner takes home more than £60,000 a year will lose all of their benefit, while once the household's highest earner is on over £50,000 they begin to lose part of the benefit for every extra pound they earn.
The IFS said that the system was "problematic". Because there is no plan to change the threshold at which child benefit is lost from the current £60,000, even though inflation is forecast to rise in coming years, more and more families will be dragged into the position where they lose the benefit.
These families will face higher tax rates than millionaires on some of their income, especially if they have more than one child. The IFS calculates that over a hundred thousand families will lose 65p of every pound they earn between £50,000 and £60,000 because they will lose one per cent of the child benefit they receive for every hundred pounds that they earn.
Families who stand to lose their child benefit have the choice of either receiving it and then paying it back through their Self-Assessment tax return or choosing to stop receiving it altogether. The IFS said that the policy created "a series of administrative complexities", with an estimated extra 500,000 people needing to fill in a tax return in order to pay back the benefit.
Mr Joyce added that the system, which looks only at the income of the highest earner, was at odds with the reform of the rest of the welfare system, which is based on the income of the entire family. "The biggest concern is the incoherence that it creates within the welfare system," he said. "It is unclear whether the net effect of all this will be to improve the welfare system."