Osborne says reduction will be tapered once one parent earns £50,000 at a rate of 1% for every £100 earned over that amount to a maximum of £60,000.
In his budget statement to the House of Commons, George Osborne said it was important that “all sections of society must make a contribution to dealing with the deficit” and he could not justify going on paying child benefit to those earning £80,000 or £100,000, but he admitted plans to withdraw child benefit from any household with a higher-rate taxpayer had been unfair.
Instead of removing the benefit as soon as one parent fell into the higher rate band, Osborne said the reduction would be tapered out once one parent earned £50,000 at a rate of 1% for every £100 earned over that threshold. Once one parent earned £60,000 a family would lose the benefit entirely.
Explaining the change he said: “We want to avoid a cliff edge where people lose all of their child benefit where someone who earns just £1 over the threshold will lose all of their benefit.”
Child benefit is currently paid to all households with children at a rate of £20.30 a week, or £1,055.60 a year for the oldest child, and £13.40 a week, or £696.80 a year, for each younger sibling.
It can be paid up to a child’s 20th birthday if they are still in approved training, but will usually end when the child turns 16 or completes his or her A-levels.
The change means a family with one parent earning £25,000 and one earning £45,000 will still receive the full benefit, while a family with one parent earning £25,000 and a second earning £55,000 will receive £527.80 a year for their first child and £348.40 for each younger child.
However, although the change removes some of the “cliff edge” loss, there will still be anomalies. While a couple who both earn £49,000 a year will still be entitled to the full benefit, families with just one earner taking home more than £60,000 will get nothing.
The chancellor said that under the new system 90% of families, around 750,000 households, would continue to receive child benefit.
The change, which will be implemented from January 2013, will see the benefit taken back as an income tax charge on the higher earner.
The chancellor said he had ruled out means-testing child benefit, but tax experts said the new regime could be as complicated.
“Proving eligibility, or a claim for child benefit, where earnings fluctuate above £50,000 will be a chore for many and may cost more to administer than it is worth,” said Frank Nash, a senior tax partner at chartered accountants Blick Rothenberg.
The Child Poverty Action Group, which had warned that the chancellor’s original plans could force as many as 20,000 children into poverty, said the new regime was “better” but “still not good”.
Its chief executive, Alison Garnham, said: “Rather than facing a cliff edge, family budgets of those affected now face being thrown down a flight of stairs, as child benefit is tapered away.
“We are pleased our campaign has helped to persuade ministers to listen and act, but the new proposals still miss the point. In the end, we are still asking families with children to pay for tax breaks for the very richest.”
Garnham added that it was time the government freed child benefit from its current freeze.
“Unless child benefit is uprated again, it will always be worth 10% less than it was before the coalition took office,” she said.