Tax Credits, Child Benefit and Guardian’s Allowance Up-rating Regulations 2023

Lord Tunnicliffe Excerpts

Wednesday 22nd February 2023 Grand Committee

[Baroness Lister of Burtersett (Lab)]

My Lords, I wish to speak to the child benefit uprating regulations, which of course I welcome, as there had been fears that the Government would resile from the convention that the benefit should be uprated in line with inflation. Before we get carried away, however, it is important to remember that even after this increase, child benefit will be worth over 16% less than it was in 2010, due to its having been cut and frozen. Do the Government ever intend to make good that cut, the product of austerity policy, which disproportionately hit children in a number of ways?

Earlier this month in the Commons, the Financial Secretary to the Treasury emphasised that

“Child benefit is an incredibly important form of state assistance”.—[Official Report, Commons, 2/2/23; col. 200WH.]


Last year, in your Lordships’ House the noble Viscount, Lord Younger of Leckie, stated

“Child benefit ensures that families receive predictable, consistent support from the Government for the additional costs of raising a child”


and went on to say

“the Government are committed to making the benefit system simple and navigable for claimants. Child benefit is therefore a simple and well-understood benefit, paid at a consistent flat rate to parents”.—[Official Report, 8/7/22; cols. 1213-14.]

That is certainly true in theory, and was so in practice in the past, but try telling that today to those caught by the high-income child benefit charge which passed—I will not say celebrated—its 10th birthday last month. That 10th birthday was marked by highly critical pieces in the Sunday Times and the Telegraph, the latter referring to the charge’s bizarre rules. I resist the temptation to make the case against the charge in principle, other than to remind noble Lords that it is not only a parent’s child benefit that can be at stake but their pension credit, if they do not claim child benefit because of the charge.

Instead, I want to focus on the fact that the £50,000 to £60,000 income band, above which child benefit is withdrawn, is exactly the same in cash terms as it was when introduced 10 years ago. According to the Resolution Foundation, the recent note of which I am drawing on, if uprated in line with CPI the figures today would be £64,000 and £77,000. This total freeze in the threshold has serious, and in some cases bizarre, consequences.

The Resolution Foundation estimates that

“around 2 million families, or 1-in-4 … of those with children, will have some Child Benefit effectively partially or fully withdrawn because one person has an income over £50,000”.

This compares to one in eight when the charge was introduced 10 years ago. In other words, the proportion of those with children affected has doubled. It estimates that one in 13 families—that is 600,000—has someone earning between £50,270 and £60,000, and thus experience high marginal tax rates of 55% for one child, 63% for two children, and 71% for three children, with a further eight percentage points for each additional child.

The Resolution Foundation describes

“a relatively small, but rapidly rising, number of families”

who are in the bizarre position of being entitled to universal credit while also having their child benefit withdrawn. It argues that the result is

“truly punitive marginal deduction rates”

of 80% for those with one child, 83% for those with two children and 87% for those with three. In practice, the rates could be even higher, but I will spare noble Lords the additional complications.

UC recipients affected are likely to have high rents or childcare costs. In the absence of official figures, the foundation estimates that, from April, roughly 50,000 families will fall into the child benefit charge/UC trap, and that there could be 90,000 by the end of the decade. Can the Minister confirm these estimates, and say how the Government justify this state of affairs? Is the Resolution Foundation correct to say that the charge thresholds are currently set to be “frozen forever”, given that there is no statutory obligation even to review them? Will she take back to the Treasury the message that it is high time they were reviewed, even in the absence of such a statutory obligation?

The Resolution Foundation rightly describes this as “a serious design flaw”, and argues that

“no rational policy maker would ever have drawn up the current system”.

It warns:

“Unless we are to accept that ever-more families will face a £10,000 stretch of income where there is no point in seeking higher earnings, the Government will have to fix this situation”.


Not to do so, it suggests, is “unserious”.

I cannot believe that a Government who care so much about incentives and marginal tax rates are willing to countenance the continuation of a situation that can only get worse at the expense of a growing number of families with children. At the very least, the Chancellor should announce a rise in the thresholds in next month’s Budget.

[Lord Tunnicliffe (Lab)]

My Lords, I too thank the Minister for setting out these two instruments. I also thank my noble friend Lady Lister for her attention to the detail of these matters and to the ease with which an apparently rational change can compound itself through the complexity of the rules into extremely unhelpful marginal tax rates. I hope the Minister will give her some comfort that there will be some review in the foreseeable future of the very high marginal tax rates emanating from these complex rules.

The Minister outlined an increase in tax credits, child benefit and guardian’s allowance of 10.1%—that is, CPI inflation between September 2021 and September 2022. While acknowledging that further instruments are to come on other social security benefits, I will make some general points about the current economic context and the Government’s approach.

Families across the country have faced an incredibly difficult time of late, with household bills climbing significantly. Although there has been energy support for low-income households, there has not been equivalent help as they face soaring food, phone and broadband bills. Food inflation has been running at far higher than 10% for many months, leading many households to cut back and to a worrying number of parents skipping meals to provide for their children.

The Government’s reluctance to commit to the usual uprating process when asked has caused a significant amount of anxiety for social security claimants across the country. For months, successive Prime Ministers and Chancellors—we have had many of each—ducked the question and even floated alternatives such as lower percentage increases or lump-sum payments. We are glad that the current Chancellor finally did the right thing, but I hope the Minister will acknowledge that months of indecision were not helpful for household planning or people’s mental health.

The second instrument gives effect to the annual re-rating of national insurance contribution rates, limits and thresholds. Although the Autumn Statement fixed many of those rates limits and thresholds at the 2022-23 level, some of them—class 2 and class 3 contributions—were increased by 10.1%. This will bring tens of thousands of individuals into national insurance by the 2027-28 tax year. However, the Government have not been prepared to specify what the practical impact will be. The statutory instrument’s Explanatory Memorandum refers to a small tax increase in cash terms but, with household budgets as stretched as they are, any increase is likely to cause concern. This was the subject of a debate in another place, but Minister Atkins was unable to provide a figure. Can the Minister do so today?

We do not oppose these measures, so I will not detain the Committee any longer. However, once again, I hope that the Minister will acknowledge that the Government could have provided certainty sooner. Let us hope that they do better later this year.

[Baroness Penn (Con)]

My Lords, I thank both noble Lords for their contributions to today’s debate.

I am glad that the noble Baroness, Lady Lister, recognised the significant uprating of child benefit brought forward in these regulations. I note her point about the overall value of child benefit if you look at it over a longer time period. Child benefit is one of many ways in which the Government support families with children. Over the same period, we have introduced other significant measures, such as free school meals for infants and 30 hours of free childcare.

On the figures and analysis that the noble Baroness brought forward on the child benefit high-income charge, I am afraid that I cannot confirm them as they go beyond the scope of the regulations we are discussing, but I will take her comments back to the Treasury and ensure that they are considered properly.