Child Benefit

David Gauke Excerpts

Tuesday 21st February 2012 Westminster Hall

[The Exchequer Secretary to the Treasury (Mr David Gauke)]

Thank you, Mr Dobbin. It is a great pleasure to serve under your chairmanship. I congratulate my hon. Friend the Member for Christchurch (Mr Chope) on securing the debate.

Government policy towards higher rate taxpayers and welfare go to the very heart of the challenge to tackle the tough economic circumstances that we face today. It is right and fair that we support hard-working families through these difficult times, and it is vital to ensure that all parts of society contribute to tackling the economic legacy that the Government have inherited.

When we came to government, we had been through the deepest recession since the war. We inherited an economy crippled by the biggest financial crisis in almost 100 years and the largest budget deficit in our modern history. Tackling that deficit is the vital precondition of sustainable growth. Only by tackling the deficit can we provide the certainty, stability and low interest rates that are critical to our recovery and renewing our prosperity across the country. Cutting the deficit is a vital precondition of growth. It has meant that we have had to make some very difficult choices to tackle the profligacy of the previous Government and target spending where it is most effective.

The Government believe that the welfare system must remain fair and affordable while protecting the most vulnerable, and that work must pay. To achieve that, we have had to make tough decisions such as raising the state pension age to 67 between April 2026 and April 2028, not going ahead with the planned £110 above inflation increase to the child element of the child tax credit, and not uprating the couple and lone parent elements of the working tax credit in 2012-13. Those are tough decisions to make, but we have sought to make sure that they are fair across income distribution. That is why the Government have, for the first time, undertaken and published a distributional analysis of the impacts of the autumn statement 2011 and previous fiscal events.

After combining the impact of tax, tax credit and benefit and public service spending changes introduced at the autumn statement 2011 and previous fiscal events, the analysis demonstrates that the top 20% of households will make the greatest contribution towards reducing the deficit as a percentage of their income and benefits in kind from public services. It is fair that higher rate taxpayers, who are better off, make a greater contribution to those savings. We are committed to the same approach as we reform child benefits.

Let me start by saying that we fully understand how important child benefit is to millions of families across the country. For many families, it provides a vital income boost to parent income, recognising the extra costs that they face compared with non-parents. Currently, child benefit is paid to around 7.5 million people, around 95% of whom are women, in respect of 13 million children and young people. Child benefit is paid at a rate of £20.30 a week for the first child and £13.40 for each subsequent child. It is a substantial income boost to families, but it also comes at a substantial cost to the Exchequer. Child benefit already makes up around 7% of total social security and tax credits spending, and each year those spending levels rise.

Furthermore, we already pay more than £2 billion pounds a year in child benefit to higher rate taxpayers. At a time when we face constrained resources, we have to focus the resources that we have where they are needed the most.

[Mr Chope]

If that is so, why was that not said by the Chancellor of the Exchequer in the June 2010 Budget? Why did he say that he was going to freeze child benefit? Why did he not say what my hon. Friend is now saying? It seems that the Government—perhaps because of the minority party in the coalition—have now shifted their ground and are reneging on a pre-election promise not to interfere with child benefit.

[Mr Gauke]

As I said earlier, we were conscious that we had to take difficult decisions in the run-up to the comprehensive spending review in October 2010. We had to come up with spending decisions that would enable the Government to have plans that met fiscal targets. In the process of preparing for the spending review, tough decisions had to be made. When faced with the various options, the Chancellor decided that it was necessary to look again at child benefit and to ensure that that spending was targeted as best as possible.

[Mark Reckless (Rochester and Strood) (Con)]

Given the need to target child benefit as well as possible, can the Minister tell us how much child benefit is being paid for children resident outside the United Kingdom—for instance, in Poland and Lithuania? Would it not be appropriate to tackle that issue before dealing with the 40% taxpayer?

[Mr Gauke]

I have a great deal of sympathy with my hon. Friend’s concern. I may or may not be able to furnish him with the numbers that he has asked for. None the less, we have looked at that issue on several occasions. He will not be surprised to learn that we are constrained by European regulations relating to social security payments, which means that we are not able to address his concern in the way that he would like. European economic area nationals can claim child benefit and tax credits as long as they meet the relevant conditions. That is the constraint, I am afraid. There is not the easy choice that he seeks.

[Steve McCabe]

Will the Minister give way?

[Mr Gauke]

I am conscious that I have three minutes left and I have barely begun to deal with the various points raised by my hon. Friend the Member for Christchurch, who secured this debate.

We recognise that most higher rate taxpayers are not super-rich. But, as my right hon. Friend the Chancellor has said,

“a system that taxes working people at high rates only to give it back in child benefit is very difficult to justify at a time like this.”

He went on to say:

“We simply cannot ask those earning just £15,000 or £30,000 to go on paying the child benefit of those earning £50,000 or £100,000.”

The debts of the previous Government have to be addressed. Consequently, we have had to make difficult choices. By removing child benefit from higher rate taxpayers, the Office for Budget Responsibility estimates that we will save £2.5 billion a year. The savings mean we can continue to direct child benefit support to where it is needed most, supporting millions of families, and millions of children from birth until the time when they leave full-time education at the age of 18 or even 19.

[Julian Sturdy (York Outer) (Con)]

Will the Minister give way?

[Mr Gauke]

I will give way, but we are eating into the time of my hon. Friend the Member for Christchurch.

[Julian Sturdy]

I want to touch on the transferable tax allowance, which has already been mentioned. I have written to the Treasury about it, and it is a way of bringing fairness back into the system. Will the Minister respond to that?

[Mr Gauke]

I am grateful, because I want to respond directly on that point. The Government, as stated in the coalition agreement, want to recognise marriage in the tax system. We remain committed to that and we will introduce proposals at an appropriate time, as is consistent with the coalition agreement. We remain committed to what is in the coalition agreement.

[Mr Chope]

Does the Minister mean at a time when the Liberal Democrats have left the coalition?

[Mr Gauke]

No, I mean within this Parliament, which I assume does not mean what my hon. Friend suggests.

I appreciate that there are a number of concerns about how this policy will be implemented and how it will impact on hard-working families. We have been clear that the reform needs to be as simple as possible. That is why we have sought to withdraw child benefit from households with the higher rate taxpayer and not pursue a complex means-testing regime that would require Her Majesty’s Revenue and Customs to contact 7.8 million households in receipt of child benefit.

From a customer perspective, this delivery option does not place a burden on all child benefit claimants and it limits the impact on households containing a higher rate taxpayer. The Chancellor and I will be working closely with our officials to scrutinise the available options as to how we will implement this policy and find a sensible way forward. Plans for implementation will be set out in the next few months.