Clause 35 — Reduction in childcare relief for higher earners

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Question proposed, That the clause stand part of the Bill.

Photo of David Hanson David Hanson Shadow Minister (Treasury)

Once again, Mr Evans, I welcome you and look forward to your time in the Chair as we debate clause 35 of the Finance Bill. You will of course be aware that we tabled an amendment to the clause that you have chosen not to select, which is your prerogative; we are relaxed about that. However, it is important that we test and discuss the issues in the clause with Ministers to examine its impact, as well as the impact of other changes that form part of this package of measures.

Our concerns centre on the effects of the various changes that have been made to child care support. Clause 35 introduces changes to the higher rate taxpayer relief for child care—an issue that caused some discussion in the last months of the previous Labour Government and will undoubtedly cause further discussion today. We need to look at the clause not only in its own context but in the light of the wider taxation and benefit policies that the Government are progressing. This is part of a number of measures that will address a range of issues to do with child care and families generally. I also want to consider some of the technical matters that outside groups have raised with me and with other hon. Members regarding the wording of the clause and, if I may slightly stray outside the scope of the debate, the wording of schedule 8, which is related to it and to which we will return in Committee in due course.

The background to clause 35 will be familiar to my right hon. Friend Mr Darling because it had its genesis in discussions that took place as part of the previous Labour Government’s proposals. Members will be aware that in 2009 my right hon. Friend Mr Brown, as Prime Minister, announced to the Labour party conference proposals that he brought before the House later that year regarding child care relief and basic rate relief.

In government, Labour’s plan was to use the savings from limiting child care relief to basic rate relief to fund an expansion of child care places for two-year-olds in England, with potential consequential reliefs and amendments for Wales, Scotland and Northern Ireland. There was some controversy and discussion on those matters. The Exchequer Secretary will be aware that there was extensive discussion in the Labour Government about those matters, and that under the leadership of my right hon. Friend the Member for Kirkcaldy and Cowdenbeath, they settled on limiting child care relief to basic rate relief, with the purpose of funding an expansion of child care places for two-year-olds.

I would like clarification from the Exchequer Secretary today on—[ Interruption. ] Don’t worry, I am still here. Mr Timpson will know that one picks up the occasional sedentary remark. Unless I reflect back on the last remark, it will not appear in Hansard, and on this occasion, I will not reflect back on it. As can be seen, Government Members have expressed an interest in my speech.

The Government have made changes to the Labour Government’s proposals on basic rate relief and the expansion of child care places for two-year-olds. Indeed, the Government’s proposals are markedly different on the child care element, to which the relief is linked. The Labour Government had planned some 250,000 child care places for two-year-olds from low-income families, although I accept that that was scaled down to about 65,000 child care places. The Government proposals before the Committee will increase from 10 to 15 the hours for the pilot of child care places for 28,000 children. There is a significant expenditure saving in clause 35, compared with the Labour Government proposals. I think that it is worth focusing on those issues today, because if the scope of the discussion that I have given is accepted, this measure cannot be divorced from the reasons why the Labour Government intended to undertake the purpose of clause 35 and what the current Government are now doing with that resource.

From January this year, value added tax will cost families with children an extra £450 a year on average. That is one of a range of measures on the table that will press hard on the ability of individuals to provide child care at affordable levels.

The Government are pressing ahead with the change that my right hon. Friend the Member for Kirkcaldy and Cowdenbeath proposed in government to pay for the trebling of the number of free child care places available to the most deprived two-year-olds. We accept that the relief, which is manifested in clause 35, was badly targeted. That is why we made those changes in government, and our proposal would have paid for more of the poorest in our society to have child care. I want the Exchequer Secretary to explain how the resultant savings from the proposals will be invested to support issues such as child care for people in our community.

At the same time, the Government are hitting family finances in other ways, such as through child tax credits and through child benefit being frozen, and indeed being cut for many people in the years ahead. The families who will be affected by this measure will soon be affected by other measures, particularly that on child benefit. The taxation changes in clause 35 need to be seen in the light of the decision to withdraw child benefit from April 2013 from households containing at least one higher rate taxpayer.

Photo of David Gauke David Gauke The Exchequer Secretary

I am following the right hon. Gentleman’s speech closely. Will he clarify for the Committee whether the Labour party has a specific proposal on what the savings from this measure should be used for? Is it committed to using them for nursery places, or for something else?

Photo of David Hanson David Hanson Shadow Minister (Treasury)

As I have said, the Labour Government’s original proposal, which was announced by the then Prime Minister, was to use the resources saved from this badly targeted tax relief to support the extension of child care for two-year-olds in poorer families. Our purpose at the time was to expand the number of places to about 250,000. There were discussions in the Government, and the Exchequer Secretary knows that the figure we settled on was about 65,000 child care places. I understand that he proposes to stick to the pilot of 28,000 places, and I would be grateful for clarification on that, and to extend the number of hours to 15 hours per week. That is significantly less than what was proposed by the previous Government.

Photo of David Gauke David Gauke The Exchequer Secretary

Does the Labour party remain committed to its proposals in government to use that funding for 65,000 child care places?

Photo of David Hanson David Hanson Shadow Minister (Treasury)

Actually, Ministers answer the questions and the Opposition ask them. I have been clear with the Exchequer Secretary about the proposal that we outlined in government, and that will be our view. We are potentially four years from government.

I am simply pressing the Exchequer Secretary to explain what the impact is of clause 35, and why there has been a significant change—unless he wishes to clarify that further—to the proposals announced by the previous Government on extending child care for two-year-olds. It is important that we know not just what the clause means, because it will restrict child care support for higher rate families. The purpose of our proposal in government was to expand child care arrangements for poorer and lower-income families. The Government are now squeezing the middle while—unless the Exchequer Secretary clarifies that the contrary is the case—not providing the same level of child care places that were originally proposed by the Labour Government.

This measure is coupled with a range of other measures, which are not before the Committee in clause 35, but which I hope you will give me the scope to touch on, Mr Evans. There are real-terms cuts to child benefit, which is frozen at £75.40 this year for families; the baby element of child tax credits, which is worth £545 a year, has been scrapped; benefits have been set on a permanently lower path of inflation; the basic and 30-hour elements of working tax credit have been frozen; and the second income threshold for the family element of child tax credit has been cut. Those measures all add to the pressures on child care responsibilities and on families.

Photo of Andrew Gwynne Andrew Gwynne Shadow Minister (Transport)

My right hon. Friend has set out a series of measures that the Government are implementing in the Budget. Does he find it ironic that those measures come from the Conservative party, given that the Prime Minister claimed before the general election that he would lead the most family friendly Government in history? Those measures are penalising hard-working families, and women more than men.

Photo of David Hanson David Hanson Shadow Minister (Treasury)

Indeed. It is a fact of life that child care often remains the prime responsibility of the woman. Child benefit is paid to the woman for that purpose. Clause 35 does not deal with child benefit—I do not wish to test your patience, Mr Evans—but, in principle, the purpose of the Labour Government’s original policy proposals was to expand free child care for people who could not afford it otherwise, to help to support women to get back into work and to help individuals to support their children.

As I understand it—I am willing to be contradicted and to hear clarification from the Minister—the impact of the proposals is that fewer child care places will be available than the previous Labour Government proposed. That must be a matter of some concern. Indeed, in our original amendment, we proposed a review of child care provision to consider the impact of all these measures. Clause 35 proposes changing higher-rate relief to basic-rate relief for higher-rate taxpayers, but we should not consider it in isolation; it is only one change among many on child benefit and the other issues that I have mentioned that raise concern among the official Opposition.

The Minister will know, because we discussed this in the debate on the last group of amendments, that the OECD has recently released a report that warned that child poverty was set to rise, thanks to the Government’s policies. I am proud of the fact that one of things that we did was to lift more than 500,000 children out of poverty. Sadly, it looks as though that policy will be reversed. The impact of clause 35 and the Government’s proposals on spending the associated resources represent a different choice from the one that the previous Labour Government intended to make, and the Minister needs to focus on that.

The Labour Government made progress on tackling child poverty. When we left office, it was expected that about 1 million children would be lifted out of poverty by our actions. The impact of clause 35, as I read it, relates to high earners. I accept that the relief was badly targeted, but I repeat that I want the Minister to clarify how the changes in expenditure that he proposes as a result of clause 35 will impact on child poverty issues.

The OECD has found that

“progress in the UK has stalled, and” child poverty

“is now predicted to increase”.

The measures in clause 35 will not assist the progress that the previous Labour Government made in providing a lift out of child poverty for the poorest families in society. At a stroke, unless the Minister contradicts me, by not using the expenditure as originally planned by the previous Government, he will be removing the ability to invest in the child care places that were planned for the poorest members of our society.

Photo of Geoffrey Robinson Geoffrey Robinson Labour, Coventry North West 3:30 pm, 4th May 2011

My right hon. Friend touches on the great steps made under the previous Government to alleviate child poverty.

Was he by any chance present during Prime Minister’s Question Time today, when the Prime Minister made it clear that we had reached the end of the road in terms of taxation measures to achieve that? In particular, he said that he was absolutely against further redistributive measures. The proposals, which are separate from straightforward taxation measures, will take further steps to aggravate, not alleviate, child poverty.

Photo of David Hanson David Hanson Shadow Minister (Treasury)

The Minister has an opportunity to clarify the Government’s approach to the provision of child care. That is clearly linked to clause 35, because the Labour Government’s original proposals were designed to meet the objectives that my hon. Friend has indicated. That point is made, and I want the Minister to clarify his approach to child poverty and how the Government propose to fund child care places for two-year-olds.

Agencies and organisations outside the House have made a range of comments on clause 35. It is worth giving the Minister an opportunity to respond to them, and I hope that he will offer some reassurance. Some of the comments also relate to the accompanying schedule. I appreciate that the Committee is not considering that now, but it is very much linked to the clause.

The Low Incomes Tax Reform Group, which, as the Minister will know, is an initiative of the Chartered Institute of Taxation, has raised with me some real concerns about clause 35 and schedule 8. It is concerned about the complex interactions of tax-free vouchers with tax credits and child care cost support, the dynamics of which it believes changed again after 6 April 2011. It is important that the Minister responds to its concern about the poor channels of advice for employees and employers about the implementation of the scheme proposed under clause 35.

The group believes that there may have been errors—under the previous Government, I admit—in HMRC’s online calculator, and it is concerned about how the implementation of these measures will be taken forward. It is particularly concerned that although the system is designed for fairness, the results that it produces may not be fair. I shall give some examples, if I may, of its concerns about clause 35.

The group is particularly concerned that the clause will remain reliant on interpretation according to guidance published in draft on HMRC’s website, which it believes is inconsistent with the clause. I am not making any assessment of the group’s judgment call on that matter, I am simply placing it on the table because this Committee debate gives the Exchequer Secretary the opportunity to examine whether that concern is justified. He may be able to provide some comfort by giving his interpretation.

The group has raised the concern that under schedule 8 —the schedule will be discussed in the Public Bill Committee, but it is worth mentioning now—the changes will apply only to those whose employer estimates them to be higher rate or additional rate taxpayers at a particular point in time, rather than to those who are actually found to be so by a final assessment. It is important that either now or when we discuss schedule 8 in the Public Bill Committee, the Exchequer Secretary reflects upon that concern and provides some clarity about when the assessment will be made on whether individuals are higher rate or additional rate taxpayers.

We need to know at what stage in the financial year that assessment will be made, who will make it, how much of a burden it will be on employers and employees and whether the figures and facts that HMRC will use in the calculation are sound and to his satisfaction. They must be seen to be just and fair.

The Low Incomes Tax Reform Group has expressed concern that the change may have equality impacts, for example on employees who become long-term sick or disabled, on women or on those who switch to part-time work in the course of the year. It suggests that there should be some flexibility in the interpretation of clause 35 and schedule 8.

The Library has calculated that overall, families will be some £1,700 a year worse off due to the Government’s tax and benefit changes, of which clause 35 is one. As my hon. Friend Andrew Gwynne mentioned, the Prime Minister promised to lead the most family-friendly Government ever, and I should like to hear from the Exchequer Secretary where the proposal, when linked to the proposals on child benefit and the working tax credit and the others that we know about, fits into the Government’s overall strategy for child care.

We accept that there will have to be difficult and challenging decisions, and I reconfirm that the previous Labour Government wished the targeting now set out in clause 35 to progress.

Photo of Grahame Morris Grahame Morris Labour, Easington

Is there not also an issue to consider about clause 35 breaking the principle of universality—the idea that benefits apply irrespective of income?

Photo of David Hanson David Hanson Shadow Minister (Treasury)

There is, and my hon. Friend will know that we have been very clear that the Government’s wider proposed changes to child benefit are not fair or equitable, and that child benefit should remain universal. The former Prime Minister, my right hon. Friend the Member for Kirkcaldy and Cowdenbeath, and the former Chancellor, my right hon. Friend the Member for Edinburgh South West, decided that child care was poorly targeted, but that if universality was to be broken, we must provide help and support to the poorest families to ensure that they had child care for two-year-olds. The Labour Government planned some 65,000 to 68,000 child care places as a result of the measures that are now in clause 35. The current Government have accepted those measures in principle, as we did, but unless the Exchequer Secretary tells me otherwise I do not believe they are delivering the outputs that we planned as a benefit of saving resources.

Photo of John Cryer John Cryer Labour, Leyton and Wanstead

We know that whenever means-testing is put in place, there is a cost because of the bureaucracy that is needed to administer it. Does my right hon. Friend have any idea how much this particular method of means-testing will cost?

Photo of David Hanson David Hanson Shadow Minister (Treasury)

My hon. Friend raises an interesting point. That is another issue that we wish to explore not just today, but when we debate schedule 8 upstairs in Committee at a later date. The element of complexity and randomness in the application of the clause has been raised with me by the Low Incomes Tax Reform Group. It is incumbent on the Exchequer Secretary to answer those criticisms before we consent to the clause.

There are choices to be made in tackling the deficit and we must look at the options. The then Labour Government made the same choice, but would have ensured that more child care places were available.

Photo of Andrew Gwynne Andrew Gwynne Shadow Minister (Transport)

My right hon. Friend makes his case on clause 35 and says that the previous Labour Government considered the possibility of targeting. However, they did so in the context of a wider range of measures available to families to support them in the upbringing of children. Does he share my dismay that clause 35 is being introduced against a backdrop of absolutely clobbering families hard and removing benefits that have made a huge difference to them in my constituency, and no doubt in his?

Photo of David Hanson David Hanson Shadow Minister (Treasury)

If I may, Mr Evans, I shall try to touch briefly on the wider policies to which my hon. Friend refers. I am conscious that clause 35 is specific to higher-rate tax relief—

Photo of Nigel Evans Nigel Evans Deputy Speaker (First Deputy Chairman of Ways and Means)

Order. I am delighted that Members mention clause 35 from time to time, but it is really quite specific. This is not a general debate on child care or indeed on other policies. Perhaps we could focus more on the provisions contained in clause 35.

Photo of David Hanson David Hanson Shadow Minister (Treasury)

We have known each other since our elections to the House on 9 April 1992, Mr Evans, and as ever, I shall try to keep to your strictures as the good Chairman that you are. You will note that amendment 8, which you did not select, would have prompted a wide-ranging discussion on the impact on child care. I am trying to focus on clause 35 and not to stray into amendment 8 or the issues that my hon. Friend Andrew Gwynne touched on. However, those issues are important when we are looking at the impact of clause 35 on a particular group of people, because that same group of people will lose child benefit and a range of other child care support measures because of their income, and that will shatter the principle of universality that my hon. Friend Grahame M. Morris mentioned.

The Opposition will listen to the debate on clause 35, but we might oppose it. However, there are important points to be examined and answered in detail today. First, how do we use the resource? Secondly, how do we implement the policy? Thirdly, will the Minister answer the challenges made by external bodies about the operation of the clause in practice?

Photo of Grahame Morris Grahame Morris Labour, Easington

As my right hon. Friend Mr Hanson has already indicated, clause 35 introduces schedule 8, which contains the provisions for reducing child care relief for higher earners. My understanding is that the latter measure will be dealt with at a later stage upstairs in Committee.

As has been indicated, Labour considered proposing a similar change, but at its heart, it was trebling the number of free child care places available for the most deprived two-year-olds. That is the problem with the Government’s measure. The Labour party considered better ways of targeting support for child care to support both child care and the family throughout its time in government, but it seems that the coalition is taking money away from families completely, without retargeting it at those who are most in need. There is a basic contradiction between Labour’s position and that of the coalition Government. Indeed, the Government’s policies across the board seem to be an attack on families, and other groups in our society. Under their policies, middle-income and working-class families are hit harder than those at the top of society, and their policies do not redirect money into better-targeted child care.

Photo of Geoffrey Robinson Geoffrey Robinson Labour, Coventry North West 3:45 pm, 4th May 2011

Rather than a redirection of money, is this not simply camouflage for a straightforward cut? It is a breach in the universality principle that strikes at the very foundations that hold the nation together.

Photo of Grahame Morris Grahame Morris Labour, Easington

My hon. Friend has hit the nail on the head: there is a fundamental point of principle here. I suspect that there is much more in the clause than is apparent that breaks this principle of universality. The debate on clause 35 concerns not only the immediate measure of removing child care tax relief from higher earners, but the course that the Chancellor is charting against families and the welfare state. On child care tax relief, it is worth remembering that it was John Major, when he was Chancellor in 1990, who first introduced relief for employer-supported child care, and as has been pointed out, that was extended by my right hon. Friend Mr Brown when he was Chancellor. It is right that Labour considered changes to this relief in order to better focus Government support on child care.

The last Labour Government considered tax rate reliefs of this kind. Hon. Members have referred to expert bodies. However, the tax faculty of the Institute of Chartered Accountants argued that it would

“be burdensome, disproportionate and open to manipulation and abuse”,

so it ruled out this tactic of preventing benefit from being paid to higher earners or excluding them from the system. As I mentioned earlier, the real danger of the Chancellor and coalition Government’s tax and benefit policies is that they could push middle Britain out of the welfare state. It is a squeeze on middle England. Taken with the decision to end child tax credits and child benefit for families with a single high-band earner from 2013, it seems to me and Opposition colleagues to be a concerted attack on the fabric of the universality of the welfare state.

In the light of the rhetoric that surrounded the measure, and given that it appeared that the Government were intent on making immediate cuts, it came as a surprise to me and other Opposition Members that when it was announced, it was delayed until as late as 2013. That was a surprise because it seemed to be an attack on a core vote area of the Conservative party—perhaps it is no longer such a core vote area. It was a further surprise that a party that in opposition had consistently called for tax cuts for married couples seemed in government to want to attack them as soon as they had children. At the time—I believe it remains the case today—there was considerable concern that this policy was ill-thought-out, and that it was a party political stunt from a Conservative party and a coalition Government still finding their feet.

Photo of John Cryer John Cryer Labour, Leyton and Wanstead

Does my hon. Friend agree—this is in line with the intervention from my hon. Friend Mr Robinson—that this badly thought out measure is an attack on the collective ethos of society, which is always dangerous?

Photo of Grahame Morris Grahame Morris Labour, Easington

I am grateful for that point. Others have made it, and I have tried to echo its sentiments. The Government have the opportunity to rethink the implications of this decision, because implementation is not until 2013, so I hope that the Minister will address that point at the close of the debate. I am sure that hon. Members will recall that when the measure was proposed, Labour was engaged in a leadership election. Perhaps it was an attempt to steal the headlines.

However, from representations that I have received from expert groups, individuals and constituents—I am sure that other Members have received similar representations—it seems that the policy has been shown to be ill thought out. Whatever one’s views about middle England—whether it exists, whether it should be protected —it is crystal clear that the policy will disproportionately affect families with a single high earner. As someone who considers himself a socialist and something of a champion of the working classes and those at the lower end of the income spectrum, I think that there is a basic issue in this debate about justice and fairness. For families with a single high earner and perhaps no second earner, there is a clear injustice and anomaly when compared with a family with two high earners, as both families would lose the same amount.

Photo of Julie Hilling Julie Hilling Labour, Bolton West

I wonder whether my hon. Friend has come across people in his constituency, as I have in mine, who are talking about giving up work—contrary to the belief shared on both sides of the Committee that work should pay and that the best thing for families is for parents to be in work—because of the effect of everything that is happening, including losing child care and the other benefits that higher earners receive. Does he share my view that that is clearly not the best thing for families or our society when we are trying to grow our economy again?

Photo of Grahame Morris Grahame Morris Labour, Easington

I am grateful to my hon. Friend: that is a good point well made. There are a number of levels where the Government now have an opportunity to stop, reflect and listen to representations—to steal a phrase from the Health Secretary—about the impact of the policy on the economy. I am sure that that impact was never intended, but it should certainly be taken into account if people now have a perverse incentive not to engage actively in earning a living and making a contribution to society.

Child benefit is a key part of the welfare state, and one that applies the principle of universality to all families in recognition of society’s duty to support not just families, but future generations. I had always assumed that that was a cross-party commitment, irrespective of party political allegiance. However, by taking away £1,000 in child benefit and child tax credits from families earning just over £40,000, the coalition Government are damaging our system of welfare for the future. We know—or at least we suspect—that the measure is more to do with trying to undermine the strong support of middle England and the middle classes for the welfare state. We on the Opposition Benches suspect that the purpose of the measure is to move British politics in a new direction. My concern is that an Americanised system of low taxation with a basic safety net to catch those at the very bottom would be a move in the wrong direction.

Photo of Nigel Evans Nigel Evans Deputy Speaker (First Deputy Chairman of Ways and Means)

Order. This is becoming more of a general debate about the welfare state, which is clearly not what is dealt with in clause 35, which is actually quite specific. I have given a lot of latitude up to now, but we must now focus on clause 35.

Photo of Grahame Morris Grahame Morris Labour, Easington

Thank you, Mr Evans. I shall try to ensure that we focus on the clause.

Let me quote some figures from the House of Commons Library that give some detail on the implications of the clause. The Library has calculated that some families will be £1,700 a year worse off owing to the Government’s proposed tax and benefit changes. The Chartered Institute of Taxation has warned of the

“considerable increase in the effective tax burden of those on incomes in the £40,000 to 50,000 bracket”,

which the clause deals with. The Chartered Institute of Taxation also said that

“increasing the tax burden on middle-income households while withdrawing tax credits and child benefit from them will result in their being squeezed proportionately more than those on higher incomes”.

In addition to families on more than £40,000 a year losing benefits, as set out in the clause, families will lose £450 a year on average because of the VAT increase. Added to that, child benefit has been frozen for three years, which equates to a real-terms cut of more than £75 this year for a family with three children, and the baby element of the child tax credit, which is worth £545 a year, has been scrapped. Added together, that all amounts to a quite astonishing attack.

The Chancellor’s answer to cutting the deficit has been to shrink growth and cut support for families and the most vulnerable. In my constituency, take-home pay is almost 20% lower than the national average. Young men and women have struggled to raise families in my area, which has been blighted by unemployment for more than three decades. The previous Government not only provided greater financial support for those struggling families; they also invested in schools and communities, and tried to revitalise and diversify the economy and create new jobs. The programme offered by this Government, and particularly the provisions in clause 35, will turn the clock back to the 1980s, not only for Easington and large parts of County Durham and the north-east but for many of the great cities in the north and for many people who aspire to raise themselves up and to progress.

My contention is that the clause breaks with the principle of universality and that that is likely to be followed up with tax cuts as a pre-election sweetener. In that way, the Government are beginning the process of undermining our welfare state, which they appear to have opposed in one form or another since its foundation 60 years ago. The last Labour Government significantly increased income-related support for families through tax credits, and they also systematically increased child benefit and maintained their commitment to progressive universalism. The Chancellor has frozen child benefit for three years, ditched progressive universalism and hiked up VAT—

Photo of Nigel Evans Nigel Evans Deputy Speaker (First Deputy Chairman of Ways and Means)

Order. The hon. Gentleman is now going much wider than clause 35. Does he wish to resume?

Photo of Grahame Morris Grahame Morris Labour, Easington

Yes, I will try to bring my remarks back to the clause.

I am fully aware that the amendment that was tabled in the name of my hon. Friends on the Front Bench was not selected—[ Interruption. ] We shall not be able to talk about it in the debate. Getting back to clause 35, we would require the Government to look at how their policies of tax and spend are affecting families right across Britain—

Photo of Grahame Morris Grahame Morris Labour, Easington

I will happily give way to my hon. Friend.

Photo of Diane Abbott Diane Abbott Shadow Minister (Public Health)

Does my hon. Friend agree that all Labour Members have read the clause and that it is precisely because we have read it that we are so opposed to it? It is also important, in giving our opposition its full flavour, that we put it in context.

Photo of Grahame Morris Grahame Morris Labour, Easington

I am grateful for that intervention. My hon. Friend makes a reasonable point. All that we are trying to do is give the Government a chance to reflect on a bad decision that has been made in haste, and to look at the impact that these measures will have on families. That is not a revolutionary approach. It seems quite reasonable to me. The Government will have ample opportunity to reflect on these matters, because the provisions will not be implemented until 2013. Were they to do so, I hope that that would provide the impetus for a wide-ranging debate on whether the coalition will push ahead with its policy on child benefit and child tax credits, and on what the implications of that will be for families, for the broader economy and for society.

Photo of Geoffrey Robinson Geoffrey Robinson Labour, Coventry North West

I am conscious of your strictures, Mr Evans, and I am in no way challenging the Chair, but I understand the difficulty that my hon. Friend is having in considering clause 35 on its own. It can be considered only in the wider context of the other measures that together amount to an attack on families by a Government who said that they were going to be the most green-friendly Government ever—never mind the most friendly Government ever. It is the cumulative effect of all those measures that makes those claims so vainglorious and empty. That illustrates the difficulty that my hon. Friend is having, and that I would have if I were to contribute to the debate, although I would try to be a little stricter if I could. We cannot isolate the clause from the whole package of proposals that will compound the effect of this one.

Photo of Nigel Evans Nigel Evans Deputy Speaker (First Deputy Chairman of Ways and Means)

I thank the hon. Member for his advice, which I am not going to take. We are talking very narrowly about clause 35.

Photo of Grahame Morris Grahame Morris Labour, Easington

I am sure you will be pleased to hear, Mr Evans, that I shall conclude my remarks in a few moments.

Photo of David Hanson David Hanson Shadow Minister (Treasury) 4:00 pm, 4th May 2011

Does my hon. Friend accept that the original proposals of the previous Labour Government to increase the number of child care places for two-year-olds in the poorest areas would have benefited Easington, County Durham and many other poor areas in the north of England, as it would have benefited similar parts of constituencies elsewhere? That is why we are focusing on the impact of clause 35 not just on tax relief for higher earners but in respect of what could have been done with the spending.

Photo of Grahame Morris Grahame Morris Labour, Easington

I am glad that my right hon. Friend has taken the opportunity to place that excellent point on the record.

I hope that the Government will take the opportunity to take a breath and reflect further on clause 35 rather than digging into the position announced last October, as the provisions will not be implemented until two years from now. Why does the Chancellor not agree to look again at the effect of his taxation policies? He has an opportunity to do so before 2013. He needs to reflect on the impact of the removal of child care tax relief, child benefit and child tax credits, which, taken together, mark an attack not just on families but on the welfare state as a whole.

Photo of Nigel Evans Nigel Evans Deputy Speaker (First Deputy Chairman of Ways and Means)

I now have to announce the result of the deferred Division on the Budget report and the UK’s convergence programme. The Ayes were 249 and the Noes were 139, so the Ayes have it.

[The Division list is published at the end of today’s debates .]

Photo of Andrew Gwynne Andrew Gwynne Shadow Minister (Transport)

It was not my intention to speak in the clause 35 stand part debate. Having listened to my right hon. Friend Mr Hanson and my hon. Friend Grahame M. Morris, however, I have decided that it is important for me to do so.

As has already been said, the clause introduces schedule 8, which introduces changes to the higher rate taxpayer relief for child care. That was first announced by the Government and, as my right hon. Friend the shadow Minister said, Labour does not oppose it, except for the important point—I bear in mind your earlier strictures on not extending the debate too widely, Mr Evans—that the measure has a wider impact on the Government’s child care policy and how it fits in with the Budget measures.

I have some sympathy with the notion of expanding child care places for two-year-olds. The previous Labour Government made greater provision for early years education, which has been incredibly beneficial to those children. I declare an interest in that all three of my children went through early years education under a Labour Government and, thanks to that Government’s investment, they are doing brilliantly at primary and secondary school.

Photo of Diane Abbott Diane Abbott Shadow Minister (Public Health)

Would my hon. Friend care to share with the Committee the name of the primary school?

Photo of Andrew Gwynne Andrew Gwynne Shadow Minister (Transport)

I am happy to say that all three of my children went to St Anne’s primary school in Denton, where my wife, who is up for election tomorrow, is a chair of the governors. My eldest son goes to Audenshaw high school, which is also in my constituency, and all my children are getting a first-class education in those schools.

Let me return to clause 35, Mr Evans, for fear of being told off by your good self for straying too wide of the issue. The issue, for Labour Members, is this. We support the extra investment in child care for two-year-olds, especially in constituencies such as mine. Denton and Reddish is quite a deprived constituency, which covers five wards in the Tameside metropolitan borough—which is, I believe, the 52nd most deprived local authority in England—and the two Reddish wards in Stockport, which, although Stockport itself is a much more prosperous borough, are the two most deprived wards in the constituency. Investment in early years education has made a big difference to young people in constituencies such as Denton and Reddish. I would particularly welcome extra investment in nursery education in those deprived communities and, indeed, the Labour party proposed to provide it. I am pleased that the present Government are pressing ahead with a change that we proposed when we were in government.

Where we differ is in our approach to targeting. My hon. Friend the Member for Easington made a valid point about that. Although I understand the arguments for targeting as a way of ensuring that communities such as his and mine receive the benefit of extra early years provision, some constituents who are better off than the average in my constituency tell me—and it is difficult to argue against what they say—that they pay considerably higher taxes and pay into a welfare state system, and that they expect to get at least something in return. Those payments are their buy-in to the universal welfare system. I take on board your strictures, Mr Evans, but I also take on board the points made by my hon. Friend.

Photo of John Cryer John Cryer Labour, Leyton and Wanstead

What concerns me about the changes is their incoherent nature. It appears that there have been knee-jerk reactions to save a bit of money here and a bit of money there. I fear that the Tory party may be moving from being, as Disraeli said, the party of organised hypocrisy to being the party of disorganised hypocrisy. For the benefit of Government Members, incidentally, Disraeli was a Prime Minister, and a Tory Prime Minister.

Photo of Andrew Gwynne Andrew Gwynne Shadow Minister (Transport)

I entirely understand what my hon. Friend has said. There is a real inconsistency in the Government’s approach. While I think it commendable to raise additional money to target early years provision, particularly in constituencies such as mine, I also think that the Government’s so-called family-friendly approach is deeply questionable. As I said earlier in an intervention, when the Prime Minister was Leader of the Opposition he made it clear that he would be proud to lead the most family-friendly Government in history. Whether the Government are family-friendly is, of course, a matter for debate and conjecture. I can only say that the constituents who regularly come to my advice bureau seem to have been clobbered time and again by the changes that the Government are implementing, many of which—

The First Deputy Chairman:

Order. The hon. Gentleman is much too wide of the mark again. If he cares to look at page 21 of the Bill, he will see that clause 35 is only 11 words long and is drafted quite precisely. Will he now please focus on the clause?

Photo of Andrew Gwynne Andrew Gwynne Shadow Minister (Transport)

I will do so, Mr Evans, and I take your point precisely.

Photo of Geoffrey Robinson Geoffrey Robinson Labour, Coventry North West

We are not opposing the 11 words per se. [Interruption.] We are not going to vote on them, to my knowledge. The point is that the expansion of child care for two-year-olds is not funded, and that is what the whole of our modification to the existing legislation was intended to do. Does my hon. Friend agree that that is the problem with this legislation?

Photo of Andrew Gwynne Andrew Gwynne Shadow Minister (Transport)

Absolutely. The funding of these measures needs to fit within the wider context, as set out perfectly eloquently by my right hon. Friend Mr Hanson. He was given a certain degree of leeway by the Chairman to put all this in the context of the wider changes that this Government have introduced on family policy.

Clause 35 goes some way towards dealing with the issues raised about tackling child poverty. The clause intends to ensure that extra resource is released for early years provision, and we support that. As I said, we proposed to do that when we were in government and, as my right hon. Friend mentioned, it highlights the real progress that was made on tackling child poverty during the Labour years, as was highlighted in the OECD report. I do not know whether the clause will have any impact on the Government’s ambitions to tackle child poverty, because that remains to be seen, but some of these changes could well start to have an impact. The explanatory notes state:

“Approximately 450,000 parents currently qualify for the relief.”

I am sure that the Treasury stands by that figure, as it produced the explanatory notes. Those 450,000 people will be concerned by these changes and the Government will have to answer the question that they will be asking: what do they get out of the system? If they are to miss out on this relief as a result of the Government’s changes and the extra child care places are targeted, the Government will have to deal with the points that my hon. Friend the Member for Easington was answering on the general principle of universality.

Having said that, it is important that this Government maintain a commitment to early years education. There is a degree of consensus across the House on the benefits of ensuring that children can start their education as young as possible, whether or not that is education through play in the context of early years provision—I think that we probably all agree on that. I note that the

Under-Secretary of State for Education, Tim Loughton, who has responsibility for children, is in his place. During the last general election campaign he visited a Sure Start centre in Horton Green, in my constituency, with the Conservative candidate. He also had his photograph taken outside my house as part of that campaign, and I was pleased that the then Opposition had visited a Sure Start children’s centre in my constituency. That underlined the background motive of the clause, which is to ensure that more resource is put into the early years.

However, as my right hon. Friend the Member for Delyn made clear, people have concerns that this Government are not family-friendly, because what they are giving with one hand, they are taking with another. Many of the measures that they have introduced in this Budget, of which clause 35 is part, are deeply damaging to families.

Photo of David Hanson David Hanson Shadow Minister (Treasury)

As I mentioned in my speech—it is further confirmed by the Institute of Chartered Accountants in England and Wales—the provision in clause 35 is based on an estimate of whether the employer will have earnings that exceed the higher rate limit on a particular payday. That causes some difficulties with fairness because there will be people who work part time, who change circumstances or who are on maternity leave for part of the year and the implementation of this is as potentially worrying as the policy—

Photo of Nigel Evans Nigel Evans Deputy Speaker (First Deputy Chairman of Ways and Means)

Order. The shadow Minister is talking about the schedule, which, as he knows, will be discussed in the Public Bill Committee.

Photo of Andrew Gwynne Andrew Gwynne Shadow Minister (Transport)

Having heard your ruling, Mr Evans, I would not wish to stray on to the issue of the schedule. Suffice it to say that HMRC is often very good at making a complicated system far worse, as we have seen in the past with tax credits. That is straying quite wide of clause 35, however.

Let me bring my comments to a close. The Government’s intentions are good—they want to invest more in early years—but I think they are going about it in the wrong way. Their wider family-oriented policies are deeply flawed and clause 35 fails the fairness test. We need the Government seriously to rethink the range of family policies that they have introduced in the Budget, of which clause 35 plays an important part.

Photo of Diane Abbott Diane Abbott Shadow Minister (Public Health) 4:15 pm, 4th May 2011

I am grateful to have the opportunity to say why clause 35 should not stand part of the Bill. As my hon. Friend Andrew Gwynne said, the fundamental problem with the clause, which in principle at least the outgoing Labour Government were going to promote, is that in its new guise it fails the fairness test. As we go into election season tomorrow and tomorrow night, the fairness of what the Government are doing will be foremost in our electorate’s mind.

Clause 35 deals with higher rate taxpayer relief for child care. In Hackney, I represent one of the most deprived areas of the country but I do have some higher rate taxpayers. It being Hackney, my higher rate taxpayers are people of discernment and intelligence and they are

Labour-voting higher rate taxpayers, but none the less my concern overall is for the most deprived in our community.

When clause 35 is stripped of any pretence of helping low-income families with child care, it is astonishing to see that this Government should so nakedly seek to attack many of their supporters. It is unthinking, chaotic and disorganised and it is not even politically coherent. When we put it in the context, as my right hon. Friend Mr Hanson sought to do, of the other changes in taxes and benefits that will affect middle England—the cuts in the amount that parents can claim for child care, the freezes to child benefit, the changes to the baby element of child tax credit, the freezing of the basic 30-hour element of working tax credit, the changes to the second income threshold for the family element of child tax credits or the withdrawal rates for tax credits—we see a frontal financial assault on middle England, the very people who the Government will look to for support not just in the local elections in 24 hours’ time but as they move forward.

Why are the Government seeking to attack middle England in such a way? Is it because we have a Cabinet of millionaires? Do they not understand what it is to struggle to make ends meet, even on a relatively middling salary in a relatively middling condition of life? Is it ignorance or uncaringness about how the majority of people live? Who knows: there can be no question but that as the totality of the changes to taxes and benefits as well as the job losses in the public sector come to the attention of middle England, it will be hard for those people to understand or believe that the Government have their interests at heart.

Another significant consideration about clause 35 and the suite of changes to child care, family tax and welfare issues is the effect they will have on women. One reason why issues such as tax relief on child care and particularly child benefit remain so emotive in public discourse is that they go back to the original child benefit which some Members might remember was paid to the mother, who had her own child benefit book. For many mothers, that was the only money of their own that they had—that was certainly the case in my family. Even though those payments are now paid through the tax system and to the family as a whole, these are still emotive issues in ordinary families who remember the old child benefit system and remember that the money went to mothers. The reason why it went to mothers was that it was always understood that child benefit was an effective benefit because mothers spent it on their children.

With a Cabinet of millionaires, the Government do not understand how middle England is struggling. They do not understand how people in middle England fear for the future even if, on paper, they have good salaries and good jobs. They do not understand the emotive content of issues such as child benefit and child tax credit to ordinary women in ordinary families. Ordinary women are looking at the totality of the changes that the Government are making and asking, “Do they really understand my life? Do they really understand what it is to pay bills at the end of the month or to juggle a job and child care and to support the rest of my family?” When one looks at clause 35, presented naked, without the commitment that we had to help lower-paid families with child care, the answer seems to be that, no, they do not understand. The Cabinet of millionaires does not know what it is to be in the middle and to feel as though you are just one wage packet away from a really difficult situation.

In the past decade, middle England has been encouraged to over-leverage itself and been facilitated in doing so, and people are now trying to down-leverage by paying off more of their credit cards and trying to bring down their burden of debt. The Government may say that the £1,000 that people will lose because of changes to this tax relief is only a small amount, but for someone who is juggling their salary to pay off debt, worrying about paying their children’s tuition fees as they go through university and also worrying about how to pay for the care of elderly family members, that money will make the difference between their sums adding up or not adding up at the end of the month.

The Government’s lack of understanding of the reality of life for many ordinary British people, even those who are, on paper, so much better off today, such as some of my constituents in Hackney, shines through in the clause and in the thoughtless and heedless way in which the Government have brought the measures forward. They have not sought to balance them with measures that might help the poorest, although that might have helped middle England to understand why the changes are being made. Currently, given the way in which the measures are being introduced, all that middle England can understand is that the Government do not understand what a struggle it is for middle-income families, and even some families in which the sole wage earner is a higher rate taxpayer, to make ends meet. Of course, similar proposals were originally brought forward by Labour, but in a very different context. Clause 35 has been brought forward in the context of a series of other measures that will also have an impact.

Photo of Geoffrey Robinson Geoffrey Robinson Labour, Coventry North West

Not only were the Labour proposals brought forward in a different context, but the Labour Government were going to use the money to extend child care for two-year-olds in the least well-off families. Is not that the whole point? Is it not strange that the Government, who are so concerned about cost-effectiveness and getting the most out of every penny they spend, do not realise that all the studies show that the earlier an intervention is made the more effective it is? By not doing what the Labour Government wanted to do and extending that child care to two-year-olds, they are denying themselves the very basis on which they could have realised that principle.

Photo of Diane Abbott Diane Abbott Shadow Minister (Public Health)

That is an important intervention. This is a Government who know the price of everything and the value of nothing. Had they been willing to continue both halves of our policy—taking away tax relief for higher-income taxpayers and extending child care to two-year-olds for low-income families—in the long run, they would realise a cash benefit. I know from my own constituency that the earlier we can make an impact on people, the earlier we can give families support with properly funded child care, the sooner we can save the state money on education and a range of social issues. As I said, these are people who know the price of everything and the value of nothing.

Clause 35 is the shell of something that the outgoing Labour Government introduced, but it lacks the counterbalancing measures that we were going to introduce. It reflects a Government who do not understand that families are struggling in the current climate, and who do not understand the significance of those tax and welfare arrangements for women. They will pay a price for that lack of understanding in the local elections tomorrow, as middle England looks on the Conservative-led coalition and says, not that this is the most family-friendly Government ever but that this is the most middle-income-family-hostile Conservative-led Government ever.

Photo of Kate Green Kate Green Labour, Stretford and Urmston

I am pleased to speak in this stand part debate. I, too, want to express concerns about the proposals on child care, particularly the intention to change taxation.

It is not the change to taxation in relation to child care with which I wish to take issue but the broader context of funding and provision for child care, and the lost opportunity that the clause represents. Opposition Members accept that in straitened financial circumstances it is appropriate to look at the taxation system and tax breaks for higher earners and better-off families, and that it may be appropriate to rebalance the tax take and those tax breaks. However, we believe very strongly that there are better ways to redistribute—a word that is perhaps more popular among Opposition Members than Government Members—that money for the benefit of families and children and, in relation to clause 35, to achieve adequate child care provision.

Photo of Geoffrey Robinson Geoffrey Robinson Labour, Coventry North West

Did my hon. Friend attend Prime Minister’s questions, given that she said that “redistribute” was a word heard more often among Opposition Members, and redistribution is perhaps a policy more often pursued by the Opposition? The Prime Minister ruled out redistribution almost unilaterally as a means by which we could help—

Photo of Nigel Evans Nigel Evans Deputy Speaker (First Deputy Chairman of Ways and Means)

Order. I listened to the Prime Minister at PMQs, and I did not hear him refer once to clause 35. This is rather specific. I know that Kate Green wants to talk about the broader generalities, but that is not what clause 35 is about; otherwise the debate would be very general indeed.

Photo of Kate Green Kate Green Labour, Stretford and Urmston

I am grateful, Mr Evans. I am mindful of the provisions in clause 35, which is specifically about taxation and tax breaks for child care. This is about redistribution, and I will say in passing—just one sentence, I promise—that I am proud of Labour’s record on redistribution. We do not talk about it as loudly and proudly as we should in my view, but a set of redistributive policies since 1997 took 600,000 children out of poverty.

To return to the meat of the clause, I am proud of the way in which we redistributed spending in favour of families and children, particularly the spending that we directed towards building significantly increased child care provision. That is a significant creation of child care provision. It is not perfect, as a number of families are still not provided for, but by any measure it was a step change in provision and a fundamental change in the child care landscape which resulted from Labour policies over the past 13 years.

This is not a matter of contention across the House. We are all proud of Sure Start. Across the House I see hon. Members welcoming the Sure Start facilities in their local community, filled with admiration for the way they can support young parents and families, and filled with admiration for the way they can be a hub of children’s and family services in the community. It is common ground across the House that Sure Start has been an incredibly valued addition to the landscape of support for families with children. That has assisted and will continue to assist, I hope, with so many of the Government’s goals in relation to social mobility, improving attainment, raising aspiration and so on—a point to which I hope to return in the course of my remarks.

I am also extremely proud of the free nursery provision that we introduced for three and four-year-olds, and pleased that the Government are extending that to two-year-olds. I certainly welcome that extension, but I have not been able to find very much else to welcome in the Government’s investment in child care. That is why I say that clause 35 is a lost opportunity. It would have allowed more funding to be directed to child care provision and to extending child care provision. It is a regret and a shame that that is not happening. As a result, the challenges that we continue to face in providing good quality affordable and accessible child care to all parents and their children who want it have, regrettably, not been met.

Photo of Diane Abbott Diane Abbott Shadow Minister (Public Health) 4:30 pm, 4th May 2011

Does my hon. Friend agree that the failure to grasp the opportunity to redistribute income in favour of child care for some of our more poorly paid families is the more surprising, given that the Tory-led coalition allegedly believes in the big society? What more important anchor of the big society is there than high-quality child care?

Photo of Kate Green Kate Green Labour, Stretford and Urmston

My hon. Friend is right. She highlights another of the Government’s key strategic objectives, an objective that commands great support and interest across the House, but the Government fail to put in the infrastructure and the investment that would enable them to deliver such an objective. Again, that is a matter of regret.

Any parent will say that child care remains an enormous challenge for families, particularly in terms of helping parents to access the labour market, but much more broadly than that. We know that UK parents already pay the highest child care charges of any parents in the OECD. That is probably why in the OECD report just last week on progress on child poverty across the OECD nations, it was specifically identified—

Photo of Nigel Evans Nigel Evans Deputy Speaker (First Deputy Chairman of Ways and Means)

Order. This is turning into a general debate on child poverty and that is not what clause 35 is about. It is about higher earners. I am sure the hon. Lady has read the clause. Will she speak just to clause 35, please?

Photo of Kate Green Kate Green Labour, Stretford and Urmston

I beg your pardon. This was not intended to be a general discourse on child poverty. There was a specific reference in the OECD report to the importance of child care, and it is specifically that element of the report that I feel is relevant to the clause, but I entirely accept that we are discussing the implications particularly of the provision to remove the tax break for higher earners. My point is what do we do with that money. That must be a financial consideration too.

Photo of Geoffrey Robinson Geoffrey Robinson Labour, Coventry North West

Does my hon. Friend agree that a big opportunity is missed to extend more widely the provision of child care for two-year-olds? That is directly relevant to clause 35. In my constituency, for example, there are two child centres that already have facilities in place for that extension, which cannot be funded because the Government have decided not to pursue the policy that we had in mind. That could have been the basis for using those facilities, which now lie idle.

Photo of Kate Green Kate Green Labour, Stretford and Urmston

Indeed, and that does not make good fiscal sense. It cannot be sensible for public money to be invested but then not exploited for the benefit of the community, those families and, indeed, the economy. In the context of this Finance Bill debate, that surely has to be at the heart of our scrutiny of its clauses.

It is also important that we understand just how much is going on to make it even more challenging for parents to afford child care, and therefore why it was all the more important to use the funding that the tax break before us is saving in order to replace some of the funding that is being lost for the provision of child care.

Photo of Nigel Evans Nigel Evans Deputy Speaker (First Deputy Chairman of Ways and Means)

Order. Just to inform the House, I am not going to allow a general debate, either, about what the money could have been spent on. We are talking about the merits, just simply, of clause 35.

Photo of Kate Green Kate Green Labour, Stretford and Urmston

I am grateful.

What is important about the legislation behind clause 35 is that it retained all parents, higher-income parents as well as lower-income parents, in a single integrated child care market. It ensured that all parents received some financial support that helped to create, expand and ensure the quality of that market.

When lots of families participate in a child care market, the market is sustained, secure and improved in terms of what it can offer to families, and that is important for raising the aspirations of families and children, a particularly important strand of the Government’s social mobility strategy. If we are to remove higher-income families from the ambit of the child care market, and Opposition Members all understand why the Government might choose to do so, it is very important indeed that we recognise the potentially deleterious effects on the quality of the child care market for those families who remain within it—those families whom we want to remain within it because of the improvements that it can secure for children’s outcomes. Importantly, therefore, when removing that tax advantage we must be very careful to ensure that we compensate for any damaging effects that its removal might have on the general landscape of child care provision, including its quality and its availability for other families who remain within its ambit.

This is very much a debate in the context of a Finance Bill. It is therefore a debate about what works most effectively for the economic strength of the country, and it is very much a debate about how best we come through the recovery and start to promote the return of the growth that we all hope to see. We have just begun to see it return hesitantly and slowly, but we now want to see it improve.

Photo of Diane Abbott Diane Abbott Shadow Minister (Public Health)

My hon. Friend touches on the fact that this is a debate about clause 35 of the Finance Bill, but it is also about how we as a society get through the current financial crisis. Does she agree that one way we will get through the current financial crisis is by something that clause 35 undermines: social cohesion and the principle of universality? To have the clause without the counter-balancing arrangements of child care for two-year-olds and the lower paid is to undermine the process of social cohesion, which is the only way we will get through the current financial crisis.

Photo of Kate Green Kate Green Labour, Stretford and Urmston

My hon. Friend leads us into really important territory: the issue of universal provision. If we are going to start to eat into that universal approach, for good reasons, we have to be very mindful of and careful about the consequences, so my hon. Friend is right to highlight the consequences for social cohesion, which is a key fundamental of good economic growth.

We are not going to do well as a national economy if we have to compensate all the time for a fractured society, a society of strains and tensions, in which the public pick up the cost all the time in order to remedy the damage that that causes. My hon. Friend is therefore absolutely right to point out that undermining the universal approach has potentially dangerous consequences for our economic performance down the line—[ Interruption. ] I sense that the Chairman fears that I am straying slightly—

The First Deputy Chairman:

Not slightly!

Photo of Kate Green Kate Green Labour, Stretford and Urmston

Not slightly—straying from the ambit of clause 35.

My hon. Friend’s point is correct: fundamentally, the clause removes a universal approach, an approach that keeps everyone in the context of the child care market and the wider social community. That is a really important point.

It is also important to recognise that we are talking about developing children’s long-term economic potential. I do not like to think of our children as future economic actors—I like to think of them enjoying and making the most of their childhood now—but they are the next generation of providers and sustainers of our economy and community care for us in our old age. Removing this financial support from some families and not placing it in the child care market means that some children will be more likely to lose the advantages that good-quality, professional, formal child care can bring.

Photo of Andrew Gwynne Andrew Gwynne Shadow Minister (Transport)

My hon. Friend is adding great expertise to the debate with her background in this area of policy. Although clause 35 was a mechanism that was suggested by the previous Labour Government, is not the difference between our approach and that of the Government that we would have invested the money raised back into child care provision?

The First Deputy Chairman:

Order. I am not going to allow any further discussion as to what the money could have been spent on. This debate is simply about clause 35.

I know that the hon. Lady has expertise in this matter, so I ask her to restrict herself to clause 35, which relates to higher earners’ child care.

Photo of Kate Green Kate Green Labour, Stretford and Urmston

I am grateful, Mr Evans. I was mindful of your earlier injunction not to stray into a discussion of what the money be spent on, and I do not intend to do that.

Photo of Kate Green Kate Green Labour, Stretford and Urmston

In a moment.

I should like to talk about what this provision will mean in terms of the number of children likely to access good-quality child care provision in future. The knock-on effect of clause 35 will be that not only the children of the families from whom this tax break has now been removed will be affected, but so too will the increased number of children who will fall out of the ambit of affordable, good-quality child care. I say that not only because of the importance of a universal market that tends to raise quality and aspirations but because starting to chip away at the money that is flowing into this market, which will inevitably happen, means that some parents who are currently able to afford to access the formal child care market will decide not to do so.

As money starts to be withdrawn from the market, provision generally will start to be reduced, and in turn other parents will find it more difficult to access it, whether or not they have financial support from other measures such as the child care element of the working tax credit to enable them to do so. Then we will be in a downward spiral. By removing funding at the top but not putting it back elsewhere, we start to shrink the child care market, and the more it shrinks the more it continues to shrink. The problem with this market, as we have seen again and again, is the insufficiency and unpredictability of provision, and those elements will be put under further pressure because there will be less money to sustain the market even at the current levels.

I am conscious that a couple of my hon. Friends wanted to intervene, and I do not want to deprive them of the opportunity to add their comments if they would still like to do so.

Photo of Diane Abbott Diane Abbott Shadow Minister (Public Health)

I have listened with great interest to what my hon. Friend has said about the effect of clause 35 on the child care market, which is very germane to the discussion. We heard from the Chancellor of the Exchequer many months ago that we were all in this together. What message does clause 35 send to people? It says to higher income tax payers that they are not in it with everybody else, and it says the same to the very poorest families with two-year-olds who will not get the improvement in child care that we would have promised them. That is a very divisive, non-communitarian message.

Photo of Kate Green Kate Green Labour, Stretford and Urmston

My hon. Friend is right. We are beginning to say that child care is only for some children, not for all children. Yet we know that it is universal, mixed child care settings that produce the best outcomes for the most disadvantaged children. It is key to social mobility and to raising aspiration that children engage with other children in mixed child care and educational settings. The clause will make further inroads into that approach.

Photo of David Hanson David Hanson Shadow Minister (Treasury) 4:45 pm, 4th May 2011

Does my hon. Friend agree that the context in which the Labour Government decided to restrict the tax relief on child care for higher earners, as under clause 35, did not include the proposal to freeze and then cut child benefit for higher rate taxpayers? The context is therefore entirely different, even though some of the objectives in clause 35 are similar to those of the previous Government.

Photo of Kate Green Kate Green Labour, Stretford and Urmston

My right hon. Friend is right. Family budgets are under pressure, including the family budgets of higher-income families. They are under pressure from the serious and regrettable attack on the universal principle. The means-testing of child benefit at the top will put those families under financial pressure. We know, too, that families are facing higher living costs. We have talked in other debates about the rise in living costs, through VAT, fuel prices, food prices and so on. Families that are suffering the loss of a tax break for their child care costs are also seeing other costs going up.

Child care costs themselves will continue to rise. I cannot recall one year since the Daycare Trust began its annual survey of child care costs when they came down. It is highly likely that they will continue on an upward trajectory, and on a dramatic upward trajectory in some parts of the country. That is certainly the case in London, as it has been for a number of years.

Photo of David Hanson David Hanson Shadow Minister (Treasury)

Is my hon. Friend aware of any consultation that has taken place since the previous Government’s proposals on the restrictions in clause 35? The landscape has changed since the original discussions. Does she think that there should be wider consultation on this matter?

Photo of Kate Green Kate Green Labour, Stretford and Urmston

Of course, my right hon. Friend proposed a full review of the overall impact of the Government’s provisions on child care. Naturally, a full review would be informed by the fullest possible input from experts in the field, including child care professionals and providers, families and even children and young people. I certainly am not aware of any such consultation or discussion.

It would have been very useful if the Government had carried out such a consultation, because they would have begun to understand the impact of this provision not just on individual families but on the child care market. The impact of clause 35 on the child care market is just as important an issue because of the wide social and economic consequences that it will have for the Government. I am confident that a proper consultation at this point, taking account of the economic context and the other financial measures brought forward by the Government in the emergency Budget, the spending review and this year’s Budget, would produce useful input from experts and families on the pressures and stresses that would be faced, and on the consequences they would have, not least on the propensity to take, extend or remain in paid work. I think we can all agree that paid work will be key in getting our country out of recession, and into recovery and economic growth.

Photo of Geoffrey Robinson Geoffrey Robinson Labour, Coventry North West

Listening to my hon. Friend, it is clear that she has an in-depth knowledge of this sector and of how child care can most effectively and cost-effectively be used. Reflecting on her experience, does she see any economic rationale or moral principle underlying the idea inherent in clause 35 that if only one parent is working and is in the higher rate tax bracket, they are not eligible for child care, but if two parents are working, they are? That seems to be a perverse incentive. All it will do—this is why some Labour Members had reservations about our Government’s policy, which led to clause 35 —is to put higher rate taxpayers in the same position with child care as they choose to be with comprehensive schools, whereby they do not bring their middle-class, extreme commitment to them. We will force them out of the national provision of child care and create social division as opposed to greater social cohesion.

Photo of Kate Green Kate Green Labour, Stretford and Urmston

I am confused by the Government’s direction of travel, specifically on the clause and on its interaction with their other choices about financially supporting parents to make or not to make decisions about child care, such as whether both parents in a couple go to work or whether one parent stays at home to care for the children—the Government’s preferred model that we seem to see in the development of universal credit and the different treatment of lone parents and parents in couple households, as well as in the differential support that the Government want to provide for child care that is targeted at the most vulnerable people. We might say that clause 35 is part of that package.

The Government have welcomed the work of my right hon. Friend Mr Field, who suggested that bringing all children within the ambit of Sure Start, for example, is good for communities, families and children, so I am also confused about the philosophical direction of travel that the Government are taking in relation to child care. Indeed, I am forced to conclude that there is no philosophical direction of travel. There is entirely opportunistic fiscal decision making—grab a bit of money here, take a bit of money there, forget those families over there—that might save the Government some money in the short term, but it will be absolutely disastrous in the long term for our economic future and for children’s outcomes.

Photo of Grahame Morris Grahame Morris Labour, Easington

I wonder about the specific impact of clause 35 on bankruptcy and personal insolvency, given the loss of tax credits for middle-income families who will be faced with quite considerable personal burdens. That is part of the transfer of debt from the state to the individuals in low-income families, as highlighted by my hon. Friend and by my hon. Friend Stella Creasy. The Insolvency Practitioners Association highlights the rapid increase in the number of personal insolvencies and bankruptcies, and perhaps the increasing cost of child care will be a factor—

Photo of Nigel Evans Nigel Evans Deputy Speaker (First Deputy Chairman of Ways and Means)

Order. Interventions must, by definition, be short. That was wide of the mark and does not need a response.

Photo of Kate Green Kate Green Labour, Stretford and Urmston

We are aware of the difficulty in planning the paying for child care. Parents are often required to pay a lump sum at the beginning of term or for a group of sessions. They are often required to pay for sessions that they subsequently cannot use for various reasons, but there is no money-back guarantee. Parents will often pay for sessions for more than one child, but there is no financial advantage to them; there is regrettably no bulk discount when buying child care.

Removing money from parents that they could have used to meet some of the burden and the lumpiness in the structure of the way that child care charges are often levied will be a real financial burden on family budgets. Some families will take on debt to meet those commitments, because parents will always try to put their children’s best interests first. If they are happy with their current child care setting, they will do all that they can to keep their child in that stable child care place.

Even if parents are worried that they might be unable to afford that place because of the loss of the tax advantage but can see a time coming when they could resume paying for that place, they will none the less not want to give up that child care place. If they think that they can afford the place again in six or 12 months’ time because their economic prospects might improve, they will stagger on through those six or 12 months, desperate to keep their child in that child care place for two reasons. First, they know that child care places are like gold dust and that, if they give one up, they might not get one back again very easily. That is certainly the case in some parts of the country. Secondly, they know that it will be good for the child. If a child is thriving, doing well and prospering in a settled, high-quality child care place, a parent will make all sorts of sacrifices elsewhere to sustain that child in that place.

Photo of Andrew Gwynne Andrew Gwynne Shadow Minister (Transport)

My hon. Friend has hit the nail on the head. Is not the underlying impact of clause 35 that the Government know that, although the allowance will be taken away from higher-rate taxpayers, many of those parents will still fund those places and make sacrifices elsewhere in their family budgets?

Photo of Kate Green Kate Green Labour, Stretford and Urmston

That is right. There is plenty of evidence that parents, especially women, will always make financial sacrifices for their children’s well-being. We should be concerned by the fact that families will have to stagger under considerable financial pressure for the best of reasons—to keep their children in good-quality child care places. They know that that will help their children’s well-being, because they will be happy and enjoy their child care setting and the friendships and relationships that they make there. Let us not underestimate the importance of social interaction in child development, and good-quality child care can offer that.

Parents will do everything they possibly can in the interests of their child’s well-being and happiness. They will do everything to hold on to a good-quality child care place, even if they find themselves under financial pressure, possibly for a prolonged period. That has a knock-on effect elsewhere in the family budget, which might lead to the problems of debt, financial difficulty and stress that my hon. Friends have mentioned.

Financial stress among parents tends to feed back into children’s well-being, and children become aware of it in the household. They are aware of tensions and anxieties in their parents’ attitudes and behaviour. We have to understand how central good-quality, sustainable and stable child care is to children’s much wider well-being.

That is why it is of concern that funding for that child care provision is being eaten away at by the provisions of clause 35.

There are opportunities to compensate for what is happening within the market. I particularly highlight the need to ensure that we maintain a supply of well-qualified child care workers, because pressures elsewhere in the public finances may mean that we see fewer good-quality child care workers coming through from training. Indeed, the loss of education maintenance allowance may have an impact on that. There are real concerns among parents about the nibbling away at the different pillars of the child care market.

When we ask parents what they worry about in balancing the family budget, they repeatedly highlight the high cost of good-quality child care. They do not want to buy poor-quality child care if it is at all possible to avoid it, because they are mindful of the value of getting their child into a high-quality, professionally run child care setting with excellent developmental and social activity, which the children can enjoy and in which they can flourish. Parents know that quality costs, and they do not want to compromise or cut corners when it comes to their children’s well-being, so they want to spend all they can on quality care.

Photo of Geoffrey Robinson Geoffrey Robinson Labour, Coventry North West

Does my hon. Friend agree that one of the encouraging things that took place under the previous Government was that the quality aspect of Sure Start and child care provision was emphasised right from the beginning? Expansion was not allowed to go unchecked—it could only follow the existence of quality. That high quality has, on the whole, been maintained, but of course it is now under threat from the cuts.

Photo of Kate Green Kate Green Labour, Stretford and Urmston

We are worried about whether the quality of child care will be maintained as less funding becomes available in the child care market. Achieving quality is partly about ensuring that children from mixed backgrounds—

Photo of William McCrea William McCrea Shadow Spokesperson (Justice), Shadow DUP Spokesperson (Home Affairs), Shadow DUP Leader of the House of Commons

Order. The hon. Lady is aware that Mr Evans has drawn her attention to the narrow nature of the clause. I am sure that she would like to get back to the clause as soon as possible.

Photo of Kate Green Kate Green Labour, Stretford and Urmston

Of course, Dr McCrea. I was simply going to make the point that quality is partly about diversity and about children from a range of backgrounds and settings being able to meet, play and learn together. One of the consequences of clause 35 is that we will see less of that.

There are a lot of stresses and pressures on the financial support for the child care market, and they will also be felt in families as parents struggle to pay what is typically a very substantial proportion of their regular monthly outgoings. Child care takes a big bite out of the family budget. I am sure all hon. Members are familiar with parents who say, “It’s almost not worth my while going back to work by the time I’ve paid my child care costs,” but those parents want to go back to work, because they recognise that that is in their long-term interest and that of their children. It is also important to our national economy that parents continue in the workplace.

Parents accept that a substantial chunk of the gain from earnings could go towards meeting their child care costs. It is none the less incumbent on us to do all we can to mitigate the effects of meeting those high child care costs by ensuring that we put as much public funding into child care provision as we possibly can. I am therefore very concerned that the single effect of the clause is to take public money out of child care provision. Obviously, that will have many, widespread and damaging effects on the child care market, but in due course, it will also have those effects on children’s well-being, and ultimately on economic growth.

The Government have taken a decision of the previous Labour Government—a decision that was taken with regret and reluctantly, but none the less necessarily in the current economic context—to remove a tax break from some families. However, I very much regret that the current Government have not redeployed that financial gain elsewhere into a marketplace that is essential to our future economic growth and to our children’s well-being, both during their childhood and right through to adult life.

Frankly, I am shocked that we can be so casual about sustaining hard-fought for, hard-won public investment in child care. It took my hon. Friends a long time—certainly all of my adult lifetime—to give child care any credibility in the public finances. I pay tribute to my right hon. and learned Friend Ms Harman, who did an enormous amount of work on that, going back to the 1980s. It is greatly disappointing that the gains that took 20, 25 and 30 years to make are being unwound so quickly, in a matter of months.

That is why I cannot support clause 35, or indeed any other aspect of the Bill, and why my right hon. and hon. Friends will fight hard to reinstate funding to the child care market at the level that we got it to. I am grateful for the opportunity to come to the Committee today to speak up for our children.

Photo of David Gauke David Gauke The Exchequer Secretary 5:00 pm, 4th May 2011

Clause 35 makes changes to ensure that all recipients of employer-supported child care who joined schemes on or after 6 April 2011 receive the same amount of income tax relief as basic rate taxpayers. After all the talk about the attack on universality, it is worth pointing out that clause 35 ensures that everyone receives the same amount of income tax relief as basic rate taxpayers.

Reform of this provision was announced in 2009 by the previous Government. One might therefore have expected the Labour party to support the measure. When Mr Hanson spoke, it seemed likely that they would do so, but then we heard clearly and unambiguously from Ms Abbott that she would oppose it—of course, she is a Front Bencher and a leading light within the Labour party, and she very nearly became its leader. Grahame M. Morris, in a lengthy speech, condemned the measure, although he may in fact have been talking about another measure altogether, and Andrew Gwynne, in an important speech—his word, not mine—also set out his opposition.

It is striking that the Opposition are now walking away from a proposal of the right hon. and absent

Member for Kirkcaldy and Cowdenbeath (Mr Brown) and a policy of the previous Government, just as they walk away from any attempts at economic credibility.

Photo of David Gauke David Gauke The Exchequer Secretary

I shall give way first to the hon. Lady.

Photo of Diane Abbott Diane Abbott Shadow Minister (Public Health)

For the record, I am the hon. Member for Hackney North and Stoke Newington, not for Shoreditch, and I came this close to being leader of the Labour party. [Laughter.] Yes, this close! Perhaps the alternative vote system would have done it for me—who knows!

Of course we supported the proposal made by the outgoing Labour Government, but as we have said throughout this important and illuminating debate, we did so only in combination with the redistributive measures in relation to child care for two-year-olds.

Photo of David Gauke David Gauke The Exchequer Secretary

I look forward to seeing how Hansard transcribes, “this close”. I should point out, however, that the hon. Lady did stand under AV, and her votes probably contributed to the final result, so she can be pleased with that—we certainly are.

Photo of David Hanson David Hanson Shadow Minister (Treasury)

I want to make it clear to the Minister that I have said from the Dispatch Box that this measure had the support of the previous Labour Government, but it had that support on the basis, first, that through the funds saved it would provide child care places to the poorest in our community, and, secondly, that there would be no cuts to, or freezing of, child benefits. That support was also given in the context of the other measures that my hon. Friends have outlined today. There is a difference.

Photo of David Gauke David Gauke The Exchequer Secretary

That is very clear, and I am grateful for that intervention. Clause 35 will result in a saving to the taxpayer of £100 million per year, because higher and additional rate taxpayers will no longer receive beneficial treatment. That target would not be met if the clause was defeated. The Opposition’s position is therefore very clear: they would spend this money on child care. That is an additional spending commitment that we will add to their considerable total of spending commitments. I understand that all additional spending commitments from the Labour party have to be cleared by the shadow Chancellor and the Leader of the Opposition, so I am sure that they have gone through that process. However, we note that additional spending commitment. We believe that we need to get the deficit down. I am sorry that the Labour party does not accept that, or at least does not have proposals to do it. We note also that even in this time of financial crisis in the public finances, it is making additional spending commitments.

Photo of Kate Green Kate Green Labour, Stretford and Urmston

It is not an additional spending commitment; it is a commitment to moving spending from one group of families to elsewhere in the child care market. However, will the Minister tell us what assessment he has made of the long-term economic impact of moving parents out of the workplace because of this cut?

Photo of David Gauke David Gauke The Exchequer Secretary

Because of the crisis in the public finances that we inherited, we have taken a range of measures to provide credibility and to get our deficit down. That is what the country needs, and I am sorry that the Labour party is not willing or able to engage sensibly in that debate.

Employer-supported child care allows participating employers to offer their employees support with their child care costs. The latest HMRC modelling suggests that about 450,000 parents are members of ESC schemes, and that about 40% of them are higher or additional rate taxpayers. This support is offered through tax relief and the associated national insurance contributions disregard, with employers able to offer their employees up to £55 per week, free of income tax and NICs. Most employers offer this support through child care vouchers delivered either by salary sacrifice or flexible remuneration arrangements. Such arrangements can also benefit employers, because they, too, make NIC savings. At present, basic rate taxpayers can receive up to £900 of support a year through ESC, whereas higher rate taxpayers can receive up to £1,200 of support a year.

Photo of Geoffrey Robinson Geoffrey Robinson Labour, Coventry North West

What is the economic rationale or moral principle underlying the distinction the Government are still making, I think, between families with a single higher rate taxpayer and families in which the mother and father are both higher rate taxpayers? It does not seem to make any sense, moral or economic.

Photo of David Gauke David Gauke The Exchequer Secretary

In part, the hon. Gentleman is trying to draw me into the debate on child benefit, but I have no intention of straying off the subject, Dr McCrea. I am sure that you would not want me to. I should also point out that the previous Government’s original proposal was to abolish employer-supported child care altogether. I would be interested to know what the moral principles were at that point.

The clause introduces schedule 8, which makes changes to ensure that from April this year, all recipients of employer-supported child care will receive the same amount of income tax relief as basic rate taxpayers. Although we are very much in favour of employers helping their employees share the cost of child care, it is neither progressive nor well targeted for wealthier households to derive more benefit than those on lower incomes, and I am rather surprised that Opposition Members should advocate that. All parents who join ESC schemes on or after 6 April 2011 will now receive the same amount of income tax relief as basic rate taxpayers. That is achieved by limiting the amount that higher rate taxpayers and additional rate taxpayers can receive each week to £28 and £22 respectively, so that all parents receive the same amount of income tax relief support each week—about £11. To avoid the measure having a retroactive effect, all existing members who joined a scheme before April 2011 will be able to retain their current rates of tax relief. I assure the Committee that the change will not affect the tax and NICs relief available for workplace nurseries.

We understand how valuable the support is to working parents. However, it is simply not fair that wealthier parents should be able to receive up to £300 more support for their child care costs than basic rate taxpayers. The changes that we are making to employer-supported child care are needed to make the benefit fairer, better targeted and more progressive, and I commend the clause to the Committee.

Photo of David Hanson David Hanson Shadow Minister (Treasury)

I am sure that we will be drawing to a conclusion shortly, but I want first to place on record my thanks to my hon. Friends the Members for Easington (Grahame M. Morris), for Hackney North and Stoke Newington (Ms Abbott), for Denton and Reddish (Andrew Gwynne), for Coventry North West (Mr Robinson), for Stretford and Urmston (Kate Green) and for Leyton and Wanstead (John Cryer) for their contributions. They have highlighted the concerns that we have expressed by asking for the clause to be debated today. Those concerns were summarised in the points that we made at the beginning. The Minister has not really answered those points to our satisfaction, although I will not press the clause to a vote today, because as I have said to him, whatever—[ Interruption. ] I am grateful to the Under-Secretary of State for Education for his contribution. It is good to see him here. Perhaps he would like to answer the questions that the Minister has not answered about why this Conservative Government have refused to invest those resources in child care provision for the poorest in our community, as the previous Labour Government planned to do.

The key question in this debate is about that very issue. When the Labour Government originally produced clause 35-type proposals, we were investing those resources in helping poorer families with child care, at a time when wider considerations about child tax credits, child benefits and the pressures of family life were not on the agenda, as my hon. Friends said. Clause 35 ties down an anomaly, which the official Opposition think is the right thing to do in the current circumstances—not as a spending commitment, but as a supportive measure for the Minister—just as we believed it was right in previous circumstances. The previous Labour Government’s financial commitments and budgeting planned for that investment to be used to support wider child care. This Government have reneged on that promise.

We will look in detail at schedule 8, which clause—[ Interruption. ] [Hon. Members: “Clause 35.”] I am sorry, Dr McCrea, it has been a long 24 hours. Clause 35 brings schedule 8 into effect. When we reach schedule 8, we will make a decision on whether to support the proposals put forward by the Minister today. With those few comments, I thank my hon. Friends for raising important issues about the impact of the measure on already hard-pressed families. I will allow the Minister the opportunity today to have his clause without a Division, but we will return to schedule 8 in due course.

Question put and agreed to.

Clause 35 accordingly ordered to stand part of the Bill.

The Deputy Speaker resumed the Chair.

Bill (Clauses 4, 7, 10, 19, 35 and 72), as amended, reported, and ordered to lie on the Table.