With this it will be convenient to consider new clause 4—Uprating of Child Benefit—
'In paragraph (b) of subsection (3) of Section 63 of the Social Security Act 1986 leave out :—
(c)or (d) above" and insert :—
(c), (d) or, in any Order having effect on or after 10th April 1989, (f), (child benefit), above.".'.
The effect of the new clause may not be immediately apparent, but I am advised that it will correctly give effect to our intention, which is to include child benefit among those benefits which are automatically index-linked under the 1986 Act and to prevent it from suffering the fate of benefits that are not automatically index-linked, such as the death grant, which was allowed to wither until it was of such insignificance that the Government were able to move in and kill it off.
The hon. Member for Kensington (Sir B. Rhys Williams) has tabled the similar new clause 4. I note that the hon. Gentleman has been heavily briefing the press that our new clause would take immediate effect whereas his would not take effect until next year. I would not be unhappy if my new clause had the effect of forcing an increase in child benefit this April, but I would be somewhat surprised if it had that effect since we have already passed the Up-rating (No. 2) Order, which gives effect to increases this April. I rather suspect that the effect of the hon. Gentleman's new clause and mine would be identical, although the wording may be different.
For the avoidance of doubt, I assure the hon. Gentleman that I shall be voting for both new clauses and, as they both achieve identical objectives, it would be strange to differentiate between them. I appreciate that some Conservative Members may, for political reasons, wish to vote for his new clause rather than mine. I only urge them all to agree to vote for the same one, to maintain voting strength.
I am grateful to the hon. Gentleman for allowing me to interrupt him so early in his speech. I felt that it might help the House if I were to explain. I was advised that if the remaining stages of this Bill were completed quickly and his new clause were adopted, it would be possible for the uprating called for to be implemented in time for the coming April. So there would be a difference in meaning between my new clause 4 and his new clause I, in the unlikely event that the Bill completed all its stages within, say, the next three or four weeks.
I should regard such an outcome as delightful, but perhaps I could put it to the Minister that we are willing to compromise on this point and if that is what would oblige him to resist our new clause, I am willing to come or go with him about April.
Our new clause is prompted by the recent history of child benefit which twice in the past three years has not been uprated in line with inflation. As a result, mothers in Britain now lose £30 per child per year that they would have received had the benefit been uprated to its value in 1979. The sum of £30 is significant to a mother operating on a tight budget; it is the equivalent of a good winter coat or two new pairs of shoes. It would be sufficient to keep a child well shod throughout the year.
If that is not bad enough, it is clear that the new Secretary of State for Social Services has what can only be described as a vigorous distaste for child benefit which he has hinted at on a number of occasions. In reply to a number of my hon. Friends in November, he assured them that child benefit under this Government would be kept "under constant review", which many people outside the House and some Opposition Members not unreasonably interpreted as meaning that child benefit would be under constant threat.
That statement has been made by the Government since the election. It contrasts markedly with statements made by the Conservative party at election time. It would be possible to fill a slim dictionary of quotations with expressions of support for child benefit by Conservative Members around polling day. Those quotations vary from the statement by the Prime Minister in 1979, when she said that the Conservatives were impatient to implement the child benefit system, to the statement by the current Chief Secretary to the Treasury when he was the Minister of State, Department of Health and Social Security and said during the last general election that child benefit would continue as a non-means-tested universal payment, paid to the mother and tax-free. He said that there ought to be no question about that.
It is my objective to maximise cross-party support for child benefit. I will, therefore, spare the House my outrage about that commitment being consigned to whatever oubliette Central Office maintains for manifesto commitments. Instead, I want to undertake the perhaps perverse duty for an Opposition Member of urging Conservative Members to recognise that their manifesto was correct and to stick with it.
I begin that task by reminding those Members that child benefit replaced a tax allowance. It may help them to like child benefit if they think of it as a tax allowance. Had it remained a tax allowance, it would almost certainly have done better under this Government than it has as a cash benefit. Personal tax allowances have gone up under this Government by some 15 per cent. By comparison, child benefit has gone down by 3 per cent. That has the strikingly odd result that the tax allowance to a married man, which is supposed to assist him with the cost of maintaining a wife, has increased in real value while the cash benefit offered to him towards the cost of maintaining his children has gone down.
Most critics of child benefit persist in misunderstanding it. They treat it solely as a means of helping the poor. But the main function of child benefit is to redistribute cash not from the rich to the poor, but from the childless to families with children, and that is an objective for which nearly every civilised country has some mechanism. Not only do they all provide help with the cost of children, but, overwhelmingly, the countries of western Europe provide more help than we do.
The income figures for households with children show how right those countries are. Two thirds of households with children have an average income below the national average; two thirds of households without children have an average income above the national average. Those figures demonstrate what we all know from our own experience, which is that the period of raising children is a period of double pressure, when households face a lower income and at the same time higher costs.
That brings me to the second reason why I believe that Conservative Members should wish to maintain the real value of child benefit. I note that the buzz word of this Administration in social security is "targeting". If targeting is the criterion by which we are to judge child benefit, we are obliged to award it an alpha plus. If the objective is to help with the costs of children, child benefit hits 100 per cent. of its targets. Its take-up is absolute; it is simple; it is easy to understand; and it is well known. It is a universal benefit and there is, therefore, no stigma in claiming it. Collecting it can be done with dignity because it is part of one entitlement as a citizen.
Better still, the benefit goes to the mother and, in practice, it is the mother who still, in nine cases out of ten, pays for the grocery basket. It is interesting that a survey by the Child Poverty Action Group discovered that 95 per cent. of mothers claiming child benefit said that they at least sometimes used that benefit to pay for children's clothing. One is six said that they always used it to pay for clothing. It is clear that those mothers were using child benefit as the means by which they ensured that their children were decently clad. For women unable to work because they have young children, child benefit provides the only income that they can call their own and on which they can depend weekly.
This is one of the occasions when the decision of the House may be affected by the lopsided male bias in our representation in the Chamber. If the composition of the Chamber remotely approached a fair representation of the proportion of women in our society, I do not believe that there would be a hope of our tolerating the freezing of child benefit.
So far, I have argued that it is important to maintain child benefit because it redistributes income from the childless to families with children and because, within households with children, it redistributes spending power from the male to the mother. But it is also important in helping families out of the poverty trap, and it may be worth recalling that the benefit was brought in to replace a tax allowance precisely because a cash benefit gives greater help to low-income families who may often be too poor to pay tax. Even today, 1·3 million families in receipt of child benefit pay no income tax. For them, the introduction of child benefit was a progressive measure which has given them help that they would otherwise not have received.
There is another subsidiary role of child benefit in helping families out of poverty. The aspect that makes it possible to help families out of poverty is precisely that feature which its critics most object to. It is a flat-rate benefit which is not means-tested and so it does not penalise the families whose father betters himself by getting that bit extra in income. The Government appear determined to push more and more families on to means-tested benefits. The decision to freeze child benefit last November makes another 15,000 households liable to means-tested benfits by leaving them with an income below the entitlement level of means-tested benefits.
The problem is not only that we are ending up with more households on means-tested benefits, but that, at the same time, the Government are sharply accelerating the rate at which those means-tested benefits taper off. Thus, housing benefit, as from next April, will taper off at the rate of 85p for every additional pound in net income. The new family credit will taper off at 70p for every additional pound in income. Many families, as a result, will end up with a marginal rate of taxation of 90 per cent. — a higher rate than is paid by the wealthiest family in the land, but which on this occasion will he met by some of the poorest households in the land.
Child benefit is one of the last surviving ways of softening that ferocious marginal rate of taxation, and it gives families an incentive to struggle out of the poverty trap. Its value is dramatically illustrated if we consider a family of four in which both parents are out of work. While child benefit exists, one of those parents needs to obtain a job with a wage of only £130 a week to leave the family 10 per cent. better off than they are while that parent is unemployed. If child benefit were not there, the parent would need to land a job paying £190 a week to achieve the same effect. That is a difference of £60. I appreciate that there is at present no proposal to remove child benefit in its entirety, but the longer that child benefit is frozen, the higher the parent must jump in starting wages to escape the poverty trap.
That is an argument which weighs with Opposition Members. I am bound to say, however, that it ought to weigh all the more heavily with Conservative Members who belong to a party which readily talks the language of incentives, independence and self-reliance. If they are sincere in seeking to achieve a society that represents those values, they ought to cherish child benefit, rather than allowing its value to decline in relation to means-tested benefits.
Most hon. Members will have received a briefing from the organisation "Save Child Benefit", and I am sure that they have diligently read the text of that memorandum. However, in case they omitted to do so, I invite them to look at the last page, which lists the 50 members of "Save Child Benefit". It is an exalted collection of members of the poverty lobby and the women's movement. and includes some remarkable establishment names, such as the Church of England Children's Society, the Mothers Union, the National Federation of Women's Institutes, the Royal Scottish Society for Prevention of Cruelty to Children and the Salvation Army.
Those are not front organisations for the Labour movement. I am not aware that we are affiliated to the Mothers Union, or that it is affiliated to our constituency parties. That is not the radical end, the extremist fringe of the feminist movement, but the establishment in the women's movement. It is, in a sense, rooted in the backyards of Conservative Members, and my new clause is rooted in their own history.
Leafing through past debates on the issue which stretch back for more than a decade, I was delighted to note that, when child benefit was introduced in 1975, the Conservative party tabled art amendment to the Bill seeking to provide for the regular indexing of child benefit with inflation. Indeed, the amendment was moved by the Minister of Trade and Industry, who has just been announcing to the House the abolition of a large part of his Department's function. His amendment was more militant than mine: it attempted to provide for indexation of child benefit every six months, and I cheerfully concede to the Minister that that goes rather further than I am prepared to go.
My new clause is more modest and moderate, and seeks only an annual uprating of the value of child benefit. However, the case for that uprating is made all the stronger because, since 1975, we have experienced the effect of the Rooker-Wise amendment to the Finance Bill of 1977, which provided for annual uprating of tax thresholds. Now, nearly every other significant long-term national insurance benefit is uprated annually, as are all the tax thresholds. Child benefit, however, is conspicuously subject to the vagaries of the Government and what the current Secretary of State for Social Services can persuade the Chancellor of the Exchequer to disgorge.
There is another instructive parallel with the Rooker-Wise amendment. The amendment was carried by support from Government Back Benchers who voted with the Opposition. Together, Opposition and Government Back Benchers were able to force the Government of the day to do what was right. If all those who have expressed support in the past for the uprating of child benefit, and all Conservative Members who are known to have made strong statements of support for it retention, were to vote with us tonight, we should achieve the same historic victory. All that is required is for them to show the same courage and join us in the Lobbies to protect and give a guaranteed future to the one benefit that mothers can claim as their own.
I am glad to have the opportunity to commend my new clause 4 to the House. I trust that my right hon. and hon. Friends will shortly make known that they have decided to accept it, because there are many very good reasons for their doing so, many of which have been put to the House ably and, in my opinion, convincingly by the hon. Member for Livingston (Mr. Cook), who has just spoken for the Opposition.
As the hon. Gentleman pointed out, the difficulty in which the House finds itself is really because of the confused history of child benefits, which many people have forgotten. They have forgotten that such benefits emanated from the old child tax allowances. It is only some 10 years since the old tax allowance for children was done away with, and child benefit was put in its stead. But that has already been forgotten, so people do not realise that their child benefit is the way in which the Government reduce the burden of taxation for families.
Equally, of course, child benefits grew out of the family allowances that were brought in in 1945, with all-party agreement. Family allowances, because they were not taxed and did not arise from contributions, did not become part of the national insurance system either. They were a very popular benefit from the start, always very cheap to administer and always with a very high take-up. That remains the case, although the name has now been changed to child benefit. However, because they have never quite belonged in any of the major parts of the redistribution of income system, nobody quite understands where child benefits now fit into the general structure of welfare and family income support.
There are some people — I do not personally think that there are very many, but I know that there are some in this House, and there may be a certain number outside — who feel embarrassed about claiming their child benefit, because they have forgotten the history, and do not understand where the money is coming from and why they should be entitled to it. They feel that it is money for nothing, and that they have not done anything to deserve it. I personally think that mothers deserve credit for the work that they undertake on behalf of the nation, and that we should not be stingy with mothers who have children to support.
But there is also a kind of snobbery, which is unattractive, in the mouths of people who say that they do not need child benefit. They are implying that there are two nations, and that they belong to the superior half of the country which is able to look after itself and its family, and does not need help from anyone. They concede, of course, that there is also the subsidiary sub-culture of people who cannot manage and have to be given help, although it is no doubt humiliating for them.
I absolutely reject that type of approach. I think that it is quite wrong for the Conservative party or any member of it to slip into that attitude. The people who feel like that would accept a tax cut because they would feel that in some way it was their own money coming back to them. Equally, they would draw their national insurance pensions because they would not feel ashamed to draw something to which they felt that they had contributed and to which they were therefore entitled. However, they do not quite understand child benefit, so they like to make it very clear that they are embarrassed by it and that they do not need it.
There is also, I am afraid, still a degree of unspoken resentment because of the fact that the child benefit goes direct to the mother. The men probably do not like to complain outright that that is the root of their objection; but we recall the difficulties that the Labour party had 10 years ago when it was decided that the tax allowances, which of course were for the benefit of the wage earner, should be done away with and that the money should be made good instead to the same family, but in the form of a direct credit to the mother. There was a problem within the Labour party over the "wallet to handbag" dispute. Now, unfortunately, we find that Conservatives are divided on similar lines where they see that the money is being transferred from the taxpayer to his wife.
I think that we can rise above those misunderstandings. This debate gives us the opportunity to look at the issues. I am grateful to those hon. Members who have supported new clause 4. I trust that the Department of Health and Social Security has taken note of all the arguments that we have been advancing in recent weeks. Some people think that it would be better just to pay child benefits on proof of need because that would target the benefits to the people who really need help. That indeed is what is happening in the Bill, where we are moving from the unpopular family income supplement to the far preferable — but, I think, still defective — family credit. I will explain why I do not think that that form of targeting is the right form of targeting.
In 1977 the number of supplementary benefit claimants was under 3 million. At the end of 1987. the number of claimants had risen to more than 5 million. That is a significant social change and a significant increase in the number of people obliged to go to the DHSS in order to have enough money to maintain themselves and their families above the poverty line. If we look more widely than the claimants and take in the whole household, the numbers are much more serious and indeed alarming. Looking at the total number of people in dependency on means-tested benefits of one kind or another in 1983, including supplementary benefit, housing benefits and the family income supplement, the number was estimated at 14 million. That is a serious figure. By 1987, it had gone up to 16 million.
But worse than that, from a parliamentary answer that I received in the past few weeks, it seems that there are another 4 million or 6 million people who are entitled to means-tested benefit, but who do not claim it either because they do not understand that they are entitled or because they are too proud to claim—which is very often the reason. It is particularly important not to drive those people down, as they see it, to become second-rate citizens. That surely should be a Conservative principle. Indeed, I know that my right hon. Friend the Secretary of State for Social Services has embraced the idea of helping people out of dependency. He made it known that that was one of his particular targets when he took over the job. Yet he is going about it in precisely the wrong way.
I think that we ought not to be increasing the numbers. Quite apart from the social factors, looking at the workings of the economy, it is wrong to put people in a position where they are not supposed to be working because they are in receipt of benefit. What we do by that is to add to the numbers of people who are in the inert sector of the economy and have to be supported by other people's efforts rather than belonging to the dynamic sector where people work and save to make the economy work. It is bad economics and bad social policy to add to the number of people on means-tested benefits.
Let us suppose that child benefit continues to diminish in real value as it is diminishing as a result of the decision that the Department has announced for the current year. That is a drop of about 4 per cent. in the real value. That would mean that there would be still more people on the means test. Simultaneously, we are proposing to add substantially to the number of people on the means test by the introduction of the community charge. I do not want to debate the merits of that measure, but we have recognised that the community charge will be more than people who earn very low incomes or who have no incomes at all can pay. They will be shovelled on to the means test as well. If more than 20 million are already entitled and we are to add a whole lot more, targeting on the basis of the means test has got to stop—otherwise we will have more have-nots in the country than haves. The dynamics of the economy will go quite wrong.
The decision not to uprate the child benefit this year, with only a 4 per cent. difference—I agree that that is not a great figure — is important. From another parliamentary answer, I learned that 15,000 more families with 30,000 dependent children are expected to become entitled to income-related benefits. We do not know exactly what number that means, but it must be at least another 50,000 people who will be thrown on to the heap by the Department's decision just on this matter of uprating child benefit in this one year.
I think that it was a step in the wrong direction for several reasons. Perhaps there is something that will appeal to Conservative Members. In the Conservative manifesto, they will see that we said:
Child benefit will continue to be paid as now.
It is possible to read into that a double meaning, I suppose. If people were relying on its real value continuing in the light of that commitment, it has already been proved that they read it wrong. It has already ceased to be true that child benefit will continue to be paid as it was at the time of the general election. It has fallen to what it was, less 4 per cent. I do not think that my right hon. Friends should invite their supporters on the Conservative Benches to play a trick such as that on 10,000 mothers in every average-sized parliamentary constituency. More than 6·5 million
mothers draw this benefit and many will have noted what was said about child benefit at the time of the election, because they value it.
We are being invited now to play a trick on those mothers and say, "Aha, you have got it wrong. What that sentence really meant was that it would remain at the same arithmetical figure, regardless of its real value." If one is in business in the private sector, one cannot afford to play tricks like that on one's customers, or one will not stay in business for long. I do not believe that we should treat 6·5 million mothers in that way either. That is my particular point of view.
There is a fundamental reason for giving special help to families. I do not want to take up too much time, particularly as we were late starting on the debate. However, this is an important opportunity to go over the ground, and many people are involved in what the House is going to decide about this matter.
A breadwinner with children and a single person without dependants get the same rate for the job from their work. The employer is not called on, and cannot be expected, to differentiate between the needs of a single person and the needs of a breadwinner with a number of dependants. The employer cannot make that difference, but the tax collector can. That was how it was decided as long ago as the end of the 18th century, when the income tax system was brought in. William Pitt decided that someone with children to support should be enabled to claim a child allowance so that he did not pay as much tax as someone with only a wife and himself, or himself alone, to support.
That principle was the right one. It was in fact discontinued, I believe, for a time during the 19th century and reinstated again in the tax system early in the 20th century. I think that we should stick to it, but of course not everyone is in the range of tax liability.
Will my hon. Friend accept that there are many single people on low incomes paying tax and that if we continue with his proposition they will be contributing through the tax system to pay increased child benefit to couples with substantial incomes who do not need them? Surely it is better for the resources available to be targeted on the growing number of people to whom my hon. Friend has referred. My hon. Friend has elucidated that the number is growing; surely that is evidence that the Government's policy is working, not evidence that we should be going in the opposite direction.
I do not think we can say that the Government's policy of freeing people from dependency is working. There has been a significant rise in the number of people who are dependent on means-tested benefit. More than that, single people who have to pay tax should recognise that their tax goes into the system and that part of the benefit goes to married couples with children. But someone brought up those single people. They should be willing to contribute to bringing up the next generation in their turn, even though they are riot married and do not have children of their own. We belong to a continuing society and those who have had the benefit of being brought up in Britain must recognise that they have a duty to those who will be brought up in Britain in future.
Is not another answer by the hon. Member for Kensington (Sir B. Rhys Williams) to his hon. Friend the Member for Ryedale (Mr. Greenway) that he is mistaking where we should be making cuts so that we can reduce the rate of taxation? We should not be deploying that argument. We should not be comparing a low-waged single person with a well-off family. We should be looking at the whole range of tax allowances and phasing them out so that we can have tax rates of something like 13p in the pound. That would meet the point about increasing child benefit.
We should sit in the House until midnight if I were to start again on the campaign for tax credit. We may touch on it on another occasion; I have not changed my views about it.
People who are not in the tax system cannot get a differentiation in their spending power because they have family responsibilities. As long ago as the end of the 18th century that problem was also recognised. It is nothing new. The magistrates in Speenhamland decided that they would use parish funds to subsidise poor families with children. Many people have laughed at them, and, because of the effect of its intervention in the labour market, the system had to be wound up.
The repeal of the Corn Laws in 1846 was a measure primarily to help large families, because they were the people who were most affected by the high prices of food. Free public education was established in 1870, with a similar effect. The 20th century saw the beginning of the national insurance system for dependants. In the 1940s the National Health Service was set up, which was to be of more use to a large family group than to a smaller one. In 1945 family allowances were introduced, and in the 1970s there was the family income supplement. Now, in 1988, we are embarking on family credit.
We recognise the value of all those measures, because we know that nutritional standards, a good environment, reasonable clothing and stable and secure family life are very important in the upbringing of the citizens of the next generation. Wherever the money comes from, the income of families with children should not be reduced. I regret the fact that this 4 per cent. reduction is on the programme for the coming year.
Is all this means testing the right way to help? More than half the mothers who claim child benefit are in families which pay more tax than the value of their benefits. Since we have dismantled child tax allowances, bringing that system back would be an administrative nightmare and would complicate PAYE for employers in a way that we cannot contemplate. The same applies to the ridiculous suggestion of bringing child benefit back into the tax system. That would be a clear example of churning and double counting. It is not a helpful suggestion.
For taxpayers, child benefit is their tax cut. If taxes are to be reduced this year, let them be targeted on families this time, by increasing child benefit rather than by releasing the money preferentially to single people, as happened in 1987. By his welcome and well-received tax cut of 2 per cent., the Chancellor actually gave more benefit to single people than to married couples, and married couples with children did not receive any particular benefit at all in recognition of their family responsibilities. That was wrong. This year, if tax cuts are again in the pipeline—as we are told—I trust that the Chancellor this time will think seriously about increasing the benefit to families and targeting benefit on families preferentially by increasing child benefits. That would be the right way.
What is to be done for people on low incomes who pay little tax or no tax at all? Do we carry on forcing them down into dependency and leaving them to claim family credit, or do we try to find a way to give them a form of help which they can see to be their own money as of right? That is really what the Conservative party should be seeking to do. I trust that my right hon. and hon. Friends will take that obligation seriously and will realise that they have a golden opportunity to reform the system and must not waste time. People should receive money in income support which they will not lose if they work or if they save to better themselves.
Among the 4 to 6 million non-claimants are many people in Kensington whom I know and whom I honour because of their determination to keep themselves away from the need to apply for means-tested benefit. We should be encouraging that spirit rather than making it more and more difficult for such people.
The right answer is to rescue the national insurance principle and add to the system the benefit for children. Pensioners accept their national insurance pension without any humiliation, but people also spend a number of years unable to work at the start of life. That period should also be a national insurance responsibility.
I agree with Winston Churchill, who said that the national insurance principle should provide a floor through which no one can fall but above which they can rise as high as they are able. We should embrace that principle and put it into effect. Everyone who is liable to pay tax during their working years should be accepted as a member of the national insurance fund. Let them claim national insurance during the years of inability to support themselves over the whole cycle of life, in childhood as well as in retirement. Insured citizens in Britain should be held above poverty all through life—at the start of life just as much as when they come to retirement and are no longer able to support themselves because of old age. Under the insurance principle, they would pay their contributions during middle life.
We now have a system of earnings-related contributions and flat-rate benefits that was introduced by the Conservative party — by my noble Friend Lord Joseph, in 1972. It was the right answer. His initiative put the national insurance fund on a proper and sound basis, but it has not been followed up. This is the opportunity to do so. I ask my hon. Friend the Minister who is to reply to the debate to say whether the Government will give an undertaking to review the national insurance fund, its finances, its operations and its commitments, with particular reference to family income support. That is plainly the way to liberate millions from dependency and give them back their self-respect.
I shall be brief, partly because the first two speeches have covered the ground that needs to be covered. However, I shall pick up one point on which my hon. Friend the Member for Livingston (Mr. Cook) ended his speech. He very ably drew one lesson from the experience of the Labour Government in 1975 by pointing out how important it was for Conservative Members to act on their own conscience. Indeed, thinking back to the 1974–76 Government, most hon. Members would be hard-pressed to remember who was in that Government, but most hon. Members can remember the Lawson-RookerWise amendment. It seems that the important moral that my hon. Friend was drawing, although he did not trouble to underline it, was that if Governments are to be effective, it is crucial that they should have independent Back Benchers behind them. We have one hon. Member in her place today, who, rightly, is remembered from that Parliament because she voted as she believed it was important to vote. When one is in opposition it is not always that easy to vote against the Whip. It must be many many times more difficult to vote against the Whip in government. During that period of the Labour Government two of my hon. Friends stood out—my hon. Friend the Member for Preston (Mrs. Wise), whose constituency was then Coventry, South-West, and my hon. Friend the Member for Birmingham, Perry Barr (Mr. Rooker).
I hope that tonight Conservative Members will act with similar courage. Time is often taken up, particularly by people in the Press Gallery, debating who will be the next on the Front Bench and who will be moved sideways or down, and that also commands a lot of interest among Members. But that is of momentary importance compared with influencing the course of Government. I am sad to say that the previous Labour Government was usually influenced when Back Benchers rather than Whips won control. I hope in the near future to serve as a Back Bencher when my hon. Friend the Member for Livingston is Secretary of State. I shall do my best to organise votes against him on those matters when, although his heart will be with us, the whipping system will be against us.
In some ways, the debate is simple, but it also has a complexity. When the Secretary of State made his uprating statement, perhaps because he was new in the job, he presented it as though there were clear choices. Today's debate shows that we do not have clear choices. The Government have a number of objectives, some of which can clash.
Some of the objectives touched upon by the hon. Member for Kensington (Sir B. Rhys Williams) are central to the Government's philosophy. It is said that the Government support the family. The hon. Gentleman drew attention to the importance of this benefit going to women as of right. That objective, which the Tory party holds high, is one side of the equation of competing objectives.
The Government also believe in tax equity—that at any one time a balance must be struck between what people contribute, given their different incomes and family responsibilities. It has been the Government's prejudice, with which I agree, that wherever there is doubt one should decide in favour of taxpayers with children and against those without such a responsibility.
That has been the rhetoric, but the sad fact is that the record of Budgets since 1979 shows that, despite what they say, the Government have weighted the tax system in favour of single people and childless couples and against those with children. Again, this is a chance for Tory Back Benchers to assert principles on which many of them have been elected during the past three years.
The hon. Member for Ryedale (Mr. Greenway) made a valid point in an intervention when he asked how we can defend the payment of child benefit to our constituents on £20,000 a year when many of our constituents pay tax on low incomes and are single. C'an we defend such a transfer from single people on low incomes to those with children on higher incomes?
I was not commending the ideas of the hon. Member for Kensington on tax credit when I intervened. I was proposing a much simpler scheme. Given that at any one time the Chancellor has forgone taxing 50 per cent. of personal income—the present cost of all the tax benefits and concessions that we give — if we are concerned about meeting the tax equity point for people on low incomes, we should be looking at ways of phasing out those tax benefits so that we can massively reduce the rate of tax. That is the right course to take to meet the point made by the hon. Member for Ryedale. A person on a low income would not then be making such a contribution. That is the proper way to deal with the matter. It is not proper to take away from people with children in order to meet the point. The tax equity point is on the same side of the equation when Government Back Benchers think about this issue.
I am grateful to the hon. Gentleman for his comments and for the fact that my point has been taken on board. However, does he accept that when the House divides later this evening, it will do so against the background of the existing tax system and not what might be produced at some future date'?
Just as my hon. Friends the Members for Perry Barr and for Preston could vote only on the issue before them and made a big difference, so tonight we can vote only on the amendment that we are debating. Perhaps when we discuss the Budget we can return to the matter and be more ambitious in our targets.
Another issue which clearly comes down on one side is the Government's wish to tackle poverty. Here there is a choice between a benefit that we know everybody will pick up, including those who are poor, and a targeted benefit that the Government are now proudly claiming that 85 per cent. will take up, although many Conservative Members must know that if over 60 per cent. do so they will be doing well.
There is a real trade-off there on which Conservative Members can make a decision. Which is the best way to advance? There is the certainty of making sure that all families benefit, although some would argue that some families do not need the money —I hope that I have dealt with that argument—or a targeted approach, as a result of which even on the Government's estimate—they are not worried at the moment because they do not have to face questions about what is happening because the scheme is not in existence—some poor families will not pick up the benefit to which they are entitled. There we see the beginning of the trade-off which shows that the issue is not as simple as the Secretary of State suggested when introducing his uprating statement.
The last point, which I hope will bring hon. Members down firmly in favour of the new clause, is the Government's wish to increase people's independence. If we in the House were serious about that, we would be looking at changes in our tax system which would give us the money, not to increase child benefit by 4 per cent:.—the small amount over which we are squabbling tonight — but by a substantial amount. If we could find the revenue to double the real value of child benefit, we would transform the welfare role. Most single mothers would throw their books in. The opportunity to build on a part-time income and to conduct their lives without officials poking their sticky fingers into their private lives is one at which most people would jump.
We are talking about whether we should move to an incentive-based society in which all can participate, or whether we should continue in an incentive-based society which excludes that growing under-class which all hon. Members are witnessing in their constituencies, whether we represent prosperous or less prosperous areas.
This is not a clear issue with everything in favour of the argument on one side and everything opposing it on the other. When any political decision is made, a balance must be struck, but I hope that the three speeches that have been made so far tonight have shown overwhelmingly what that balance must be. I hope that tonight Conservative Members will have the courage to make an advance such as we saw in 1975 when, in a small but important way, we began to change our tax system. That change came about as a result of the courage of Back Benchers to take on their Government and I wish hon. Members such success tonight.
Those hon. Members who have already spoken have carefully set out a compelling case. Reference has already been made to the words in last year's Conservative manifesto:
Child benefit will continue to be paid as now, and direct to the mother.
As has been said, it is possible to interpret those words as meaning merely that child benefit will go on. Nevertheless, the vast bulk of the population who thought about the matter would have assumed that the system was to go on as it is at present ; in other words, that uprating would continue to be built into it. To back away from that would be to adopt a weasly interpretation of those words in the manifesto.
Hon. Members have set out clearly the argument in favour of continuing uprating and the arguments in favour of child benefit as a mechanism. There is not much that I can add to that, but I want briefly to go over the important points.
One important point, as has been said already, is that when child benefit was introduced in 1977 it replaced the child tax and family allowances with a universal benefit. The aim was to extend the child tax allowance to all children. That aim was right. It was accepted at the time and has been accepted since.
As the House knows, child tax allowance has long been a part of our history. It goes back to the days of William Pitt in 1796. Pitt said:
Let us make relief in cases where there are a number of children a matter of right and a matter of honour.
It runs against that philosophy not to uprate child benefit.
We accept the notion that tax allowances should increase in line with inflation which, as the House has heard, is exactly what has been happening. Tax allowances have risen with inflation thanks to the Rooker-Wise-Lawson amendment and they will continue to do so. If we do not allow child benefit to increase with inflation, we shall be negating part of the essence of the reform introduced in 1977. In a sense, it was a deal. The two old benefits—child tax allowance and family allowance — went and child benefit was introduced in their place. It was clearly understood that child benefit would rise in the same way as tax allowances had risen. Since then, we have witnessed the institutionalisation and legalisation of the fact that tax allowances rise with inflation. To let child benefit stand still is to backtrack on history. My hon. Friend the Member for Ryedale (Mr. Greenway) made a relevant point when he asked why poorish taxpayers' money should go to those who are palpably better off. It is because of the history of the arrangements as well as because of the general advantages of child benefit that it is right to continue with the uprating process that has become a familiar part of the system over the past decade.
We know the other arguments in favour of child benefit. It is a secure and uncontested source of help and regular income to those who have to bear the extra cost of bringing up children. William Pitt recognised that extra cost, which is just as real today as it was then. Child benefit implies a regular commitment to the family; surely our party has always stood for trying to help the family and those with children. To backtrack on it would be a very unwelcome move. Child benefit goes to the mother, which is important. It is especially important that it goes to the mother who stays at home and looks after her children, as she does not share the opportunities of working mothers who have their own money in their pockets. Child benefit helps to offset the poverty trap. Its universality, which has been criticised, contains a significant merit: child benefit increases but it does not promote the poverty trap at the same time.
If child benefit is pegged, as the Government intend, we shall hit perhaps not the poorest families — my right hon. Friend the Secretary of State and my hon. Friend the Minister pointed out that there are other ways of helping the very poorest—but those who are not quite so poor, whose income falls just above the level at which they can claim selective benefits. It must be said that one or two of our other policies also tend to hit that group. I refer to the poll tax and to the introduction of capital limits on housing benefits. It would be a great mistake to go in for a policy that would make life more difficult for those in that group.
I do not understand why the Government have had this change of heart. In the Green Paper on the reform of social security in 1985, the Government said:
The case for changing it"—
has not been made out. The Government do not therefore propose to alter its basis or structure.
Although I acknowledge that it has not been sanctified in statute, I believe that regular uprating has been part of the basis of child benefit. Finally, there is the 1987 manifesto commitment, which there is no need to repeat.
Let me finish with one other quotation. Speaking on 28 July 1980, the then Secretary of State for Social Services said:
it is our intention, subject to economic and other circumstances, to uprate child benefit each year to maintain its value." —[Official Report, 28 July 1980; Vol. 989, c. 1063.]
Of course, economic circumstances have changed since 1980—for the better. The Government are more able to maintain the uprating than they were in 1980. If one looks at the picture with any sense of humanity, one can see that the right policy is to continue regularly to uprate child benefit.
We had a long debate on this subject in the Standing Committee. Therefore, I propose to put my comments in a nutshell. Nevertheless, they are most sincere. I shall support new clause 1 and I see great merit in new clause 4, too.
The effect of the new clause would be to halt the relative decline in the tax-free income of families with children compared with that of single and childless people. Since 1979, the real level of the single person's tax allowance has risen by 14 per cent. and of the married man's tax allowance by 17 per cent.
My memory is obviously failing me. Perhaps the hon. Gentleman will be kind enough to refer us to the discussion in the Standing Committee. As I remember it, the Liberal spokesman was absent on a number of occasions. When he was present, he voted consistently with the Labour Opposition. I can remember no debate on child benefit, although some of us might have wished to take part in such a debate.
I remember that the majority of Conservative Members took no part whatever in the debate.
Since 1979 the real level of the married man's tax allowance has risen by 17 per cent., whereas child benefit's real value has declined by 3 per cent. As child benefit replaced the old child tax allowance as well as the family allowance, it is now the only means in the tax and benefit system of achieving some degree of equity between those with, and those without, children. In the run-up to a Budget that is likely to include further cuts in taxation, it seems appropriate to voice the widespread view that increases in child benefit's real value should be seen as a form of tax cut targeted on families with children.
Child benefit can also be seen as an efficient means of redistributing income over a family's life cycle to the point at which it is most needed. Individuals pay national insurance contributions and draw the benefits when they are needed. Similarly, child benefit, paid for through taxation, targets resources to the stage in a family's life at which, whatever its income, needs are greater and that income is usually lower. I maintain that we must retain the true value of child benefit.
Essentially, the five speeches that we have heard so far have been pleas for universal, as opposed to means-tested, benefits. Those pleas have been made eloquently, both by my hon. Friends and by Opposition Members. However, hon. Members have not extended the logic of the argument to other benefits or pointed out that such arrangements are a recipe for high taxation. I shall return to the argument about universal benefits, because that subject is raised very precisely by this debate.
First, let me reflect that this debate arises because the Government did not uprate child benefit last year. One fact that has emerged, which many people have not realised, is that 3 million of the 12 million who benefit —the 3 million poorest—would not have benefited from an uprating. The failure to uprate has enabled the Secretary of State to direct the additional money to the poorest children as child benefit could never have done. Perhaps we should be grateful that the whole question of how families in need should be helped has been raised.
We spend more than £4·5 billion on child benefit, paying it to nearly 7 million families. Of those 7 million, two thirds — 4·75 million — pay more tax than they receive in child benefit. That is an incredibly inefficient way of helping the poor and raises three aspects which one might, in the nicest possible way, call nonsense. The hon. Member for Livingston (Mr. Cook) referred to one of them, although he thought that it was a good aspect of child benefit that it transferred income from husbands to wives. It is no function of the state to have one of its agencies, the Inland Revenue, taxing husbands, and another, the Department of Health and Social Security, paying the money over to their wives. We should leave families who are not beneficiaries of child benefit or of the system for helping families with children to look after themselves.
Secondly, it seems nonsense to tax families and to pay them benefits. There are not just transfers from husband to wife; family units pay tax to one agency of the state and receive the same or less money back from another agency of the state. That is an extraordinarily inefficient way of helping the poor and a bad way for the state to interfere in people's lives.
If I may just make my third point, I shall, of course, give way to my hon. Friend.
Thirdly — this point has been made by my hon. Friend the Member for Ryedale (Mr. Greenway) — it seems wrong to tax people who are low earners but who do not happen to have children, and to pay child benefit to people who are often on above-average earnings. One can take as an example a young single person who might be a shop assistant earning about £100 a week. Why should he or she pay tax to help finance the child benefit that is paid to people who may receive one and a half, two or even three times average earnings?
On my hon. Friend's argument, it would be wrong for a pensioner to draw his national insurance pension and to pay tax at the same time. He ought to renounce his pension.
With the greatest respect to my hon. Friend, old-age pensions are paid from national insurance contributions. People who draw pensions have paid the contributions to finance them. Benefits that are paid for on a contributory basis are entirely different from benefits that are financed out of general taxation. Child benefit is financed out of general taxation; pensions are not.
Will the hon. Gentleman ask his right hon. and hon. Friends on the Front Bench the size that the pension would be if it were paid out on contributions only? Most people's old-age pensions are not paid because they have built up a contribution record but because of the amount of money that we pay in in the current week.
I do not know the precise calculations. However, I do know that one cannot draw the old-age pension without having paid national insurance contributions for a long time. However, one can draw child benefit without ever having paid any tax or national insurance contributions.
To return to my three points relating to the transfers of money from husbands to wives, from families to the Inland Revenue, to the Department of Health and Social Security and back to the families and from low-income earners to high-income earners, it seems to me that we have devised a most inefficient way of helping the poor and one which involves great expense. It should not be beyond human ingenuity to devise a way of helping poor families. Indeed, I think that we should do so more generously. If, to help poor families, we have to help rich ones also, it is, incredibly expensive. We should try to devise a method of giving such help rather more generously than we do to people who really need it.
All hon. Members who have spoken have made eloquent pleas for universal, as opposed to means-tested, benefits. The ultimate extension of that would be for the state to take 90 per cent. or 100 per cent. of a person's income and to pay 90 per cent. or 100 per cent. back in benefit. I remind my hon. Friends that that is a wholly Socialist idea. It was articulated eloquently and at great length in Anthony Crosland's book, "The Future of Socialism", the overwhelming theme of which is the plea that the Government should raise a large amount of money in taxation. Indeed, eight years after reading it, that is the only thing that I remember clearly about it —[Interruption.] The hon. Member for Birkenhead (Mr. Field) may have been there; I do not know. The overwhelming theme was that the Government should raise large amounts of money in taxation and then give universal benefits, at a high level.
The hon. Members who have spoken have prayed that argument in aid of the present system of child benefit. They did not say that it could perfectly logically be extended to all sorts of other benefits, and that the price that we must pay for it is high taxation such as we saw under the previous Labour Government. That is not the state's business. Its business is raising as little money as it needs to perform its proper functions and to discharge its proper responsibilities. The state should raise as little tax as it possible can to do so. Clearly, one of the state's responsibilities is to help families with children who would otherwise be in need. I would suggest —I feel strongly about this—that it is not the state's business to raise large amounts of taxation to help those families who are not in need, but that is the system we have.
I accept the criticism mentioned by those hon. Members who argued for universal benefits, that means-tested benefits accentuate the poverty trap. That is true.
I shall give way to my right hon. Friend once I have dealt with the question of the poverty trap.
The new social security system which I believe will be introduced this year and in which family credit, income support and housing benefit will be related to after-tax income, will go a long way to ameliorating what has been the worst aspect of the—
The hon. Gentleman says, "It is tiny," but the poverty trap used to be able to reach effective levels of withdrawal of over 100 per cent.— indeed, of 130 per cent. or 135 per cent. As I understand it, under the new system it will never be able to reach 100 per cent. —[Interruption.] There must be a withdrawal rate of means-tested benefit. I do not see anything wrong with that. I do not think that it is the same as taxing people.
To say that giving a person a benefit because they would otherwise be in poverty and in need and then withdrawing it as they get wealthier is the same as imposing a level of income tax on them is to turn the definitions of tax and benefit on their heads. I accept that there must be a withdrawal rate. The steepness of the taper will reflect what the Government feel they can afford at any given time and their policy and priorities. It seems perfectly reasonable that there should be a taper. That is not the same as a marginal tax rate—
The bias of my hon. Friend's argument seems to be that there should be no differentiation in the tax system between families with children and single persons or couples without children. Is that right?
No, not entirely, because we have a married man's tax allowance which benefits married men who do not have children. In general, I believe that those people, whether single, married or with children, who have adequate incomes with which to look after themselves and their own affairs should be left to do so. Those who do not should be helped. It may have been forced out of me, but that is a clearer statement of what I think. We should be looking—I hope that my right hon. Friend the Secretary of State is doing so—for a more effective way of helping families with children who are in need and who would otherwise be in poverty instead of raising £4·6 billion from 7 million families and giving it back to those 7 million when only 2·5 million of the 7 million actually benefit.
The hon. Member for Lewisham, West (Mr. Maples) has just spoken about inefficiency, but the fact is that he has been unable to suggest any method of giving assistance to families such as he has described which does not involve the most incredibly complicated bureaucracy. It is a characteristic of means-tested benefits that they involve complicated assessments, a large bureaucracy, reviews and, whether we like it or not, stigma and gross interference in the lives of people on low incomes. That may not be of any concern to Conservative Members, but it does concern many people in this country.
There is nothing efficient about means-tested benefits. They fail to carry out the targeting function placed on them. In contrast, universal benefits have the advantages of being cheap to collect. They do not involve complicated reviews, tribunals or assessment officers. They are simply paid to those who qualify by means of a simple fact—in this case that there are children of the relevant age. The present system is an efficient way of paying money and of targeting. It is a fact that at any given level of income, people with children are in a worse financial position than people without children at the same level of income, and it is a fact that most of the people who are in poverty in this country have children.
If it were simple to direct means-tested benefits so that they do reach their targets, poor children would have been lifted out of poverty long ago. We have had eight years of a Government who have told us on every conceivable occasion that they are trying to lift poor families out of their poverty. However, they have manifestly failed to do so.
Those hon. Members who have referred to the tax allowance system and who directed our minds back to the origins of child benefit were on absolutely the right lines. For many years after the introduction of the family allowance system in, I believe, 1948, we had a dual system. With family allowances, a poor level of money was paid universally. Child tax allowances were more valuable but did not cover the whole population, because they did not include those who were too poor to pay tax. Those two systems continued in tandem, but the position was uneasy and unsatisfactory. Many of us were pleased when the Labour Government decided that the system should be abandoned and child tax allowances should be switched so that we paid child benefit instead.
The hon. Member for Kensington (Sir B. Rhys Williams) reminded the House that people forget that child benefit stands in place of child tax allowances, and he did us a favour in so doing. It is important not to forget that child benefit did not drop from heaven; it stands in place of child tax allowances. Families who previously received child tax allowances were deprived of those allowances because they were being replaced by something that we thought would be better. So the deprivation was in name and not in fact. We favoured child benefit because we truly believed it would benefit children. That it does so has already been pointed out, and I shall not labour the point unduly, but, in view of the speech made by the hon. Member for Lewisham, West, it is important to point out that it benefits children because it goes to families who are too low paid to pay tax, and it benefits mothers. Those are substantial advantages.
However, an unexpected result arose from the Government's peculiar method of accounting. I am not making a party political point. I am sure that hon. Members on both sides find it as incomprehensible as I do that child or any other tax allowances are not regarded as a public expense, but child benefit is. Even if the amount paid had been left at exactly the same level as it was when under the heading of child tax allowance, the latter was not counted as public expenditure, but as soon as it was labelled child benefit it became so counted. That is a peculiarity of the Treasury, and it is no justification for taking it out on kids.
When discussing labels and benefits, we must not lose sight of the main fact, which is that we want child benefit to be preserved — nay, increased — in value because families need the money. At any given level of income, childless people are better off than people with children. There is no justification for that. Our society needs children; we need to replace ourselves. We need people to be the future workers who will look after us in our old age, whether they be our own children or those of the community. Children are a benefit, a blessing and a necessity to society, and it is up to us to ensure that they live in families with the necessary financial resources to keep them well, happy and in good order. That is what child benefit is about.
It costs a lot of money to bring up children, and it is perfectly justifiable for single people to pay taxes to help with the care of children. It astonishes me that when hon. Members adduce examples, they always choose the low-paid single person and the wealthy parent. Most parents are not wealthy. If one has children, regardless of whether the mother goes out to work, the family income suffers. Obviously, it suffers most during the time when she stays at home. Most mothers stay at home for considerable periods of time. Clearly, that does tremendous damage to the family income, but when the mother returns to work, the family income does not suddenly leap to what it would have been. She will probably have lost an opportunity to enhance her income. If one has children, one's expenses when working are higher. Child care must be paid for, arid more has to be spent on domestic equipment and all sorts of things to help with the running of the house. Even two-income families with children find it harder going than two-income families without. These are simple matters, and everyone outside understands them now.
There was a time when Governments were nervous about family allowances and child benefits — arid certainly about abolishing child tax allowances. The hon. Member for Kensington is right. The Labour Government found this a difficult problem and had to be constantly reminded—especially by their Back Benchers—that most of the electorate were women. Governments of any colour make a great mistake when they feel nervous of the voters because they see them as irate males resenting the transfer from their wallets to the handbags. But the handbags are held by more hands than are the wallets.
Because we realised these straightforward facts, we were able to persuade the Labour Government to stick to their guns and go ahead and transfer to child benefit, but we never anticipated that the new device would be used by Governments in the future as an easy way of freezing the benefit or allowing it to be eroded. That was a wholly unexpected side effect. I feel like a doctor who has administered a drug to someone in good faith and then discovers a completely unexpected side effect.
The Government would not dare freeze child tax allowances if they still existed. After the amendment to which copious reference has been made this evening, it has been established that the tax threshold must rise at least in line with prices. That is now the received orthodoxy. The whole establishment has now followed the former rebels. The Government would not have dared to allow child tax allowance values to he eroded. So it is up to all of us who favoured the change to child benefit — not only Opposition Members — to prevent the side effect from continuing. It should be as unthinkable to allow child benefit value to be eroded as to allow tax thresholds to be eroded.
I join my hon. Friends who have called on Conservative Members to act in accordance with their consciences. I give Conservative Members some advice straight from the shoulder. The Government will not harm the Opposition if they resist the new clause. We shall not suffer. Listening to the long list of organisations read out by my hon. Friend the Member for Livingston (Mr. Cook), one knows that the Opposition have, behind and alongside them, many people of all sorts, incomes and constituencies. We shall not be harmed by our stand tonight. The Government arid children will be harmed. Sometimes it is up to Government Back Benchers to defend their Government and compel them to act in the better interests of their party. It does not matter to me if the Conservative Government harm themselves. If that were all that was at stake, I would say, "Go ahead; carry on; we will make the most of it," but I would much rather we did not have to receive any credit for standing firm against the Government tonight, because of the harm that will be done by them to children, families and mothers.
When Conservative Members go into the Lobby tonight they should bear in mind that if they vote in favour of the amendments they will be defending their manifesto. They should remember that, in the end, it is the Government in power who get the credit for any improvement in benefits. The Opposition will not get the credit even if the amendments are accepted—the credit will go to the Government. However, it is the children who will benefit and that is what is important to us.
It is a particular pleasure to follow the hon. Member for Preston (Mrs. Wise), who has an honourable record on this issue and one that is recognised as such by hon. Members on both sides of the Chamber.
There have been some interesting suggestions about possible changes in the system of taxation or benefits. However, we come back to the fact that any decision tonight will be based upon our existing tax and credit system. Therefore, I restate what has been stated by many other hon. Members: the most effective way, under our present system, to assist the reduction in family poverty is through the payment of child benefit. There is no argument about that. We can argue among ourselves about the balance of priorities and how we would like to change things so that they could be slightly better, but there can be no argument about the payment of child benefit. Indeed, such a payment may be linked with the view that I believe is held by most hon. Members—the defence of the concept of the family. We should not pay lip service to that concept but should translate it into reality.
For some years there has been a net transfer of resources from families to those without families. We must recognise that and the debate takes place within that context. When we consider that trend and the desire to defend the family we should surely conclude that there is no case for reducing, in real terms, the amount of available credit. There is every case for seeking to start to redress the balance and to give practical assistance to families.
I welcome the assistance that has been given to low-income families as a result of the recent changes announced by my right hon. Friend the Secretary of State. However, my right hon. Friend knows better than any of us that, with the most optimistic take-up figures that may be expected, there will still be between one in four and one in five families who will not take up the means-tested benefit. By definition, those families are the poorest in our society. Some of my colleagues imagine that our problems would be solved if we could only remove the rich people from the system and concentrate on paying those on low incomes. However, they should grasp the central fact that the price of that policy would be that many families would simply not receive the support which we believe they should receive and which the state lays down they are entitled to receive. Indeed, it is interesting that, almost unique to this subject—if I may qualify the word unique — the statement "they do not need it" arises. Certain people seem to be able to say of child benefit, "They do not need it". I do not hear such a statement about tax cuts. I did not hear it when we raised the level of mortgage interest relief. On the contrary, many of my hon. Friends said that that increase was overdue and that things were difficult for first time buyers. However, with regard to child benefit, we have reached the stage of being expert at judging what people do or do not need.
The effect of child benefit for those who are paying more tax than they receive in benefit is that of a tax credit, albeit through a different financial system—the DHSS. We have not changed that system and we can only work within it; indeed, there is no better way.
I always listen to my hon. Friend the Member for Lewisham, West (Mr. Maples) with considerable respect as he speaks on financial matters with much authority. He almost persuaded me that I had to choose between universal benefits and means-tested benefits. However, I am not sure that I have to make that choice. I believe that a system solely composed of universal benefits would be so inexplicably and disastrously expensive that it would, rightly, be rejected by all my hon. Friends. Equally, a system composed solely of means-tested benefit—under whatever system—would cement a two-class system in our country. There would be a permanent under-class of those who had to apply for every element of assistance. The combination of means-tested and universal benefits avoids that dreadful scenario.
I believe that by linking child benefit to the present system, as proposed in the new clause, we will be able to do something positive for families and especially families in need.
For a number of years the Conservative Women's Organisation—it represents more than 500,000 women throughout the United Kingdom—has made the centrepiece of its submission to the Chancellor every February before his Budget the retention of child benefit as a universal benefit, the retention of child benefit as a real benefit and the continuing payment of child benefit to the mother.
What does the Conservative Women's Organisation mean by a "real benefit?" It means that that benefit should rise in line with inflation and preferably by more than inflation. The meaning of universal benefit is self-explanatory—it should be paid to everyone irrespective of income and background. It should be paid to whoever has children — single parents or married people. The organisation believes that anyone who has a child should benefit. The Conservative Women's Organisation believes that that is important, because it believes it is representing the party of the family.
What does the family mean today? It no longer means a married couple with two or three children with one head of household working. In the past 20 years, the family has changed beyond all recognition. The family now means all sorts of things. It can mean the single parent with a child or more than one child. It can mean a married couple with one person working, although that represents a small fraction of today's families. It can mean two parents working with children. It can mean two parents out of work with children and, of course, it can mean a married couple with no children. The modern family is a very different animal from the sort of family that we may recall if we cast our minds back to the immediate post-war years.
These days, I believe that the definition of the family really means concentrating on helping children. Child benefit is unique, in that it does just that. How have the Chancellor and the Secretary of State responded to the Conservative Women's Organisation's submission this year? They have responded with the worst possible answer — they have frozen child benefit. That has resulted in the wealthy couple, with the non-working wife, continuing to draw child benefit. Indeed, one couple that I know and value draw child benefit for four children. They then take the children out for dinner at an immensely grand restaurant with the bill coming to about £135—and why not? It is their benefit and it is their right.
However, with the freezing of child benefit, the poor, who depend on child benefit to balance their budgets, have suffered drastically. I do not just mean the statutory single parent with children living in an inner-city environment who may be held up as being most at risk as a result of freezing child benefit. I think of the farmer's wife who lives near me at home. She has only 40 cows and, with milk quotas, is having a terrible time making ends meet and tells me that she cannot do without child benefit. She has only two children. It is a very slender input into her family budget in terms of cash value, but, in terms of the proportion of her budget, it matters immensely. The freezing of child benefit has brought her close to the poverty margin. We have got the worst of all worlds by freezing child benefit. A genuine debate on the value of child benefit to our society is long overdue. Indeed, the debate should be even wider and certainly much better attended than it is tonight.
I hope very much that the Minister will spend considerable time this year discussing within his Department and then in the wider context of Parliament what we should do about child benefit. Every year, child benefit comes up rather like a punchball, but we are lucky if child benefit is raised. Other people believe that it is good if it is frozen. Some people would prefer to have it thrown out of the window. Can we not discuss this thoroughly and properly and then have it either thrown aside, modified or firmly linked to our economic structure, so that the people who receive child benefit—the mothers—know exactly where they stand?
This debate spills over inevitably into the reform of personal taxation. The married man's tax allowance has already been mentioned. That was created at a time when married women did not work. In 1936, 6 per cent. of all married women worked. That figure is now 63 per cent. and married women are the fastest growing sector of the working population, so times have changed. The married man's tax allowance was meant as a bolstering operation: to recognise the value of children and the immense drain that they make on a family budget. The married man's tax allowance is now wholly outdated and goes to a large number of people who have no children. With so many working women, it should be cast aside and forgotten. The money should be recycled and used in a different way. Possibly it should be put towards a universal benefit, such as child allowance.
Some hon. Members have mentioned their unhappiness —quite proper in some respects—about wealthy people receiving child benefit. Speaking from the woman's point of view, there are many older non-working women—the younger married women usually tend to work—whose husbands, although receiving large incomes, do not respond as they should and do not give their wives the housekeeping money that they need to support their children. Their wives are relatively poor, and therefore their children are relatively poorer. It is a grave error to think that, because a man is wealthy and because he is a member of that shrinking band of heads of households who are single earners, he will respond as he should to his wife. It is a peculiar aberration among the wealthy that they sometimes think that they are poorer than they are and do not even support their own families.
I cannot offer the perfect solution to this ever-growing and difficult problem. I ask for a firm and genuine commitment from the Minister that he will take seriously to heart the need to solve this problem once and for all. He must support the care and nurture of our children in a much broader and more positive and generous way than our country is historically used to doing. 1 have long thought that we undervalue children and, as a society, we suffer as a result.
I cannot help thinking that in this debate we are perhaps straying a little far from the point. In line with the cost of living increase, the Government were proposing to put, in cash terms, an additional £120 million into child benefit, but have decided not to do so. In taking that decision, they have taken account of the key point. However, by putting an increased amount into child benefit, they are spreading these additional resources indiscriminately among all families with children in this country. It is wholly indiscriminate and ineffectual to fire off these resources at families, regardless of income, as this would include families of hon. Members and families of people better paid than hon. Members.
Would my hon. Friend prefer an untargeted tax cut which would relieve the tax burden of families with and without children and of single people? Does he think that that would be a more acceptable use of resources?
No, I do not. We must consider carefully how that £120 million has been applied. By spreading it over the general population, we shall miss having the maximum effect on the very under-class to which the hon. Member for Birkenhead (Mr. Field) referred. Better-off families will benefit from such an increase in child benefit, but the families about whom we should be concerned—the under-class, containing 3 million children, who are already on benefit — would lose 10p for every 10p increase in child benefit and get a net cash increase of zero.
It seems far wiser to take the path proposed by the Government, to take that £120 million, add to it afresh £80 million and apply that £200 million to the family credit scheme, which is to be introduced in April, over and above the amount currently applied through family income supplement. That targeting is far more relevant. If we care about the children of this country, we should care for the children of parents who can cope and for those children in the greatest need of resources for their development. The Government are concentrating on those children in need, and they have my support.
Almost everything that needs to be said in this debate has been said and I shall be brief. We are debating a balance of pragmatisms. It is wonderful to have theoretical designs and I should love to have such a wonderfully well-integrated tax and benefit system that there was no disincentive for people to go out to work or to catch buses at 6 o'clock in the morning to augment a fully-declared income. These things may one day come about, although I grow increasingly wary of them. The cost of moving to a fully integrated tax and benefit system is in the short term horrendous and very few Governments would be able to find the resources to do it.
We are now discussing a balance of practicalities. That balance lies in uprating child benefit. For all the reasons listed in the debate tonight, it is important that families, who notoriously are the least likely to understand a complex system of claiming, should be able to receive benefit as of right, rather than having to go through a series of hoops, many of which are difficult to understand, difficult of access or unattractive to them. It is wholly appropriate that, until the system is running better, we should make it possible for people to have a benefit which retains its value year on year, so that they know that, whatever happens to the economy, that part of their income will be secure.
I am conscious of the fact that Ministers are trying to act from good motives. They are trying to target the poorest and to ensure that the least well off families will benefit. One of the mistakes that they make is that they are having to do it within their DHSS budget.
The issue goes wider than that. I have often heard it said with considerable credibility that one would need fewer social workers if the income of the clients of many social workers were higher, and the incomes of social workers were paid from the same budget within the same Ministry.
Referring to the balance of pragmatisms, we should remember that when the Government were elected in 1979, one of their clearest policy statements was that they would become the Government of a society in which perks were done away with; that everything would become a matter of income and income tax; and it would be very much more straightforward. Of course, practicalities have intervened and we have taken policy decisions, such as not phasing out mortgage relief and continuing to allow tax relief for various business expenses, although gradually the Inland Revenue is putting the squeeze on some of them.
It is because we move in an essentially imperfect world that I support strongly what my right hon. Friend the Member for Aylesbury (Mr. Raison) said. On too many occasions, recent policy decisions have squeezed rather harder than is fair those who are just above the poorest level, as we move towards what I hope will be a better system. If we put the little bits of the jigsaw in first, the wrong people are being damaged. For that reason, I support the intention to uprate child benefit.
We have had an excellent debate, with strong feelings arising on this issue. We are touching on familiar ground because in the statement and the order we have discussed this year's uprating. I understand why hon. Members have questioned the attitude of the Government and future Governments to the benefit. In essence, I agree with my hon. Friend the Member for Mid-Kent (Mr. Rowe) in everything except his conclusion. What we are doing essentially is making a pragmatic and balanced judgment, which flows from the decision of the Government not to uprate child benefit this year, about whether it is right to tie the hands of future Ministers on the use of resources that go into uprating child benefit, or whether they should have the opportunity to decide on the use of those resources year by year, in the light of unforeseeable demands which might exist.
I am not discussing this year; I am talking about tying the hands of the Government to allocate resources in successive years, ignorant of whether resources will be available or, assuming they are, whether this is the best way to spend them. The House should address that question tonight.
The hon. Gentleman knows better than that. I was trying to identify the issue, which I hope the House will address before voting tonight and will not be carried away by some of the arguments and issues raised, many of which are wider than the pragmatic and balanced decision which I hope hon. Members will make. I hope they will make the right decision when I have had the chance to seek to persuade them to come in my direction, rather than that of the majority of voices in the debate.
The hon. Member for Birkenhead (Mr. Field), my hon. Friend the Member for Kensington (Sir B. Rhys Williams) and others have talked about possible changes in the pattern of national benefits and insurance in the future, which we are not addressing today. I am sure that Ministers, not just those in the Department, will read with interest the points made and will take them into account in looking at future policies.
Some hon. Members today have said that they look forward to a radical look at child benefit, but that question is not before the House this evening; it is simply whether we should index-link the benefit. Listening to some of the contributions, one would have thought it was a simple choice between index-linking the benefit or abolishing it. That issue is not before the House.
I understand the depth of feeling on the subject and I am sorry, having listened to many of the contributions, that I have to ask hon. Members to reject the new clause. I emphasise—I hope this is common ground—that this is not because the Government do not take seriously or in any way underestimate the importance of improving the help available to families ; quite the contrary. Recognition has been given by Government and Opposition Members to the efforts of the Government on that front. We do not propose to increase child benefit next April under the uprating order, but we are putting far more than it would cost to uprate the benefit into help for families. That has been acknowledged widely in the debate.
The benefit is unique in that it is paid directly to the mother. It is worth reminding the House that the family credit system, which will replace FIS when it comes into operation in April, will be paid to the mother. The hon. Member for Livingston (Mr. Cook) implied that the value of the family credit scheme had somehow been eroded by the Government. The value of family credit for an average earner with two children under 11 will be higher in real terms than it was when we came to office in 1979. Hon. Members are familiar with the figures. This year's non-uprating of child benefit has saved around £120 million net. From next April we shall spend around £100 million extra on family and income support and over £200 million extra on the family credit scheme. That will be paid directly to mothers.
There is no dispute in the House about the importance of help for families. Our calculation of the relative importance in the social security system of help for different groups has resulted in extra help for families in the system we shall introduce in April. I hope that hon. Members will recognise that we shall put more into helping families than would have been provided had we uprated the benefit by 30p.
I do not know whether I misunderstood the Minister, but I thought he said that the current level of child benefit is higher than is necessary to maintain the 1979 value. If so, I point him in the direction of the answers he has given me in the past two months, which clearly state that if the 1979 value were maintained child benefit this April would have to be £7·80, not the £7·25 it will be.
I confess that I am puzzled. Perhaps I am being slow in following what the Minister is saying, and perhaps he can assist me. I cannot understand the distinction that he makes between this benefit and others. The benefit is paid at a flat rate and its value will be maintained for all earners or those who earn nothing. The Minister's answer plainly implied that its value would need to be increased by 55p to restore its purchasing power of 1979.
Perhaps we should pursue the statistics later, but I am advised that from 1979, when the Government came to office, the purchasing power of the benefit has been maintained. We may have opportunities to debate the point but I am assured that before 1979, as compared to the present position, the value is higher.
Before I gave way to the hon. Gentleman, I was saying that the Government judged that it was better to use resources in such a way as to help family credit and income supplement for families with children rather than to uprate benefit by 30p. I do not believe that that option should be taken away from Ministers in future. There is an obvious disagreement about how we should spend these resources. Spending them on a general increase in child benefit would mean that help is spread very thinly to around 7 million families. Most of those families would have little or no real need of the extra 30p, although I do not deny for a moment that they might be very glad to have it.
Another major group of families, the less-well-off, that receives income support and family credit would find an extra 30p important and valuable. But those families would not receive it. If child benefit had been increased they would have lost that money from their other benefits. The point that I am making to the House, therefore, is essentially simple. If we wish to do more to help families in real need, child benefit is not the best-directed way of doing so. The costs are huge. In gross terms, an increase of 10p costs £60 million to implement; in net terms it costs £40 million. Most of the extra money will go to those who do not seriously need it.
The Government have taken the view that it is more sensible this year to direct these resources elsewhere. I believe that that option should be available to future Governments; not to do that would impose inflexibility upon future Ministers, and that would be inappropriate.
I wish to answer the point that was made by several of my hon. Friends and, indeed, by one or two Opposition Members, that in some way the wording in the Conservative party manifesto or ministerial statements imposes a moral obligation on the Government to uprate child benefit in line with inflation. The words "paid as now" have been interpreted to mean that year by year this benefit will be index-linked. I do not believe that that process can be sustained. The Government have never undertaken to uprate child benefit in line with inflation. That is also the case with tax allowances and, indeed, other social security benefits. If previous Ministers had intended to do that, I am quite sure they would have introduced measures to that effect.
The words say that the benefit would be paid as a universal benefit, tax-free, and to the mother. That undertaking has not been changed by anything in this year's uprating. I believe that that obligation was right. I am sure, bearing in mind the pattern of linking other social security benefits to the RPI, that had there been an intention to link this benefit it would have been included in the list by one Government or another.
The other point that I wish to make relates to a suggestion by the hon. Member for Livingston. He says that by referring to our determination to keep the benefit under constant review we shall put it under constant threat. I do not believe that he can read that into it. It is right that this hugely expensive benefit should be kept under constant review, like all other benefits. That is not to say that we plan to change child benefit. It simply says that in a modern welfare state we have an obligation to ensure that available resources are used to the very best effect.
There has been much discussion today about universality and means testing. The point has been well made in the debate that to go entirely for one or other of those systems is unthinkable, but somehow a pragmatic judgment must be made as to where benefits are needed, and the role of means testing. I do not doubt or criticise for a moment the points that have been made this afternoon about the benefits that flow from universal child benefit. Of course I recognise that such a benefit helps all families with children, whatever their other resources. I know that it represents investment in future generations and that the less-well-off are guaranteed some financial help. I know that it is simple to claim, easy to administer, and has virtually a 100 per cent. take-up. I acknowledge all those advantages, but it is only fair to put the disadvantages into the scales.
It is an expensive benefit costing £4·6 billion a year at present. Much of it goes to comfortably off families who cannot in any sense claim to need it. Extra help is not available to go to the most needy because resources that could otherwise go to them are tied up. Equal benefit has to be paid regardless of need. It does not help the poorest who receive income support or family credit, because the level of child benefit is taken into account in establishing entitlement to those benefits. I am simply saying that a balance must be struck. I acknowledge that advantages flow from universality, but there are disadvantages as well. It is right that the House should recognise them.
I have listened to the Minister's list with interest. He has failed notably to grapple with the point that was made on both sides, that child benefit ought to be compared to tax allowances. That is the historic route. Will he now give the House his view about that? Why should tax allowances be index-linked and not child benefit?
We have decided to index-link tax allowances is well as some social security benefits. We have not decided to index-link this benefit. I do not believe, as I have said, that we should tie the hands of future Governments about the way in which this resource might be used. I believe that it was right to use the resources this year, for the reasons that I have outlined to the House, for the family credit scheme and as extra help for families with children within the income support scheme, rather than to give a 30p increase across the board.
It would be wrong to listen to the siren voices asking us today to pre-empt decisions for a future that we cannot foresee about the allocation of resources. Therefore, I ask the House to reject the new clause. My hon. Friend the Member for Torridge and Devon, West (Miss Nicholson) asked us to make sure that we got this right for all time and had a comprehensive review. It would be bold to say that we could do that, but we are determined to see that the considerable sums of taxpayers' money that are provided for social security are used increasingly to help those most in need. It would not be serving that aim well if we accepted the new clause tonight.
I shall respond briefly to the Minister. I am happy to correct his recollection of the Conservative party manifesto. It says that child benefit will continue to be paid as at present, which is not what he quoted to the House. Apparently, we are now to take that commitment as being strictly literal arithmetically. I think that the Minister would accept that many who read the manifesto would form a quite different conclusion, that it meant that the value of child benefit would be maintained as at present.
We have had an excellent debate. I am confirmed in that view because our side—and by "our side", on this occasion, I include all those who have spoken in support of new clauses 2 and 4—won handsomely. There were nine speeches in favour of one or other of the new clauses, or both of them, and three speeches against them. Therefore, I hope the House will forgive me if I savour the moment when I am winning before the Division bells ring and we are clobbered in the Lobbies.
There was a curious feature to the debate. It was substantially a debate for and against child benefit. Those who are tempted to follow the Minister into the Lobby tonight to vote against both new clauses should reflect that they will find themselves in the company not only of the Minister but of hon. Members who have spoken explicitly against child benefit and who plainly would favour its abolition. Until the Minister spoke, no one spoke in favour of keeping child benefit but not uprating it. I can understand why no hon. Member felt able to commit himself to that proposition because it is not tenable intellectually. There is no point in saying that there is a case for retaining the benefit but that that case is not sufficiently strong for the value of the benefit to be maintained.
I admired the speech of the hon. Member for Torridge and Devon, West (Miss Nicholson). She made a very convincing case which, were I a Conservative, would have persuaded me to vote for new clause 4. I indicate one point of dissent from her proposition. She said that it was time we had a general debate on child benefit. I am sorry to have to say to the hon. Lady that we seem to have had general debates on child benefit at two-year intervals for some time. It was only in 1984 that the previous Secretary of State for Social Services put child benefit into the melting pot in his review, had an exhaustive examination of it and at the conclusion of that examination agreed, admittedly through gritted teeth, that child benefit served a useful function and should be retained. I am confident that any open, thorough investigation of child benefit would come to precisely the same conclusion that hon. Members have come to in the debate—that it serves its purpose well and there is no more effective way of meeting the cost of children or of breaking the poverty trap.
What was interesting about the debate on the Conservative Benches, because the debate was essentially on those Benches, was that it turned on the dual standards with which some Conservative Members approach cash benefits as distinct from tax allowances. I thought it was beautifully caught in the intervention of the right hon. Member for Chesham and Amersham (Sir I. Gilmour) in the speech of the hon. Member for Lewisham, West (Mr. Maples). After that intervention the hon. Member for Lewisham, West found it possible to say a favourable word for the married man's tax allowance.
Perhaps I could advise the House of the cost of the married man's tax allowance, because I nipped out and checked with the Library. I am advised by the Library that in the last financial year, 1986–87, the total cost of that allowance was £4,450 million and in the same year the total cost of child benefit was £4,550 million, almost exactly the same. I cannot for the life of me understand why it should be regarded by some Conservative Members as perfectly right and just that through the tax system we should make available £4,500 million to married men to support their wives but wrong that through the benefit system we should make available £4,500 million to mothers to support their children.
The argument for the one applies to the other, yet Conservative Members do not appear to be saying that the married man's tax allowance is not the best way to enable poor men to support their wives, or that it is wrong that there should be such a tax allowance because it goes to the Duke of Westminster and gives him help which he does not need to support the Duchess of Westminster. These arguments are not advanced in relation to the married man's tax allowance, yet in effect that allowance is less progressive than child benefit. At least, child benefit also goes to those who are too poor to pay tax and puts cash in the hands of those who fall below the tax threshold.
I make a prediction. Were Conservative Members who wish to see the phasing out of child benefit—our fear is that not uprating the benefit is the way of phasing it out —successful in securing its abolition it would be only a matter of time before the Chancellor of the Exchequer was obliged to re-invent child tax allowances. If he did not do so, we would be about the only country in the western world which gave no help through the benefit system or the tax system to people with children.
The moment the Chancellor came back with such a proposal we would once again be faced with a system that would be less equitable than child benefit because it would put money in the hands mostly of those with the highest incomes and would not put money in the hands of those on the lowest incomes who do not pay tax. That would be less satisfactory as a way of supporting the cost of children because, by and large, it would put money in the hands of the male rather than the mother.
Child benefit is much the best way of meeting the cost of children and breaking the poverty trap. We should keep child benefit. Hon. Members who have heard the clear threat to child benefit in the debate would be well advised to join us in the Lobby and make sure—
I have been advised that the effects of new clause 1 and of new clause 4 would be precisely the same. In the circumstances, I think it would not be in the interests of the House, and hon. Members would not thank me, if I insisted on their coming back later to support new clause 4. Therefore, I would like to take the opportunity of recommending to those who feel as strongly as I do about this to vote for new clause 1. If they do not feel able to do that, let them at least abstain. If they do not feel able even to do that, let them write a very strong letter to the Minister, as I hope they will do.
Certainly there will be an opportunity to divide on new clause 4, but we can deal with new clause 4 only when we have got new clause 2 out of the way.