Child Tax Allowance

Orders of the Day — Finance Bill – in the House of Commons at 11:15 pm on 11th July 1989.

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'In relation to income tax there shall be an allowance of £100 for each dependent child in full time education under the age of nineteen'.—[Mr. Frank Field.]

Brought up, and read the First time.

Photo of Frank Field Frank Field Chair, Social Services Committee

I beg to move, That the clause be read a Second time.

Normally when one moves a new clause, one of the ploys of the Government Front Bench is to point out the inadequacies in the drafting. As I wish to begin and to continue in a conciliatory mood, at least until we get to the vote, any constructive amendments to my draft new clause will be willingly accepted. I am aware that, because of the way in which the new clause is worded, it will exclude children below the school starting age, which was not the intention. An odd amending word could put that right. I am also aware that the present wording does not link the provisions to the Rooker-Wise indexation amendment to which the Chancellor of the Exchequer hyphened his name and I am sure that there are other things on which the Opposition would be only too happy to meet the Government.

I begin by referring briefly to what has been happening to the living standards of families with children and by comparing that with other sections of the community that are childless. To help me to do this, I draw on a note which the Family Policy Studies Centre published today. It looked at two possible ways of measuring how effectively our fiscal and benefit system has looked after those with children. The Government would be right to say that it is wrong to consider the crude tax thresholds because they do not include the tax-free element in child benefit. In place of tax thresholds, the buzz word now is tax break-even points. I do not want to be accused of using an inaccurate measurement, so I shall follow the Government line of break-even points.

There are two clearly discernible trends in the Government's record over the past decade. I am sure, first, that the Minister will emphasise that the break-even point for all households, whatever their composition, has risen. That has not always been so in the post-war period. But a second pattern emerges from breakdown into households of differing composition. The break-even points have risen faster for those without children than for those with them. So, although the tax burden has been lifted from households that pay tax, it has been lifted most slowly from people with children. The Government have changed the tax burden overall, but it has moved in the past 10 years.

The Government would also be right to tell us—and Conservative Members who support the new clause—that examining the tax burden is an inadequate way of judging the Government's record on families. We need to look at households' real income, and include transfer payments. The second calculation contained in the briefing note, prepared, needless to say, by the Library, considers the real income of households of different sizes. It also shows an improvement for all households, but differences between those with and those without children. Real income of those not responsible for children have risen faster.

In the past, the House has had two ways of dealing with the tax burden on and the benefit advantages for families with children. First, we had child tax allowances, then child benefit. When the Government made their past two uprating statements, I noticed that some Conservative Members said that, had child tax allowances existed still, the Government would not have got their statements through on a vote. Conservatives would have voted for the reintroduction and increasing of child tax allowances.

The Government have made it as plain as they can that they will not increase child benefit this side of the next election. The Opposition can therefore go in for gesture politics and insist at every uprating statement that child benefit should be increased, knowing that it will not be. We can then withdraw with our feathers in the air, knowing that families will get nothing. Or we can act more seriously and say that the challange to the Government will grow during this Parliament if they do not uprate child benefit in line with the other tax allowances and benefits that affect the living standards of the people who depend on them.

I want real, not gesture, politics to prevail. Should we be successful tonight, a future radical Labour Government would be free to move any revenue lost from child tax allowances over to child benefit during their first year of office. In the meantime, we would protect the living standards of families with children, and keep open the option of moving the money over to the child benefit scheme at a later date. That is not a change in direction, but it is one of seeking immediate ways to improve the living standards of families and also to have the option at a later stage of moving those resources over to the child benefit scheme.

It will not have escaped some hon. Members' attention that before Parliament rises for the summer recess we will be dealing with amendments to the Social Security Bill from the other place, and one of those amendments links child benefit increases to changes in family credit. I am, therefore, anxious that we decide tonight whether the House wishes to go down the road of reintroducing child tax allowances to protect the living standards of families with children or whether, when we come to the vote on the Lords amendment in a week or so, all the energies of those who are interested in ensuring that the House represents the interests of households with children will be supporting the amendment that has been made in the other place.

Families with children will win either way tonight. We will either carry this amendment in the Lobby, which will mean that we will see the reintroduction of child tax allowances, and that the tax burden will therefore be diminished, or—

Photo of Mr George Walden Mr George Walden , Buckingham 11:30 pm, 11th July 1989

I ask the hon. Gentleman a question to which I genuinely want an answer. There are people on middle or upper incomes who have had their taxes reduced from 60 to 40 per cent., who are liable to have their rates reduced as a result of the community charge, who still benefit from higher rate mortgage tax relief and who benefit from the non-imposition of VAT on children's shoes, even though they could afford to pay it. Does what the hon. Gentleman is suggesting put yet more money into the pockets of such people?

Photo of Frank Field Frank Field Chair, Social Services Committee

It does, because we are looking at different forms of the distribution of the tax burden. We are looking at it both horizontally and vertically. One way is to look at which income groups get relief right up to the income scale and the other is to look at each level of income and to study how the tax burden varies between people who have children and those who have not. We are maintaining both points. The hon. Member for Buckingham (Mr. Walden) is shaking his head, but the irony is that it was his intervention during one of the speeches on uprating, when he said that the Government would be in real difficulties in getting this package through if there were child tax allowances, which set my mind working.

Photo of Frank Field Frank Field Chair, Social Services Committee

I apologise if it was not the hon. Gentleman and I shall happily withdraw that comment.

I shall get back to my final point. Families with children will win either way tonight. We will either carry this amendment in the Division Lobby and thereby affect the tax burden of all families with children, whether they be rich or poor, or the House will have made the clear decision that it does not wish to go down that road and, therefore, when the amendment to the Social Security Bill comes back from the other place, there will be no parting of the ways and no arguments put to divert us from the need to ensure that child benefit is regularly uprated.

Photo of Mr Ian Gilmour Mr Ian Gilmour , Chesham and Amersham

I support the new clause, which has been so cogently moved by the hon. Member for Birkenhead (Mr. Field). We are debating justice between different classes of taxpayers and not the micro or macro economic situation. If we were, I would find myself in some difficulty, because I am in favour of increasing taxes at the present time and not reducing them. I believe that only by increasing taxation can we solve our serious economic problems. However, the Government do not agree with me, so that removes that difficulty.

Anyway, I am not altogether confident that we shall win the vote tonight, because the Government probably have the support of enough of my right hon. and hon. Friends who have not heard the debate to defeat the motion. Besides, we are discussing a question of principle as between taxpayers.

Ever since the days of William Pitt, it has been recognised that people with families have higher expenses and more responsibilities than people who do not. The salary system does not, for very understandable reasons, recognise that distinction, so clearly it must be made by the tax system. Much the best way of doing that is through child benefit, but the Government repudiate that on specious, irresponsible and thoroughly inhumane grounds—at a time when they lavish tax cuts on the well-offs and on everyone else.

My hon. Friend the Member for Buckingham (Mr. Walden) jibs at people receiving more money through tax allowances for children but, as far as I know, he and other right hon. and hon. Members—myself included—do not jib at tax cuts that give infinitely more money to the people who concern him. With great respect to my hon. Friend, he does not make a serious point.

The best way of dealing with families with children is through child benefit, but the Government appear to be anxious to repudiate that argument, judging by their behaviour over the past two years. We are giving the Government a choice. Unless they are against families—tout seul, full stop—they must agree either to uprate child benefit in future or to adopt new clause 23. There is no other choice. Otherwise, the Government will be repudiating the experience of everyday life and saying that there is no horizontal difference between taxpayers of similar income.

Either the Government must come out in favour of child tax allowances, or say, "We thoroughly agree that we behaved very badly, or not very well, over child benefit, and we shall never do that again." If the Government will say that, then of course I will not support the new clause in the Lobby tonight. I have a feeling that the Government will not say that, in which case I shall support new clause 23. Either the Government are in favour of child tax allowances or they are in favour of child benefit. To say that they are against both would be totally irresponsible and quite indefensible.

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

In supporting the new clause, I say at the outset that I did not think that I would ever again speak in this House in support of the reintroduction of child tax allowances. Over a period of 10 years, it was mooted that child benefit was not such a success, and before the 1987 general election there was a catching-up period when child benefit was put back on the rails. My hon. Friend the Member for Birkenhead (Mr. Field) reminded me of the real reasons why in 1977 I and my then hon. Friend the Member for Coventry, South-East, now my hon. Friend the Member for Preston (Mrs. Wise), did not include tax allowances in our Finance Bill indexation clause relating to personal tax allowances. We took the view then that as child tax allowances were being phased out and would disappear within two years it would be ridiculous to incorporate them in new legislation.

In 1977, child benefit was being phased in with all-party support, with increasing commitments from right hon. and hon. Members in all parts of the House, including the then Tory Opposition, that child benefit would be viewed just as though it was a tax allowance—which it was, in part—and in terms both of its value and spending power. The point was made that the Finance Bill should not be used to index-link what was then a social security benefit.

As the years passed, it was clear that child benefit did not work out that way. It has been frozen at the same rate for three years and will remain frozen in cash terms until the next general election. There is no indication that there will be any change. The game is up. What the Government have or have not done must be seen for what it is. It is consistent and logical for hon. Members to say that the idea of this universal benefit loses its validity—as the right hon. Member for Chesham and Amersham (Sir I. Gilmour) and my hon. Friend the Member for Birkenhead said—if its spending power is not maintained.

We either accept the consequences of saying that family size is irrelevant to the income of the working family, and throw back decades of social and taxation policy, or we accept that family size is relevant to income and that universal child benefit is failing to do as it should and do something about it. The only thing that the House can do is to reintroduce some form of child tax allowance.

When I was looking through the Committee and Report stages of the Finance Bill of 1977, because I wanted to check what I had said, I found that our present position was forecast by a Conservative Member. I shall give the flavour of what he said to the House on 25 July 1977. He said: A large number of payments are index linked already that is the point. The long-term benefits are now index linked, with the approval of both sides of the House, to prices or to incomes, whichever be the greater, and the short-term benefits are linked to incomes only. One reason for arguing the case two years ago was that child benefit seemed to be on the wrong side of the boundary even then. He was making a point about the refusal to index-link when the legislation for child benefit was considered. I freely admit that I voted with the Government not to do so. I also voted with the Government on personal taxation policy in 1975, but by 1977 I had seen through what was happening. The same Conservative Member continued: I am confining myself to this one point, and I am saying that if we leave the boundaries of index linking as they will be set in this Bill, the outcome will be intolerable in the case of child benefit and family support. Everyone will have his case for index-linking some further part of the taxation system and so on, but it seems to me that the family situation is the most pressing.It will be argued—I hope that it will be—that the Government still have complete flexibility to index-link by uprating child benefit or any other form of family support through the tax system, as they wish. But every time one index-links by statute some part of the benefit system or the tax system, one imposes a rigidity on that part of the system, taking away flexibility for the Government … so that inevitably, if they are short of resources or of revenue, they have to move in on the others. Thus, the Government will he left with a strong inbuilt bias towards index-linking personal tax allowances, and for any Chancellor of any party in a difficult year for resources or for revenue, that, it seems to me, will be bad news in respect of child benefit and taxpayers with families, unless … it is the intention of the index linkers, as it should be, to go on to index-linked child benefit"— [Official Report, 25 July 1977; Vol. 936, c. 123–4.] The person who made that speech is today a member of the Cabinet. He correctly forecast what would happen—except, of course, that there is no shortage of revenue—but that is not the point. The present Secretary of State for Health should be commended on his foresight in putting that warning in the pages of Hansard on Report on the Finance Bill 1977. He saw what was likely to happen and drew conclusions, but I cannot accept the points that were implicit in the intervention of the hon. Member for Buckingham (Mr. Walden).

I understand that there is virtually 100 per cent. take-up of child benefit. I have never come across anyone who did not receive it, did not want it or sent it back. It is a massive benefit in terms of the income of working families. The hon. Member for Buckingham told us why many people do not need the extra help, but we should not greatly deprive the majority who need the extra help because child benefit has been frozen. The hon. Gentleman's case does not hold water. I shall be interested to hear his argument on the Lords amendment to the Social Security Bill.

I hope that my hon. Friend the Member for Birkenhead will press the new clause to a Division. It is important that the House should send out a signal that we are concerned that families' incomes have been eroded as a result of the interaction of the tax and social security systems. That was never the intention and it was never the stated objective of the Government, but that is what has come to pass. The sooner people get to know about it, and the sooner the House acts to redress the balance, the better.

Photo of George Young George Young , Ealing Acton 11:45 pm, 11th July 1989

It is important that we should be clear about what the debate is and is not about. It is not about tackling poverty or giving help to families whose income is below the tax threshold. As I am sure the Minister will say in his reply, those families would not benefit from the new clause. The debate is about fairness between taxpayers with and without children. It is basically about recognition of the fact that taxpayers who are bringing up children have a responsibility which brings with it costs that are not faced by other taxpayers who do not have children. The tax system used to reflect those costs through child tax allowances.

Child tax allowances endorsed a basic principle of taxation, which is that an individual should be taxed only on his surplus income once his unavoidable expenditure has been met, hence the personal allowances which take people on low incomes right out of the tax net. When a person marries, the tax system recognises his increased obligations by giving him a married man's allowance. If the taxpayer had children, the system used to carry that principle further through the child tax allowances, which reflected the additional obligations of the taxpayer with children.

The problem began when child tax allowances were converted to child benefit, which had two objectives—the one that I have just mentioned and the new one of tackling poverty. Since that conversion, the poverty-tackling role of child benefit has been emphasised, and we have forgotten entirely the other objective of equity between taxpayers. As a result, as the hon. Member for Birkenhead (Mr. Field) explained, the burden of taxation has shifted progressively during the past 10 years from taxpayers without children on to the shoulders of taxpayers with children. I see no sense or equity in that.

It is true that part of the money saved by not uprating child benefit has been ploughed back to help people on low incomes, but that has meant only that the cost of tackling family poverty has been borne not by taxpayers as a whole but by taxpayers who happen to have children, and there is no sense of justice or logic in that either. The switch from child tax allowances to child benefit has been bad news for families. The problem is that child benefit is now public expenditure, and therefore bad, whereas the child tax allowances used to be tax cuts, and therefore good. The litmus paper now turns red instead of blue when the Treasury starts to look at help for families.

The new clause is a gentle reminder that children are not consumer durables to be bought by people who can afford them but not by those who cannot. They are, to use a cliché, the next generation. Bringing them up imposes costs on the parents whereas the benefits are enjoyed by society as a whole when they grow up. The burden ought to be shared, as it used to be shared, through child tax allowances. The costs of bringing up children have switched progressively during the past 10 years, I think unintentionally, away from taxpayers as a whole. The new clause is just a gentle reminder that there is a strong case in terms of horizontal equity for reverting to the system that we used to have.

Photo of Mr Christopher Hawkins Mr Christopher Hawkins , High Peak

Ability to pay has always been a primary basis of our taxation system: we should not pay tax until we earn enough to feed, clothe and house ourselves, our wives and our children. That is why we had the tax allowances for children. We replaced that—I was one of those outside the House who supported the change, although I am beginning to regret having done so—with child benefit because the tax allowance suffered from two major drawbacks. One was that it was worth much more to a top rate taxpayer than it was to a standard rate taxpayer, and the other was that it was worth nothing at all to someone who earned too little to pay income tax. For those perfectly laudable reasons we replaced the tax allowance with child benefit, not realising when we did so that many of our colleagues would forget that the child benefit system that we now have replaces a tax allowance.

The arguments for child benefit are just as good today as they were when it was introduced. Unfortunately, some of my colleagues now argue, as my hon. Friend the Member for Buckingham (Mr. Walden) did, that child benefit is objectionable because it goes to well-off people who do not need it. He should explore and pursue the logic of what he is saying. On that logic we would abolish the single person's allowance, the married person's allowance, mortgage interest tax relief, which is worth more to the better off, the business expansion scheme tax relief and pensions tax relief.

Photo of Tim Yeo Tim Yeo , South Suffolk

What my hon. Friend has just suggested is strongly supported by the hon. Member for Birkenhead (Mr. Field).

Photo of Mr Christopher Hawkins Mr Christopher Hawkins , High Peak

I shall not support the new clause, although, as I am trying to explain, I greatly sympathise with the motives behind it, because so many people have forgotten that child benefit replaced a tax allowance.

If we do not abolish all the benefits that go to people who do not really need them and benefit the better off more than the worse off, why, uniquely, are we choosing to pick on people with children, those least able to afford to be picked on?

That applies to people at all income levels. A person earning £50,000 per annum with children has less ability to pay than someone earning the same amount without children. It is a fundamental principle of our tax system that the difference in the ability to pay of those with and without children should be reflected in the tax burden. That is equally true of a person earning only £8,000 a year. Those with children have less ability to pay than those without children.

That is why we should either have a tax allowance for children or retain child benefit and consistently uprate it to allow for changes in the cost of living andit should be paid to rich and poor alike. I prefer the child benefit system and I shall support that. Therefore, much as I strongly support the motives of those who have tabled the new clause, I shall abstain.

Photo of Mr Chris Smith Mr Chris Smith , Islington South and Finsbury

I have considerable sympathy with the argument put by the hon. Member for High Peak (Mr. Hawkins). I also have great sympathy with the aims of my hon. Friend the Member for Birkenhead (Mr. Field) in putting forward the new clause. The principal purpose that he is seeking to achieve is to highlight in graphic form the difficulties facing families in Britain in bringing up children and meeting the costs that are involved in that.

The Labour party has always supported the existence and the proper uprating of child benefit since its introduction. We believe fundamentally that that is the proper and sensible way forward in order to ensure that families have the means to bring up children in our society. That is our view and we shall continue to press the Government to change their mind on the foolish decision that they have taken for each of the past two years not to uprate child benefit.

The proposers of the new clause have identified that as a problem. They have identified the difficulties that many families with children now face because of the Government's decision not to uprate child benefit. They have concluded that, because the Government have blocked such uprating, the way forward is no longer to batter at the doors saying that child benefit must be uprated, but to say, "Let us find another way around the problem; let us try the old idea of a tax allowance again." I am afraid that that is the point at which my hon. Friends and I must part company. I do not think that all is lost, or that we should give up the fight for child benefit here and now. I say that for two reasons. First, there are many problems relating to a tax allowance as opposed to benefit. A tax allowance is available only to those within the tax system; it is not available to those who fall below the tax threshold. Secondly, tax allowances on the whole go to the father rather than the mother, while child benefit is paid automatically to the mother.

Photo of Mr Ian Gilmour Mr Ian Gilmour , Chesham and Amersham

I think that the hon. Gentleman has slightly misunderstood the purpose of the new clause. It is not to do away with child benefit; in the present circumstances, it would provide an addition to child benefit. Surely the hon. Gentleman's arguments are entirely inapplicable.

Photo of Mr Chris Smith Mr Chris Smith , Islington South and Finsbury

I fear that I must disagree with the right hon. Gentleman. He is, of course, correct in saying that those who tabled the new clause seek to enshrine an additional allowance in the legislation, but the same problems will apply to that additional amount as apply to the principle of a tax allowance as opposed to an increase in child benefit.

Photo of Frank Field Frank Field Chair, Social Services Committee

I accept that between 200,000 and 300,000 parents in work would not be able to claim a tax allowance, should it be introduced, but nearly 20 million others would be able to. Is my hon. Friend saying that because 200,000 cannot claim 20 million should not?

Photo of Mr Chris Smith Mr Chris Smith , Islington South and Finsbury

My hon. Friend mistakes my argument. I am not saying that that is a reason for rejecting the new clause out of hand; I am saying that it is a problem with the system of tax allowance that my hon. Friend wants to introduce. He himself identified a problem relating specifically to the new clause, that it would not necessarily apply to children under education age. That, of course, alters to an extent the figures that he has just given.

The other difficulty about opting for tax allowance is that tax relief is available to top-rate taxpayers at the top rate, and therefore provides more assistance for higher earners than to lower earners. My hon. Friend talked about ensuring equity both vertically and horizontally, and the horizontal argument—differentiating between families with children and those without—holds up to a certain extent. But in that context the top-rate taxpayers will pose a major disadvantage. As for the vertical argument, my hon. Friend does not have a good case. Those who fall outside the tax system will be unable to benefit from the tax relief that he proposes.

The problems involved in the mechanism of tax relief, as opposed to an increase in child benefit, are not the only reason for my opposition to my hon. Friend's proposal, however much I applaud his aims.

We shall continue to make strenuous efforts to persuade the Government that a proper uprating of child benefit is the only sensible way to improve the lot of families who are bringing up children. It is clearly the best mechanism for doing so. Many Conservative Members have made that point in the debate.

We hope that the Government will see sense and that therefore there will be no need to entertain the somewhat flawed proposals relating to child tax allowances that are provided for in the new clause. My hon. Friend's motives are entirely understandable, but I hope that he will join us in continuing to batter at the Government's door and in continuing to ask them to uprate child benefit properly, as they ought to have done in each of the last two years and as they ought to do this year and next year as well.

12 midnight

Photo of Mr Norman Lamont Mr Norman Lamont , Kingston upon Thames

The new clause seeks to reintroduce child tax allowance alongside child benefit. The hon. Member for Birkenhead (Mr. Field) and my right hon. Friend the Member for Chesham and Amersham (Sir I. Gilmour) have a long-standing interest in the subject.

I was a little surprised by what the hon. Member for Birkenhead said. During the late 1970s he strongly supported the conversion of child tax allowances into child benefit. Recently, as he acknowledged, he has published a number of articles and made a number of speeches in which he has advocated the abolition of all tax allowances. I am not entirely sure how he reconciles that proposal with his desire to help those on low incomes. However, I realise that what he is doing tonight, as he revealed the other day in The Guardian, is essentially a political, or tactical or teasing exercise. I am grateful to my hon. Friend the Member for Ealing, Acton (Sir G. Young) for saying that the new clause is only a gentle reminder.

Under the new clause, the hon. Member for Birkenhead proposes to reintroduce a tax allowance which was abolished in April 1979. As I think that he acknowledged, the new clause does not make a great deal of sense. Far from simplifying and rationalising the tax and social security system, it would introduce new complications. It would be difficult to justify the cost of setting up and maintaining two separate administrative systems to give general support by different means. It has also been acknowledged during the debate that the new clause would fail to meet the aim of helping those who need it most. A child tax allowance would be of no help to the 25 per cent. of families who do not pay tax. The hon. Member for Birkenhead has suggested elsewhere that families should be able to choose whether they wish to receive a cash payment instead of a tax allowance. That, too, would make the system even more complicated.

At the practical level, the new clause does not suggest how the proposed tax allowance would be divided when both parents can claim relief. As I am sure he realises, under independent taxation both the husband and the wife could each claim the new allowance. The new clause, however, does not make it clear whether the mother or the father ought to have the relief. That is perhaps a point of detail.

Most of the hon. Gentleman's remarks, and those of my right hon. Friend the Member for Chesham and Amersham, were directed not at the new clause but at the fact that the Government have not uprated child benefit. That decision has been explained on many occasions by my right hon. Friend the Secretary of State for Social Security. Child benefit has not been increased this year, but the Government are targeting additional help on those families who need it most. Families in receipt of income support or family credit do not gain from an increase in child benefit; it is offset in their income-related benefit.

Photo of Mr Ian Gilmour Mr Ian Gilmour , Chesham and Amersham

It is not true that my right hon. Friend the Secretary of State for Social Security explained why child benefit was not uprated. He did not. He produced the most specious speech that I have ever heard in the House. With great respect to my right hon. Friend, he is off the point. As my hon. Friend the Member for Ealing, Acton (Sir G. Young) said, we are dealing not with people in great poverty, but with the horizontal point—surely even the Treasury will agree with it—that people with families have more responsibilities and expenditure than people without. Will my right hon. Friend be good enough to deal with that point?

Photo of Mr Norman Lamont Mr Norman Lamont , Kingston upon Thames

My right hon. Friend first did my right hon. Friend the Secretary of State for Social Security a grave injustice and then spoke about horizontal equity. Governments have to choose in a world of limited resources. The Government were right to decide to deploy resources more to help families in greatest need.

Photo of Mr Norman Lamont Mr Norman Lamont , Kingston upon Thames

In a minute. I want to answer my right hon. Friend.

This year we have added £205 million to expenditure on income-related benefits, £70 million of which offsets the effect of the child benefit decision, with a further £70 million increase in the real value of those benefits.

We recognise the issue of horizontal equity and that child benefit is a useful contribution towards the upkeep of children, but it does not follow that it should be uprated each year and indexed all the time. Tax allowances in 1981 were not indexed. Sometimes tax allowances have been increased by more than inflation, sometimes in line with inflation and sometimes not even with inflation.

Obviously, benefit decisions must be taken in the light of overall public expenditure. With benefits, unlike with tax allowances, we have the opportunity to redeploy some resources to help the poorest families. Although horizontal equity is important and people have obligations towards their children, it was absolutely right to direct some resources towards helping the poorest families. Increases in child benefit would not have been as effective, or indeed helped poorest families as much, as the increases in family credit.

Photo of Mr Chris Smith Mr Chris Smith , Islington South and Finsbury

The Financial Secretary is right only in so far as he says that the Government must choose where to place their fiscal and financial priorities. The Government have made those choices clear. In last year's Budget they decided to forgo well over £2 billion worth of income in tax cuts for top rate taxpayers. For a fraction of that money they could have increased child benefit in line with inflation both last year and this year. The Financial Secretary, as a Treasury Minister, must have had some hand in discussing those choices with the Secretary of State for Social Security. How does he justify them?

Photo of Mr Norman Lamont Mr Norman Lamont , Kingston upon Thames

The other point is that the Government's tax policies and overall economic policies have resulted in a considerable increase in the living standards of earners with and without children. [HoN. MEMBERS: "Answer the question."] I am answering the point, but I want to refer to what the hon. Member for Birkenhead said, which was reflected in what my right hon. Friend the Member for Chesham and Amersham said. Both asserted that changes to the tax-benefit system have favoured those without children.

It is, of course, perfectly true that reductions in the basic rate of income tax have benefited single people more than married couples with children. The reason is that single people pay a higher proportion of their income in tax to start with. However, the tax cuts have benefited everyone, including families with children, and since the Government came to office real take-home pay has increased substantially for those with and without children at all income levels. That is true at half average earnings, where real take-home pay for a married man with two children is up by over 24 per cent.

Although it may be true that take-home pay after tax cuts has increased somewhat more for those without children, when one takes account of what has been achieved by the increases in family credit, it is not true at the bottom end of the scale. I draw the attention of my right hon. Friend for Chesham and Amersham and of the hon. Member for Islington, South and Finsbury (Mr. Smith) to the recent study by the Institute of Fiscal Studies into the impact of taxes and benefits since 1979. It said: On incomes below about £200 a week, those with children do significantly better than those without as a direct result of the much increased generosity of family credit. I put it to the House that the problem of people with children at the lower end of the scale has been taken care of through our redeploying resources to family credit.

My right hon. Friend the Member for Chesham and Amersham is over-interested in what he calls horizontal equity. The people whom he says have lost out have benefited enormously from the general prosperity, the general growth in the economy and the tax cuts, all of which have brought about a considerable increase in the living standards of families with children. If we had not pursued our policies, many of those families would have been much nearer the poverty level and many of them have been floated further away from poverty as a result of the policies we have pursued.

Photo of Mr Ian Gilmour Mr Ian Gilmour , Chesham and Amersham

I welcome, of course, the fact that something has been done for the least well off and it is gratifying that £70 million of the £200 million saved on child benefit went to the least well off. It would have been even more gratifying if the whole £200 million had gone to the least well off, but it did not. I must ask my right hon. Friend to return to the question of horizontal equity. It is true that everyone is better off, unless something has gone seriously wrong with the economy. All our children grow every year. However, families with children are relatively less well off than families without children or even than single persons. Will my right hon. Friend be kind and4deal with that point?

Photo of Mr Norman Lamont Mr Norman Lamont , Kingston upon Thames

I have attempted to deal with it. I have made the point that I attach far more importance to the relief of poverty at the bottom end of the scale than I do to the principle of horizontal equity. I still make the point that child benefit has been a useful contribution to the upkeep of children. My right hon. Friend is saying that people miles above the poverty line—middle income families—have somehow been made far worse off just as a result of the decision made in the past few years on child benefit. That is not a serious factor or a serious matter in household economics. It is not a serious factor compared with the general increase in prosperity that those families have enjoyed in recent years.

I am less concerned about horizontal equity and more concerned about doing something for people at the bottom end of the scale than my right hon. Friend the Member for Chesham and Amersham appears to be. It is curious to propose new clause 23, which would be so regressive in its impact. What would be the impact of a £100 tax allowance? It would mean £40 a year to the higher rate taxpayer, £25 a year to the basic rate taxpayer, £7·50 a year to a taxpayer on family credit and nothing for anyone earning less than the existing allowances. That seems a difficult approach to justify. We have got our priorities right by directing the help towards those in the greatest need.

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

The Financial Secretary said that child benefit was useful. He has also recited the years in which tax allowances had risen by more than inflation, level with inflation and by less than inflation. If my memory serves me correctly—I ask the Financial Secretary to confirm this—in only one year since 1977 have tax allowances risen by less than the rate of inflation. That was 1981, the year when allowances did not rise at all and when the Government came to the House for agreement to freeze tax allowances. Yet child benefit has been frozen at least twice and it has twice been raised by less than the rate of inflation. Only once in 12 years have tax allowances not risen in line with inflation, yet child benefit has failed to increase with inflation in four of those 12 years. Where is the equity for the family in that?

Photo of Mr Norman Lamont Mr Norman Lamont , Kingston upon Thames 12:15 am, 11th July 1989

I in no way sought to mislead the House or the hon. Member for Birmingham, Perry Barr (Mr. Rooker). I said that allowances were not increased in 1981; it was the only year in which allowances were not indexed. The Government have that choice, and they exercised it on that one occasion. As the hon. Member for Perry Barr said, child benefit has not been indexed on more occasions. But in those years we have directed more help through family credit, as I have repeatedly emphasised. I believe that the redeployment of resources to the direct relief of poverty is more valuable than, and should come before, the principle of horizontal equity on which my right hon. Friend the Member for Chesham and Amersham has based his case. My right hon. Friend attaches enormous importance to that principle.

I believe that there should be a recognition of children in the system, but I do not believe that my right hon. Friend is right in saying that those whose incomes take them well above the family credit network—those on average earnings and above—have really had a significant degree of hardship inflicted on them by our decision. They have benefited from increased earnings and the tax cuts of recent years. For that reason, I believe that the priorities on which my right hon. Friend the Secretary of State for Social Security has decided are emphatically the right priorities.

Question put, That the clause be read a Second time:—

The House divided: Ayes 23, Noes 194.

Division No. 294][12.16 am
AYES
Alton, DavidMcAvoy, Thomas
Ashdown, Rt Hon PaddyMarshall, Jim (Leicester S)
Ashton, JoeMichie, Mrs Ray (Arg'l & Bute)
Barnes, Harry (Derbyshire NE)Morrison, Sir Charles
Beith, A. J.Parry, Robert
Campbell, Menzies (Fife NE)Skinner, Dennis
Clay, BobSteel, Rt Hon David
Ewing, Mrs Margaret (Moray)Wallace, James
Field, Frank (Birkenhead)Winterton, Nicholas
Gilmour, Rt Hon Sir Ian
Hughes, Simon (Southwark)Tellers for the Ayes:
Kennedy, CharlesSir George Young and
Kirkwood, ArchyMr. Jeff Rooker.
Lester, Jim (Broxtowe)
NOES
Alexander, RichardForman, Nigel
Alison, Rt Hon MichaelForsyth, Michael (Stirling)
Amess, DavidForth, Eric
Amos, AlanFox, Sir Marcus
Arbuthnot, JamesFranks, Cecil
Arnold, Jacques (Gravesham)Freeman, Roger
Ashby, DavidFrench, Douglas
Atkinson, DavidGale, Roger
Baker, Nicholas (Dorset N)Garel-Jones, Tristan
Baldry, TonyGill, Christopher
Batiste, SpencerGorman, Mrs Teresa
Bellingham, HenryGow, Ian
Bevan, David GilroyGreenway, John (Ryedale)
Biffen, Rt Hon JohnGregory, Conal
Boscawen, Hon RobertGriffiths, Sir Eldon (Bury St E')
Boswell, TimGriffiths, Peter (Portsmouth N)
Bottomley, PeterGround, Patrick
Bottomley, Mrs VirginiaGummer, Rt Hon John Selwyn
Bowden, Gerald (Dulwich)Hague, William
Bowis, JohnHamilton, Hon Archie (Epsom)
Brandon-Bravo, MartinHamilton, Neil (Tatton)
Brazier, JulianHampson, Dr Keith
Bright, GrahamHannam, John
Brown, Michael (Brigg & Cl't's)Hargreaves, A. (B'ham H'll Gr')
Browne, John (Winchester)Hargreaves, Ken (Hyndburn)
Burns, SimonHarris, David
Burt, AlistairHayes, Jerry
Butcher, JohnHayward, Robert
Butler, ChrisHeathcoat-Amory, David
Butterfill, JohnHind, Kenneth
Carlisle, John, (Luton N)Hogg, Hon Douglas (Gr'th'm)
Carlisle, Kenneth (Lincoln)Howarth, G. (Cannock & B'wd)
Carrington, MatthewHughes, Robert G. (Harrow W)
Carttiss, MichaelHunt, David (Wirral W)
Cash, WilliamHunt, Sir John (Ravensbourne)
Chalker, Rt Hon Mrs LyndaIrvine, Michael
Chapman, SydneyJack, Michael
Chope, ChristopherJackson, Robert
Clark, Hon Alan (Plym'th S'n)Janman, Tim
Clark, Dr Michael (Rochford)Jessel, Toby
Colvin, MichaelJohnson Smith, Sir Geoffrey
Coombs, Anthony (Wyre F'rest)Jones, Gwilym (Cardiff N)
Coombs, Simon (Swindon)Jones, Robert B (Herts W)
Cope, Rt Hon JohnKey, Robert
Couchman, JamesKing, Roger (B'ham N'thfield)
Cran, JamesKnapman, Roger
Currie, Mrs EdwinaKnight, Greg (Derby North)
Curry, DavidKnight, Dame Jill (Edgbaston)
Davies, Q. (Stamf'd & Spald'g)Knowles, Michael
Davis, David (Boothferry)Lamont, Rt Hon Norman
Day, StephenLang, Ian
Dorrell, StephenLatham, Michael
Douglas-Hamilton, Lord JamesLawrence, Ivan
Dover, DenLee, John (Pendle)
Dunn, BobLeigh, Edward (Gainsbor'gh)
Durant, TonyLightbown, David
Eggar, TimLilley, Peter
Fallon, MichaelLloyd, Peter (Fareham)
Favell, TonyLord, Michael
Field, Barry (Isle of Wight)Luce, Rt Hon Richard
Fishburn, John DudleyMacfarlane, Sir Neil
MacKay, Andrew (E Berkshire)Shephard, Mrs G. (Norfolk SW)
Maclean, DavidShepherd, Colin (Hereford)
McLoughlin, PatrickSmith, Tim (Beaconsfield)
Mans, KeithSpicer, Michael (S Worcs)
Marshall, John (Hendon S)Stanley, Rt Hon Sir John
Martin, David (Portsmouth S)Stern, Michael
Maude, Hon FrancisStevens, Lewis
Maxwell-Hyslop, RobinStewart, Andy (Sherwood)
Mayhew, Rt Hon Sir PatrickSumberg, David
Miller, Sir HalTaylor, Ian (Esher)
Mills, IainTaylor, John M (Solihull)
Mitchell, Andrew (Gedling)Taylor, Teddy (S'end E)
Mitchell, Sir DavidThompson, D. (Calder Valley)
Monro, Sir HectorThompson, Patrick (Norwich N)
Moore, Rt Hon JohnTracey, Richard
Morris, M (N'hampton S)Trippier, David
Moss, MalcolmTrotter, Neville
Moynihan, Hon ColinTwinn, Dr Ian
Neubert, MichaelWaddington, Rt Hon David
Nicholls, PatrickWalden, George
Nicholson, David (Taunton)Walker, Bill (T'side North)
Nicholson, Emma (Devon West)Waller, Gary
Norris, SteveWard, John
Onslow, Rt Hon CranleyWardle, Charles (Bexhill)
Oppenheim, PhillipWarren, Kenneth
Page, RichardWatts, John
Paice, JamesWells, Bowen
Patnick, IrvineWhitney, Ray
Patten, John (Oxford W)Widdecombe, Ann
Pattie, Rt Hon Sir GeoffreyWilkinson, John
Peacock, Mrs ElizabethWilshire, David
Porter, David (Waveney)Winterton, Mrs Ann
Raffan, KeithWood, Timothy
Redwood, JohnYeo, Tim
Rifkind, Rt Hon Malcolm
Roberts, Wyn (Conwy)Tellers for the Noes:
Shaw, Sir Giles (Pudsey)Mr. Alan Howarth and
Shelton, Sir WilliamMr. Tom Sackville.

Question accordingly negatived.

Further consideration adjourned.—[Mr. Maclean.]

Bill, not amended in the Committee, (and as amended in the Standing Committee), to be further considered this day.