Child Benefit

Baroness Keeley Excerpts

Tuesday 22nd May 2012 Westminster Hall

[Roberta Blackman-Woods (City of Durham) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Streeter. I thank Gingerbread, the Child Poverty Action Group, the Institute of Chartered Accountants in England and Wales and the House of Commons Library for producing excellent briefings for today’s debate.

Eleanor Rathbone, the great advocate for family allowances, which we now know as child benefit, entered politics in 1909. It is extraordinary that, more than a century later, we have once again had to secure a debate in Parliament to champion the basic principles of child benefit. There have been threats to child benefit before, but since 1945 when family allowances legislation was introduced—a watered-down version of the child support that Eleanor Rathbone and others had campaigned for—only the coalition Government have introduced legislation for the demise of the principle of universality that underpins child benefit.

Not everyone on the Government side is happy with the proposed changes, as demonstrated by the lack, bar one or two, of any Back Benchers on the Government side who wish to take part in this debate. In an earlier debate, the hon. Member for Christchurch (Mr Chope) pointed out that the Government’s proposals ask those on higher incomes with families to contribute more, while those on higher incomes without children are not asked to contribute more. I do not see how that can be fair. I do not usually quote from the hon. Gentleman, especially in agreement, but he has hit the nail on the head.

I would like to concentrate on two issues: the destruction by the Government of the universal principle, and the unfairness and unworkability of the proposed changes. The principle long established and supported on a cross-party basis is that society as a whole should contribute towards the upbringing of children, because we all share in the benefits of a properly supported future generation. Arguing for family allowances, Eleanor Rathbone captured that exactly:

“Children are not simply a private luxury. They are an asset to the community”.

The logic of accepting that view is that in a properly functioning society transfers are made to families with children—not away from them to pay for tax cuts to millionaires.

Her Majesty’s Revenue and Customs recently put out a press statement on the proposed changes, which told us that the Government’s plans for changing child benefit are legal. I have been in the House for a number of years and I am not familiar with Government Departments telling us that policy changes are legal. I can only imagine that it must reflect a measure of concern about the Government’s incompetence that Departments have taken to doing so. My concern, however, is not about the legality of the proposed changes, but that they are wrong and should not happen.

The CPAG has summarised the benefits of child allowances. They achieve horizontal distribution between families, from those without children to those with children, life-cycle redistribution—most people have children at some point and we want to help whenever families are most pressed—and intergenerational redistribution, and they place a value on all children. For those reasons and many others, the benefit should be kept in its universal form. The changes are grossly unfair and probably unworkable.

The ICAEW has branded the legislation seriously flawed in principle and in practice. It points to many problems and I will highlight a few. HMRC will be using the tax system to claw back from one individual a benefit paid to the other, which could be extremely difficult as families in similar situations will be treated differently. Despite the introduction of the taper, the changes could still lead to a huge disincentive for individuals to earn more. The worst aspect of the proposed changes is that a family with a single earner who has an income of more than £60,000 is significantly worse off through the withdrawal of the benefit, while two-earner couples with incomes of up to £50,000 each will not lose the benefit.

[Barbara Keeley (Worsley and Eccles South) (Lab)]

My hon. Friend is making a great start to the debate. When meeting people in her constituency during the local elections, was my hon. Friend struck by how hard that unfair and unworkable aspect of the change is hitting them? One voter I met, who voted Conservative at the last election, said that he will never vote Conservative again because of the unfair nature of the changes. I spent a long time talking to him and he just could not believe that they were going to be introduced.

[Roberta Blackman-Woods]

My hon. Friend has made an excellent intervention. The unfairness of the changes goes to the heart of the debate. I suspect that as more and more people wake up to what will happen to their child benefit next January, we will see an even greater public outcry.

The changes disadvantage single parents, and partnerships where one person has decided to stay at home. With changed family circumstances, it may be very difficult to claw back payments or decide who should pay them. Taxpayers could be penalised for failing to submit information that they have no access to, particularly if the relationship breaks down. The extra administration involved could place huge burdens on HMRC at a time of budget restraint, and particularly at a time of cuts in staffing levels. We are therefore left with a number of questions.

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[Mr Chope]

I am grateful to the hon. Lady. On such issues, there is a slow fuse as far as members of the general public are concerned. They do not realise what the implications are until quite a long period has elapsed. We must look to people from outside the House—third parties, perhaps—to try to alert our constituents more to the full implications.

[Barbara Keeley]

Has the hon. Gentleman seen the Asda Mumdex index—a panel of 4,000 mums—sent to Members of Parliament yesterday? The optimism figure on the future of their family finances dropped from zero to minus eight in February, and the latest research found that it has dropped to minus 16. The issue may be on a slow fuse, but people out there—certainly, women in families—are starting to understand that the future looks rather bleak.

[Mr Chope]

I have not seen those figures, but they obviously speak for themselves. Despite that, I am not receiving as many angry letters from constituents as when, for example, I was the junior Minister dealing with the community charge. Let us recall that in 1987 the Government were elected with a specific manifesto commitment to introduce the community charge on the back of its success in Scotland. The proposal on child benefit that we are discussing today was not even in our manifesto. Indeed, it was expressly ruled out by comments made by both the Prime Minister and the Chancellor of the Exchequer in their shadow positions before the general election.

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[Mrs Sharon Hodgson (Washington and Sunderland West) (Lab)]

It is a pleasure to serve under your chairmanship this morning, Mr Streeter. I congratulate my hon. Friend the Member for City of Durham (Roberta Blackman-Woods) on securing this important debate and on her excellent speech. If the Minister was not already worried, he should be by now because, as anyone familiar with my hon. Friend knows, she is a tireless campaigner for her constituents and against injustice generally. I am sure that this debate will not be the last we hear from her on this issue.

I am also pleased to follow the hon. Member for Christchurch (Mr Chope), who gave an excellent speech. It is great to see him on the right side, even if he was not on for the poll tax. That shows that with age comes wisdom; I am pleased that the wisdom of his longevity has brought him to the right side on this issue.

We are discussing a complete mess, created by the omnishambles of a Budget, that has been allowed by Ministers to carry on for way too long. If we were being generous, we might suggest that the idea had been sitting on Whitehall shelves for some years, repeatedly pitched by numerous Sir Humphreys and batted away by successive Ministers until a particularly out-of-touch set of Ministers was easily convinced. Once the idea was out there, those same Ministers were too afraid to perform yet another 180° U-turn, so they turned only 150° instead. That would be the scenario if we were being kind.

If we were being less generous, we might wonder whether those out-of-touch Ministers were driving the idea through themselves, despite officials briefing them fully on how ludicrously complex it would be to implement and on the unfairness it would create. Perhaps the Minister will tell us which of those scenarios is the more accurate.

Either way, the high-income child benefit charge—that is what it is called—is a ridiculously complicated idea that fails the basic test of fairness. It is ridiculously complicated because the proposal is to introduce a tax in January 2013 that will not be collected until the following financial year, meaning an affected family with three children will be landed with a bill of more than £600 in additional tax during that following tax year.

If the Government are so determined to drive the charge through, why can they not at least marry up its introduction with the start of collection? The situation is ridiculously complicated; the charge will create hundreds of thousands of new self-assessed taxpayers while HMRC centres around the country, including some in my area, are being thinned out or closed entirely. Can the Minister tell us how many more staff HMRC will need to cope effectively with the increased flurry of returns over the Christmas and new year period as a result of the change? The charge is ridiculously complicated because it seeks to claw back tax from individuals for a benefit paid to other individuals who are separate in the eyes of the taxman, leaving the system open to both fraud and genuine errors.

Worse than all those complications is the fact that the measure fails the test of fairness because, for hundreds of thousands of families, it will take away a benefit that is supposed to be universal, as we heard from my hon. Friend the Member for City of Durham; when the benefit was brought in by Eleanor Rathbone, the principle was that it should be universal.

The evidence shows overwhelmingly that the benefit is used to meet the costs of looking after children, such as ensuring that they are well fed and have the clothes and uniforms that they need for school and the bus fare that they need to get there. Such things apply to all families. The charge fails the test of fairness because it will penalise children in single-earner families, as we heard from the hon. Member for Christchurch, while many in double-earner families who are much better off will continue to receive the benefit. It fails the test of fairness because it is yet another policy from this Tory-led Government, whose leader claimed he wanted to create the most family-friendly Government in history, that will directly hurt children and families. Among many other changes, the policy comes on top of huge cuts to Sure Start and early-years provision, the scrapping of extended free school meal eligibility and child trust funds, and a hike in VAT.

In addition, the proposed measure will take even more money out of our local economies when demand for goods and services is at rock bottom. The Treasury aims to claw back £1.5 billion from 1.2 million households, or an average of more than £1,200 from every family affected, just in the first year, with more families becoming liable as incomes creep up and the threshold remains static. That is £1.5 billion a year that will not be being spent in local shops and businesses on our struggling high streets.

[Barbara Keeley]

My hon. Friend’s figures are useful, but apparently the vast bulk of child benefit is spent on clothes, books and food, which shows the areas where the measure will have an effect.

[Mrs Hodgson]

As I highlighted myself, those are the findings. That money is spent on our high street—on books, clothes and food; it is not put into trust funds or saved up. The majority of people, whether in two-earner or single-earner families, will be hurt by the proposal because they use the money for daily necessities and not for luxuries. That is £1.5 billion a year that will not be put to work improving the quality of life of any of the children in the affected families or preserving and creating jobs in my constituency or the constituencies of any other hon. Members.

Children did not cause the financial and economic situation, yet the Government seem intent on making them pay for it. At the same time, high fliers in the City, who might well have played a part in that situation, are rubbing their hands together in glee at the cuts to the top rate of tax. Those are not the actions of a Government who have their policies straight, or who understand the lives of hard-working families; the more the public see of the coalition Government’s choices, the more they realise how out of touch they are.

The Government will regret this ridiculous decision, just as our country will regret voting this incompetent shower of a Government into power. Thankfully, there will be a chance to undo that decision at the next election, and policies such as the child benefit charge will ensure that this incompetent Government serve no more than one term.

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[Kate Green]

I am grateful to my hon. Friend. Her point about universality is fundamentally about the social glue, integration and the sense of communal interest in our children that universal benefits bring.

As others have said, these proposals are unjustifiable as a matter of principle, and unworkable in practice. Hon. Members have alluded to the difficulties of coping, both for families and for the Revenue, when family circumstances change. It may be complicated to pick out who has been a member of a household over the course of a year, or to state at what point they became one, so it may be difficult to assess at what point that should result in a tax liability.

[Barbara Keeley]

Does my hon. Friend intend to refer to the breach of confidentiality in an individual’s tax affairs? That is a serious issue with couples. Years ago, my first piece of casework as a councillor involved a constituent who was being chased by bailiffs for his wife’s community charge. At the time, there were rules on joint liability for the community charge, and that caused huge problems between couples. It seems to me that we are back in the same territory.

[Kate Green]

I have no doubt that if one member of a household is liable for another household member’s income—which is what will happen—that will distort the balance of power, and in some cases compromise the safety of women in that relationship and lead to something that feels fundamentally irrational and unjust. Why is one member of the household being taxed for a benefit that is paid to another member of the household for the benefit of the children? If Ministers want a fairer and more justifiable taxation system, I suggest that they look at having a more progressive system overall. If they want to take more from the rich and have a more progressive system, they should not have begun by reducing the top rate of income tax, which seems to be the Chancellor’s preferred route.

I will conclude with a couple of questions for the Minister. Has he made an assessment of whether couples are likely to continue receiving child benefit and sweep it up at the end of the year in their tax return, or whether they are they more likely to forgo child benefit at the point of payment? In the latter case, what assessment has he made of the impact that that will have on children’s well-being and on family stability? May we see that impact assessment before any further steps are taken to introduce the proposed policy?

Will this measure be reversible? The Opposition are committed to universal child benefit, and I hope that the Government will consider this change as temporary. Will the changes to IT and the taxation system be reversible? What is the IT plan for this development? Could this policy be unwound, or are we stepping towards a major change in attitude to universal benefits from which it will be impossible to retreat? What advice has the Minister received—this is the point touched on by my hon. Friend the Member for Worsley and Eccles South (Barbara Keeley)—on individual confidentiality in relation to tax affairs? How will one member of the household be advised about tax liability on a confidential basis without understanding the income of another member of the household, and can that be reconciled with the principle of tax confidentiality? Ministers seem confident that it can be reconciled, but Opposition Members have their doubts.

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[Cathy Jamieson]

That is an important point.

[Barbara Keeley]

I have a further serious example. I have a constituent who from time to time works with his firm in Afghanistan. His firm pays him a bonus because of the difficulties of working in a theatre like that. There must be hundreds, if not thousands, of people who get that sort of payment.

[Cathy Jamieson]

My hon. Friends have given very practical, real-life examples of the kind of circumstances in which people may feel penalised for doing particular types of work or for taking on additional risks and responsibilities. A thing that we hoped that we could persuade the Government to do, if nothing else, was not to implement the changes straight away, and perhaps the Minister could come back on that point. If they are intent on doing this—the Opposition believe that they would be wrong to do so, and I hope that they will pull back—at the very least would they be prepared to pause, produce a report and look at the circumstances in which people would be adversely affected?

My hon. Friends the Members for Bishop Auckland (Helen Goodman) and for Stretford and Urmston raised the tax implications, and my hon. Friend the Member for East Lothian (Fiona O’Donnell) mentioned national insurance contributions. The main concern around those is that when organisations such as the Institute of Chartered Accountants and others that deal with tax issues day to day say that the principles are wrong, it is of serious concern. The Minister has to say whether taxing an individual in respect of money that was paid to someone else is not a fundamental change in how individual taxation is dealt with. I will give him the opportunity to intervene if he wishes, but perhaps he prefers to answer in his speech. Such organisations have looked at the proposals and raised serious concerns. It is a shift and could open opportunities in other ways for similar proposals to be brought in, which would be extremely concerning for the reasons that other hon. Members have set out.

Until I heard the Minister’s earlier comment, I was not aware that his wife was a lawyer. I am sure that she has some views about how, rather than defending the policy, the Government now seem to be relying on describing it as absolutely legal, as was identified earlier. None the less, there are questions about how they arrived at that position. When the regulations to justify the legality of this were introduced in Parliament, were they discussed in relation to child benefit or any other benefit issues? Was it ever anticipated that those regulations would be used in such a context? Could he deal with that issue in his response? If he cannot answer today, I have tabled a parliamentary question that I hope he will answer in due course.

I want to give the Minister time to respond, so I will speed up. I have made those points because the report from the Institute of Chartered Accountants identified the issue of HMRC using the tax system to claw back a benefit from one individual that was paid to another. The tax system is based on individuals and the benefit system is based on households, so that undermines the principle of taxation. I have not seen anything from the Minister that describes how a household will be interpreted in the tax regulations. Families in similar financial situations could be treated quite differently, which undermines the policy of fairness. Changed family circumstances could, as we have heard, make it difficult or impossible to calculate the clawback, or determine who should pay it; and, indeed, we have heard examples showing that if family circumstances change during the year someone will be presented with a tax bill at the end of it, leading to greater uncertainty about family budgets.

There has also been concern about collecting the charge through PAYE coding. The report by the Institute of Chartered Accountants in England and Wales states that it could lead to delays of up to three years, and undermine the efficiency of the whole system, because any coding adjustment is an estimate, and it would be necessary to re-estimate the code repeatedly. We are no longer just dealing with the principle of child benefit; we are dealing with a fundamental change to the taxation system. That should be scrutinised further. I hope that the Minister will be able to give some responses to the issues that have been raised this morning. Will he also address the point made by my hon. Friend the Member for East Lothian—she raised, it, indeed, on the Floor of the House—and others about women who might forgo the opportunity to claim child benefit, but would not receive credits for their national insurance contributions? That is a serious matter that has not been addressed.