Child Tax Allowance

Part of Orders of the Day — Finance Bill – in the House of Commons at 11:30 pm on 11 July 1989.

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Photo of Mr Jeff Rooker Mr Jeff Rooker , Birmingham, Perry Barr 11:30, 11 July 1989

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.