Taxation of Low-income Families

Debate between Michael Tomlinson and Jeremy Lefroy

Wednesday 16th January 2019 Westminster Hall

[Jeremy Lefroy]

The hon. Gentleman makes an extremely important point. I shall refer to three reports today, but this one, “Make Work Pay: A New Agenda for Fairer Taxes” by the Centre for Policy Studies, suggests a tax and national insurance-free income of, I think, £12,000 a year, which is similar to what he suggests. I have a lot of sympathy for that. I would counsel against those who say that national insurance is a thing of the past and totally irrelevant; I believe in the importance of a social insurance contribution-based system, provided that it is progressive and proportionate, and I would not like to lose that, but I entirely agree with the principle of what he says.

Lest anyone wonder whether these high effective marginal tax rates are just an anomaly that, for some curious reason, only impacts one-earner, two-child families on 75% average wage, the point must be made that our high marginal rates are a problem for all family types: single parents, single-earner couples and dual-earner couples. One in three in-work families with dependants are likely to be facing high effective marginal rates. That is 2.5 million families—or 1.6 million couples—of whom 1 million are single earners, 600,000 are dual earners and 900,000 are single parents.

Put simply, any family paying tax and national insurance and receiving tax credits will be looking at an effective marginal tax rate of 73%. Families that, in addition to receiving tax credits, also receive housing benefit and council tax benefit will be looking at a marginal rate of 96%. Under universal credit, the 73% rate will increase slightly to 75%, but the 96% rate will come down to 80%. A 16% drop is significant, but an 80% effective marginal tax rate is still far too high. There is a lot that I would like to say about improvements that I would propose to universal credit, but that is a debate for another day.

Instead of encouraging aspiration, the combined impact of our tax and benefits system suffocates aspiration, trapping families in poverty. That is a burning social injustice that must be addressed. Much of the cause of our high effective marginal tax rates, particularly for single earner couples, is as a result of the introduction of independent taxation in 1990. Since then there has been little or no recognition of family responsibility in the tax system. Not recognising that responsibility in income tax, through a system such as elective joint taxation, has led to a tax arrangement that is anti- aspirational. It is interesting that the former Chancellor, Lord Lawson, wanted to include some kind of joint responsibility in the new system when it was introduced, but it was opposed by the then Prime Minister.

Families in poverty pay thousands of pounds of income tax, but then have to be supported by very inflated benefits, which offset the failure to recognise family responsibility but with the very costly downside of cripplingly high effective marginal tax rates that suffocate aspiration as the inflated benefits are withdrawn. In 2014 I co-authored a report with my hon. Friend the Member for Congleton (Fiona Bruce) and two other colleagues, “Holding the Centre: Social Stability and Social Capital”, which touched on many of the issues we are debating today, although not in such detail on this particular subject. As we noted in the report, many of the Government’s—all Governments’—most important goals rely on the contribution of families. However, too often that contribution is under-recognised and the impact of policy on these relationships ignored, under all Governments.

The report pointed out the vital role that family relationships play in our economic prosperity, wellbeing and the life of our children, as well as the cohesion and social stability of our nation, where growth and prosperity are underpinned by fairness, responsibility and community. The stability of marriage and supporting aspirational families are integral parts of the social capital of our country that leads to social stability and economic prosperity. A Government who draw on and nurture the wealth of our social capital, supporting families and strengthening relationships, can give people confidence about their future prospects and the ability and opportunity to see aspiration fulfilled.

These issues are vital, and therefore I note with pleasure that the Strengthening Families Manifesto group of Conservative MPs, led by my hon. Friend the Member for Congleton and by Mr David Burrowes, the former Member for Enfield, Southgate, has recently held an inquiry into making work pay for low-income families. The report was published this morning to coincide with this debate. My hon. Friend will outline in greater detail some of the report’s specific findings and recommendations. I underline the call in the report for the Chancellor to review formally the effective marginal tax rate for families, assessing the reasons why work does not pay for so many families and evaluating the possible solutions, with a particular focus on the tax system and the recognition of family responsibility.

[Michael Tomlinson (Mid Dorset and North Poole) (Con)]

I congratulate my hon. Friend on securing this important debate. Despite all the other things going on, this is hugely important. He mentioned a burning injustice—all our ears will have pricked up at that phrase and he is absolutely right. I and other colleagues signed a new clause to the Finance (No. 3) Bill, which was not selected for debate, but does he agree that this does not need an Act of Parliament for the Chancellor to review it, and that the Chancellor can still review it despite the fact that the new clause was not selected or debated and is not part of a formal Act of Parliament?

[Jeremy Lefroy]

My hon. Friend is absolutely right, and that is why both the debate and that report are so important in showing the Chancellor that this issue is vital for many colleagues across the House.

I will finish with the fact that it is surely very telling that in 1990, just as independent taxation was introduced, far from 73%, the effective marginal tax on a one-earner family with two children on 75% of the average wage was just 34%, close to the average 33% effective marginal tax rate on such families today across the OECD as a whole. We are a total outlier in this respect, and in the wrong direction. If we managed without such aspiration-killing tax rates on working, low-income families in the past, we can and must do so again.

I very much hope that the Minister, for whom I have the highest regard, agrees and will tell us that the Chancellor is willing to review our marginal tax rates, as my hon. Friend the Member for Mid Dorset and North Poole (Michael Tomlinson) mentioned, and bring forward strategies to gradually bring them in line—I realise this is a huge ask— with the OECD average over the years, so that we can become an aspirational economy once again.

Strengthening Families

Debate between Michael Tomlinson and Jeremy Lefroy

Thursday 8th February 2018 Westminster Hall

[Michael Tomlinson]

My hon. Friend is absolutely right. I have also seen a figure of 63%, which may even be from the same study. Access to organisations and services with proven expertise in helping families that have members inside prisons is vital for protecting children’s life chances.

The Farmer review makes a lot of sensible and achievable recommendations. To give one simple example, today is the last sitting day before recess. Many families will be considering going on holiday over half-term, and some will even pass through an airport. The prison experience for visiting families should be treated in a similar way to airport security: it should be marked by courtesy, a customer service mentality and empathy for vulnerable and older people, for parents struggling with a young family and for children themselves.

[Jeremy Lefroy (Stafford) (Con)]

Does my hon. Friend agree that one of the great works that volunteers do in prisons, such as Stafford Prison in my constituency, is giving support to visiting families? They welcome them with cups of tea and make the experience of visiting their relative a little easier than it could otherwise be.

[Michael Tomlinson]

I could not agree more. I could mention two local examples from Dorset and the south-west—the Footprints Project and Clean Sheet, a national organisation that operates in Dorset—that do exactly that volunteering work in prisons. We should also mention prison chaplains, who do so much in that area.

I am pleased that the Government have committed to supporting the Farmer review. I do not expect the Minister to respond to it in detail, but I look forward to the new prisons Minister, my hon. Friend the Member for Penrith and The Border (Rory Stewart), grasping and tackling the subject, as I know he will, and updating us in due course.

I have two final points to make. First, greater emphasis and training should be given to prison staff, who should be encouraged to build personal relationships with prisoners and their families, and to encourage prisoners in turn to build their own relationships with families and significant others. Secondly, when considering a prisoner’s application for release on temporary licence, family ties and supportive relationships should be a consideration. It should be a priority to ensure that an offender can improve family relationships ahead of release when it is safe to do so. A linked issue is the location of our prisons; we should ensure that prisoners are located as close to home as physically possible.

Families come in all shapes and sizes, but the evidence is clear. We know instinctively the importance of the family. I ask that the Government’s good work continue and that families’ importance be recognised, even within our criminal justice system.

--- Later in debate ---

[Jeremy Lefroy (Stafford) (Con)]

It is a pleasure to serve under your chairmanship, Mr Bone, and to follow so many excellent speeches. I pay tribute to my hon. Friend the Member for Congleton (Fiona Bruce), with whom I share an office, for all the work she has done on this issue. I also pay tribute to our former colleague David Burrowes for the tremendous work that he continues to do in this area.

I want to comment briefly on two matters that have already been raised by Members. First, my hon. Friend the Member for somewhere in Dorset—I never quite remember where—

[Michael Tomlinson]

Mid Dorset and North Poole.

[Jeremy Lefroy]

My hon. Friend the Member for Mid Dorset and North Poole (Michael Tomlinson)—it is south of Watford, anyway—spoke about prisons, which are an incredibly important matter. As I mentioned in an intervention, Stafford prison is in my constituency, and I had the privilege of visiting there at some length last Friday. I saw the excellent work that prison officers do with vulnerable prisoners and their families. It was a humbling experience to see the tremendous work that goes on there and the commitment and dedication of the officers, chaplains, staff and volunteers who put so much time into that. I am sure that outcomes would be considerably worse were it not for that dedication.

I would also like to follow on from what my right hon. Friend the Member for New Forest West—or is it East?—(Sir Desmond Swayne) said about the need for support for military families. I have well over 2,000 serving personnel, three Signals Regiments and the Tactical Supply Wing of the Royal Air Force in my constituency. I see the commitments that they make and the pressures they face. I also see the pressures put on families, particularly in Signals, where they are often sent on fairly small missions to all parts of the globe, whether the Falklands or the middle east. The same is true of the Tactical Supply Wing of the RAF. I draw attention to policy 5 in “A Manifesto to Strengthen Families”, which states:

“Parenting and relationship support should be made readily available for military families. Life in the Forces holds advantages for families”—

the hon. Member for Glasgow North West (Carol Monaghan) questioned that, which I can understand—

“but it can also impose unique and significant pressures.”

I welcome that policy and urge the Government to implement it.

I want to concentrate on mental health, which is increasingly spoken about in Parliament, which I welcome. The subject is sensitive to most in the House, given the prevalence of mental health problems in many families. According to the charity YoungMinds, one in 10 children has a diagnosable mental health disorder—that equates to three children in every classroom—and that statistic increases to one in five for young adults. That is a profound hardship for individuals and their loved ones. Due to its significant adverse effects on income, wages, employment and social mobility, poor child mental health has been calculated as having a lifetime cost in lost income of as much as £388,000, and that is just the monetary cost—we also have the more significant social and personal costs.

The Prime Minister has recognised that inadequate treatment for those suffering from mental health problems in Britain amounts to a

“burning injustice…that demands a new approach from government and society as a whole.”

Given that 50% of all mental health problems manifest by the age of 14 and that 75% manifest by age 18, logic and evidence point to family circumstances being a hugely significant factor. That is why I wish to commend my hon. Friend for Congleton on securing this debate, which enables me to speak about a subject that needs more attention: the role that families play in a child’s mental health. I wish to make it clear that mental health can impact the most loving family, as well as the most challenged family. However, as ever in social policy, we need to follow the evidence and take appropriate action.

[Ms Karen Buck in the Chair]

The Early Intervention Foundation review commissioned by the Government concluded that inter-parental relationships are instrumental in determining a child’s mental health. Children of separated parents or in challenged families have been shown to be 50% more likely to fail at school, have low self-esteem, struggle with peer relationships and have behavioural difficulties, anxiety or depression. That is supported by a review of 18 international studies that was published this year by the University of Sussex. It found that family breakdown is consistently linked to higher risks of depression in children. I draw attention to the fact that those are international studies; they are not just about the United Kingdom.

New research recently published by the Marriage Foundation uses the latest data on 14-year-old children in the millennium cohort study. It found that family breakdown is a major driver of teenage mental health problems. It is in stable homes with nurturing relationships that children have the best chance to thrive. Sadly, that is a far cry from many children’s experience. The recent Department for Work and Pensions report, “Improving Lives: Helping Workless Families”, found that by the age of 16, 47% of all children do not live with both birth parents. That statistic has been referred to before, but it is well worth repeating. Indeed, between one and three in 10 children live in families where their parents say they are in unhappy relationships. The Early Intervention Foundation recently concluded that

“childhood mental health...may be improved by working to promote the quality of the inter-parental relationship.”

Couple therapists who work for Tavistock Relationships have witnessed the reality of that at first hand. They reported that the mental health difficulties of children of couples with relationship problems were significantly alleviated if they engaged in couples therapy. That is a blind spot in current health care provision.

A child interviewed by Common Room Consulting described their experience of therapy. They said:

“The main focus was on me, and changing my behaviours and thinking patterns, not on the causes. I tried to tell people that home wasn’t good on a few occasions, but they didn’t seem to have the time or the space for these discussions to happen...the focus was on the impact of my behaviour on my parents and sisters.”

A couples therapist based in a children and young people’s mental health team stated that she was unaware of any other multidisciplinary teams nationally that provided the service as part of their approach to tackling children’s mental health. That needs to change.