Finance Bill

Helen Goodman Excerpts

Monday 2nd July 2012 Commons Chamber

A charge is to be levied on households in receipt of child benefit in which there is a taxpayer whose income in the tax year exceeds £50,000, as we have heard. Taxpayers are required to notify HMRC of their liability to the charge by 6 October following the tax year in question. However, self-assessment taxpayers are not required to submit their tax returns until the following January. The January deadline is set so late because those with complex or multiple sources of earnings may not know their earnings for the previous tax year until that point; that is an anomaly. How reasonable is it to require someone to declare their liability to pay the charge when that is dependent on their income, which they are not required to calculate for a further three months? That was one of the arguments for trying better to align the two systems, if the change goes ahead.

[Helen Goodman (Bishop Auckland) (Lab)]

Is my hon. Friend saying that if a person’s income fluctuates during the year, but they do not know that it is fluctuating, and do not know the full amount of their income until the end of the year, the child benefit will be treated by one set of rules, whereas if they know how their income is fluctuating and whether they are moving in and out of the zone in which the charge applies, they will be treated in another way?

[Cathy Jamieson]

Yes, my hon. Friend has got the situation exactly right; that is the problem as it has been described. As for people who may elect not to receive the benefit, the Government’s proposals make it difficult for people who do not know what their earnings will be over a particular time to make that judgment.

A number of issues have been raised to do with how one would determine the higher-income person in a relationship. The measure raises a number of complex issues to do with independent taxation and taxpayer confidentiality. I know the subject has been raised with the Minister. My understanding is that HMRC will tell the couple which person had the higher income and is therefore subject to the new charge. As I outlined previously, I can see some difficulties associated with this. Not only does an individual need to know about their partner’s income, but they would need to know whether their partner has claimed child benefit and whether the partner has elected not to receive the benefit.

This will be particularly important where a couple are not on speaking terms. That does happen. It may not seem like it when everything is cosy in the coalition, but there are relationships in which people are not on speaking terms or where they have separated. In those circumstances, we need to be clear about what HMRC intends to do to inform a partner whether the other has made an election not to receive child benefit. Will they be advised, should the partner subsequently revoke that election?

There are potentially Catch-22 situations, particularly in relation to self-assessment and submitting the returns. Far from simplifying the system, which was straightforward and understood by everyone and which made it easy for people to claim, we seem to be making it far more complicated.

I want to raise, briefly, the issue of extended families. There are concerns that there may be contentious cases where different people claim entitlement to child benefit—for example, where parents are unable to look after the children and perhaps grandparents take over that role. We know the valuable role that grandparents can play in those circumstances, often at considerable cost to themselves. There could be situations where a parent continues to receive child benefit, although the child lives with the grandparents. If one or both grandparents have adjusted net income over £50,000, under the relevant provisions of the Bill, the higher-earning one would be liable for the higher child benefit payment, even though the grandparents are not necessarily at that point receiving the child benefit and could even be in dispute with the recipients.

These are some of the practical problems that come into play when we look at how people live their lives. I have mentioned the issue of timing. Perhaps the Minister can answer that. The issue of national insurance credits was raised in the Committee of the whole House. Although the Minister went some way towards explaining the situation and giving reassurance, it would be helpful to hear that stated here this evening.

I shall spend a moment on the problem of electing not to receive child benefit and revoking the election. Where one party to a relationship has an income in excess of £60,000, it seems that HMRC would like to encourage the child benefit claimant to claim the child benefit but to elect not to receive it, because that somehow makes everything neater. HMRC would stop paying out the child benefit, which would reduce the need for the higher earner to join self-assessment and to pay their tax. Those who expect their income to be more than £60,000, apply for child benefit and elect not to receive it, yet subsequently realise that their income for the year is likely to be between £50,000 and £60,000, could lose out unless there are some changes to the legislation.

It is important to place on the record that it is not only the Labour Opposition who oppose what the Government are doing. People who understand the tax system and want to see it improved, such as the Chartered Institute of Taxation, say that ideally the clause and the schedule should be withdrawn and a fresh consultation launched, with a view to coming up with a more workable alternative to the current proposals. We have tabled a couple of amendments to test the Minister’s view on whether that is needed. It has been suggested that these are needed to assist in the situation where people elect whether or not to receive child benefit.

The amendments would put all claimants not subject to 100% high income child benefit charge on the same footing as other claimants able to make a revocation, so this might be easier, it is argued, for HMRC staff to understand and implement. There is a clear distinction between people who elect not to have payments and then find that their income is under £50,000, and those who elect not to have payments and find that their income was between £50,000 and £60,000. The Bill copes with the former, but not with the latter.

I can see people’s eyes beginning to glaze over at these technicalities. Hon. Members in all parts of the House no doubt want me to bring my remarks to a close. [Interruption.] It is good that we all agree on something. These points are very important.

To return to what I said at the outset, if we make the situation more complicated, cause more confusion and make it less likely that people will know whether they qualify for the benefit, that will not be helpful for families, it will certainly not be helpful for children and, I would argue, it will not be helpful for Ministers, because it is they who will have to come back to fix the problem later.

--- Later in debate ---

We know—we can see—that there are huge practical difficulties, and, although I fully support the idea of getting the deficit down, I wonder why we cannot look at a simpler system that, for example, limits child benefit only to two or, perhaps, to three children. I am the father of two children, and I know the Minister is the father of three, but there is no particular self-interest here. We need a more straightforward and simple system; one that is easy to calculate and to understand.

[Helen Goodman]

One reason for not taking up the proposal is that one group in society which is most likely to be in child poverty is children in families with lots of children.

[Mark Field]

I accept that, but we are looking for a simple system—[Interruption.] No, the issue at stake is trying to find a straightforward and simple system that bears down on the idea of universality, which we should try to do if our welfare system is to retain any credit.

I hope that even at this late stage the Minister will give some thought to the matter. I work on the basis that I want the measure to work, but nothing would undermine our tax system more than the benefit before us being undermined, as many of us fear, through the practical difficulties that are almost inevitable. Let us for once, as I say, be wise before the event.

[Helen Goodman]

Normally, one begins a speech by saying what a pleasure it is to speak, but it is not a pleasure to speak in this debate; it is a great disappointment. This is the third time that I have spoken about the problem with the child benefit proposals in the Budget that the Chancellor of the Exchequer announced.

The first time I spoke I thought that there were four arguments against the Government’s proposals; I now discover that there are 14. First, there is the impact on distribution and horizontal equity, the point well expressed by my right hon. Friend the Member for Birkenhead (Mr Field). The Institute for Fiscal Studies’ independent analysis of the impact of changes made by the Budget looked at households with and without children, and households with children are losing most. From all the changes in the current year, households with children will lose 1.3% of their annual net income compared with 0.5% for those without children.

On the changes implemented so far, the loss is 3.5% for households with children and 2.1% only for working-age households without children. By 2014 there will still be inequity between households with children and households without. By then, even assuming that universal credit is as good as the Government say it will be, which I doubt, households with children will have lost 3.7% of their income—£1,411 on average—whereas those without children will have lost 2%, or £646 a year. How it can be fair to take more money from families with children than from those without, I do not know.

There is clearly also unfairness among those people who are just above and just below the thresholds, and among families in which one person earns £50,000 and those in which two people earn £40,000. We have discussed all that before.

New problems have emerged since we debated the issue. There is the possibility of people planning their tax to avoid the charge; administrative problems have been referred to; and we have repeatedly asked the Minister how he will preserve independent taxation, given the implications for it. That point has been raised to a significant extent by the professions; the Chartered Institute of Taxation and the Office of Tax Simplification are very concerned about the issue.

One thing that is not at all clear is how Ministers intend to implement the measure, given that, as far as I can see—the Minister can correct me if he wants—in schedule 1 there is no obligation on people to share information about their incomes, so it will be extremely difficult for people to know what is going on. The Minister is calm about that, but given that families’ incomes and circumstances change over time, the measure is highly likely to lead to a large number of practical difficulties.

Another thing that is odd from a Government who claim to be in favour of the family is that they are introducing a charge that is, in effect, a couple penalty. At one stroke of a pen, they have achieved both a penalty for couples and the destruction of the independent taxation of women. It is a masterstroke of its kind.

[Nadine Dorries]

Does the hon. Lady agree that many couples with no children object hugely to their taxation going towards families who decide to have large numbers of children? The proposal made by my hon. Friend the Member for Cities of London and Westminster (Mark Field)—that the cap should be at two or three children—strikes a fair and moral balance.

--- Later in debate ---

[Helen Goodman]

As I explained to her hon. Friend, I do not think it strikes a good balance because the children who live in families with lots of siblings are the children who live in poverty. I know that Conservative Members are not as committed to addressing child poverty as were the last Labour Government, and we will see the results of that as we go through this Parliament. I regret that. I am surprised that the hon. Lady, who is in general a practical, well-rooted person, does not see the power of that point.

Another issue is the fiddly definitions of partnerships and the difficulty that Ministers will have in establishing what those are for the purposes of the measure. The measure is both administratively fiddly and extraordinarily mean. It will affect more than 1 million families; about 1 million people are going to lose £1,300 a year. That is a significant sum and I wish that the Government would take more seriously both the practical and the fairness arguments that we are making.

The Minister has still not addressed one final issue: people who at the moment get national insurance credits by claiming child benefit. They will lose their national insurance credits, which will impact on their pension entitlements for many years to come.

I hope that the Minister, even at this last stage, will have a last-minute conversion.

[Mr Stewart Jackson (Peterborough) (Con)]

I say gently to the hon. Member for Bishop Auckland (Helen Goodman) that it is incumbent on her party to offer suggestions for alternative sources of funding, rather than the endless criticism. I speak as someone who is generally extremely sceptical of the policy, but alternatives came there none from the Opposition. Even the alternative offered by my hon. Friend the Member for Cities of London and Westminster (Mark Field) was cursorily rejected by the hon. Lady.

I have been consistent on the issue since it first arose at the end of 2010, following the Chancellor of the Exchequer’s announcement. It would be churlish and unfair of me not to concede that he took on board the issue of the cliff-edge effect. He sought to ameliorate that perverse issue with the taper system, which was broadly supported on the Government Benches.

Apart from administrative issues, there are a number of other criticisms that were comprehensively covered by the hon. Member for Kilmarnock and Loudoun (Cathy Jamieson). For example, the Government are not abiding by their own tax consultation policy. My hon. Friend the Exchequer Secretary, who is proud to have been the tax personality of 2010, launched a document called “Tax policy making: a new approach” in June 2010. He also responded to the public consultation of December 2010, which called for thorough consultation and cost-benefit analysis and impact assessments for key stakeholders. That has not happened in the case of this change, which will affect 790,000 couples and 30,000 lone parents who will lose the entirety of their child benefit allocation, and 330,000 couples and 20,000 lone parents who will lose some of it. That is a major problem. Apart from the lack of consultation, we still have the unfair situation that a single-earner couple earning just above the threshold rate, which was then £42,475, will lose child benefit, but a two-earner couple earning just under that amount will receive it in full. That has not been properly addressed.

As my hon. Friend said, we have a moral responsibility to focus on clearing up the deficit left to us by the previous Administration, but this proposal, in particular, fails on the grounds of fairness. How can it be right? It will send the message that ambition is wrong, that the basic tenets of fairness will be disregarded, and that there will be a perverse anti-marriage and anti-home maker bias and an attack on hard work, ambition and family responsibilities.

The policy means that a two-earner couple with two children on a combined income of £100,000 will keep their child benefit while a one-earner family with two children on just over £50,000 begin to lose it and, if their income rises to £60,000, lose it completely. The former household is already far higher up the income distribution yet keeps its child benefit, while the latter household, which is lower down the income distribution, loses it. Let us remember that this proposal was predicated on clobbering the top 15% of the income distribution, but it does nothing of the sort. Only if the family has one child will they be in the eighth decile of the income distribution; if they have two, three, four or more children, they will, largely speaking, be skewed towards the middle. We are not clobbering the richest in society; we are clobbering people who want to do well and are ambitious and aspirational. Unfortunately, that will have perverse consequences that will backfire on this Government politically and in terms of what is needed to make sure that the administration of the system works properly.

This issue is inextricably linked to the popular commitment that we made in the 2010 general election to give a tax break for marriage and families, which we have not yet carried through. We need to keep faith with that, particularly as the coalition agreement guaranteed the Liberal Democrats, who had some ideological problems with it, the chance to abstain. If the Government want to keep the faith with the people who elected us as Conservative Members of Parliament, they should make sure that that is in the pipeline now, because after April 2013 administrative difficulties with IT systems might preclude its coming to fruition.

In terms of cash in the pocket and real tax bills, a one-earner, two-child family earning £60,000 currently pays £13,950 in tax per annum while a two-earner, two-child household with each person earning £30,000 pays just £8,768. That difference will increase substantially as a result of these tax changes. The first family will see their bill rise to £15,667, meaning that there will be a substantial difference of 59% between the tax paid by the two families.