High-income Child Benefit Charge

Alison Thewliss Excerpts

Tuesday 3rd September 2019 Westminster Hall

[Alison Thewliss (Glasgow Central) (SNP)]

It is a pleasure to serve with you in the chair, Mr Hollobone. I thank the hon. Member for South Thanet (Craig Mackinlay) for bringing this debate on an important issue that highlights a real gap between the Government’s intention and their delivery, which is failing a lot of people. He laid out the limitations of the policy, which was headline-grabbing but has proven to be almost entirely ineffective and bureaucratic. It takes a benefit that ought to be one of the simplest—child benefit, paid to help children as an important universal benefit—and whittles away at it until it becomes a complex bureaucratic system that people will find difficult to access.

Organisations such as the Women’s Budget Group have long argued that the UK Government’s approach to balancing the books is gendered and does not stand up to the most rudimental scrutiny from an equality perspective. This policy is a key example of that. Budgets and spending reviews come and go, but we are yet to see any real strategic direction in tackling gender inequality. The hon. Member for South Thanet mentioned that it removes the independence of individuals in the tax system. In doing so, it sets the scene for universal credit, which also removes independence by treating people as a household rather than individuals, and damages women’s financial ability in a relationship. In many cases, women are left in the grips of financial coercive control, and they do not have the financial ability to get out of an abusive relationship.

Looking at this policy, it is no surprise that women, particularly mothers, are disproportionately affected. The UK Government have failed to make it clear to stay-at-home mums that even if they are not eligible to receive child benefit, they should still claim it and subsequently fill in a self-assessment tax return and pay the money back, in order to receive those national insurance contributions. This is not an intuitive process; in fact, it is quite the opposite. Self-assessment is complex and stressful. As the hon. Member for Strangford (Jim Shannon) said, people get lost in the complexity of the system. They are worried about getting it wrong, and they might have to get accountants involved. That should not be the case for something as simple and basic as child benefit—the money should follow the child.

When I was elected, I knew vaguely about the child benefit process. I panicked, phoned up and cancelled the child benefit I had previously received when I was a local government councillor earning considerably less than I do now. If MPs are led to panic, what chance does anyone else have? It is absurdly convoluted and beyond the reasonable expectation that most people would have of such a system. It is a very concerning prospect that this policy could store up significant problems for the future, as the hon. Member for South Thanet set out. Many of my constituents are suffering now from previous derelictions of duty in long-term pension planning. We have all heard horror stories of the Women Against State Pension Inequality Campaign; women were not told that their pensions had changed until 14 years after the policy was introduced. There is every chance that a new generation of women will run into similar problems.

The child benefit form that is issued to parents is not particularly simple. It includes a statement that claiming child benefit can help to protect someone’s state pension, but it is not clear enough what that actually means and what the future implications will be. The Treasury believes that 200,000 parents may be affected. It fails to make it clear that a non-working parent—usually the mother—should be the one to fill out the benefit form in order to build up those credits. It has been suggested that an easy short-term fix would be to change the form, but we need to look at long-term solutions. Would the Minister consider a review of the policy in the round, to actively look for cases of error where people may have unknowingly built up a gap in their pension contributions? We need to alert those affected. The Government have a duty to make sure that people get the money back, because they have not been clear enough.

It has been suggested that a claim should be triggered automatically when a birth is registered; that may be worth exploring in more detail. Will the Minister make an interim change to the wording on the form, and order a longer term review of this whole bourach of a process? Most parents will say that when they have a newborn baby in their arms, the last thing they want to do is fill in an extensive form about incomes. Of course, incomes will change—sometimes dramatically—over the course of a child’s life. Those kinds of things have happened again and again, and now we have the effect on the economy of the chaos of Brexit coming in.

As I mentioned, it is a distressing thought, but the reality for many women is that their partners seek to exercise financial control over them. That small amount of money can be incredibly important to a woman making plans to leave an abusive relationship, so child benefit must not be removed by making it more difficult to access. The higher earning person in that household—often the father—may say, “Don’t you worry about it; you stay at home and I’ll earn the money. You don’t need to worry about this”, which removes the woman’s chance of being financially independent. The notion that a woman has to know her partner’s intimate financial details is quite unusual. My husband and I have separate bank accounts. I have no idea what he earns, but I was expected to phone up and give intimate details to someone over the phone. That will be all the more difficult for a woman in a situation of financial coercive control, and it will give the male parent a huge amount of control.

The Minister must look at this in significant detail. He must try to assess the issues and put them right before we end up with another situation like that of the WASPI women. We cannot have another situation in which women are disproportionately affected by an ill-thought-through Government policy from Westminster.

--- Later in debate ---

[Jesse Norman]

The judgment made in 2013 was that it was appropriate to claw back some of the money paid to people on higher incomes and that everyone should make a fair contribution to removing the deficit while supporting those on the lowest incomes. I think that was the right judgment. Of course, for a minority of claimants where either they or their partner earn more than £50,000 in adjusted net income, there is a requirement to pay the tax charge or to opt out of receiving child benefit payments and therefore not pay the charge.

It is a fair criticism, made eloquently by my hon. Friend the Member for South Thanet and others from across the House, that the charge does not take into account overall household incomes, so it is possible—and it does happen—that a single parent earning more than £50,000 is liable to the charge while a couple each earning up to £50,000 is not. That is because, as he said, the charge is a tax, calculated in accordance with the principles of individual taxation at the individual level alongside other tax policy. Here we have one of those difficult decisions for the Government about what is the right thing to do. The judgment made in 2013 was that it was better to take that approach than to base a charge on household incomes, because that would require HMRC to assess annually both household composition and the incomes of everyone in the 8 million or so households eligible for child benefit, which would effectively introduce a new means test, creating a substantial administrative burden on both the state and families. That is the dilemma.

The effect of the charge is to introduce a high marginal tax rate. That is an unattractive aspect of the policy; we should be clear about that. If I may say so, it is not a salutary lesson in how not to withdraw a benefit, because the alternatives of not levying the charge at all or levying it on a cliff edge rather than by gradual withdrawal are worse. It is open to others to take the view that one of the alternatives is better, and my hon. Friend may do so, but not subject to the fiscal constraints in which we have operated.

A series of questions were raised about HMRC communications. As my hon. Friend recognised, the Revenue and Customs took considerable steps to raise awareness of the higher income child benefit charge. It wrote to about 800,000 affected families when the charge was introduced. It also ran a high-profile advertising media campaign and included a prominent message about the charge in 2 million letters to pay-as-you-earn-only higher rate taxpayers. There was a considerable communication process.

Today, to respond to the question from the hon. Member for Strangford, information on the charge is included in packs for new parents telling them how to claim child benefit. The front page of the child benefit application form includes a prominent message about the charge to help people make a decision on whether they should claim and be paid child benefit, about the importance of claiming even if they do not receive payments, and about the important issue of eligibility, which was rightly highlighted in the debate. Guidelines are available online formally through gov.uk and through innumerable organisations and groups.

As my hon. Friend the Member for South Thanet mentioned, individuals who pay the charge need to make a self-assessment tax return and may face a failure to notify penalty if they do not. I think he will know that HMRC announced a review of cases where a failure to notify penalty was issued for three tax years. It reviewed 35,000 cases and responded by reviewing the amount for over 6,000 people.

There are many other points to cover in the short time that remains. My hon. Friend said that 500,000 people have been forced into self-assessment. I am happy to write to him on that. As he will be aware, the current number paying the charge through tax returns is 293,000. Of course, there are some 40 million people in pay-as-you-earn. He also said that the charge has dragged 1.2 million people into the system. I am not quite sure about that, but if he wants to contact me, I will be happy to assist him further.

The hon. Member for Glasgow Central said that the charge is a gendered policy. I do not think that is true at all, and many other aspects of Government policy do not reflect anything like that position, as she will be aware. For example, there is extensive work in supporting women as entrepreneurs and women in business.

[Alison Thewliss]

Will the Minister give way?

[Jesse Norman]

I really cannot; I have two seconds left.

The hon. Member for Oxford East mentioned fiscal drag. That is an important issue, but I do not think she is right that the charge has removed the universal nature of child benefit; it merely allows for a charge against it.