Taxation of Low-income Families

Debate between Fiona Bruce and Andrew Selous

Wednesday 16th January 2019 Westminster Hall

[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.