Alteration of Personal Reliefs

Part of Clause 11 – in the House of Commons at 12:00 am on 10 June 1974.

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Photo of Mr John MacGregor Mr John MacGregor , South Norfolk 12:00, 10 June 1974

1 beg to move Amendment No. 34, in page 8, line 40, at end insert— ' (4) In section 10(5) (restriction on child allowance by reference to the child's income) for the reference to £115 there shall be substituted a reference to £215 '. The amendment would increase from £115 to £215 the amount of income which a child may earn before his parent begins to have his child allowance reduced. At the outset, perhaps I ought to declare that I have no personal interest here.

In one sense this might be described as another indexation amendment, and on that theme I must say that I have been fascinated by the frequency with which the concept of indexation has arisen in our debates on the Bill thus far. I suspect that outside the Chamber it is not yet recognised how many of our amendments have dealt with that concept, although I imagine that that situation will shortly change. In that sense I believe that the Committee is leading informed opinion in the country.

Two months ago I put a Question to the Chancellor of the Exchequer, to which he replied on 8th April, asking when the present limit of £115 was fixed and what the new figure should be, the effects of inflation being taken into account. The limit was last fixed in 1963-64, and by February 1974 the figure should have risen to £216. I have rounded it down to £215. Account has thus been taken of inflation.

I advance three main reasons in support of the amendment. First, there is the question of equity. Unlike several of the other matters covered by the indexation amendments which we have discussed, this limit has not been raised for a long time. Few other allowances have been allowed to remain static in these inflationary times as this one has. I stress also that we are talking here of comparatively modest amounts of children's capital. In 1963-64, assuming a return of 5 per cent., one was speaking of capital of about £2,000. Today we are considering about £1,000 or less, having regard to the increase in interest returns, and that sum of about £1,000 means a great deal less in real capital terms than did the £2,000 in 1963-64.

It is a not dishonourable wish on the part of grandparents or others to give children a certain amount of capital for their future, and when they make these gifts they do so out of much more heavily taxed capital, especially with the prospective wealth and gift taxes. As I say, it is not dishonourable to wish to pass on a modest amount to children, but in so doing the donor penalises the parents of the children through the effect on the child allowance.

1 agree very much with what was said by my hon. Friend the Member for Brain-tree (Mr. Newton) on Amendment No. 49 when he pointed out that a proposal of this kind would equally benefit people with very large amounts of capital and, therefore, much higher levels of income from children's capital, but the benefit is proportionately much higher for those who are only just above the income level of £115. In other words, the proportionate benefit really bites in respect of those for whom the amendment is intended. That, therefore, is my first argument, on grounds of equity in time of inflation.

Second, I address myself to the question of students' earnings. In effect, every extra £1 above the £115 which a student earns at present during his vacations is charged at his parent's highest rate of tax. I recall earning modest sums myself as a student during the vacations to help me through university, running seaside summer shows for visitors. I was always extremely careful to keep my total net earnings, after taking expenses into account, below the figure at which I knew my family would start to be taxed. Today, however, it is far easier to earn a great deal more than £115 in the summer vacation.

6.45 p.m.

At that time the child's income allowance which we are here discussing was much more in step with the child tax allowance than it is now. Yet today, as a result of this Finance Bill, the child tax allowance has been increased to £305 for children over 16 years of age. I submit, therefore, that the £115 is well below what it should be.

This is of special importance in relation to students' earnings. We want to encourage more children to go on to higher education, but we cannot yet, for reasons of cost, apparently, abolish the parental means test, although I should very much welcome it if we could. Thus we are hitting the student who has a family with an income above the parental means test level and who is willing to support himself by work during the vacations. In effect, we say that in many cases the student, or the family as a whole, will pay a very high marginal rate of tax on his earnings which result from his desire to make a contribution towards paying his way through university. The amendment would at least help in that sort of situation. A number of constituents have drawn my attention to their problems in this respect.

I have written to the Chief Secretary about a particular case of that kind, namely, students' earnings on thin sandwich courses. It appears from the evidence available to me that those who go through university or technical college full time with grant from their employer or from the local authority—1 am especially concerned about those with grant from the employer—do not have their families' child allowance affected in any way. On the other hand, those on thin sandwich courses, in which they work for six months with an employer, obtaining earnings plus expenses, and in the remaining six months have a grant from the local authority, find that the first six months' earnings are regarded as earned income, and this bites on the child allowance. I regard this as an anomaly which ought to be remedied. It could be tackled in various ways, perhaps, but the amendment would at least help.

Third, again unlike some of the other matters which we have discussed with reference to indexation, the cost here would, I am sure, be comparatively slight. I understand from the reply to a Question which I put to the Chancellor of the Exchequer that it is not possible accurately to assess the cost, and I recognise the reasons and the difficulty there. But the cost cannot be great.

I move the amendment, therefore, on those three grounds: on grounds of equity, on the effect on students' earnings, and on the comparatively small cost. I urge the Chief Secretary to give it sympathetic consideration.