Finance (No.2) Bill

Debate between Chuka Umunna and Chris Evans

Monday 8th November 2010 Commons Chamber

[Chris Evans (Islwyn) (Lab/Co-op)]

The conflicting press reports on this policy that we have seen over the last couple of months mean that the Government must explain their plans to withdraw child benefit. Like many commentators and Members of this House, I am deeply concerned by proposals that will see a lone parent or single-earner couple earning just above the higher rate threshold lose their child benefit while a dual-earner couple both earning just under the threshold would continue to receive it.

The reform could also distort incentives for those with incomes around the higher tax threshold. As I understand it, those earning above the 40% tax bracket will no longer receive child benefit for their children—that bracket is currently about £44,000. The system is complicated by the fact that that rule applies to single wage earners. If both parents earned, say, £42,000—or £84,000 between them—their family would continue to receive child benefit.

The Treasury has a duty tonight to explain how its plans to withdraw child benefit from families with a higher rate taxpayer could work in practice. Some tax experts have said that ending child benefit payments to couples with one higher rate taxpayer earning more than £43,875 a year is unenforceable. The method of recovery will require taxpayers to submit annual paperwork, new HMRC tax codes and a change in the law to cover parents who separate or live apart.

Higher rate taxpayers will need to tick an honesty box on their tax return, stating whether they or their partner have received child benefit in the past year, and it is said that they will be fined if the information provided is incorrect. According to press reports, taxpayers might face fines if they fail to disclose whether their household received child benefit. On 29 October 2010, the Financial Times stated:

“From 2013, higher-rate taxpayers in the self-assessment system will be required to tick a box declaring that their household claims child benefit. They will then pay a higher rate of tax corresponding to the level of benefit, which is worth £1,700 to a couple with two children.

Those on the pay-as-you-earn tax system will be asked in a letter to disclose if their household claims the benefit—a declaration that will put them into a different tax code. The benefit would then be deducted in the next tax year, in an ‘end-year adjustment’ similar to that in the tax credit system.”

We have seen the problems that that has caused over the past couple of years. The article went on:

“Legislation to implement the changes will include laws setting out what will happen to the benefit if parents split up, remarry or share custody.”

To me, it is not clear how a system based on an end-year adjustment would cope with in-year changes in circumstances such as the birth of a child, a partner moving out or a new partner moving in. It is also unclear what a household will constitute for these purposes. As I have said, parents who earn £42,000 each would keep the benefit—worth £1,752 a year for a couple with two children—whereas a family relying on one income of £44,000 would lose out. Someone with children on a £42,000 salary would be better off than someone on a £45,000 salary, as they could keep all their child benefit.

At present, there are no definitions of “household” in either tax or child benefit law. Defining a couple is not easy, particularly if a couple split up. He might be a higher rate taxpayer while she is the carer for the children—or, with equality fresh in the mind, she could be a higher rate taxpayer while he is the carer for the children. When they part, she could claim child benefit as she has little other income, but if the rules treat them as still part of the same household—perhaps they have split up but are still living together—she could lose her child benefit, or even have to pay back whatever she has received.

We already knew that the plans were unfair, but what has been increasingly clear is that they simply have not been thought through. We do not even know if the provisions on independent taxation will be repealed. If mothers are under no legal obligation to tell fathers that they are in receipt of child benefit, how can this tax on families work? The policy will simply create more work; there will have to be a lot of checking up. People will have to put a lot of effort in to get it and to make sure they are getting the right amount.

We are now seeing significant confusion about what the policy means in practice. Quite simply, it is creating more questions than answers. In the June emergency Budget, it was announced that the income tax personal allowance will rise by £1,000 to £7,475 from April 2011. However, the 20% tax band is being squeezed so as not to benefit higher rate taxpayers: whereas the 40% tax band currently starts at £43,875, with no tax on the first £6,475 and 20% on the next £37,400, that will change from April next year. At that point, the 40% tax bracket will start at £42,375, with a personal tax allowance of £7,475 and a reduced £34,900 tax band of 20%. Does that mean that people could lose child benefit even if they earn less than £44,000 from April next year? If that is the case, an additional 800,000 wage earners will be brought into the higher rate tax band from next April, which makes a mockery of the Government’s claims to be on the side of hard-working families. If tax allowances remain as planned, those earning more than £42,375 will be denied child benefit. The Government must answer these questions ahead of April 2011.

[Mr Chuka Umunna (Streatham) (Lab)]

Let me make three very quick points, parts of which will pick up on comments that have already been made.

The first point is the issue of declaration. My hon. Friend the Member for Nottingham East (Chris Leslie) mentioned last week’s Treasury Committee hearing, during which I asked the Chief Secretary to the Treasury how he intended to enforce the new child benefit measure. He said that the coalition Government will introduce legislation to require higher rate taxpayers to declare whether child benefit is coming into the household. Such a declaration is partly dependent on information being passed from one partner to the other. The Chief Secretary was very clear that the obligation to provide the information will be on the higher rate taxpayer. Why not also introduce a requirement in respect of the other half of the couple? As the Chief Secretary did not answer that, will the Minister now shed some light on it and reveal whether the Treasury has taken proper legal advice? The hon. Member for Dover (Charlie Elphicke), a former tax lawyer, is in the Chamber. I wonder whether he advised his colleagues.

--- Later in debate ---

[Chris Evans]

Since coming to the House, I have seen a lot of history being rewritten. We are told whenever we stand in the Chamber that we must apologise for the economy, but to coin a phrase from The Sun on the day after the general election in 1992, “It was the banks wot did it.” There is widespread public anger with the banks, and people believe that they are getting away scot-free.

At my surgeries, in my local Labour party and out in the streets, people ask me why our nurses and teachers are bearing the brunt of the deficit—what about those casino bankers? If it were not for their reckless practices, why did the then shadow Chancellor just before the general election commit to follow Labour’s spending plans for two years if we were so bad at running the economy? The simple fact is that the banks have not paid the price for the deficit that they helped to run up.

The new clause is not about destroying the banking system; it is about strengthening it, which means changing it and making it mixed. I know that this is outwith the amendment, but I would like a mutual element in the banking system, and that could start with Northern Rock. The simple fact is that the banks received £1 trillion. Can anyone imagine what £1 trillion looks like? Can anyone imagine what public works we could do with £1 trillion? Projects in my constituency are crying out for money. The Newbridge Memo, the memorial hall, needs restoration. So much could be done with a tiny part of that £1 trillion. But the bankers remain blasé and people think they are plain arrogant.

If no one believes me, let them look at Lloyds TSB, which this week appointed a chief executive. I will not embarrass myself by trying to pronounce his Spanish name, but we are told he will receive a package of £8 million. Who is worth £8 million, and what message does that send to people who are struggling to get by? It sends the message that the Government do not care how much damage bankers have done—they can carry on as they have been. When we read about such figures, what are we saying to people on the ground? They are the ones who must pay.

My hon. Friend the Member for Nottingham East (Chris Leslie) talked about bankers’ bonuses, and I wholeheartedly agree that something must be done to rein them in. However, I have been a high street banker. I worked for Lloyds TSB, and I know for a fact that someone working as a personal account manager or personal banker is desperate for their bonus at the end of the month, because it makes up their wage. If we rein in the big City bonuses, we must think about the people on the ground. Let us not rein in their bonuses. They still have to pay their bills, and we must think about that. I ask the Government to consider the new clause because the banks really must pay their fair share.

[Mr Umunna]

I endorse the comments made by my hon. Friend the Member for Islwyn (Chris Evans). I, too, hear similar sentiments expressed on the streets throughout my constituency.

Opposition Members are not under any illusion that banker-bashing, as it has been called, or reining in bonuses alone will sort out the problems with the financial services sector. It is important to reform the way it operates generally, which is why I welcome the banking commission that the Government have set up. Its terms of reference are sensible and, as a member of the Treasury Committee, I look forward to providing some input to that.

There are legitimate questions to be answered on whether the financial services sector is doing what the Chancellor said in the emergency Budget he would require it to do. He said:

“I believe that it is fair and right that in future banks should make a more appropriate contribution, reflecting the many risks that they generate.”—[Official Report, 22 June 2010; Vol. 512, c. 175.]

That is why I welcome the new clause. We should reflect on the huge contribution that the British public have had to make to the financial services sector since September 2007 and before.