Taxation of Low-income Families

Wednesday 16th January 2019 Westminster Hall

09:30

[Jeremy Lefroy (Stafford) (Con)]

I beg to move,

That this House has considered taxation of low-income families.

It is a great pleasure to serve under your chairmanship, Sir David. As a Conservative and a Christian, I believe passionately in the importance of caring for those families who find themselves at the bottom of the income distribution. It is vital that there is a proper, decent safety net to enable families where the adults either are not in work or cannot work to have a decent standard of living, to live in proper homes and to have a proper income. At the same time, making work pay has been a priority for the Conservative and Conservative-led Governments since 2010. In this context, the effective marginal tax rate—the proportion of any additional £1 earned that one would lose in the form of tax, national insurance and lost benefits—is the key consideration.

If we look at a one-earner, two-parent family with two children, paying income tax and national insurance and in receipt of tax credits, we see that they face an effective marginal tax rate of 73%. That means that, as they look at the prospect of earning more, they will be confronted by the fact that they will get to keep only 27p from every additional £1 earned. If a 73% higher rate tax was introduced—I recall when it was well into the 80s; indeed, on unearned income it was 98% at one point—there would be an outcry from higher earning people and probably from the whole public. Yet that is the effective marginal rate of tax that we, though the system that we in Parliament are responsible for, expect low-income families to pay.

[Mr Gregory Campbell (East Londonderry) (DUP)]

I congratulate the hon. Gentleman on securing the debate. This is an issue that I and many others have taken an interest in for a long time. Does he agree that, particularly for those who are on full-time low pay, or part-time pay, if we gradually moved toward a position where the first £15,000 per annum was tax-free and there was no requirement to pay national insurance contributions on it, that would be a huge incentive against the black economy, as well as promoting people’s getting out of the working tax credits system and into employment, to try to work their way up through the salary chain?

[Jeremy Lefroy]

The hon. Gentleman makes an extremely important point. I shall refer to three reports today, but this one, “Make Work Pay: A New Agenda for Fairer Taxes” by the Centre for Policy Studies, suggests a tax and national insurance-free income of, I think, £12,000 a year, which is similar to what he suggests. I have a lot of sympathy for that. I would counsel against those who say that national insurance is a thing of the past and totally irrelevant; I believe in the importance of a social insurance contribution-based system, provided that it is progressive and proportionate, and I would not like to lose that, but I entirely agree with the principle of what he says.

Lest anyone wonder whether these high effective marginal tax rates are just an anomaly that, for some curious reason, only impacts one-earner, two-child families on 75% average wage, the point must be made that our high marginal rates are a problem for all family types: single parents, single-earner couples and dual-earner couples. One in three in-work families with dependants are likely to be facing high effective marginal rates. That is 2.5 million families—or 1.6 million couples—of whom 1 million are single earners, 600,000 are dual earners and 900,000 are single parents.

Put simply, any family paying tax and national insurance and receiving tax credits will be looking at an effective marginal tax rate of 73%. Families that, in addition to receiving tax credits, also receive housing benefit and council tax benefit will be looking at a marginal rate of 96%. Under universal credit, the 73% rate will increase slightly to 75%, but the 96% rate will come down to 80%. A 16% drop is significant, but an 80% effective marginal tax rate is still far too high. There is a lot that I would like to say about improvements that I would propose to universal credit, but that is a debate for another day.

Instead of encouraging aspiration, the combined impact of our tax and benefits system suffocates aspiration, trapping families in poverty. That is a burning social injustice that must be addressed. Much of the cause of our high effective marginal tax rates, particularly for single earner couples, is as a result of the introduction of independent taxation in 1990. Since then there has been little or no recognition of family responsibility in the tax system. Not recognising that responsibility in income tax, through a system such as elective joint taxation, has led to a tax arrangement that is anti- aspirational. It is interesting that the former Chancellor, Lord Lawson, wanted to include some kind of joint responsibility in the new system when it was introduced, but it was opposed by the then Prime Minister.

Families in poverty pay thousands of pounds of income tax, but then have to be supported by very inflated benefits, which offset the failure to recognise family responsibility but with the very costly downside of cripplingly high effective marginal tax rates that suffocate aspiration as the inflated benefits are withdrawn. In 2014 I co-authored a report with my hon. Friend the Member for Congleton (Fiona Bruce) and two other colleagues, “Holding the Centre: Social Stability and Social Capital”, which touched on many of the issues we are debating today, although not in such detail on this particular subject. As we noted in the report, many of the Government’s—all Governments’—most important goals rely on the contribution of families. However, too often that contribution is under-recognised and the impact of policy on these relationships ignored, under all Governments.

The report pointed out the vital role that family relationships play in our economic prosperity, wellbeing and the life of our children, as well as the cohesion and social stability of our nation, where growth and prosperity are underpinned by fairness, responsibility and community. The stability of marriage and supporting aspirational families are integral parts of the social capital of our country that leads to social stability and economic prosperity. A Government who draw on and nurture the wealth of our social capital, supporting families and strengthening relationships, can give people confidence about their future prospects and the ability and opportunity to see aspiration fulfilled.

These issues are vital, and therefore I note with pleasure that the Strengthening Families Manifesto group of Conservative MPs, led by my hon. Friend the Member for Congleton and by Mr David Burrowes, the former Member for Enfield, Southgate, has recently held an inquiry into making work pay for low-income families. The report was published this morning to coincide with this debate. My hon. Friend will outline in greater detail some of the report’s specific findings and recommendations. I underline the call in the report for the Chancellor to review formally the effective marginal tax rate for families, assessing the reasons why work does not pay for so many families and evaluating the possible solutions, with a particular focus on the tax system and the recognition of family responsibility.

[Michael Tomlinson (Mid Dorset and North Poole) (Con)]

I congratulate my hon. Friend on securing this important debate. Despite all the other things going on, this is hugely important. He mentioned a burning injustice—all our ears will have pricked up at that phrase and he is absolutely right. I and other colleagues signed a new clause to the Finance (No. 3) Bill, which was not selected for debate, but does he agree that this does not need an Act of Parliament for the Chancellor to review it, and that the Chancellor can still review it despite the fact that the new clause was not selected or debated and is not part of a formal Act of Parliament?

[Jeremy Lefroy]

My hon. Friend is absolutely right, and that is why both the debate and that report are so important in showing the Chancellor that this issue is vital for many colleagues across the House.

I will finish with the fact that it is surely very telling that in 1990, just as independent taxation was introduced, far from 73%, the effective marginal tax on a one-earner family with two children on 75% of the average wage was just 34%, close to the average 33% effective marginal tax rate on such families today across the OECD as a whole. We are a total outlier in this respect, and in the wrong direction. If we managed without such aspiration-killing tax rates on working, low-income families in the past, we can and must do so again.

I very much hope that the Minister, for whom I have the highest regard, agrees and will tell us that the Chancellor is willing to review our marginal tax rates, as my hon. Friend the Member for Mid Dorset and North Poole (Michael Tomlinson) mentioned, and bring forward strategies to gradually bring them in line—I realise this is a huge ask— with the OECD average over the years, so that we can become an aspirational economy once again.

09:39

[Fiona Bruce (Congleton) (Con)]

I congratulate my hon. Friend the Member for Stafford (Jeremy Lefroy) not only on securing the debate but on the excellent way in which he touched on all the key concerns. We need to address what is surely one of the “burning injustices” that the Prime Minister referred to on the steps of 10 Downing Street. If there are any just-about-managing people, it is surely those striving to take their families off benefits, go into work and improve their families’ lives. We are particularly concerned about families with children.

Yet just as those people aspire to improve themselves, the system knocks and disincentivises them, as we have heard—the opposite of Conservatives encouraging aspiration. Effective marginal tax rates of 70%, 80% or even 90% surely cannot be sustained by a Conservative Government. However, this is not a new issue. We have sustained it. It has been known about for years. It has been eight years since the Conservatives entered Government and we have failed to address the matter.

For many of those years, CARE has held annual meetings about this issue and published annual reports on the taxation of families. I pay tribute to CARE for its assistance in the production of “Making Work Pay for Low-Income Families”, which, as my hon. Friend the Member for Stafford says, we are publishing today. It is being published by the Manifesto to Strengthen Families, the executive director of which is our highly respected former colleague, David Burrowes, and can be found on strengtheningfamiliesmanifesto.com.

I will give some examples that detail the complexity and show how low earners can end up paying such high effective marginal tax rates, losing so many of the benefits that they had once they start to earn. We need to change that. This example has been given by the Centre for Policy Studies, so we are not alone in raising this concern.

Imagine Jane, a 28-year-old single mother of one school-aged child. They live in Northampton. She receives benefits of £13,908 a year, comprising three elements: a standard allowance, a child element and a housing element. She starts work, earning £8,143.20 per annum. Her benefits are reduced by 63p for each additional pound she earns, which is the taper relief figure; interestingly, the CPS suggests reducing the universal credit taper rate to 50p as one solution. Jane’s effective marginal tax rate at this point is 63%. She then earns a little bit more, becoming liable to pay national insurance, putting her effective marginal tax rate up to 67%. She then earns a little bit more again, earning £12,850 a year—£1,000 over the current personal allowance rate—so is liable to pay income tax. Of that £1,000, she takes home just £251.60. She is being taxed at a 75% effective marginal tax rate. As my hon. Friend the Member for Stafford said, if that was the tax rate paid by multimillionaires on their highest earnings, there would be an outcry.

One aim of universal credit, which was intended to be simpler to understand, was to help ease the transition between welfare and work. It is certainly an improvement, but it has not solved the problem of people entering work and losing an average of 73% of their earnings, or even more. We appreciate that the Chancellor promised in his recent Budget to increase the work allowance by £1,000 a year, at a cost of £1.7 billion, which many of us asked for. However, that still leaves us with the problem that we have identified. Working claimants will lose most of the extra money that they earn when they increase their hours or progress in their jobs. It will just mean that they keep a little bit more of their money before they reach that point.

I remind colleagues that the Manifesto to Strengthen Families is supported by more than 60 Conservative parliamentarians; not a small group in our party. Some 20 of us tabled an amendment to the Finance Bill, which my hon. Friend the Member for Mid Dorset and North Poole (Michael Tomlinson) referred to, and it was very much as a result of that amendment not being selected that we called for the debate. However, we had been working on an inquiry into this issue for some time, chaired by David Burrowes. We took evidence from several organisations, including the Child Poverty Action Group, the Resolution Foundation and Tax and the Family, which all indicated in their evidence that they share our concerns on this issue. I will touch on one or two of the reasons why we really need to address it.

As we heard from my hon. Friend the Member for Stafford, the British effective marginal tax rate of 73% is the highest anywhere in the developed world, where the average is 33%. However, it is not only the very low-paid who are affected. Our inquiry found that families with earnings that appear high can also be affected. For example, a single-income family with three children earning £21,000 and paying rent of £157 a week could this year have a marginal tax rate of, incredibly, 96%. That does not come down to 32% until income reaches £40,776. Where housing costs are greater, that 96% rate could be even higher. I appreciate that something may be done to look at this, as my hon. Friend the Member for Stafford said, but that is not enough.

[Mr Gregory Campbell]

I commend the hon. Lady for her continuing interest in this issue. Does she agree that its effect on middle or average-income families earning around £22,000 to £26,000 per year causes particular resentment among people in that category? They are the aspiring families who want to earn more and contribute more to society, and they feel that they are being penalised as they do so.

[Fiona Bruce]

That is absolutely right. We outline in our report several reasons why this needs to be addressed. I will touch on four of them.

First, the hon. Gentleman is right that these arrangements are anti-aspirational. Secondly, we believe that they are illogical. While we as Conservatives celebrate the family—my hon. Friend the Member for Stafford said families are the bedrock of a strong, stable and flourishing society—we tax them as if they are individuals while at the same time operating a benefits system that views them as families.

Thirdly, the current arrangement is anti-choice. The best systems of independent taxation give couples the choice as to whether the two people are taxed independently or jointly. Fourthly, it appears judgmental. Any family in which the second earner is either not in work or earning less than their personal allowance will be hit hard and judged for that arrangement. My right hon. Friend the Member for Chingford and Woodford Green (Mr Duncan Smith) gave evidence to our inquiry and commented that we find ourselves in the peculiar situation of saying that we are not very judgmental, but being very judgmental at the same time. We are judgmental about couples who choose for only one spouse to work. The huge impact of that was underlined in evidence to us from the Child Poverty Action Group, which said that it looks like

“having a second earner in the labour market in Britain today is necessary to get oneself out of poverty”.

To some extent, we are telling parents staying at home to look after children or relatives that they are making the wrong choice, yet, as our report says, it is in the long-term interests of Government and society to have stable families in which children are nurtured and cared for to give them the best start in life, and if, in some situations, that means taking time out from work, particularly when children are under five, surely that should be encouraged and accommodated.

[Jeremy Lefroy]

My hon. Friend makes the incredibly important point that this is certainly about children, but is also about carers. The enormous number of unpaid carers in this country do a massive amount for our country and society, but the current system does not help them, either.

[Fiona Bruce]

That is absolutely right: they do indeed.

We talk about cripplingly high effective marginal tax rates, but actually it costs money to go out to work. Often, it costs money to clothe oneself for work and to travel to work, and it is more expensive if one has to buy lunch out, so some people will effectively earn nothing when they go to work. That cannot be right. As my hon. Friend has said, what is proposed will help different types of family: single parents, married couples and couples in which one person works or one person provides care for other members of the family. Work is good—we know that—but it costs, and it is outrageous that some of the poorest in our society face some of the highest tax rates. One of the highest priorities of the Conservative Government should be to tackle and solve this burning social injustice.

09:52

[Steve Double (St Austell and Newquay) (Con)]

It is a pleasure to serve under your chairmanship, Sir David. I start by congratulating my hon. Friends the Members for Stafford (Jeremy Lefroy) and for Congleton (Fiona Bruce) on securing this debate and on the way they have introduced the subject. I very much welcome the report by the Strengthening Families Manifesto group that was published today and which we are here to debate.

There is no doubt that families are right at the heart of social justice. It is clearly understood that helping families to stay together and thrive together is not only good for them as families, which is obviously very important and at the heart of the issue, but good for our society as a whole and for our economy. I think it is understood that the ability of Government to help families to stay together may be limited, but the least that we should expect is that the Government do not place barriers in the way of helping and encouraging families to stay together. That is the issue that we are debating today.

We should, through our tax and benefits system, provide every possible opportunity for families to improve their finances through hard work—through taking a job, increasing their income, increasing their hours or taking a pay rise. Sadly, the situation that we have at the moment negates that and actually acts as a disincentive to couples taking on extra work or extra hours, because of the effective marginal tax rate by which they are then penalised. That issue was well presented by the previous speakers, so I will not go into the detail of it—it is a well-established problem—but it is clearly there for all to see.

The introduction of universal credit was very welcome and a huge step in the right direction.

[Gavin Robinson (Belfast East) (DUP)]

I was going to intervene earlier, but I was enjoying the flow of the hon. Gentleman’s speech, so I decided to rest in my place. He makes an incredibly important point, and I commend the hon. Member for Stafford (Jeremy Lefroy) and all his colleagues for their sterling work. I do not think that anyone has said that the disincentive that we have heard about this morning is an intentional outcome of the over-simplification of our tax system, but if it is not intentional, we should resolve to solve it. Does the hon. Gentleman agree?

[Steve Double]

I very much welcome that intervention: the hon. Gentleman makes a powerful point. I do not believe for a minute that the Government set out with the intention of ending up in this position, in which families face effective marginal tax rates of 75% or 80%. No one intended that to be the case, but the hon. Gentleman is right to say that that is the situation and that, if that was not the intention, surely it is time to look at it and see what steps we can take to reverse and undo it.

As I said, the introduction of universal credit was a huge step in the right direction and very welcome. It is not perfect; it is not without its challenges, but I very much welcome the Government’s approach to the roll-out of universal credit—to take their time, learn, and adjust and amend as necessary. Fundamentally, universal credit is the right change to make to our benefits system, and I very much welcome the way the Government are rolling it out.

One purpose of universal credit was to ensure that work paid and to reduce the disincentive for people to take on extra work and lose benefits. I saw that myself, before coming to this place, as an employer. I am thinking of the number of times that I approached my staff to offer extra hours of work and they just said to me, “There’s no point, Steve, because I will lose tax credits. There is no point in me working longer and harder to be no better off—all I will be doing is giving the extra money to the taxman.” Universal credit has been a big positive step, a step in the right direction, to remove that disincentive, and that is hugely welcome, but we need to recognise that there is still a disincentive in the system. It has been highlighted and now is the time to address it.

I also hugely welcome the Government’s policy of increasing the personal allowance. That has taken many of the lowest-paid people in our country out of the tax system—out of paying tax—altogether. That has also been the right thing to do and is very welcome, but as we are saying, it does not undo the situation that we now have. Under the current arrangements, there are those who are paying marginal tax rates of 75% if they are homeowners, and 80% if they are renting, and on universal credit. We cannot expect people to be incentivised to take extra work if they will get to keep only 20p or 25p in the pound for the extra work that they take on.

I therefore very much welcome the report that has been published today. I urge the Government to consider it carefully and look at what can be done to review the current situation. I very much welcome the suggestion from my hon. Friend the Member for Stafford that we need to set as a target bringing the UK in line with the OECD average. It seems crazy for the United Kingdom, which is renowned around the world for the effectiveness and competitiveness of its tax system, to be so out of step with the average for the other developed countries. We should set a target that, in an achievable but relatively short space of time, we will seek to reverse the situation and bring ourselves back in step with the OECD average.

We need to change the mindset that the only way to tackle the problem is through the taper rate for universal credit. That will get us so far, and I am sure that any amendments that can be made in that respect would be welcome, but really we need to bring our tax and benefits systems into line with each other.

[Fiona Bruce]

It is interesting to note that if the taper rate is altered to 50p, when universal credit recipients start to pay national insurance or income tax, they will still face a 66% effective marginal tax rate.

[Steve Double]

My hon. Friend makes the point well. Although changes to the taper rate will be welcome, they will go only so far. We need to change this system: in the benefits system, families are treated as families, yet in the tax system, people are treated as individuals. That is where the conflict comes. I would very much support any move to treat families as families in the tax system, by allowing some measure of transferrable tax allowance, which enables families to be seen as a whole rather than as individuals. We have the same situation with child benefit. It seems crazy to me that in the child benefit system taxpayers are treated as individuals rather than as families. That seems to be an anomaly we need to address.

I want to put my weight behind the point that this is not just about children. There are huge benefits that we can gain as a country by helping families to look after their elderly relatives and supporting them in the tax system. If we can do that by making some element of the personal tax allowance transferrable—for example, for a family that chooses that one of the taxpayers will stay at home, rather than work, in order to look after an elderly relative, who otherwise would put pressure on our adult social care system—it would be a huge, positive step. It would be better not only for that elderly person and that family, but for our adult social care system, which, as we all know, is under so much pressure at the moment. One answer to that pressure is to enable families to care for their elderly relatives much more, rather than just handing them over to the state and expecting the state to do it all. The Government would do well to consider that. I think it would make a huge, positive contribution to resolving the challenges we face.

I have huge respect for the Minister. When he entered the Chamber today, I was glad to see that he did not have his notes hanging out the top of his folder. I am sure he has been listening and will take a positive message from this debate back to the Chancellor of the Exchequer and the Treasury, and tell them that there is something we can look at here and take positive steps on, which would bring huge benefits to families across the country and to our economy.

10:02

[Chris Green (Bolton West) (Con)]

It is a pleasure to serve under your chairmanship, Sir David. It is a pleasure to follow my hon. Friend the Member for St Austell and Newquay (Steve Double), who highlighted something of immense importance: the ability of a family member to be able to care, not only for children, but for elderly relatives and other members of the family who need that support. It is so important that the state and society recognise the importance of carers. We have to enable them to care without being under too much pressure, financial or otherwise.

I welcome this debate, introduced by my hon. Friend the Member for Stafford (Jeremy Lefroy), on the taxation of low-income families. I am delighted that the strengthening families manifesto has been published today. I believe that the family is the building block of society—the foundation on which society rests. Family is the source of our health, wealth and happiness. That may be contrary to what many people believe about Conservatives. People often see Conservatives as hyper-individualistic—it is all about the individual. However, I believe that the foundations of much Conservative philosophy and Conservative values rest on the importance of the family.

It is vital that the Government recognise in their policies that work pays. I will not go into the details, which my hon. Friend the Member for Congleton (Fiona Bruce) went through so effectively, about the impact that the tax system can have on a low-income family, especially someone earning 75% of the average wage—it can be such a disincentive to work. We ought to be looking at the advantages that having a good job and place of work can give to someone as a role model in the family. If we hinder their ability to take those additional hours and to be at work more, we are effectively denying people the opportunity to gain experience at work. They do not feel there is an incentive to work, so they do not get that experience.

That also sends a message to the employer. Employers want to invest in their workforce, to give more skills to the people in their company or organisation. However, if someone is working relatively few hours, there is less return on that investment. If someone can work more hours, they are more likely to secure training provided by that company. If someone has more experience and training, that individual may be able to get a promotion or a better position at work, or may have the opportunity to change companies and find a different position. That is a huge incentive. It has been mentioned that the current tax system crushes that aspiration. It is so important that we change that for this really important sector of society, to give those people an opportunity to aspire and improve themselves. That attitude and those values will then permeate through the family and the wider community.

The manifesto published today provides a huge opportunity for the Government to change their policy. With their ideas of making work pay and supporting families, the Government are sympathetic to that. I recognise the current economic challenge, with many demands on Government time and money, but given the return on this investment—the improvement in society—it is worth changing the taper and improving it for those low-income families.

[Jeremy Lefroy]

My hon. Friend makes an important point about the money. These things do not come without a certain loss of revenue. Does he agree that one area to look at—it is interesting that the Centre for Policy Studies suggests that we look at this—is the higher-rate tax relief on pensions. As Members of Parliament we all declare an interest, because we are all taxed at the higher rate and all have pension contributions. That is given to people who already benefit from the 20% allowance and then there is another 20% on top of that. Although some restrictions have been introduced in recent years, that is an enormous cost to the Exchequer, to the benefit of people earning double or triple the national average wage.

[Chris Green]

My hon. Friend makes a superb point. It is a significant problem that apparent inconsistencies in the tax system give people who are already doing pretty well a further advantage, yet poorer people not do not receive that advantage. Looking more broadly at society, a few years ago there were riots in London and other cities around the country, and we are currently concerned about rising crime and the people causing those problems. We also have to look at how we can strengthen families, because I think that a certain societal cohesion comes from a strong family. That has so many other impacts across society. We may not immediately see income return, but in a stronger, healthier society the returns will be immense, not only for society, but for the Exchequer.

[Fiona Bruce]

Before my hon. Friend closes, I want to put on the record my appreciation for what he has done. He was one of the hon. Members who took part in the inquiry, which produced this report. Very modestly, he has not made reference to that, but I thank him for his work.

[Chris Green]

I thank my hon. Friend for raising that. Behind the scenes in Parliament there is so much good work going on, much of which is cross-party, with different colleagues bringing different perspectives. During these difficult times in Parliament, it would be positive for people to reflect on the important work that goes on behind the scenes, influencing decision makers, much of which is on a cross-party basis.

10:09

[Andrew Selous (South West Bedfordshire) (Con)]

It is a pleasure to speak in this debate under your chairmanship, Sir David. I pay tribute to my hon. Friend the Member for Stafford (Jeremy Lefroy) for opening it so well, to my hon. Friend the Member for Congleton (Fiona Bruce), who did so much to launch the report that we are considering today, and to my hon. Friend the Member for Bolton West (Chris Green), who was also part of that important work.

I will start by giving credit where credit is due, because it is always important to do that; it is both the polite and the correct thing to do. I therefore say to the Minister, who is a friend in these matters, that we need to put on the record our huge gratitude and appreciation for the 3.4 million jobs created under the Conservative-led Government since 2010. That is 3.4 million people who have the security of a monthly pay packet, who can look after their family, put food on the table and clothe their children. It is hugely important that that is recognised.

Consider youth unemployment rates around the world. I understand that in Greece youth unemployment is at 57%, and it is far higher in France and many other parts of the world. Our youth unemployment rate is a fantastic achievement. There has been a British jobs miracle since 2010 and we need to be hugely appreciative of it and not take it for granted. It has taken a lot of hard work and focus to create the environment in which businesses can flourish.

Universal credit has also been good, in getting rid of the pernicious effect of the old 16-hour rule. My hon. Friend the Member for St Austell and Newquay (Steve Double) talked about when he was an employer and he gave us the example of employees who did not want to work more than 16 hours a week, as it was not worth their while because they would be so penalised by the 16-hour rule. Universal credit has swept that away. Now, for every extra hour that people work, at least they get something more. Lastly, the increase in the personal allowance has been enormously welcome to the group of people we are talking about.

Many of us—certainly among Government Members, but I think across Parliament—understand the damage that high marginal rates of tax do in discouraging enterprise. Entrepreneurs do not have to set up businesses. It has to be worth their while to do so and if the odds are stacked against them, with regard to the returns they will make, they will not start up businesses. This Government understand that well, and because they do we have created this fantastic environment for businesses, which has created those 3.4 million jobs that I just mentioned. All credit is due to the Government for understanding that.

However, I say to the Minister that businesses do not just exist for their own right and for their own benefit; they exist to benefit society and to benefit their employees. Humans are not resources; they are the point of it all. Businesses are there to benefit their employees, and if we are trapping people in low-paid work, so that they cannot progress in the way that many of us here in Westminster Hall have been able to progress throughout our careers, that should be of acute concern to our friends in the Treasury. I am sure that point is not lost on the Minister.

I reiterate the point that, sadly, the United Kingdom is an outlier in this respect, because the marginal tax rate for a one-earner couple with two children on 75% of the average wage is 73%, which is more than twice the EU average of 22%. No other OECD country treats low-income working families as badly as the United Kingdom does, with regard to effective marginal tax rates and work incentives.

It is really important to put on the record that, notwithstanding all the good work that has been done since 2010, this area is unfinished business. I want the Minister to go back to the Treasury and impress on the Chancellor and his fellow Ministers, who I think have an appetite for this work and do get it, the need to say to officials that more work has to be done in this area, so that everyone can benefit from the fruits of their hard work throughout their working life.

The problem of high effective marginal tax rates does not just affect single earners. It affects a million of them, but we know that there are also 600,000 dual earners who are similarly affected and—really importantly— 900,000 single parents as well. So this is a problem for all types of family structure.

We are not calling for the abolition of independent taxation; I do not think that would be the right thing to do. However, I think it would be right to introduce an element of choice, because Government Members certainly believe that choice is a good thing. It gives flexibility, because families have different priorities and different needs at different stages of their lives. As has also been said before, we are in fact extremely judgmental, because the tax system is very prejudicial when only one member of a couple chooses to work and the other member chooses to care for children or frail elderly relatives.

[Chris Green]

I agree that this sense or understanding of the system being judgmental is a problem. Would it not be far better if the system, rather than judging one way or another way, had a far more neutral position, because that would enable individuals and families to make their own decisions?

[Andrew Selous]

Yes, I completely agree. I think that it comes back to choice and recognising that families face different challenges at different times of their lives, particularly regarding the needs of children, the frailties of elderly parents and so on. I hope that our social care reforms, which are forthcoming, will go some way towards addressing that situation, but the tax system absolutely has a huge role to play in addressing these important issues, which my hon. Friend quite rightly raises.

Effectively, what we are saying through the tax system is that, despite praising with warm words family members who choose to stay at home if they can make the financial choice to do so—not every family has members who can make that choice, but there are families in which one person makes the sacrifice to stay at home, to be with their children or to look after elderly relatives—we think they are making the wrong choice, because we penalise them for doing so; there is no recognition of what they do.

The Centre for Policy Studies, which was referred to earlier, has made a proposal that we should consider, which is to look at the transfer of unused personal allowances. The Child Poverty Action Group—the report that we are considering today looked across the political spectrum; I have great respect for CPAG—made some suggestions about perhaps increasing child benefit for children under five in lower income families. One way that we might be able to fund that—it is a golden rule with me that if anyone calls for an increase in expenditure, my next question is, “Where is the money coming from?”

[The Financial Secretary to the Treasury (Mel Stride)]

indicated assent.

[Andrew Selous]

I see that the Treasury Minister is nodding; let me give him a suggestion, as I have made a call on the public purse. At the moment, we give child benefit to families that have an income of £100,000, where both members of a couple are earning £50,000, whereas that stops at £62,000 when there is only one earner in a family. So there is £38,000 worth of income in respect of child benefit to play with.

The Minister will have to go back to the Treasury and get all his super-clever officials to run those figures through the Treasury modelling system, but there will be some money there that could perhaps be better targeted at child benefit or the transfer of unused personal allowances. We are not being prescriptive here; we want Ministers to go back and look carefully, and reflect carefully, on these matters.

In respect of the work that parents do within the home—looking after children, or looking after frail or elderly relatives—last October the Office for National Statistics said that unpaid household work had a value to the British economy of £1.24 trillion. That is a big figure, as the Minister will appreciate, and just some recognition of the good that is done to society by that work—the costs that are not accruing to the public purse because of it—would be welcome. I think that on average that work comes down to a value of £18,932 per person, which is a significant amount.

[Fiona Bruce]

Are we therefore saying that some recognition by the Government of family in the tax system would go a long way towards changing the culture in our society, whereby we ought to value much more greatly that kind of work within the home, which is unpaid but provides so much benefit to society, economically as well as socially?

[Andrew Selous]

I agree with my hon. Friend, who makes an entirely reasonable request, and I will tell her why it is so reasonable: all our main economic competitors across the OECD do exactly what she suggests. It needs to be said a lot more often in this House that, as I said at the start of my contribution, we are an outlier in not doing this. We have taken for granted the fact that we have independent taxation that quite often ignores the second person in a family if they are not earning, which has led to some perverse consequences. I ask the Minister to go back to the Treasury and ask his officials to contact the economic councillors in British embassies around the OECD to get good data on how other countries do this, whether Finland, France or Germany. Let us look at what those countries do; let us look at how that increases the net take-home pay of lower income families; and let us look at the choices that it gives to those families, and at the overall satisfaction that is derived.

We have been talking about low-income families, and it is important to get on the record that the effects of high effective marginal tax rates can go quite high up the income scale. For example, a single-income family with three children paying rent of £157 a week has a marginal tax rate in 2018-19 of 96%, but that does not come down to 32% until income reaches £40,776. That might sound like a very high income, and for a lot of people it is, but for a person who lives in a high-cost housing area, that income disappears very fast. We need to remember that across large parts of the country, particularly those regions south of Birmingham in which many millions of our fellow citizens live, housing costs are extremely high, and that leaves a much smaller net take-home income for families to pay for all their needs with.

To repeat a point that was made earlier, in 1990 the effective marginal tax rate for a single-earner family on 75% of the average wage with two children in the UK was 34%. Today in the OECD it is 33%. Today in the UK it is 73%. We have diverged massively from our friends and competitors in the OECD since 1990, and I do not think that is because of some malicious plot in the Treasury; I think it has happened in spite of good policies.

[Fiona Bruce]

Does my hon. Friend think it is interesting that we also have one of the highest rates of marriage breakdown in the developed world? Is there perhaps some interesting connection to be made there?

[Andrew Selous]

We need to look at everything we can do to strengthen family life, because we know that strong families—healthy, supportive, committed, mutually respectful couple relationships—are the bedrock of our society. As a Government, we used to talk a lot about reducing the couple penalty; certainly when we were in opposition and preparing for Government, that was a significant objective. We have made some progress towards that, given what we have done through universal credit, but it is still a big issue, as all of us see week after week in our constituency surgeries. We sometimes speak to single mums who are on their own, who are not acknowledging their partner because of the loss of income that would entail. That is not a good state of affairs, because there exists a loving, respectful relationship in which mum and dad want to live together, but they are not doing so because they would be penalised. It is all very well for us to talk about people doing the right thing, but for a lot of our constituents that is not possible if they are hit in the pocket. That message needs to hit home.

I will conclude by coming back to the importance of family, which my hon. Friend the Member for Congleton has quite rightly pressed me on. I know that I am pushing at an open door, because I rechecked the excellent speech that the Chancellor made in Birmingham in October. When he listed the principles that inspire him as a politician, strong families and family stability were right up there. I think the Chancellor gets this—I think the whole Treasury team gets this—so I hope that when the Minister responds he will give us a commitment that he will go back to the Treasury, talk to the Chancellor, and do detailed preparatory work and study of other countries to look at how we can make some of these changes. We are not asking the Minister to come up with specific answers today, as we know there is a lot of detailed work to be done, but I hope he will give us an undertaking that he will go back to the Treasury and make sure this work gets underway.

[Sir David Crausby (in the Chair)]

I had wanted to call the Front Benchers by 10.25, but I will call Sir John Hayes for a tiny contribution.

10:19

[Sir John Hayes (South Holland and The Deepings) (Con)]

I am grateful for your indulgence, Sir David, and apologise for not having been here at the beginning of the debate. I am proud to be associated with this study, and I have only two points to make. First, change is inevitable and constant, as Disraeli said, but not all change is for the better. In my lifetime, many things have changed for the better, but many have deteriorated, and perhaps the sharpest and most obvious deterioration has been the change in family life and the consequent alteration in communities. When I was brought up in a working-class community by working-class parents, that community was stable, law abiding and socially cohesive. It embedded in me strong values: to do the right thing, work hard, abide by the law, and care for other people.

If someone were to go to that council estate now, they would see a very different picture. They would see more lawlessness and more vandalism. They would see the parade of shops that was once there, which my mother used, long gone. Fundamentally and most starkly, they would see widespread family breakdown, and the wider effect of family breakdown is something that the Government need to recognise and use every lever at their disposal to do something about. It is no use politicians claiming that things will always and only get better, because they do not: society has changed for both good and ill simultaneously, and no Government of any party have dealt with this issue to the degree that they should have done.

We can use the tax system in exactly the way this report suggests, so my second point—mindful of your advice, Sir David, I will make only two—is that family, and particularly marriage, need to be supported in the tax system. The benefits system does so to some degree: as we have heard from various speakers, it recognises family responsibility. However, that is not matched by the tax system to the degree that it should be. I say to the Minister, who is my close friend and my right hon. Friend—which is quite a different matter—that he would stand proud among Treasury Ministers of this age and of all ages if he used the tax system to recognise family responsibility more effectively. With that brief contribution—some will say all too brief, Sir David, but I know you will not—I conclude my remarks.

10:28

[Alison Thewliss (Glasgow Central) (SNP)]

It is a pleasure to see you in the Chair, Sir David. I must say that as a feminist, I feel as though I have fallen down some kind of vortex to the 1948 film “Every Girl Should Be Married” in this debate. I fundamentally disagree with many of the arguments that hon. Members have put forward so well; I respect their right to do so, but they have ignored the elephant in the room, which is that lots of the stresses and strains on our society are caused by austerity, not by whether people are married or not. That is a personal choice.

Tax is often thought of as a boring, dreaded thing—a duty to be avoided, something best left to stuffy men in suits. However, like all economic tools, tax is a mechanism that opens up opportunities to shape the kind of society we want to live in. It incentivises good behaviour and punishes what some would consider to be bad behaviour. The UK Government’s tax system remains quite a blunt tool with which to tackle income inequality. It is riddled with loopholes that benefit the wealthy, and according to figures from the Institute for Public Policy Research, the UK is the fifth most unequal country in Europe when it comes to income.

The tax system is very gendered. In its analysis of last year’s Budget, the Women’s Budget Group said that raising the income tax threshold is not a policy that helps women. It argues that 70% of those taken out of the higher rate of tax, and 73% of higher rate taxpayers who will benefit from raising the higher rate threshold, are men. We cannot claim that this will benefit women in any particular way, especially those in low-income jobs. According to the Joseph Rowntree Foundation, minimum household budgets have risen by about a third since 2008 for most types of household. Inflation is sky high, wages are being squeezed and a no-deal Brexit would see an additional 6.4% of lower incomes being spent on food. That is a penalty that most families cannot afford.

I mention families, because they are central to what many Members have talked about. The hon. Members for St Austell and Newquay (Steve Double), for South West Bedfordshire (Andrew Selous) and others have mentioned universal credit and the impact of the 16-hour rule. Figures from the Church of England show that a single mum with three kids, who is working 16 hours, would have to work 45 hours to make up for the cuts that the Conservative Government have made to the benefits system. What impact would a single mum working 45 hours have on family life? When is she actually going to see her kids? Who is going to tuck them into bed at night? That is not going to happen.

I have been working on a campaign for the removal of the two-child limit in the universal credit system, for which I would welcome hon. Members’ support, if they wish to give it. There was some movement from the Secretary of State last week, but it will still be in place for children born after 6 April 2017. The disincentive within the system is rife. Someone with two children who wants to get remarried, into another family, will lose out, because that will cause a change to benefits. If that person, once they have remarried, wants to have a child in that new family, they will not get the child element of universal credit, which is nearly £3,000. If any Government Member wants to speak to their colleagues in the Department for Work and Pensions and get them to get rid of this policy, that would be welcome, because it is a disincentive. If a family has four children, there is actually an incentive under this policy to separate and become two families with two children each, rather than one family with four children, thereby saving a huge amount of money. That needs to be removed from the universal credit system. If hon. Members are serious about it, they need to ask their colleagues in the DWP to do that.

Nobody mentioned the impact of the immigration system on families. I get many people coming to my surgeries who, because of the minimum income threshold in the immigration system, cannot bring a spouse to live here. I met a chap who is working two jobs at the moment, but cannot meet the threshold to bring his wife and his child over from another country. That is separating families. The number of Skype families out there, who are not being well served by this Government, who claim to support families, is an absolute scandal and we should do something about it. The stress of living in poverty probably contributes more to the break-up of families than anything else.

The report by Philip Alston, the United Nations special rapporteur on extreme poverty and human rights, which Conservative Members never want to mention, says:

“Families with two parents working full time at the national minimum wage”—

that is the Chancellor’s pretendy living wage, because it is not a living wage that anyone can live on—

“are still 11% short”—

11% short—

“of the income needed to raise a child.”

[Andrew Selous]

There is no disagreement on these Benches that poverty leads to family breakdown, but in the impact assessment for the Child Poverty Act 2010, brought in by the last Labour Government, there was also a recognition that family breakdown leads to poverty. Does the hon. Lady accept that it is circular and that the one leads to the other, both ways?

[Alison Thewliss]

I would accept the hon. Gentleman’s arguments far more if he would argue for an end to austerity, for an increase to low wages and for the minimum wage to be equalised. At the moment the thresholds for 16 and 17-year-olds and for 18 to 21-year-olds are very different. The gap between the lowest paid—those on the UK’s pretendy living wage—and the people at the top of the age threshold is increasing. It has got wider over the last three Budgets because increases at the top of the scale have not been met with increases at the bottom of the scale. It should be a fair wage for everybody. A 21-year-old parent does not get enough income in to support a family, and that will bring additional pressures to bear on what they can bring in and provide. People who have spoken today have entirely missed the point.

Treating families as a unit within the tax system, as often happens with universal credit, has been widely criticised by women’s organisations because it removes women’s agency. It also removes women’s ability to provide for their families. Under the universal credit system, a woman is disincentivised from leaving a relationship, because all the money goes to the man—the main earner in the household. I appreciate that the Secretary of State has said that she is looking at this issue, but it creates a risk. That also exists within the rape clause of the two-child policy, where the only way a woman can claim this vile clause is to leave the relationship. Women’s organisations across the board say that the most dangerous time for a woman is when she leaves a relationship; that is when she is most likely to be murdered. There is serious stuff about women’s place in this policy.

I was glad to hear that the hon. Member for South West Bedfordshire is not calling for the abolition of independent taxation. I am relieved about that. Individuals should be able to exist within the system by themselves, for a very serious reason, which leads on from my point about universal credit. Incentivising marriage is disincentivising separation. There may be very reasonable grounds for separation, particularly in cases of domestic abuse. The marriage allowance, which benefits the higher earner in a family—almost always the man, as I have laid out—exacerbates inequality. To take this to its logical conclusion, if a man assaults his partner, so she cannot go to work, or he prevents her from working through coercive control and financial control, which we know a lot more about and which the Government have said they want to tackle in the Domestic Abuse Bill, he effectively gets a tax break for doing so. That is why this should have no place in the taxation system. It is important that women have agency and are able to get money in. When money is taken away from women, that agency is removed, as well as their ability to look after themselves.

I had many more things I wanted to say about this policy. I had a whole speech written out about other things. We need to recognise that indirect taxation is also a huge issue. VAT disproportionately affects low-income families. According to the latest figures, those at the bottom end of the income distribution now pay nearly one third of their income in indirect taxes. The poorest fifth pay 31% in taxes such as VAT, alcohol and fuel duties, which is much higher than the 13% paid by the richest households. As I have been sitting here, I understand that the European Parliament has finally agreed to abolish the tampon tax. That is something that the UK Government have now delayed for almost four years. I hope that, now that the Minister has the green light that apparently the UK Government were waiting for, that tax on women will go as soon as possible.

While we can talk about taxes and marriage, the real elephant in the room is austerity and the cuts that have been made to women’s budgets. Women need to have agency; that is the most important thing for families across the UK.

10:38

[Peter Dowd (Bootle) (Lab)]

It is a pleasure to see you in the chair, Sir David. I appreciate the opportunity to make some comments and I thank the right hon. Member for South Holland and The Deepings (Sir John Hayes), the hon. Members for Stafford (Jeremy Lefroy), for Congleton (Fiona Bruce), St Austell and Newquay (Steve Double), Bolton West (Chris Green) and for South West Bedfordshire (Andrew Selous), and the spokesperson for the Scottish National Party, the hon. Member for Glasgow Central (Alison Thewliss), for their contributions.

It is a pleasure to have been invited to the launch of a manifesto to strengthen family policies for a Conservative Government. I was not going to make comments about that, because I did not realise it was on the agenda today, but I will do so now, if I may, Sir David, with your indulgence. There were eight asks in the document, and I have time to comment on about four, which are all linked to the debate.

There is a reference to having a Minister for families. We had a Secretary of State for Children, Schools and Families, which David Cameron got rid of, so that idea of co-ordination went out of the window in 2010. I am pleased that Conservative Members now think that that was a good idea. Perhaps if they had kept that Secretary of State eight years ago, we might not be in the difficult position that we are in in relation to families.

The document refers to family hubs and how wonderful they are, and to children’s centres, but hundreds of children’s centres have been closed in the past eight years under austerity. It is all right to refer to family hubs and children’s centres, but they have gone by the dozen, week in, week out.

[Fiona Bruce]

May I clarify the distinction between family hubs and children’s centres? Regarding family hubs, we are saying that we need to give holistic support to families as they bring up their children right through their childhood—not just from nought to five, but from nought to 19 and beyond.

Family hubs are designed to support not only people bringing up children but, as we have heard, people caring for elderly relatives and couples resolving difficulties in their marriage. It is a one-stop shop where families can go to get help for anything that they have difficulty with, from statutory agencies or from charities working together, much as people go to a citizens advice bureau in a wholly non-judgmental way. I am delighted that family hubs are springing up all over the country. Next month, there will be a major launch here in Westminster where Westminster City Council will promote family hubs.

[Peter Dowd]

The hon. Lady reinforces my point. To set up a family hub via charities or local authorities is fantastic—no one disputes the policy—but that has to be set in the context of austerity, as the hon. Member for Glasgow Central said.

My local authority has had a 50% cut in its funding, resulting in the potential closure of children’s centres, some nurseries and day centres. It is okay to talk about having a family hub or a children’s centre, but the resource is not there, because the Government have decided they will redirect their resources elsewhere. That is fine, but I am afraid that it is impossible to have both. A political choice has to be made, and has been made. The political choice that the Government have made is, de facto, to outsource the closing-down of many of those centres, fantastic community facilities and charities through cuts to local authorities.

The document talks about supporting mental health services, which face major cuts as a result of austerity. The Government have talked about parity of esteem time after time, but they have not done a great deal about it. They have come to that issue as a Johnny-come-lately.

[Fiona Bruce]

Again, our report talks about mental health challenges. Those of us who support strengthening families believe that we need to strengthen families so we can help many children who, at an early stage of their life, could and do suffer mental health challenges because of relational difficulties in the family.

I am the patron of a children’s mental health charity in my constituency, and not long ago, I asked the former chief executive, who has now moved on, how many of the children that the charity is counselling, who can be as young as four years old, have mental health difficulties at least in part because of relational difficulties in their home environment. He looked at me and said, “Fiona, virtually all of them.” A key purpose of our manifesto is tackling the root cause of many young people’s mental health problems.

[Peter Dowd]

I am pleased that the hon. Lady made that intervention; she is reinforcing every point that I make as I go along. Again, the Government have decided to cut early intervention services year in, year out— I can say that because I worked in that area for many years. The hon. Lady is absolutely right that we have to start early, but if services for early intervention are cut and there is a lack of funding, the impact is the £48 billion from family dislocation that the report identifies.

[Fiona Bruce]

Will the hon. Gentleman give way?

[Peter Dowd]

No, because I have not got much time and I have given way several times. I have other points to make.

The manifesto is linked to the issue of taxation of families, but it is not just the fiscal issue that we have to identify—that is the problem; it is the wider determinants that go way beyond issues of taxation. The hon. Member for Stafford referred to the Christian background. I think it is in Matthew that Christ says,

“render to Caesar the things that are Caesar’s, and to God the things that are God’s”.

Effectively, he was saying, “Pay your taxes.” He is a fantastic role model for people who avoid paying their taxes. The bottom line is that a society can be cohesive only if everybody plays their part in it, whether through paying their taxes, charitable interventions or political inventions of the sort we make every day. That is what we have to do.

In the report, the hon. Member for Congleton talks about fathers being registered on birth certificates. That is fine, but an Office for National Statistics report on registration identified the fact that the vast majority of fathers are registered on birth certificates and that of those who are not, something like two thirds or a third are identified as being very much involved with the family. The idea that the registration of a father on a birth certificate will somehow solve some sort of problem is—I will not say laughable—only one element of the totality.

[Andrew Selous]

Will the hon. Gentleman give way?

[Peter Dowd]

I will, but the hon. Gentleman will appreciate that I do not have much time.

[Sir David Crausby (in the Chair)]

Order. Interventions should be short.

[Andrew Selous]

It will be, Sir David. The point that my hon. Friend the Member for Congleton (Fiona Bruce) was making was that if registrations take place in family centres, the fathers become more involved in what the family centre can provide.

Briefly, in the impact assessment of the Child Poverty Act 2010, which was introduced by the hon. Gentleman’s party when it was in government, there was a recognition that, although poverty leads to family breakdown, family breakdown also leads to poverty. Is that still the Labour party’s position?

[Peter Dowd]

We would reintroduce the targets that we set in relation to child poverty, which the hon. Gentleman’s Government got rid of. That is what is frustrating—Conservative Members are coming to us with all these ideas that the Labour party had for many years and which the Conservative party got rid of when it came to power. The Government got rid of all the things that hon. Members have been talking about and introduced austerity. They said, “Austerity is here. We’re all going to play our part. We’re all in the boat together,” but in reality, we are not.

Although I recognise many of the worthy points made by hon. Members, that worthiness has got to be put in place, not by mechanisms, but by everybody playing their part in society and paying their taxes, and by corporations not getting tax breaks or being able to avoid this, that and the other. The point that the hon. Member for Stafford makes about tax reliefs is fair; I will potentially look at them.

There is a complicated pattern, and on that basis, although I understand some of the points that the hon. Members for Congleton and for Stafford have made, I would say that actions speak louder than words. We need more action and fewer words.

10:49

[The Financial Secretary to the Treasury (Mel Stride)]

It is a great pleasure to serve under your chairmanship, Sir David. I thank my hon. Friend the Member for Stafford (Jeremy Lefroy) for securing this debate and my hon. Friend the Member for Congleton (Fiona Bruce) for her insightful contribution. I also thank my hon. Friend the Member for Bolton West (Chris Green) for his involvement in the important report issued this morning. I can assure all present that it will be carefully digested by Ministers in the Treasury.

At the heart of the matter lies the issue of fairness in the taxation system and the way in which the benefits system operates in our country. Also at the heart lies the central point that many speakers have made this morning as to whether the tax and benefits system appropriately incentivises aspiration—a Conservative ideal—and effectively incentivises employment, including incentivising people to go out and get jobs. And of course there is the impact of all those matters on the crux of the issue, which is the social impact of these measures on the stability of the family unit. I, the Treasury and the Government more broadly certainly recognise that all those points are of critical importance. I am particularly proud that Conservative Members chose to secure this debate and were instrumental in producing such a thoughtful and detailed report. It is the Conservative party that believes most strongly and passionately in the issues that lie at the centre of the matters we are debating today.

Having accepted that the matters are important, I also accept the many examples given in the debate today on the way in which the system does not work effectively. The most important has been the very high level of marginal tax rates. Several examples were chosen of particular circumstances involving individuals and children and the make-up of families to illustrate that we can, under certain circumstances, have marginal tax rates as high as 73% or even beyond. I accept that that is deeply undesirable. That is not the same thing as suggesting that the entire system is broken. If we chose different examples we might get far lower marginal tax rates than those that have been rightly highlighted in the report and in the debate today. Indeed, the OECD has indicated that across the universe of low-income families in this country, we are above average when it comes to making sure that net income is received by those families. However, there will always be more to do, which is why this debate is important.

We should not overlook the fact that we have a very progressive tax system. Some 28% of all income tax is paid by the top 1% of earners. In the previous Budget, we met our manifesto commitment to increase the personal allowance to £12,500 one year early. It will come in next year and take millions of the lowest paid out of tax altogether. In case it is felt that only the lower paid face very large rates of marginal income tax, we must bear in mind that, under the current system, once someone earns beyond the large amount of £100,000, the personal allowance is tapered away at a rate of £1 for every £2 earned. At that point in the income distribution, wealthy people pay a marginal rate if we include national insurance of 63%. A necessarily complicated tax system, because it tries to do many things at the same time, throws up all sorts of deeply unsatisfactory anomalies. The complexities of the tax system and the interaction with the benefits system means a complicated challenge ahead.

Low tax matters. My hon. Friend the Member for South West Bedfordshire (Andrew Selous) put it eloquently. Low taxes matter for reasons other than fairness. They drive the economy, jobs and entrepreneurship. They make sure that we have, for example, halved the level of youth unemployment since 2010. He cited the very good example of Greece and other countries where they have taken a different way and have paid the consequences. The Government remain committed to lower taxes and to simplifying them to the extent possible and to making sure that the anomalies raised today are addressed.

On the benefits system, much has been said about universal credit. We all recognise that when the Labour party was in government, its benefits system was overly complicated. People had to go to the DWP, to the local housing authority and to HMRC to qualify for a variety of benefits, but we have simplified that to one benefit. When it comes to making work pay, which lies at the heart of many of the arguments, universal credit does exactly that. People no longer have the 16-hours-of-work cliff edge, beyond which they lose all their entitlement.

[Alison Thewliss]

Will the Minister give way?

[Mel Stride]

Extremely briefly.

[Alison Thewliss]

Does the Minister accept the research by the Church of England that a single mum with three kids will have to work 45 hours to make up for his cuts?

[Mel Stride]

The point I was coming on to was the taper. In 2016, we announced a reduction in the taper rate from 65% to 63%. My hon. Friend the Member for Congleton called for it to be reduced further to 50%. That is a deeply desirable move if it can be achieved, but we must recognise the cost of doing so. The cost of having gone from 65% to 63% is £1.8 billion across the scorecard period. I do not have the figure to hand, but it would be absolutely enormous if we went to 50%. With great respect to Members, even the examples of where we could do more, such as tax relief on higher-rate pensions or the changes to child benefit and the way in which that might operate, would be dwarfed by any such move. We have to recognise, as my hon. Friend the Member for South West Bedfordshire explicitly did, the costs of making the changes that have been proposed.

The Conservative party introduced the national living wage. We should be enormously proud of that fact. It goes up by 4.9% in April, so those in full-time employment will take home £2,750 more than they did in 2010[Official Report, 31 January 2019, Vol. 653, c. 6MC.]. The marriage allowance is an example of exactly what the report calls for. Among the measures are a transferability of allowance to make provision for those who stay at home to look after children or elderly relatives. It transfers at a rate of 10%, provided the person is not a higher or additional-rate taxpayer. Once again, it is focused on the lowest paid in our society. We spent time reflecting on child support. We will spend £6 billion more per year by 2020, and we brought in tax-free childcare. If someone is on universal credit, they are able to claim back up to 85% of the cost of childcare.

In the remaining couple of minutes, I will respond directly to the overarching request made of me this morning, which is that I go back to the Treasury with the report and the comments made in this debate and look genuinely and deeply at the issues raised. I can give an unequivocal commitment to do precisely that because, despite what is going on in the House at the moment and the important vote tonight, certain things must continue uninterrupted. Our essential quest for social justice and the Conservative party’s commitment to the family and a society that is at ease and at one with itself, must not be diminished. The House has my commitment to do exactly as I have said. I will engage in the form that my hon. and right hon. Friends wish me to to make sure that we push forward on the important issues raised today.

10:58

[Jeremy Lefroy]

I thank all Members for their contributions today. Extremely important points have been made. I thank the Minister for his commitment to look at this area, and I thank my hon. Friend the Member for Congleton (Fiona Bruce) for driving this forward, together with other colleagues here today. I also thank the hon. Member for Glasgow Central (Alison Thewliss) who made important points. I do not agree with all of them, but two need looking at, including the two-child limit, about which I have concerns. I am really pleased about the announcement made this week, but we need to go further. Secondly, I entirely agree with her on bringing families together. I have experience of that in my own constituency.

I also agree with the hon. Member for Bootle (Peter Dowd), who speaks for the Opposition. The Labour party did some extremely important things. Some were reversed, some maintained, and some I would like to see brought back. We need to go further. He is absolutely right: there is no monopoly of virtue or vice in this area in any party. We all have to work on this for the benefit of our constituents.

Question put and agreed to.

Resolved,

That this House has considered the taxation of low-income families.

Sitting adjourned.