Child Benefit Scheme

– in the House of Commons at 12:00 am on 25th May 1976.

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4.12 p.m.

Photo of Mr David Ennals Mr David Ennals , Norwich North

With permission, I should like to make a statement on the implementation of the child benefit scheme—[Interruption.]

Photo of Mrs Barbara Castle Mrs Barbara Castle , Blackburn

On a point of order, Mr. Speaker. I am sorry to intervene, but it is quite impossible to hear what my right hon. Friend is saying with all the passing to and fro by hon. Members and the chatter.

Photo of Mr George Thomas Mr George Thomas , Cardiff West

I hope that hon. Members will heed that request.

Photo of Mr David Ennals Mr David Ennals , Norwich North

The child benefit scheme is a structural reform of great social value and we are determined that its primary objective, the provision of a cash benefit for the first child, should go ahead. Abandonment of this principle would mean that first children would attract no universal benefit and that no progress would be made in this vital area of social policy.

Introduction of the scheme in its original form would, however, have imposed an excessive strain on the pay policy which is vital to the Government's continuing success in overcoming inflation. Current circumstances are not the occasion for the drastic reduction in take-home pay which a substantial cut in child tax allowances would have entailed. Even the abolition of the under-11 rate would have reduced take-home pay by over £3 for a two-child family, £4 for a three-child family and nearly £8 for the really large family with six children.

Inevitably the Government were faced with a dilemma over take-home pay. On the one hand, restraints of pay policy require that there should be only a limited increase; on the other, the full implementation of the child benefit scheme would have meant for many workers that the whole of this increase and more would be taken away when they lost their child tax allowances.

The Government have therefore decided that the new increased child tax allowances should remain unchanged. Moreover, in view of the overriding need to contain public expenditure and the borrowing requirement as a further plank in the Government's economic strategy, it would not have been possible to combine these arrangements with an improvement in family support sufficient to justify such drastic reductions in take-home pay.

What we propose, therefore, is to carry out our manifesto commitment to introduce a new system of child allowances for every child, including the first, payable to the mother. We shall introduce child benefit in April 1977 at £1 for the first child and £1·50, as family allowance now, for other children. The same tax arrangement as for family allowance will apply but families who do not pay tax will, of course, get the full £1. In addition we shall add to this basic rate a premium of 50p for one-parent families to maintain the value of the benefit they are now receiving by way of child interim benefits. The net cost of these proposals in 1977 will be about £95 million. The scheme was anticipated in the Government's White Paper on Public Expenditure and the cost is within the White Paper plans.

We shall shortly be seeking an affirmative resolution for the regulation fixing the rates, and other regulations, including the commencement Order, will be made soon.

Photo of Mr Patrick Jenkin Mr Patrick Jenkin , Redbridge Wanstead and Woodford

Is the right hon. Gentleman aware that everyone with an interest in this subject will regard that statement as the final collapse of the Government's strategy for family support? Do the Government recognise that, by abandoning the tax credit principle, inherent in their original child benefit scheme, they are reducing the help to the poorest families and deepening the effect of the poverty trap? Is it the case that, although the TUC has all along accepted the principle of a transfer from the pay packet to the mother's handbag—a commitment repeated only yesterday by Mr. Murray—the Government's central excuse for abandoning their original child benefit proposals is that this transfer will reduce pay packets?

Will the Secretary of State confirm that this inferior scheme will actually cost more than the scheme originally proposed of combining child benefits at a modest level of perhaps £2·50 a week with the retention of reduced tax allowances to make sure that no standard rate taxpayer was worse off? Would he confirm that the cost of £95 million compares with about £40 million for the scheme originally envisaged?

Is this not yet another shameful example—like the pension uprating announced last month—of the Government having won elections on promises they cannot now honour?

Photo of Mr David Ennals Mr David Ennals , Norwich North

That is a very hypocritical reaction to the statement. In the first place, this fully implements the commitment made in our manifesto, both in February and in October 1974. When the right hon. Gentleman refers to what we have done or not done for families, I would say that this Government's record will stand criticism or inspection from any source. We have just made a substantial increase in child tax allowances. Last year, family allowances were increased. This year, we have introduced child interim benefit, which in effect extends the family allowance to the first child for one-parent families. The poorer families—those in receipt of social security and supplementary benefits—will receive further increases in November, and in July the level of FIS will be increased.

Our record is one of which we are proud. I have to say, of course, that this Government would wish that they had been able to go further, but I do not accept for a moment that we have abandoned the original scheme. In fact, I have made it clear that it is our intention in time to bring it in, and to do so in its entirety—[HON. MEMBERS: "When?"] Hon. Members may ask, "When, when, when?" but let them ask their constituents whether they would be prepared to accept at this stage and in this time of pay policy the sort of cut which would be required if we were to introduce the new scheme. At this stage the pay policy is very much dependent on take-home pay. That will be a central issue in the mind of the worker as we move forward during the present policy.

Photo of Mrs Barbara Castle Mrs Barbara Castle , Blackburn

Is my right hon. Friend aware that there will be dismay on this side of the House at the postponement—I say postponement but it appears to be abandonment—of one of this party's major reforms, a new system of family support which, by combining the family allowance with the child tax allowance, first concentrated Government help for families on the woman who has to provide the budgeting for the upbringing of the child, the mother of the family, and, secondly, concentrated support on those families too poor to pay tax which at present do not get the benefit of child support?

Is my right hon. Friend aware that his comment on the effect on take-home pay simply will not wash, for the reason that the report, "The Social Contract 1976–1977", which the Trades Union Congress is to present to a Special Congress on pay policy next month, includes a welcome to the Government's announcement that they were to go ahead with the introduction of this child benefit scheme in April or May next year, and calls on the Government to make the provision as generous as possible? That is action by the TUC as, in its view, a means of helping to "sell" this pay policy. Will my right hon. Friend, therefore, do what I would have done and refuse to accept this decision?

Photo of Mr David Ennals Mr David Ennals , Norwich North

My right hon. Friend refers to dismay. I certainly accept that there will be disappointment in many quarters, but I must tell her that I do not believe that workers up and down the country had fully understood the effect this would have on their take-home pay. I wish that it had been understood. But I fear that there would have been dismay—to use my right hon. Friend's word—in April of next year, had the scheme been implemented fully, when someone with three children found his income reduced at a stroke by £4·30 as a result of the introduction of the scheme, or when someone with four children suffered a reduction of £5·44. That would have caused dismay.

The important point is that we have introduced this scheme. As economic circumstances change, we shall have an opportunity not only to vary the rate of benefit but also to take steps as we think appropriate in terms of the child tax allowance to introduce the scheme in its entirety.

Photo of Mr Alfred Hall-Davis Mr Alfred Hall-Davis , Morecambe and Lonsdale

Is the Secretary of State aware that his statement will be regarded by mothers of children as a betrayal and by fathers of children as an insult? Is he further aware that all the evidence given by TUC representatives to the Select Committee on tax credits was strongly in favour of the change and fully recognised the impact on pay packets? Will he further accept that it is just at a time of family financial stringency, such as the present, that the change would have had its greatest value, and that all the evidence from informed social workers shows that the introduction of a special pay packet direct to the wife would have been a step of the greatest assistance in eliminating poverty and sustaining the sound family budget that could have been introduced?

Photo of Mr David Ennals Mr David Ennals , Norwich North

I completely agree with the principle enunciated by the hon. Gentleman, which has also been enunciated by my right hon. Friend the Member for Blackburn (Mrs. Castle), my predecessor. This would have been a vital social change of tremendous benefit for the wife. But we are asked to introduce this in its entirety precisely at a time when, on the one hand, we have the necessity to control public expenditure—and hon. and right hon. Gentlemen opposite will not challenge me on that—and, on the other hand, and at the same time, quite clearly we have to sustain our anti-inflation policy by an effective pay policy. It would have been a challenge to that pay policy.

In relation to poor families, I must say that there will be at least 200,000 which will not greet this announcement with dismay but will welcome the fact that we have introduced a benefit for the first child, a step which no party previously has taken. Hon. and right hon. Gentlemen opposite are lecturing us today about what we ought to do, but during their period in office they never brought in family allowance for the first child or uprated family allowances, so I will not take criticism from them.

Photo of Mr Jack Ashley Mr Jack Ashley , Stoke-on-Trent South

Is my right hon. Friend aware that this announcement indicates very clearly that the Government's much-heralded attack on family poverty is losing momentum and may well be in danger of fizzling out if more strength is not shown in attacking that poverty? This is not the kind of announcement we expect from a Labour Government. Is my right hon. Friend further aware that, although we understand the Government's economic difficulties, sympathise with them and are prepared to defend the Government against asinine attacks from hon. and right hon. Gentlemen opposite, we are not prepared to accept an indefinite postponement of the child benefit scheme?

Mr. Eanals:

I very much appreciate the point made by my hon. Friend. The Government policy to assist poor families will not lose its momentum. This is one contribution to relieve poverty among poor families, because some of the greatest poverty is found in single-parent families. This will help not only the single-child families but other families, too.

There are, of course, other methods which we must try to follow, but I am certain that my hon. Friend will know that we are introducing a scheme which, while admittedly it is not complete, is the basis of the scheme which has passed through this House. He will understand that we are doing this at a total public expenditure cost of £95 million. Though we would have liked to do more, he will understand that the present economic situation makes it impossible for us to have available sums of the kind which both sides of the House would like to have available.

Photo of Mr David Penhaligon Mr David Penhaligon , Truro

May I remind the Minister that a majority of voters in this country are women, many of whom will see this announcement as an insult and as a victory for trade union male chauvinism? Will he let the House know the effect of this announcement on the family budget of somebody earning approximately two-thirds the national average wage with, say, two children under the age of 11?

Photo of Mr David Ennals Mr David Ennals , Norwich North

For those who are on full tax, the benefit will be very modest—only 30p in family benefit as a result of the scheme. If we wanted to make the amount higher we should have had to find additional public expenditure, which would not have been possible at this time. It is true that some wives may be disappointed, but this is a very important step forward in that the Government have decided to bring in benefit for the first child. That is a social reform that has been long demanded and I am proud that this Government, by what is inevitably a modest introduction of the child benefit scheme, at least is fulfilling that aim.

Photo of Mr John Garrett Mr John Garrett , Norwich South

Is my hon. Friend aware that there is no single objective of social policy more important than putting money into the hands of mothers in low-wage families? Is he also aware that the first child is the most expensive child and that many hon. Members on this side of the House will consider this statement to be simply a concession to male chauvinism?

Photo of Mr David Ennals Mr David Ennals , Norwich North

It is essential that my colleagues on this side of the House and hon. and right hon. Gentlemen on the other side of the House should, for a period of a week or a fortnight, conduct a seminar among husbands and wives to establish whether the husband really understood the implications of the scheme and whether he will be prepared to help during this period of pay policy as a result of which he would find that the increase that he was permitted under the pay policy could be more than swallowed up by the introduction of a scheme which, I accept, has tremendous social value.

Photo of Mrs Margaret Bain Mrs Margaret Bain , Dunbartonshire East

Does the Secretary of State understand the difference between family income and wages? His announcement does nothing to increase the average family income and is an insult to the poorer sections of the community, particularly one-parent families. Does the right hon. Gentleman know that it is a famous old Scottish adage that under Labour Governments the poor get poorer?

Photo of Mr David Ennals Mr David Ennals , Norwich North

It is not so. This scheme will help families with one child and it will help all families. There is no point in the hon. Lady's saying that the additional expenditure of £95 million which is being directed towards this new benefit will not be of particular help to the poor.

Photo of Mrs Helene Hayman Mrs Helene Hayman , Welwyn and Hatfield

Is my right hon. Friend aware that most people in the country have a better idea of family income and the benefits that the scheme would have brought to families, not just to wives, than the Cabinet appears to have? What is my right hon. Friend's evidence that the introduction of the scheme would have put an excessive strain on pay policy, when the TUC made clear that it did not say that the scheme would put such a strain on pay policy? Does my right hon. Friend recognise that his announcement is a disappointment and an insult to the 80 Labour Members of Parliament who last night signed a motion asking for full implementation of the scheme?

Photo of Mr David Ennals Mr David Ennals , Norwich North

I suspect that my hon. Friend, who, I understand, initiated the motion which has collected so many signatures from both sides of the House, expected that a statement would be made that the whole scheme was about to be deferred. I saw suggestions in the newspapers that an announcement would be made deferring the scheme for one, two or three years. My hon. Friends should welcome the statement, which announces the beginning of the scheme and provides a basis from which we can expand.

Photo of Mr Dafydd Elis Thomas Mr Dafydd Elis Thomas , Merioneth

Does the Secretary of State accept that the statement is a nail in the coffin of the social contract? I understood the social contract to be an agreement about wages and about social policy. Will the right hon. Gentleman discuss this question with the TUC to discover whether the trade union movement accepts that the benefit should be implemented in full?

Photo of Mr David Ennals Mr David Ennals , Norwich North

I am surprised that the hon. Gentleman should lecture some of us about our experience within the trade union movement and the attitude of trade union leaders and others. I seriously doubt whether trade union leaders and many Members of Parliament fully recognised the important consequence which the scheme would have had on take-home pay. As part of the seminar in our constituencies in which we talk to the workers and their wives we might also discuss this matter with trade unionists and their wives.

Photo of Mrs Judith Hart Mrs Judith Hart , Lanark

In his concern about the effect on workers of the discovery that they would be taxed to pay for the higher allowances, has my right hon. Friend in mind that the principle of the scheme was introduced in the 1968 Budget when, for the first time, we related family allowances to tax take-back? Will my right hon. Friend look at the correspondence of that time? My recollection from the period when I was Minister of Social Security is that there were few objections to or difficulties in understanding the principle once it had been explained. There is a considerable mythology in the Treasury, and possibly in the Department of Health and Social Security, about the likely impact of the scheme upon workers and I believe that it would have been welcomed, not resisted.

Photo of Mr David Ennals Mr David Ennals , Norwich North

My right hon. Friend and the House have to recognise that, while I completely agree with the principle on which the child benefit scheme was initiated, at this moment we are in a difficult economic situation. The transfer of family support from husband to wife has always been an integral part of the scheme, but acceptance in the pay policy arrangements of take-home pay rather than gross pay as a significant factor has put that principle in a rather different light. The transfer must be made gradually, and our proposals are a beginning. They will become more acceptable when pay limits are less tight.

Photo of Kenneth Clarke Kenneth Clarke Shadow Spokesperson (Trade and Industry)

Has the Secretary of tate had an opportunity of looking at how many times the present Government's previous team of social Ministers assured the House in terms that the change to child benefits would be introduced in April 1977 and dismissed as fanciful the fears expressed on both sides of the House that it might be subjected to further delay? Does the Secretary of State realise that the reason he gives for postponing this reform is a silly objection, thought of at the last moment by members of the Government team responsible for pay policy. an objection which was not thought to be worth arguing by any sensible person on either side of the House or by the trade union movement during the two or three years in which child benefit developed to its present stage?

Photo of Mr David Ennals Mr David Ennals , Norwich North

The hon. Gentleman puts his question as if I had announced the deferment of the introduction of the scheme and said that we were unable to implement our promise to introduce a new child allowance for the first child. I have said that as from April next year we shall introduce a new benefit for the first child. That has never been done before. It has long been the policy of the Labour Party, although not of the Conservative Party.

Photo of Mr Giles Radice Mr Giles Radice , Chester-le-Street

I understand the problems which face the Government, but will my right hon. Friend accept from me that hon Members on both sides of the House are deeply disappointed by the Government's decision? What effect will the delay have on the offices dealing with child benefit at Washington New Town in my constituency?

Photo of Mr David Ennals Mr David Ennals , Norwich North

If I had announced the postponement instead of the commencement of the scheme, Washington would have been faced with great problems. I am happy to tell my hon. Friend that by my announcement of the launching of the scheme his constituency interests have been respected.

Photo of George Young George Young , Ealing Acton

Will the Secretary of State address himself to the question put by my right hon. Friend the Member for Wanstead and Woodford (Mr. Jenkin), namely, that for one-half of the public expenditure involved, the original child benefit scheme could have been introduced and would have concentrated the cash on the families who most need it? How can the right hon. Gentleman stand at the Dispatch Box and see his Department's strategy for tackling family poverty torn to shreds by his insensitive Cabinet colleagues?

Photo of Mr David Ennals Mr David Ennals , Norwich North

I am sure that all hon. Members will recognise that any Minister in my position would have preferred to say that the economic situation in terms of public expenditure and pay policy enabled us at this moment to introduce the full scheme, but clearly that is not possible. I cannot pretend that I am happy to make the announcement. The introduction of the full scheme without premium would have cost precisely the same amount, £95 million. The new level of child benefit would have been £2·50. That would have been substantially paid for by a greater reduction in take-home pay. I gave the figures for the introduction of the full scheme.

Photo of Mr Bob Cryer Mr Bob Cryer , Keighley

Does my right hon. Friend realise that, although there may be some disappointment on the Labour Benches, there is also some pleasure in that the Government have not retreated to the extent suggested in the newspapers and have started the scheme? Will my right hon. Friend comment on the hypocrisy of the Opposition who dare to talk in the same breath of cuts in public expenditure and implementation of the full scheme? Within the framework of the present taxation policy, does my right hon. Friend think that the only way to implement the full scheme is by swingeing cuts in defence expenditure?

Photo of Mr David Ennals Mr David Ennals , Norwich North

I shall not rise to the last part of that question but will answer the first part. It is clear that the criticisms by the Opposition—I am not talking about my right hon. and hon. Friends—and their wish to introduce the full scheme at the high level of benefit that we all want would have made a much more substantial demand on public expenditure than is possible. The Opposition know that. It is they and not my right hon. and hon. Friends who are pressurising for increased cuts in public expenditure. I accept what their criticism of me would have been if today I had made a statement saying that we were deferring the scheme. Instead, I announced a scheme which will make an additional call on public expenditure of £95 million, which was taken into consideration in the White Paper. I agree with my hon. Friend that the Opposition's hypocrisy has to be seen to be believed.

Photo of Mr Patrick Jenkin Mr Patrick Jenkin , Redbridge Wanstead and Woodford

Does the right hon. Gentleman recognise that even on his own figures he could have introduced a much better scheme even for the same money? Does he recognise that he could have introduced a scheme which would give more help to the poor family at a reduced cost? Is he aware that with the somewhat dubious exception of his hon. Friend the Member for Keighley (Mr. Cryer) his scheme has found not a friend on either side of the House? I appeal to the right hon. Gentleman to take it away and think again.

Photo of Mr David Ennals Mr David Ennals , Norwich North

If we had introduced what I would call the £2·50 scheme without a premium, which would have cost £95 million, families with more than three children would have been worse off. I have to admit that I would have liked to see a much bigger scheme. The scheme which I have announced today will mean that all two-parent families will be better off, including Opposition hon. Members paying all the tax that they do.

If the right hon. Gentleman asks me to take this away and come back with a new statement, he must tell me whether he wants me to drop this scheme or whether he believes, on public expenditure grounds, that we should put more in.

Photo of Mr Patrick Jenkin Mr Patrick Jenkin , Redbridge Wanstead and Woodford

The right hon. Gentleman has challenged me. I said that he could introduce a scheme at less cost to confer greater benefits to everyone and not to large numbers on either side of the House who have one child and are on high tax rates.

Photo of Mr David Ennals Mr David Ennals , Norwich North

The right hon. Gentleman should go home and do his arithmetic again.

Photo of Mr Jeff Rooker Mr Jeff Rooker , Birmingham, Perry Barr

Will my right hon. Friend stop saying that he has introduced a new scheme, and confirm that he has introduced a new benefit? That is Orwellian newspeak. How can I explain that to my constituents? The Government saw fit to put an educational leaflet through the door of every household last year for the pay policy, inferring that everyone needed educating about the scheme. Why does he not put that educational process into action now? Why not try to sell the child benefit scheme to the public as part of the massive Government advertising which takes place every day on other schemes? My right hon. Friend has done nothing except spend £116,000—

Photo of Mr George Thomas Mr George Thomas , Cardiff West

Order. I hope to call each of the remaining four hon. Members who have been on their feet if we have brief questions.

Photo of Mr David Ennals Mr David Ennals , Norwich North

My hon. Friend the Member for Birmingham, Perry Barr (Mr. Rooker) is absolutely right. There needs to be a major education campaign throughout the country so that people will understand fully the implications of what I believe will be a great social reform. But it is difficult to introduce a scheme at a time when there is not that understanding and at a time when take-home pay is the central issue in pay policy. My hon. Friend can say to his constituents that the Labour Government are fulfilling the obligations contained in the February and October manifestos on which he fought his election. He can say that we are introducing a new system of child allowances for every child, including the first, which is payable to the mother. That is what the scheme is.

Photo of Peter Bottomley Peter Bottomley , Greenwich Woolwich West

Is the right hon. Gentleman aware that the criticism directed at him is also directed at his Cabinet colleagues, because, with increases of public expenditure of £7,000 million, they can find only £95 million for first children? That is worth less than £15 a year per child. What kind of Socialist planning is it when, in the four weeks since the right hon. Member for Blackburn (Mrs. Castle) left office, a scheme that we have been hearing about for years turns into a totally different idea?

Photo of Mr David Ennals Mr David Ennals , Norwich North

The lectures from the Opposition about public expenditure fall from me like water off a duck's back. Of course, any Government committed, as we were, to the full implementation of the scheme would have preferred to introduce it at a time when there were no restraints on expenditure and no necessity for a pay policy in the battle against inflation. The Opposition seem not to care at all about the implications of the battle against inflation. We must have that in mind in every action that we take. We can introduce the best social reform in the world, but if we do not achieve a strengthening of our economy we shall be in serious difficulty.

Photo of Mr Edward Leadbitter Mr Edward Leadbitter , Hartlepool

Is my right hon. Friend aware that before he took office about five weeks ago the child benefit scheme was costed, well thought out and accepted by the Government, the Parliamentary Labour Party, the NEC and the TUC? From none of those quarters has there been criticism or a request for a review or for a modified scheme. What flash of blinding light or on the road to Damascus has come to my right hon. Friend in such a short period of time so that he insults the Parliamentary Labour Party and rejects the TUC recommendation? Will he be honest and tell the House that his present proposals are taxable and, therefore, worth nothing at all?

Photo of Mr David Ennals Mr David Ennals , Norwich North

I concede that they are taxable. I said that in my statement. But it is not true that they mean nothing at all. Has my hon. Friend done his own homework? The level of child benefit had not been decided when I took up my present post and, therefore, the precise effects on take home pay had not been calculated. I do not know how many children my hon. Friend or any other hon. Member has, but does my hon. Friend know that for a man with four children the effect on his take-home pay would have been a reduction of £5·44—at a stroke? Can he accept that to do that at a time of current pay policy would have made sense?

Photo of Mr Kevin McNamara Mr Kevin McNamara , Kingston upon Hull Central

Is my right hon. Friend aware that many of his justifications of the economic situation smack of the nineteenth century, children in textile mills, boys working up chimneys and women down pits? If he had had the good fortune to be in the House when the Tories were in power, he would know that the right hon. Member for Leeds, Noth-East (Sir K. Joseph) used similar arguments when introducing his piddling little FIS scheme. Is he aware that he has insulted trade union-sponsored Member of the House who have spent a long time talking to trade unions and constituents about how the scheme would work and exactly how their wives' family allowances would be increased on a Tuesday to make up for what was lost from the pay packet on a Friday? Does he realise that we shall have great difficulty in getting his legislation?

Photo of Mr David Ennals Mr David Ennals , Norwich North

I do not require legislation. Legislation has already been put through.