Taxation of Low-income Families

Chris Green Excerpts

Wednesday 16th January 2019 Westminster Hall

[Chris Green (Bolton West) (Con)]

It is a pleasure to serve under your chairmanship, Sir David. It is a pleasure to follow my hon. Friend the Member for St Austell and Newquay (Steve Double), who highlighted something of immense importance: the ability of a family member to be able to care, not only for children, but for elderly relatives and other members of the family who need that support. It is so important that the state and society recognise the importance of carers. We have to enable them to care without being under too much pressure, financial or otherwise.

I welcome this debate, introduced by my hon. Friend the Member for Stafford (Jeremy Lefroy), on the taxation of low-income families. I am delighted that the strengthening families manifesto has been published today. I believe that the family is the building block of society—the foundation on which society rests. Family is the source of our health, wealth and happiness. That may be contrary to what many people believe about Conservatives. People often see Conservatives as hyper-individualistic—it is all about the individual. However, I believe that the foundations of much Conservative philosophy and Conservative values rest on the importance of the family.

It is vital that the Government recognise in their policies that work pays. I will not go into the details, which my hon. Friend the Member for Congleton (Fiona Bruce) went through so effectively, about the impact that the tax system can have on a low-income family, especially someone earning 75% of the average wage—it can be such a disincentive to work. We ought to be looking at the advantages that having a good job and place of work can give to someone as a role model in the family. If we hinder their ability to take those additional hours and to be at work more, we are effectively denying people the opportunity to gain experience at work. They do not feel there is an incentive to work, so they do not get that experience.

That also sends a message to the employer. Employers want to invest in their workforce, to give more skills to the people in their company or organisation. However, if someone is working relatively few hours, there is less return on that investment. If someone can work more hours, they are more likely to secure training provided by that company. If someone has more experience and training, that individual may be able to get a promotion or a better position at work, or may have the opportunity to change companies and find a different position. That is a huge incentive. It has been mentioned that the current tax system crushes that aspiration. It is so important that we change that for this really important sector of society, to give those people an opportunity to aspire and improve themselves. That attitude and those values will then permeate through the family and the wider community.

The manifesto published today provides a huge opportunity for the Government to change their policy. With their ideas of making work pay and supporting families, the Government are sympathetic to that. I recognise the current economic challenge, with many demands on Government time and money, but given the return on this investment—the improvement in society—it is worth changing the taper and improving it for those low-income families.

[Jeremy Lefroy]

My hon. Friend makes an important point about the money. These things do not come without a certain loss of revenue. Does he agree that one area to look at—it is interesting that the Centre for Policy Studies suggests that we look at this—is the higher-rate tax relief on pensions. As Members of Parliament we all declare an interest, because we are all taxed at the higher rate and all have pension contributions. That is given to people who already benefit from the 20% allowance and then there is another 20% on top of that. Although some restrictions have been introduced in recent years, that is an enormous cost to the Exchequer, to the benefit of people earning double or triple the national average wage.

[Chris Green]

My hon. Friend makes a superb point. It is a significant problem that apparent inconsistencies in the tax system give people who are already doing pretty well a further advantage, yet poorer people not do not receive that advantage. Looking more broadly at society, a few years ago there were riots in London and other cities around the country, and we are currently concerned about rising crime and the people causing those problems. We also have to look at how we can strengthen families, because I think that a certain societal cohesion comes from a strong family. That has so many other impacts across society. We may not immediately see income return, but in a stronger, healthier society the returns will be immense, not only for society, but for the Exchequer.

[Fiona Bruce]

Before my hon. Friend closes, I want to put on the record my appreciation for what he has done. He was one of the hon. Members who took part in the inquiry, which produced this report. Very modestly, he has not made reference to that, but I thank him for his work.

[Chris Green]

I thank my hon. Friend for raising that. Behind the scenes in Parliament there is so much good work going on, much of which is cross-party, with different colleagues bringing different perspectives. During these difficult times in Parliament, it would be positive for people to reflect on the important work that goes on behind the scenes, influencing decision makers, much of which is on a cross-party basis.

[Andrew Selous (South West Bedfordshire) (Con)]

It is a pleasure to speak in this debate under your chairmanship, Sir David. I pay tribute to my hon. Friend the Member for Stafford (Jeremy Lefroy) for opening it so well, to my hon. Friend the Member for Congleton (Fiona Bruce), who did so much to launch the report that we are considering today, and to my hon. Friend the Member for Bolton West (Chris Green), who was also part of that important work.

I will start by giving credit where credit is due, because it is always important to do that; it is both the polite and the correct thing to do. I therefore say to the Minister, who is a friend in these matters, that we need to put on the record our huge gratitude and appreciation for the 3.4 million jobs created under the Conservative-led Government since 2010. That is 3.4 million people who have the security of a monthly pay packet, who can look after their family, put food on the table and clothe their children. It is hugely important that that is recognised.

Consider youth unemployment rates around the world. I understand that in Greece youth unemployment is at 57%, and it is far higher in France and many other parts of the world. Our youth unemployment rate is a fantastic achievement. There has been a British jobs miracle since 2010 and we need to be hugely appreciative of it and not take it for granted. It has taken a lot of hard work and focus to create the environment in which businesses can flourish.

Universal credit has also been good, in getting rid of the pernicious effect of the old 16-hour rule. My hon. Friend the Member for St Austell and Newquay (Steve Double) talked about when he was an employer and he gave us the example of employees who did not want to work more than 16 hours a week, as it was not worth their while because they would be so penalised by the 16-hour rule. Universal credit has swept that away. Now, for every extra hour that people work, at least they get something more. Lastly, the increase in the personal allowance has been enormously welcome to the group of people we are talking about.

Many of us—certainly among Government Members, but I think across Parliament—understand the damage that high marginal rates of tax do in discouraging enterprise. Entrepreneurs do not have to set up businesses. It has to be worth their while to do so and if the odds are stacked against them, with regard to the returns they will make, they will not start up businesses. This Government understand that well, and because they do we have created this fantastic environment for businesses, which has created those 3.4 million jobs that I just mentioned. All credit is due to the Government for understanding that.

However, I say to the Minister that businesses do not just exist for their own right and for their own benefit; they exist to benefit society and to benefit their employees. Humans are not resources; they are the point of it all. Businesses are there to benefit their employees, and if we are trapping people in low-paid work, so that they cannot progress in the way that many of us here in Westminster Hall have been able to progress throughout our careers, that should be of acute concern to our friends in the Treasury. I am sure that point is not lost on the Minister.

I reiterate the point that, sadly, the United Kingdom is an outlier in this respect, because the marginal tax rate for a one-earner couple with two children on 75% of the average wage is 73%, which is more than twice the EU average of 22%. No other OECD country treats low-income working families as badly as the United Kingdom does, with regard to effective marginal tax rates and work incentives.

It is really important to put on the record that, notwithstanding all the good work that has been done since 2010, this area is unfinished business. I want the Minister to go back to the Treasury and impress on the Chancellor and his fellow Ministers, who I think have an appetite for this work and do get it, the need to say to officials that more work has to be done in this area, so that everyone can benefit from the fruits of their hard work throughout their working life.

The problem of high effective marginal tax rates does not just affect single earners. It affects a million of them, but we know that there are also 600,000 dual earners who are similarly affected and—really importantly— 900,000 single parents as well. So this is a problem for all types of family structure.

We are not calling for the abolition of independent taxation; I do not think that would be the right thing to do. However, I think it would be right to introduce an element of choice, because Government Members certainly believe that choice is a good thing. It gives flexibility, because families have different priorities and different needs at different stages of their lives. As has also been said before, we are in fact extremely judgmental, because the tax system is very prejudicial when only one member of a couple chooses to work and the other member chooses to care for children or frail elderly relatives.

[Chris Green]

I agree that this sense or understanding of the system being judgmental is a problem. Would it not be far better if the system, rather than judging one way or another way, had a far more neutral position, because that would enable individuals and families to make their own decisions?

[Andrew Selous]

Yes, I completely agree. I think that it comes back to choice and recognising that families face different challenges at different times of their lives, particularly regarding the needs of children, the frailties of elderly parents and so on. I hope that our social care reforms, which are forthcoming, will go some way towards addressing that situation, but the tax system absolutely has a huge role to play in addressing these important issues, which my hon. Friend quite rightly raises.

Effectively, what we are saying through the tax system is that, despite praising with warm words family members who choose to stay at home if they can make the financial choice to do so—not every family has members who can make that choice, but there are families in which one person makes the sacrifice to stay at home, to be with their children or to look after elderly relatives—we think they are making the wrong choice, because we penalise them for doing so; there is no recognition of what they do.

The Centre for Policy Studies, which was referred to earlier, has made a proposal that we should consider, which is to look at the transfer of unused personal allowances. The Child Poverty Action Group—the report that we are considering today looked across the political spectrum; I have great respect for CPAG—made some suggestions about perhaps increasing child benefit for children under five in lower income families. One way that we might be able to fund that—it is a golden rule with me that if anyone calls for an increase in expenditure, my next question is, “Where is the money coming from?”