High Income Child Benefit Charge

(Limited Text - Ministerial Extracts only)

Thursday 2nd February 2023 Westminster Hall

[The Financial Secretary to the Treasury (Victoria Atkins)]

It is a pleasure to serve under your chairmanship, Mr Stringer. I congratulate the hon. Member for Linlithgow and East Falkirk (Martyn Day)—I hope that I pronounced that correctly—on securing this important debate. I say from the very outset that I understand the experiences of his constituents that he described, and I hope that in previous correspondence we have acknowledged the tension—I suppose that is the word—of these points in the tax system, not just in the context of child benefit but across the tax system. There are points of tension where the next rating, if you like, of taxation falls, and those have repercussions. I promise him that I spend a great deal of my time considering that, not just in this context but, as he will appreciate, across many other forms of taxation.

Child benefit is an incredibly important form of state assistance. Historically, many decades ago, in previous generations when women did not tend to work or were not permitted to work in the way that, thankfully, we are nowadays, child benefit was often the way in which they could feed and clothe their children. Although our working economy has, thankfully, changed in so very many ways since then, we as a Government want to maintain that link between the state and helping families to raise children who need the help.

We genuinely understand that, for the lowest paid or the poorest of families, child benefit payments are vital to help families pay for clothing, food and other essentials. Some 7.7 million families are helped with the cost of raising their sons and daughters, and the Government are keen to continue that tradition. That is why, when we had to make difficult decisions in the autumn statement, we protected child benefit in real terms, which means that from April this year, subject to us approving it in due course in the Finance Bill, child benefit will rise in line with the consumer prices index, or 10.1%.

Of course, there are other ways in which the Government and local authorities offer support to parents with childcare responsibilities and costs, including for example early education through the Department for Education’s free hours entitlements and financial support for childcare through tax-free childcare and universal credit childcare offers. We all want to ensure the very best start in life for our beloved children.

The difficult challenges that we face in the wider economy, not just domestically but internationally, are having an impact on families up and down the country. Many of the worries circle around rising prices, or inflation. That is precisely why, in his new year speech, the Prime Minister pledged to halve inflation by the end of the year. We understand that if prices are rising, our money does not go as far. We want to ensure that we can halt the pace at which prices are rising, so that our hard-earned money goes further.

We have also taken decisive action to support households with those pressures over this year and the next, including by helping millions of the most vulnerable households through the additional cost of living payments over this year and next; the energy price guarantee, which will save households £900 this year and £500 next year; and the support for all UK households provided through the £400 energy bill support scheme. But we need to continue with our plan for stability and fiscal prudence and to be responsible with the nation’s finances. That is why we want to ensure that welfare spending remains sustainable and focused on those who most need the help. We continue to support the vast majority of families with child benefit payments, but the high income child benefit charge allows us to maintain that sustainability.

The charge affects a small proportion of child benefit claimants—namely, those who have relatively high incomes. The hon. Member for Strangford (Jim Shannon) questioned the threshold. I hope that I can offer him some reassurance, on a national scale. In 2019-20—the last year for which I have been provided with figures—about 373,000 individuals in the UK declared a HICBC liability, HICBC being the acronym that the Treasury uses; I prefer what the hon. Member for Linlithgow and East Falkirk said—“the charge”. However, the vast majority of those 373,000 individuals have incomes above the UK higher rate income tax threshold of £50,270. That is in the context, as I have said, of 7.7 million families being assisted with the cost of raising children.

Many of the individuals who earn above the £50,270 mark will earn between £50,000 and £60,000, so they will not be required to pay back the entire value of their child benefit, because it is tapered in that £10,000 spectrum. We have, I am told, never aligned the threshold for the charge with the UK higher rate threshold or, indeed, other thresholds for income tax. Of course, I note that in Scotland the Scottish Government have set the higher rate threshold for Scottish income tax at a lower rate of over £43,000. We are very concerned that raising the threshold above the £50,000 figure would come at a significant cost to the Government at a time when support is needed for vital public services.

[Douglas Chapman]

Will the Minister give way?

--- Later in debate ---

[Victoria Atkins]

I was just about to come to the hon. Gentleman’s question about universality, if that is the point on which he is seeking to intervene. He raised the issue of universality, and my response to that would be that he and others are rightly focusing on the challenge of people just over the £50,000 mark or, indeed, making comparisons with couples who individually earn under the £50,000 mark but together obviously earn nearly £100,000. I do not quite know how I would justify extending child benefit to couples who earn significantly in excess of £50,000 each. Perhaps a mile or two down the river, in the City, there may be couples in banking, the finance sector and so on who are earning not just hundreds of thousands of pounds but even more. I for one would much rather that the tax paid by our constituents —those of the hon. Member for Dunfermline and West Fife and mine—was focused on those constituents on whom we have rightly focused, namely the poorest paid, rather than those earning astronomical salaries.

[Douglas Chapman]

The point that I wanted to make was actually about whether we could get a view on the example that I gave of family 1 and family 2 and the inequity that there is for certain families. It may be that both parents or partners are under the limit but in total they earn a lot more than £60,000. I think that that is something that the Government could look at a bit more generously.

[Victoria Atkins]

I very much understand this point. I do not know whether the hon. Gentleman was involved at all in the scrutiny of the Bill that became the Domestic Abuse Act 2021, which I had the privilege of taking through the House a year or two ago. Interestingly, one of the challenges that his SNP colleagues put to me, in the context of universal credit, was that universal credit is paid per household. They made the point that, particularly for victims of domestic abuse, they would prefer it to be paid to the individual. The reason why I raise that is that we have a long-standing tradition—since, I am told, the 1990s—of individual taxation. I, as a feminist, am entirely comfortable with being—indeed, demand the right to be—taxed on my income, rather than that of my husband. The system of independent taxation being what it is, every individual, including each partner in a couple, is treated equally and independently within the income tax system. That means that the child benefit charge, sitting as it does within the income tax system, must adhere to those principles; that is the idea behind it. I acknowledge the tensions that the hon. Members for Dunfermline and West Fife and for Linlithgow and East Falkirk have raised regarding those families where people fall just below the threshold, but Governments of all colours must do that kind of balancing when setting thresholds and rates of taxation, and so on. That is why the charge is set as it is.

[Jim Shannon]

I am a very simple person, and I am trying to work this out—the hon. Member for Dunfermline and West Fife (Douglas Chapman) referred to this example as well. If two people earn £49,000 a year, it is okay for them to have the benefit, but if one person earns £52,000 a year and their partner earns £10,000, that makes them liable for extra tax. Surely, the Government should look at that again—a collective income of £98,000 against a collective income of £62,000.

--- Later in debate ---

[Victoria Atkins]

It is precisely because we are taxed as individuals. When HMRC considers the self-assessment forms that, I hope, colleagues across the House sent in in good time before the 31 January deadline, those forms will be considered on the basis of individuals’ own circumstances: we do not look at the circumstances of those individuals’ partners and tax them on their partner’s income. That is the underlying principle.

I accept that that principle rubs up against this particular policy, but I would be concerned about doing otherwise, and not just from the perspective of it chipping away at the principle of individual taxation. When we debate means testing, we ought to consider that we would be beginning to ask HMRC to collate data about people’s relationships and family setups in the context of collecting taxation. While there may be circumstances in which that happens, I do think we need to tread very carefully: for example, means testing would mean that individual taxpayers would have to explain their family setup to HMRC. Of course, family situations can change—relationships break down and relationships are formed—and at the moment, that sort of information is not collected by HMRC through self-assessment. I think we would all want to be sure we were comfortable with that information, and the burden of telling HMRC about it, being part of an individual’s self-assessment.

HMRC holds records on individual incomes, allowing it to identify who is liable for taxes, and communicates with those people as appropriate to encourage compliance. Basing the high income child benefit charge on household income would require all families in receipt of child benefit payments to report their household income data to HMRC in order to ensure compliance, which I think would be a significant administrative burden on not just HMRC but, more importantly, the families we are seeking to represent. Of course, as the hon. Member for Strangford has highlighted, some of those claimants will be on very low incomes, nowhere near the threshold of £50,000. Again, I wonder about the unintended consequences for such people.

The hon. Member for Linlithgow and East Falkirk asked me a question about men. I am sorry that I did not have a chance to note it down, but I hope we will be able to discuss it after the debate and that I will be able to provide him with an answer, even if not immediately.

I am keen to address the matter of complexity because, again, I have heard and understood the experiences that hon. Members have highlighted of the complexities for people who perhaps are PAYE employees but have to submit a self-assessment tax return. The reason for that—this is where the tax technicalities of my role come to the fore—is the charge is based on the amount of an individual’s adjusted net income, which is an individual’s total taxable income before any personal allowances and less certain tax reliefs. Using that measure avoids using estimates of income that could result in too little or too much tax being paid. For example, it allows people who have saved more into their pension or have donated to charity to have that reflected in their income self-assessment. That is the only way we have of establishing a person’s adjusted net income, but we have tried to help people with the administration of this. Indeed, there is a calculator on gov.uk to help people work out how much tax they may have to pay, which I hope will be of assistance for colleagues corresponding with constituents.

HMRC takes steps to notify those who may need to complete a tax return, including writing to 70,000 people each year to notify them and outline what they need to do to pay. Of course, families can claim child benefit but opt out of getting payments. That means they do not have to pay the charge but can keep the non-monetary benefits of claiming child benefit, such as the national insurance credits for state pension reasons, which the hon. Member for Linlithgow and East Falkirk referred to.

On the point of families deciding not to claim child benefit, the question was asked, “What does that mean in terms of national insurance credits and numbers?” I hope I can assure the hon. Member by telling him that a national insurance record can be filled in a number of ways, not simply through child benefits. Not everyone will require the national insurance credits that come with child benefits, and individuals may build up sufficient qualifying years over an expected working life of 50 years even if there are some gaps in their NI record, which of course may happen because of caring responsibilities. Most individuals under the age of 50 will get a full state pension with 35 qualifying years, and we encourage people to claim child benefit regardless of their income to help them build the qualifying years of national insurance. In terms of the child’s national insurance number, if a person claims but opts out of receiving payments, HMRC will give that national insurance number to the child automatically, but if the family do not claim at all, there is an online service provided by DWP to enable the child to obtain a national insurance number. I ask Members to please let their constituents know of that service if they are not aware of it.

The hon. Gentleman asked about the Wilkes case and made the point that the changes arising from the case were retrospective. Obviously, we have to have heed to the ruling in that case, so we have legislated to put beyond doubt that the longstanding rules that HMRC uses to recover tax that it discovers has not been assessed can continue to operate in relation to the charge. All the taxpayers who have been assessed were still liable for the charge and nothing in the court’s judgment called that into question. Indeed, I am told that this has been operationalised in recent times. Anyone who has concerns about bills or letters that they receive should be encouraged to contact HMRC, because, when tax is owed, time can be given in the right circumstances to pay it, for example, so that we ensure that we are supporting people with their tax affairs.

I hope that I have addressed many of the interesting points raised by hon. Members across the House on this important topic. I very much understand and welcome the scrutiny that the House brings to this important benefit and the operation of the policy to ensure that the benefit is paid to those families who need it the most. I assure colleagues that we will always keep this and any other tax policy under review. We will listen to colleagues on how the system can be improved for the benefit of families, carers and children. I hope that I have reassured hon. Members or at least explained the Government’s position on the policy, with the need to keep the public finances and, importantly, child benefit on a sustainable footing.