Child Benefit

Steve McCabe Excerpts

Tuesday 21st February 2012 Westminster Hall

[Mr Christopher Chope (Christchurch) (Con)]

The purpose of this short debate is to use the force of argument to put further pressure on the Government to abandon their policy of taking child benefit away from children who have a parent who is a higher rate taxpayer. I also wish to address the alternative approaches if the Government wish to raise even more money from higher rate taxpayers.

Last Thursday, the lead in The Daily Telegraph was, “Penalty for paying off student loan early is lifted.” The following words were attributed to a Downing street source:

“This is hopefully good news for tens of thousands of families, as well as many Conservative MPs who had raised concerns about the penalties.”

I congratulate and thank the Prime Minister for having responded to those concerns, which I and many others had expressed on that issue. I hope a similar response will be forthcoming to the even greater and more widespread concerns that are the subject of this short debate.

I recognise that a substantive response may have to wait until the Chancellor’s Budget speech next month. I can assure him that all MPs will be raising their papers if he is able to use similar phraseology about good news for families and Conservative MPs. One essential difference between the two issues is that the removal of child benefit from higher rate taxpayers is something that concerns many more MPs, not just Conservative MPs but MPs right across the house. Many more families are affected as well—anything between 1.5 million and 1.8 million families with, collectively, about 3 million children.

There are relatively few political issues on which, over the generations, there has been a cross-party consensus. One issue is the support for the principle of a universal, non-taxable cash payment for families with children. That is now known as child benefit, which was initially introduced in 1977. Child benefit replaced child tax allowances, which dated back to 1909, and family allowances, which were introduced following the Beveridge report in 1946.

Beveridge regarded a universal system of children’s allowances as a fundamental plank of the welfare state, providing

“help to parents in meeting their responsibilities, and as an acceptance of new responsibilities by the community.”

Beveridge did not support the means-testing of children’s allowances any more than he supported means-testing for access to NHS services.

When child benefit was introduced by the Labour Government, it enjoyed all-party support. Indeed, its introduction proceeded despite the desperate financial crisis at that time, in 1976-77, when this country was under the cosh of the IMF—the IMF was effectively running the Treasury. No politician at that time made the argument that the Chancellor of the Exchequer did in the House on 20 October 2010. He said:

“The debts of the last Labour Government, and the need to ensure that the better-off in society also make a fair contribution, make this choice”—

the removal of child benefit for families with a higher rate taxpayer—

“unavoidable.”—[Official Report, 20 October 2010; Vol. 516, c. 959.]

We have afforded universal benefits for children in families from 1976 to the present day. The state has grown in size since then. Why are we talking about removing this universal benefit at this stage? In my submission, it is avoidable, and must be avoided.

To emphasise just how far the Government are now proposing to go to destroy the previous consensus, it is worth noting that the Child Poverty Action Group, which supports universal child benefit, says:

“Those with children have higher costs than those without and they need additional support at whatever level of income they live on.”

Margaret Thatcher’s Government described child benefit as simple, well understood and popular. Indeed, it has a take-up rate of over 97%.

There was no hint at the last general election that the consensus would be broken. Conservative party policy was set in stone. Indeed, the Prime Minister, as Leader of the Opposition, made this boast:

“I want the next Government to be the most family friendly Government we’ve ever had in this country.”

At a public meeting in Bolton on 5 March 2010, he said that he would not “change child benefit”. He was undoubtedly taking a leaf out of the then shadow Chancellor’s book who addressed the matter at the Conservative party conference on 6 October 2009. He said:

“We will preserve child benefit”.

The early decisions of the coalition Government announced in the June 2010 Budget were consistent with those promises. In his Budget speech, the Chancellor said that

“we have decided to freeze child benefit for the next three years. This is a tough decision, but I believe that it strikes the right balance between keeping intact this popular universal benefit, while ensuring that everyone across the income scale makes a contribution to helping our country reduce its debts.”—[Official Report, 22 June 2010; Vol. 512, c. 173.]

[Steve McCabe (Birmingham, Selly Oak) (Lab)]

rose—

[Mr Chope]

I will not give way. I want to put my points on record, and it is a very short debate. If I have time later on, I will take some interventions.

The Prime Minister and his predecessors have so frequently professed their support for “hard-working families” that the expression has become a political cliché. How extraordinary, therefore, that the Government are still persisting with a policy that will undermine those hard-working families, especially those families in the squeezed middle. What families could be more hard working than those 55,000 or 60,000 single parent families where the lone parent works long hours in a demanding job to earn more than £43,000 a year, thereby qualifying as a higher rate taxpayer and a victim of this policy? Such families also often have very high child care costs. In the league table of hard-working families, they are closely followed by two-parent families where the breadwinner supports a spouse who cannot work, whether because of disability, long-term sickness or the need to support a child who is disabled or sick.

A family in the last category came to my constituency surgery in autumn 2010 and impressed on me the utter folly of the Government’s proposals. I then engaged in correspondence with the Treasury. On 18 January 2011, the Exchequer Secretary responded to my letter of 16 October—the fact that it took three months to get a response indicates something—in which I had specifically asked the Chancellor about the impact of his policy on those in receipt of carer’s allowance. My constituent’s wife earns slightly above the higher rate threshold, while he stays at home to look after his two children, one of whom has Down’s syndrome. The point that I wished the Chancellor to address was my constituents’ concern that in households where, through circumstance rather than choice, only one parent is able to work, the higher rate tax payer is normally compensating for the lack of earning capacity of the other. As my constituents said:

“This penalises families of those who live the true spirit of social responsibility each and every day.”

After a three-month delay, I received my reply; I had hoped for a better response. It merely asserted that the policy is tough but fair and that affected families are within the top 20% of the income distribution of all families. I immediately wrote back asking my hon. Friend the Exchequer Secretary to address specifically how the impact of the proposals on families such as that of my constituent could be regarded as fair. I am sorry to say that it was another three months—on 12 April—before my hon. Friend replied. He said:

“Inevitably, introducing a simple change to a universal system can create some difficult cases and it would unfortunately be difficult to create an exception for families where one partner is a carer.”

He repeated the assertion that the Government believed the policy to be fair, but how can it be fair to target such families, by asking them to make a greater contribution to reducing the deficit, while exempting families with earnings of up to £84,000 a year that are spread equally between both parents?

Fewer than one in 10 of the families from whom child benefit is to be taken away contain two higher rate taxpayers; I think that the number is 130,000 families. Almost all the remainder, therefore, will or may be in a weaker position to bear such a loss of benefit than those households with two persons earning up to £84,000 a year between them.

When I corresponded with the Treasury, the threshold for higher rate tax was £43,876. Since then, despite rising inflation—there has been a 3.1% increase in the retail prices index in the last year—the starting rate for higher rate tax has been reduced by £1,400, while the threshold for 2013-14 is still unspecified. Therefore, even more families will be affected by this change than was originally envisaged.

The policy that we are discussing today has never been properly thought through. By all accounts, it was included in the Chancellor’s speech at the 2010 party conference at the last minute, after an earlier plan to announce the withdrawal of child benefit from all children over the age of 16 was scrapped. That is why the early estimate of the contribution that this policy will make towards reducing the deficit was £1 billion. That early estimate was wrong, but in typical Treasury fashion the Government now say that anyone who opposes the withdrawal of child benefit must come up with an alternative means of producing £2.4 billion a year to go towards deficit reduction.

It is worth reminding ourselves that families are already contributing to the reduction of the deficit through the freezing of child benefit. That policy alone will save about £1 billion in 2013-14 and the total contribution that it will make during the three-year freeze is about £3 billion. In addition, many of the families who are affected by withdrawal of child benefit will lose £550 a year in basic child tax credit from this April onwards.

In responding to this debate, I expect the Minister to argue that he is in pre-Budget purdah and that he will treat what I have said as a representation, but I want him to say specifically why the Government’s proposal to increase the tax burden on hard-working families is not being defined as a tax increase but as an expenditure reduction. We know that the Chancellor has always been keen to present his deficit reduction plan in terms of achieving a fair balance between Government expenditure reductions and tax increases. Without getting into an argument about the extent to which the original target of expenditure reductions has been missed, I must ask: is it not disingenuous to regard the withdrawal of child benefit in terms other than a tax increase? After all, the antecedents of child benefit lie in the concept that there should be a higher tax allowance for those with dependent children than for those without dependent children. In essence, the Government’s policy is to remove that tax allowance and thereby increase the tax burden.

--- Later in debate ---

[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.