Finance (No.2) Bill Debate

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Department: HM Treasury

Finance (No.2) Bill

Geraint Davies Excerpts
Monday 8th November 2010

(14 years, 1 month ago)

Commons Chamber
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Chuka Umunna Portrait Mr Umunna
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I do not usually ask my friends and acquaintances whether they share financial information with their partners, but I hear the comments of the hon. Gentleman.

My second point is, how will it be possible to prove the connection between the mother and the higher rate taxpayer, bearing in mind the problems that we have been having at Her Majesty’s Revenue and Customs? Given that HMRC’s resources have been cut over the past few years, how will it be able to keep tabs on the situation between couples on a monthly basis? As some 1.2 million families will be affected by the new measure, will HMRC be given any more funding to enable it to enforce the new change and to keep tabs on what is happening out there in the nation?

Finally, John Whiting, joint interim head of the Office of Tax Simplification, has obviously commented on the problems of the new measure, but what is the point in setting up such an office when the people working within it and those heading it up have not been properly consulted or asked to advise on this measure? Surely, if the Government are not minded to accept this new clause, it would be a good idea to delay the introduction of this measure and ask the Office of Tax Simplification to do its job and advise on how it can be more efficiently introduced.

Geraint Davies Portrait Geraint Davies (Swansea West) (Lab/Co-op)
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My hon. Friend makes a powerful case to look again at the detail. Does he agree that if the objective was to be fair and to put the burden on to the broadest shoulders, surely it would have been better to raise the marginal rate of tax from 40% to 41% , so that the people who have more pay more, and not just clobber people with children, who now have to pay more for their children. Those are couples, only one of whom might be working, where the 40% does not signal the best-off households.

Chuka Umunna Portrait Mr Umunna
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No doubt the Government will consider my hon. Friend’s interesting suggestion and comment accordingly.

One of the main problems with the new measure is that people fall off a cliff edge when they hit the higher rate. Have the Government considered introducing a taper mechanism to prevent that anomaly from occurring, because obviously that is where the unfairness shines through?

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David Gauke Portrait Mr Gauke
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The hon. Gentleman asks a fair question, but I will not give him a precise number because that is something that we continue to consider. The implementation of any policy clearly involves a cost, but I assure him that this cost will be small when compared with £2.5 billion. I am keen to ensure that the policy does not place an undue burden on HMRC. He made a fair point about HMRC. It faces a budget reduction, even though the Government are protecting it by ensuring that it has more resources to tackle evasion and avoidance, but we are keen to ensure that the burden of administering the policy will not cause it undue difficulty.

We have to take tough decisions and make tough choices, and this is one of the decisions that the Government have taken because we believe it is the right thing to do. We do not think it is fair to tax people on low incomes to pay for the child benefit of those earning much more. We cannot afford to continue providing financial support through child benefit to better-off households where there is a higher rate taxpayer. From January 2013, the Government will therefore withdraw child benefit from families that contain a higher rate taxpayer. Despite the noises from the Opposition, the British people understand that this is a tough, but fair, decision.

Geraint Davies Portrait Geraint Davies
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Can the Minister explain why the proposal to tax higher rate taxpayers in that way was made and announced before the comprehensive spending review? I put it to him that the reason for that was to warm up the audience and to make out that the comprehensive spending review would be fair and balanced, as opposed to the IFS’s conclusion that it hit the poor two and a half times as much as it hit the rich. Was not the timing of the announcement entirely cynical?

David Gauke Portrait Mr Gauke
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The policy underlines the fact that the Government are looking to address our deficit in a way that is fair, and to ensure that all parts of society play their part and those with the broadest shoulders make the biggest contribution. That is what we are doing. It is remarkable that it is Opposition Members who appear to be trying to prevent that happening, though I am not sure whether they object to the way in which it is being done or whether they intend to fight in the last ditch to defend the principle of universality as it applies to child benefit.

We wanted to avoid creating a complex new means test for household income. To do so would fundamentally change the nature of child benefit and come at a significant cost to the taxpayer. This policy has therefore been designed to avoid affecting the vast majority of the population—some 80%—who are basic rate taxpayers. It also avoids additional systems being developed, as the measure can be delivered within existing pay-as-you-earn and self-assessment systems.

Let me deal with the issue behind the new clause—the principle of independent taxation, which was introduced in the Finance Act 1988. It is a great pleasure to hear Opposition Members applauding the 1988 Budget. If I remember rightly, proceedings in this place at the time were interrupted as the Chancellor of the Exchequer was shouted down by some Opposition Members. Section 32 abolished the provision that a wife’s income was income of her husband for income tax purposes. That remains the case, and none of the proposed changes to child benefit alters it.

Child benefit is provided for a child within a family and it is therefore necessary to consider the family as a group. The policy merely withdraws child benefit from a family to whom it is difficult to justify paying it. Furthermore, the withdrawal of child benefit from families containing a higher rate taxpayer will not affect the personal allowance or rate band applicable to an individual. The changes apply a simple test to ensure that child benefit is not provided to those who need it the least.

Of course, the House will have the full opportunity to debate the changes to child benefit when they are legislated, ahead of implementation in January 2013. That would be a better time to discuss the various specific issues that have been raised in the course of the debate. Although I understand that Opposition Members may wish to draw a link between child benefit and independent taxation in order to have this debate today, it is clear that the two systems remain separate and independent.

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The Minister has failed to set out how the child benefit taxation arrangement will work. There are hundreds of thousands of families throughout the country hanging on his words and trying to find out how on earth the scheme will be arranged, particularly given the perversity that will be introduced through the high marginal rate of taxation. Do not let us forget that that extra pound could result in an individual losing £2,000 in child benefit.
Geraint Davies Portrait Geraint Davies
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In my constituency, my hon. Friend’s constituency and throughout the country, there are women who do not earn any money but live in a household with a partner, receive child benefit and spend the money on their children. In the light of their uncertainty about the future, given what we all know about the divorce rates, those women are critically concerned that the hand of government will suddenly come in and snatch that money from them or their children because of what the man earns. The Bill is clearly an infringement of independent taxation and an attack on children and mothers.

Chris Leslie Portrait Chris Leslie
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My hon. Friend highlights the fact that I cannot see this being the end of the matter. The Minister suggests that the measure is part of the Government’s carefully calculated spending commitments, but I do not think that they will continue with the plan. There are so many anomalies and problems in its design and operation that they clearly did not think it through properly. They might have looked at the ready reckoner, saying “Oh yes” as they licked their lips at the £2.5 billion that they could take from families, and went straight to the first day of the Conservative party conference to announce their proposal, but it is unravelling by the moment.

The Institute for Fiscal Studies and others are starting to highlight the economic perversities and distorting effect of this measure. Even the sole issue of independent taxation is sufficient to hole below the waterline the Government’s plans to tax child benefit. I therefore hope that we can divide the House on the new clause.

Question put, That the clause be read a Second time.