Finance Bill

Lord Jackson of Peterborough Excerpts

Monday 2nd July 2012 Commons Chamber

[Helen Goodman]

As I explained to her hon. Friend, I do not think it strikes a good balance because the children who live in families with lots of siblings are the children who live in poverty. I know that Conservative Members are not as committed to addressing child poverty as were the last Labour Government, and we will see the results of that as we go through this Parliament. I regret that. I am surprised that the hon. Lady, who is in general a practical, well-rooted person, does not see the power of that point.

Another issue is the fiddly definitions of partnerships and the difficulty that Ministers will have in establishing what those are for the purposes of the measure. The measure is both administratively fiddly and extraordinarily mean. It will affect more than 1 million families; about 1 million people are going to lose £1,300 a year. That is a significant sum and I wish that the Government would take more seriously both the practical and the fairness arguments that we are making.

The Minister has still not addressed one final issue: people who at the moment get national insurance credits by claiming child benefit. They will lose their national insurance credits, which will impact on their pension entitlements for many years to come.

I hope that the Minister, even at this last stage, will have a last-minute conversion.

[Mr Stewart Jackson (Peterborough) (Con)]

I say gently to the hon. Member for Bishop Auckland (Helen Goodman) that it is incumbent on her party to offer suggestions for alternative sources of funding, rather than the endless criticism. I speak as someone who is generally extremely sceptical of the policy, but alternatives came there none from the Opposition. Even the alternative offered by my hon. Friend the Member for Cities of London and Westminster (Mark Field) was cursorily rejected by the hon. Lady.

I have been consistent on the issue since it first arose at the end of 2010, following the Chancellor of the Exchequer’s announcement. It would be churlish and unfair of me not to concede that he took on board the issue of the cliff-edge effect. He sought to ameliorate that perverse issue with the taper system, which was broadly supported on the Government Benches.

Apart from administrative issues, there are a number of other criticisms that were comprehensively covered by the hon. Member for Kilmarnock and Loudoun (Cathy Jamieson). For example, the Government are not abiding by their own tax consultation policy. My hon. Friend the Exchequer Secretary, who is proud to have been the tax personality of 2010, launched a document called “Tax policy making: a new approach” in June 2010. He also responded to the public consultation of December 2010, which called for thorough consultation and cost-benefit analysis and impact assessments for key stakeholders. That has not happened in the case of this change, which will affect 790,000 couples and 30,000 lone parents who will lose the entirety of their child benefit allocation, and 330,000 couples and 20,000 lone parents who will lose some of it. That is a major problem. Apart from the lack of consultation, we still have the unfair situation that a single-earner couple earning just above the threshold rate, which was then £42,475, will lose child benefit, but a two-earner couple earning just under that amount will receive it in full. That has not been properly addressed.

As my hon. Friend said, we have a moral responsibility to focus on clearing up the deficit left to us by the previous Administration, but this proposal, in particular, fails on the grounds of fairness. How can it be right? It will send the message that ambition is wrong, that the basic tenets of fairness will be disregarded, and that there will be a perverse anti-marriage and anti-home maker bias and an attack on hard work, ambition and family responsibilities.

The policy means that a two-earner couple with two children on a combined income of £100,000 will keep their child benefit while a one-earner family with two children on just over £50,000 begin to lose it and, if their income rises to £60,000, lose it completely. The former household is already far higher up the income distribution yet keeps its child benefit, while the latter household, which is lower down the income distribution, loses it. Let us remember that this proposal was predicated on clobbering the top 15% of the income distribution, but it does nothing of the sort. Only if the family has one child will they be in the eighth decile of the income distribution; if they have two, three, four or more children, they will, largely speaking, be skewed towards the middle. We are not clobbering the richest in society; we are clobbering people who want to do well and are ambitious and aspirational. Unfortunately, that will have perverse consequences that will backfire on this Government politically and in terms of what is needed to make sure that the administration of the system works properly.

This issue is inextricably linked to the popular commitment that we made in the 2010 general election to give a tax break for marriage and families, which we have not yet carried through. We need to keep faith with that, particularly as the coalition agreement guaranteed the Liberal Democrats, who had some ideological problems with it, the chance to abstain. If the Government want to keep the faith with the people who elected us as Conservative Members of Parliament, they should make sure that that is in the pipeline now, because after April 2013 administrative difficulties with IT systems might preclude its coming to fruition.

In terms of cash in the pocket and real tax bills, a one-earner, two-child family earning £60,000 currently pays £13,950 in tax per annum while a two-earner, two-child household with each person earning £30,000 pays just £8,768. That difference will increase substantially as a result of these tax changes. The first family will see their bill rise to £15,667, meaning that there will be a substantial difference of 59% between the tax paid by the two families.

[Nadine Dorries]

To go back to the point made by the hon. Member for Bishop Auckland (Helen Goodman), there are more financially astute means of dealing with child poverty and with large numbers of children than a universal benefit in the form of child benefit.

[Mr Jackson]

My hon. Friend makes an important and astute point, which is that the Rolls-Royce minds at the Treasury, of whom the hon. Member for Bishop Auckland (Helen Goodman) was one, can surely find alternative methods to collect income. We know that the deficit is a problem that the Government have to grapple with, mainly because of the splurge of public expenditure under the last Government and the debt millstone that they left. We must look at all the alternatives, including putting a cap on the number of children, such as two or three. Incidentally, that policy is hugely popular with the public, according to polls taken in the past few weeks.

The higher income child benefit charge fails on at least two bases. First, it is transparently unfair, because it treats families on lower incomes more harshly than those on higher incomes, merely because of the way in which the incomes come to them. Secondly, in the distinctions that it makes, it discriminates between different types of families in a way that is profoundly unenlightened and completely unacceptable. I urge Treasury Ministers to think carefully about the alternatives. This is a potential disaster in the making. It is unfair. I ask them to think again.

[Several hon. Members]

rose—

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[Mr Gauke]

Speaking as a Conservative, I consider that all the British people are our people.

By raising £1.8 billion by 2014-15, we will ensure that those with the broadest shoulders bear the greatest burden. That was why my right hon. Friend the Chancellor announced that we would seek to withdraw child benefit from higher rate taxpayers. We always said that we would consider ways to implement the measure, but we have been clear that a complicated new means-testing system, which is what would happen if we extended the tax credits system in the way that some have proposed, would not be a sensible way forward. Instead, we should look to existing systems and processes to ensure that we can achieve our goal.

Clause 8 withdraws financial gain from child benefit from families in which one partner has an income of more than £60,000, and reduces the gain if one partner has an income of more than £50,000. It does so in the most efficient and pragmatic way possible, applying a tax charge on those high earners using existing processes. That charge will apply to an individual in receipt of child benefit, or to their partner if they are married or in a civil partnership or living as if they were married or in a civil partnership—a point that the hon. Member for Kilmarnock and Loudoun (Cathy Jamieson) made. That is an existing definition of partners within social security legislation and means that other adults living in the household will not affect the liability.

The changes will not affect those receiving child benefit who have income under £50,000, or whose partner does. Some 85% of families receiving child benefit, or 7 million families, need not be troubled by the changes. If an individual or their partner has income of more than £50,000, the charge will be tapered depending on their income. The equivalent of 1% of the child benefit award will be charged for every £100 increase over £50,000 in adjusted net income. Child benefit will be withdrawn in full only at an income of £60,000. Furthermore, the thresholds between which the taper will operate will not depend on the number of children.

The changes will take effect from 7 January 2013, and the individuals affected will include information relating to the charge on their self-assessment returns for the first time for the tax year 2012-13. The first payments of the charge will be due by 31 January 2014 if a taxpayer chooses to pay in a lump sum. Those affected will be able to opt out of child benefit payments—that answers a question that my hon. Friend the Member for Mid Bedfordshire (Nadine Dorries) asked. Some may wish to do so, although Her Majesty’s Revenue and Customs will set out clearly the options and implications. For example, if an individual’s income were to fall below £60,000, they may revoke their election not to receive child benefit, and payments would be resumed.

[Mr Stewart Jackson]

If my hon. Friend is going to consider the efficacy of different policies, will the Treasury undertake to consider alternative sources of funding as a corollary to this change, such as a cap on the number of eligible children?

[Mr Gauke]

My hon. Friend and other hon. Members have made the case for a cap on the number of children receiving child benefit. I hear his point about an alternative policy, but we must ensure that the child benefit regime provides support for those who need it most. The policy for which we are legislating maintains that principle—those on the lowest income will retain support.

The Government strongly discourage anyone from not registering for child benefit on the birth of their child, even if they decide to opt out of receiving payments. The child benefit system does not process only child benefit, and failing to register can affect state pension entitlement and make it less straightforward for the child to receive a national insurance number when they turn 16. It is therefore important that children remain registered.

Amendments 21 and 22 would allow those on the taper who have opted out of child benefit retrospectively to receive the payment. I am pleased to confirm that HMRC will apply the legislation as it is to enable such a claim to be made. I can therefore reassure the hon. Member for Kilmarnock and Loudoun that the amendments are not necessary. As I have said, the legislation provides a claimant whose income, or whose partner’s income, is more than £50,000 with the opportunity to elect not to be paid child benefit, so they are not liable for the high income child benefit tax charge. A claimant who has elected not to be paid child benefit can subsequently revoke that election and ask HMRC to reinstate payment of child benefit.

The payment of child benefit would then normally be made from the first pay day after the revocation has been received by HMRC, and not from the date when child benefit was first stopped. That is because it would make no sense to pay arrears of child benefit to those whose income, or whose partner’s income, is more than £60,000. However, the legislation provides for retrospective revocation when a claimant discovers that, contrary to their original expectations, they do not have an income of £50,000 or above. That retrospection will be limited to two years after the end of the tax year to which the original election applies. That means that child benefit can be paid for up to that two-year period.

When a child benefit claimant or their partner has income of between £50,000 and £60,000, the decision whether to elect to receive child benefit is not so clear cut, because the amount of the tax charge is dependent on their income. HMRC recognises that a couple might be nervous about making an election if a later decision to revoke the election would apply only to future payments, leaving them worse off. The legislation provides HMRC with the power to issue directions as to how the election process will be administered. I hope I have cleared up that point.

Let me try to deal with the few remaining points. Draft guidance is being prepared over the summer, during which time HMRC will consult external representatives, including the Social Security Advisory Committee and the HMRC benefits and credits consultation group. The directions will confirm that an election that has been made by a claimant whose income or whose partner’s income is between £50,000 and £60,000 can be revoked retrospectively, to the point at which the child benefit ceased.

I have dealt with this point on the state pension, but it is possible to be registered even if people are not receiving cash. I have also dealt with the point on the definition of partners used in the Bill. As for the argument that the measure is complicated, we have looked at alternatives, but we think the measure is the best available to us. On the principle of individual taxation, HMRC is committed to protecting confidentiality. For taxpayers who are unable to discuss their incomes with each other, HMRC will develop a process with appropriate security checks so that they can answer yes or no to simple questions about the income of their partner.

As I have said, the Government have had to make difficult decisions. The measure means we can continue to provide child benefit, and so, in a sustainable manner, protect those who need it the most. We accept that this is not an ideal situation, but the budget deficit left by the previous Administration is the challenge we must overcome if we are to avoid a far worse predicament. I urge the Opposition to withdraw their amendment.