With this it will be convenient to discuss the following:
Amendment 25, page 134, line 2, leave out schedule 1.
Amendment 21, in schedule 1, page 138, line 10, leave out
‘in relation to the payments’ and insert
‘equal to 100 per cent of any amounts in relation to which one or both of conditions A and B are met under section 681B of ITEPA 2003’.
Amendment 22, in schedule 1, page 139, line 10, leave out
‘in relation to the payments’ and insert
‘equal to 100 per cent of any amounts in relation to which one or both of conditions A and B are met under section 681B of ITEPA 2003’.
It is a pleasure to open the debate on these important amendments. I intend to pursue a theme that emerged earlier this evening—that of fairness to children, families and people who are feeling the squeeze as a result of the Government’s current policies—and also to discuss feedback from people who are concerned about the practicalities of the Government’s proposals on child benefit for higher-rate taxpayers, along with points that were raised by Members during that part of the Committee stage that took place on the Floor of the House.
When I spoke about this issue in Committee, I reminded Members that child benefit involved a number of important principles, not least the principle of universality, which Labour of course supports. Because I spoke at some length on that occasion, I do not intend to rehearse all the arguments again now, but I think it worth repeating that child benefit is supposed to benefit—literally—children and families. That fact has been lost at various points, but I hope that we shall be able to keep it in our minds tonight as we consider what the Government are proposing.
As I pointed out in the earlier debate, child benefit was designed to ensure that mothers—at that time, specifically mothers—had money paid into their purses regularly, so that they had a stable income that could be used for their families.
Does the hon. Lady agree that child benefit as we have traditionally understood it has had one great advantage, in that not only does it recognise the role of women in bringing up children, but its universality has ensured that there is virtually no fraud or error, and nor does it in any way add to the unemployment or poverty trap?
I thank the hon. Gentleman for making that point. It is important to understand that the fact that this was a universal benefit ensured that everyone who ought to have had it and who needed it was able to get it. When we debated this topic in the House previously, some Members tried to characterise our concerns about these proposals as Labour trying to protect a universal benefit paid to high earners, rather than looking at the overall principled position, and some may try to do so again this evening. I should repeat what I said both earlier this evening and in that earlier debate: that kind of argument does not wash at all in terms of fairness from a Government who have given a tax cut to millionaires while millions of ordinary families are feeling the pinch.
During the earlier debate, I also reminded Members of article 27 of the United Nations convention on the rights of the child, which the UK has signed up to. It outlines the obligations on states to assist parents to meet the needs of their children, and I pointed out that a number of organisations—as well as a number of Members—had highlighted the importance of those obligations. Sadly, that exhortation to make this debate about fairness to children and families seems to have gone largely unheeded, apart from some honourable exceptions. There have been Westminster Hall debates looking at this issue in more detail, in which a number of Members highlighted both the unfairness of the proposals and their practical difficulties.
Well, there were some robust exchanges on that issue in previous debates. If the hon. Gentleman feels that is a difficult point, I cannot understand why he does not also feel that it is unfair that people on the very top earnings—those earning millions of pounds each year—are to get a tax cut of £40,000 per year, instead of focusing on the needs of children. I find that extremely odd, and I shall say a little more about the unfairness of the proposals later.
Does my hon. Friend agree that Gordon Birtwistle is mistaken? We are not talking about redistribution from poorer to richer people. When child benefit was introduced, it took over the function of child tax allowances. Its purpose was to maintain tax equity. That is why there was the element of free income regardless of whether people were on £8,000 a year or £80,000 a year. It made a distinction between those who were responsible for children at any given level of income, and those who were not.
I thank my right hon. Friend for that intervention, which explains the history extremely well. That is why I have focused so much on reminding us that this is supposed to be about children and doing the right thing by people who have the responsibility for caring for them, whether parents, or grandparents or other family members who may be entitled to claim the benefits. I hope to have enough time to be able to say a few words about that towards the end of my contribution.
The Government did revise the original proposal, but that revision has not gone far enough to deal with the inherent unfairness. The revised proposal will affect about 1.2 million families, of whom it is estimated that some 70%—790,000 couples and 30,000 lone parents in 2013-14—will lose the full amount of their child benefit. A further 330,000 couples and 20,000 lone parents affected by the charge in 2013-14 will lose a proportion of their child benefit. The average loss for those who are going to lose out is estimated at about £1,300 a year. In a previous debate, I highlighted the difficulty for families who are going to lose about £500 a year because of other changes that have been made. That £1,300 is a very significant amount for anyone caring for children in today’s economic climate.
Of course my hon. Friend is absolutely right about the unfairness of this proposal. We hear statements from the Government about the complexity of the tax system, so does she not find it surprising that they have come up with a proposal that increases complexity in the taxation system, as well as unfairness?
Again, my hon. Friend makes a valid point, and I shall deal with it in detail in a moment or two. Strangely, given everything else that the Government have supposedly wrapped up to try to make anomalies disappear, we know that sometimes even more anomalies have been created as well as unfairness. In trying to simplify things, they have actually made them more complicated.
In the Committee of the whole House, I raised issues about the principle and about the costs. It is important to have those firmly stated on the record, because the Government have estimated that the additional cost to Her Majesty’s Revenue and Customs over the first five years will between £8 million and £13 million for the computer system—the development and running costs—about £100 million for staff resources and £5 million for customer information. I asked the Minister in that debate for some further information on that. Some further parliamentary questions since then elicited more information, particularly on how much would be spent on marketing the new system. However, having looked at all this again in great detail, I must say that in my opinion and in that of Labour Members, it is not marketing that is needed at this point in time to make a bad policy and an incoherent change to the taxation system palatable to people, but a change of policy to make sure that whatever is done is fair and workable, and will not cause any further problems.
Despite exhortations from Government Members for further changes, those with incomes above £50,000 will have their child benefit withdrawn at 1% for each £100 of income from January 2013. That means that there will be no child benefit entitlement for families where any earner has an income of more than £60,000. As I said in Committee, although the changes that the Government have made are a small step forward, they do not deal with that inherent and fundamental unfairness. That is because they still leave the scenario where a couple with children where one earner is on £60,000 and the other is on £10,000 lose all their benefit, whereas a dual-earner couple on £49,000 each keeps it all. We still do not see how that is fair.
It is not just Labour Members who are saying that there is a problem. Irrespective of someone’s views on whether this is a fair system or whether they support the principle of what the Government are trying to do, which I do not, there remain a number of issues that others have raised. These points will not be new to the Minister, but I am outlining them once again because they have not been adequately addressed during the consideration of the Bill. The most recent information that has come from the Institute of Chartered Accountants in England and Wales makes things clear. It states:
“While this Bill makes some steps in the direction of tax simplification, many of the measures introduce yet more complexity and taken overall the Bill does little to simplify the UK’s complicated tax system. The child benefit reforms…create considerable cost, confusion and complexity.”
It is also concerned about the Bill in general and states that
“the valuable lessons in drafting style produced by the Tax Law Rewrite project have been lost.”
I mentioned that earlier in our consideration of the Bill. As so much of the Bill is made up of complicated schedules and guidance and as it is the longest finance Bill ever, we must question whether we have had the opportunity to carry out all of the scrutiny, even though we did our best in Committee.
People who have to operate the provisions are concerned that they might need to be amended in the light of experience to ensure that they all work properly together and do not end up having further unintended consequences. Essentially, we are using the amendments to ask for clause 8 and schedule 1 to be withdrawn because we believe that the changes are flawed and unfair. That has also been pointed out by the ICAEW, which was straightforward and blunt in its language, stating that there could be a “reputational and operational disaster” for the Government and for HMRC. Those criticisms were largely reported and we have had the opportunity to listen to them in our debates.
We share the ICAEW’s disappointment that the Government have not tabled more workable proposals in time for our final consideration of the Bill. I would hope that even at this stage the Government will at least be able to give us some answers to the criticisms that have been raised or to accept that their plan is not only unfair but risks being unworkable.
The criticisms highlight the fact that
“the phased withdrawal for those earning between £50-60,0000 will be difficult to implement, open to error and potentially costly for HMRC to administer and for taxpayers to comply with.”
As those critics have said:
“The trouble is that an income tax system based on taxation of individuals, does not work properly if it has to cope with benefits that apply to a household” such as tax credits
“or potentially to another person” such as child benefit. The real concern is that:
“The phased withdrawal will not work well with the PAYE system.”
A considerable amount of concern has been expressed that the
“‘sliding scale’ approach to tapering down the benefit makes the system much more complicated.”
It has been described as “perverse” that such an approach is being removed for higher personal tax allowances for those aged over 65 on the grounds that this will help to simplify the system at the same time as a form of it is being re-introduced for the withdrawal of child benefit. That does not seem to be a consistent policy approach.
A further criticism is that the implementation timing is odd, with a start date of January 2013 that does not align with the start of the income tax year on
“could trigger many unexpected tax bills at the end of the tax year, as many more taxpayers will be brought into self-assessment.”
I do not think that the public have yet caught up with what they will be required to do.
The system is also
“unlikely to cope efficiently if families change or break up” and we had a considerable amount of discussion on that question during the previous debate. As we all know, family formations change over time. Couples form, the people involved might have children from previous relationships and so on. There is real concern that
“The confusion caused by the new system could hit tax compliance, and undermine confidence in the tax system at a time when the employers are also having to implement the Real Time Information scheme for PAYE.”
On top of the criticisms set out by the ICAEW, the Chartered Institute of Taxation has raised a number of concerns. I hope that the Minister will be able to give an answer to some of these points about the complexity of the scheme. The institute’s concern is that
“ a high degree of complexity—for both HMRC and taxpayers—into what has hitherto been a straightforward benefit with practically universal take-up” is now being introduced. It also believes:
“If the legislation is to be implemented, there are many issues that need to be resolved” and that that should happen well before the new charges go live. Given the timing of the implementation of these provisions, there is not a huge amount of time to sort out any of the anomalies. I hope that the Minister can say something on that point. [Interruption.] I heard someone say “six months”. If it is believed that all this can be sorted out in that time, I would like to hear it from the Minister, because many of us have experienced cases where, with the best of intentions, and with support on all sides, fairly complicated systems—new computer programmes and so on—let alone systems of this complexity, have not worked.
The administrative burden that the new charge places on Her Majesty’s Revenue and Customs is not to be underestimated. We also have concerns about staffing levels, and about the support that will be in place to ensure that the new system, if it goes ahead, is communicated to taxpayers, and that people are helped not only to understand the theory but to work their way through the system in practice. A number of people will have serious concerns about that.
In Committee of the whole House, I questioned the Minister on points that have been raised about the definition of “partner”; I understand that it is the first time that the term has been used in this type of legislation, rather than the terms “spouse” or “civil partner”. We had a bit of debate about when relationships start and end. It is, of course, inherently difficult to define the exact point at which a household comes together or ceases, especially where it has evolved over time. Some people will be unmarried but
“living together as husband and wife”,
which is described in the Bill as condition B, or
“as if they were civil partners”,
which is condition D. Will HMRC use data from third parties to gather information on living arrangements, as is done for tax credits? Those are serious points that people raised when the proposals were first put forward.
Further concerns have been raised about the determination of income and the timely determination of the liability to pay the charges. It may seem that we have moved away a bit from the impact of the benefit on children and on to what will happen to families more widely, but these are concerns that have been raised by people who will have to give advice about, and look at the operation of, the scheme. It is important to mention the concerns, because that is why we have tabled a number of technical amendments.
A charge is to be levied on households in receipt of child benefit in which there is a taxpayer whose income in the tax year exceeds £50,000, as we have heard. Taxpayers are required to notify HMRC of their liability to the charge by
Is my hon. Friend saying that if a person’s income fluctuates during the year, but they do not know that it is fluctuating, and do not know the full amount of their income until the end of the year, the child benefit will be treated by one set of rules, whereas if they know how their income is fluctuating and whether they are moving in and out of the zone in which the charge applies, they will be treated in another way?
Yes, my hon. Friend has got the situation exactly right; that is the problem as it has been described. As for people who may elect not to receive the benefit, the Government’s proposals make it difficult for people who do not know what their earnings will be over a particular time to make that judgment.
A number of issues have been raised to do with how one would determine the higher-income person in a relationship. The measure raises a number of complex issues to do with independent taxation and taxpayer confidentiality. I know the subject has been raised with the Minister. My understanding is that HMRC will tell the couple which person had the higher income and is therefore subject to the new charge. As I outlined previously, I can see some difficulties associated with this. Not only does an individual need to know about their partner’s income, but they would need to know whether their partner has claimed child benefit and whether the partner has elected not to receive the benefit.
This will be particularly important where a couple are not on speaking terms. That does happen. It may not seem like it when everything is cosy in the coalition, but there are relationships in which people are not on speaking terms or where they have separated. In those circumstances, we need to be clear about what HMRC intends to do to inform a partner whether the other has made an election not to receive child benefit. Will they be advised, should the partner subsequently revoke that election?
There are potentially Catch-22 situations, particularly in relation to self-assessment and submitting the returns. Far from simplifying the system, which was straightforward and understood by everyone and which made it easy for people to claim, we seem to be making it far more complicated.
I want to raise, briefly, the issue of extended families. There are concerns that there may be contentious cases where different people claim entitlement to child benefit—for example, where parents are unable to look after the children and perhaps grandparents take over that role. We know the valuable role that grandparents can play in those circumstances, often at considerable cost to themselves. There could be situations where a parent continues to receive child benefit, although the child lives with the grandparents. If one or both grandparents have adjusted net income over £50,000, under the relevant provisions of the Bill, the higher-earning one would be liable for the higher child benefit payment, even though the grandparents are not necessarily at that point receiving the child benefit and could even be in dispute with the recipients.
These are some of the practical problems that come into play when we look at how people live their lives. I have mentioned the issue of timing. Perhaps the Minister can answer that. The issue of national insurance credits was raised in the Committee of the whole House. Although the Minister went some way towards explaining the situation and giving reassurance, it would be helpful to hear that stated here this evening.
I shall spend a moment on the problem of electing not to receive child benefit and revoking the election. Where one party to a relationship has an income in excess of £60,000, it seems that HMRC would like to encourage the child benefit claimant to claim the child benefit but to elect not to receive it, because that somehow makes everything neater. HMRC would stop paying out the child benefit, which would reduce the need for the higher earner to join self-assessment and to pay their tax. Those who expect their income to be more than £60,000, apply for child benefit and elect not to receive it, yet subsequently realise that their income for the year is likely to be between £50,000 and £60,000, could lose out unless there are some changes to the legislation.
It is important to place on the record that it is not only the Labour Opposition who oppose what the Government are doing. People who understand the tax system and want to see it improved, such as the Chartered Institute of Taxation, say that ideally the clause and the schedule should be withdrawn and a fresh consultation launched, with a view to coming up with a more workable alternative to the current proposals. We have tabled a couple of amendments to test the Minister’s view on whether that is needed. It has been suggested that these are needed to assist in the situation where people elect whether or not to receive child benefit.
The amendments would put all claimants not subject to 100% high income child benefit charge on the same footing as other claimants able to make a revocation, so this might be easier, it is argued, for HMRC staff to understand and implement. There is a clear distinction between people who elect not to have payments and then find that their income is under £50,000, and those who elect not to have payments and find that their income was between £50,000 and £60,000. The Bill copes with the former, but not with the latter.
I can see people’s eyes beginning to glaze over at these technicalities. Hon. Members in all parts of the House no doubt want me to bring my remarks to a close. [Interruption.] It is good that we all agree on something. These points are very important.
To return to what I said at the outset, if we make the situation more complicated, cause more confusion and make it less likely that people will know whether they qualify for the benefit, that will not be helpful for families, it will certainly not be helpful for children and, I would argue, it will not be helpful for Ministers, because it is they who will have to come back to fix the problem later.
Order. As hon. Members can see, a number of Members are standing and wish to contribute in what is a relatively short space of time, and the Minister still needs to respond, so please be mindful of other Members when making contributions.
I must confess that I support the principle behind the clause but share many of the concerns expressed by Cathy Jamieson about its practicality. However, I accept that there is an overriding need to reduce the vast fiscal deficit, and all of us who feel that way must look at the provisions, whether in the Budget or elsewhere, and support what is being done to try to get the deficit down. Apart from everything else, it is a moral case: we cannot pass these huge debts on to the next generation. Even now, in an era that the Opposition have identified as one of austerity and savage cuts, the Government are borrowing £1 in every £5 they spend.
There is an absolute crisis in the welfare state and we must wean ourselves off this huge amount of public expenditure at the earliest opportunity. One of the most important areas to look at is that of universal benefits, particularly universal middle class benefits, which must be up for consideration. Housing benefit, which has been discussed, and child benefit are certainly important. I believe that wealthy pensioners should not get free TV licences, bus passes or winter fuel allowances, although I accept the political difficulty of that, given the promises made just before the general election.
The Minister is an intelligent man and must realise that the practicalities of the system will make it an absolute nightmare. The hon. Member for Kilmarnock and Loudoun has made quite clear how she feels about it, but let us for once in politics be wise before the event, rather than after it.
My hon. Friend talks about the practicalities of the system, but is he aware that there is no practical mechanism by which wealthy parents can opt out of the system if they do not want to claim child benefit?
There will be by next January, because they will not qualify for it.
The broader issue is that there is a risk that the proposal is potentially a penalty on aspiration for those who earn roughly between £50,000 and £60,000 a year. It is a disincentive for families with one parent who stays at home to look after children. What of the broader tax incentives? One of the reasons I am so keen on reducing the higher rate of tax to 45% is that I think there is a mass incentive in having lower rates of tax, yet the concern for those earning between £50,000 and £60,000 who have three children is that they will be paying a marginal rate, often of over 60%, which does not seem to be a sensible way forward. Those are the theoretical issues.
There are a number of major practical issues that the Minister will have to look at. This system will be incredibly difficult to implement. The reality is that many people now earn consulting income and do not know nine months into a year, let alone at the beginning, whether they will earn between £50,000 and £60,000. We will see some strange disincentives that will encourage people to arrange for invoices to go out just after the financial year, so that one year they earn £49,000 and the next they earn £80,000 or £90,000. It strikes me that much of this will rely on IT systems, which have been a reputational nightmare for both HMRC and the Treasury. I think that this system will be very tough to administer. As has been mentioned, the implementation will be in January, rather than, as normal, at the beginning of the tax year, which will make for additional difficulty.
I want this to work. I think that all of us who want to see the deficit reduced want to see Budget measures working well for the Treasury and HMRC. My biggest concern is that we will end up returning to the House, perhaps in January or slightly later next year, at the beginning of the next tax year, recognising a system that is going to be discredited, not least because huge amounts of money will be uncollected and, if the schemes goes ahead, because large amounts will have to be repaid.
We know—we can see—that there are huge practical difficulties, and, although I fully support the idea of getting the deficit down, I wonder why we cannot look at a simpler system that, for example, limits child benefit only to two or, perhaps, to three children. I am the father of two children, and I know the Minister is the father of three, but there is no particular self-interest here. We need a more straightforward and simple system; one that is easy to calculate and to understand.
One reason for not taking up the proposal is that one group in society which is most likely to be in child poverty is children in families with lots of children.
I accept that, but we are looking for a simple system—[ Interruption. ] No, the issue at stake is trying to find a straightforward and simple system that bears down on the idea of universality, which we should try to do if our welfare system is to retain any credit.
I hope that even at this late stage the Minister will give some thought to the matter. I work on the basis that I want the measure to work, but nothing would undermine our tax system more than the benefit before us being undermined, as many of us fear, through the practical difficulties that are almost inevitable. Let us for once, as I say, be wise before the event.
Normally, one begins a speech by saying what a pleasure it is to speak, but it is not a pleasure to speak in this debate; it is a great disappointment.
This is the third time that I have spoken about the problem with the child benefit proposals in the Budget that the Chancellor of the Exchequer announced.
The first time I spoke I thought that there were four arguments against the Government’s proposals; I now discover that there are 14. First, there is the impact on distribution and horizontal equity, the point well expressed by my right hon. Friend Mr Field. The Institute for Fiscal Studies’ independent analysis of the impact of changes made by the Budget looked at households with and without children, and households with children are losing most. From all the changes in the current year, households with children will lose 1.3% of their annual net income compared with 0.5% for those without children.
On the changes implemented so far, the loss is 3.5% for households with children and 2.1% only for working-age households without children. By 2014 there will still be inequity between households with children and households without. By then, even assuming that universal credit is as good as the Government say it will be, which I doubt, households with children will have lost 3.7% of their income—£1,411 on average—whereas those without children will have lost 2%, or £646 a year. How it can be fair to take more money from families with children than from those without, I do not know.
There is clearly also unfairness among those people who are just above and just below the thresholds, and among families in which one person earns £50,000 and those in which two people earn £40,000. We have discussed all that before.
New problems have emerged since we debated the issue. There is the possibility of people planning their tax to avoid the charge; administrative problems have been referred to; and we have repeatedly asked the Minister how he will preserve independent taxation, given the implications for it. That point has been raised to a significant extent by the professions; the Chartered Institute of Taxation and the Office of Tax Simplification are very concerned about the issue.
One thing that is not at all clear is how Ministers intend to implement the measure, given that, as far as I can see—the Minister can correct me if he wants—in schedule 1 there is no obligation on people to share information about their incomes, so it will be extremely difficult for people to know what is going on. The Minister is calm about that, but given that families’ incomes and circumstances change over time, the measure is highly likely to lead to a large number of practical difficulties.
Another thing that is odd from a Government who claim to be in favour of the family is that they are introducing a charge that is, in effect, a couple penalty. At one stroke of a pen, they have achieved both a penalty for couples and the destruction of the independent taxation of women. It is a masterstroke of its kind.
Does the hon. Lady agree that many couples with no children object hugely to their taxation going towards families who decide to have large numbers of children? The proposal made by my hon. Friend Mark Field—that the cap should be at two or three children—strikes a fair and moral balance.
As I explained to her hon. Friend, I do not think it strikes a good balance because the children who live in families with lots of siblings are the children who live in poverty. I know that Conservative Members are not as committed to addressing child poverty as were the last Labour Government, and we will see the results of that as we go through this Parliament. I regret that. I am surprised that the hon. Lady, who is in general a practical, well-rooted person, does not see the power of that point.
Another issue is the fiddly definitions of partnerships and the difficulty that Ministers will have in establishing what those are for the purposes of the measure. The measure is both administratively fiddly and extraordinarily mean. It will affect more than 1 million families; about 1 million people are going to lose £1,300 a year. That is a significant sum and I wish that the Government would take more seriously both the practical and the fairness arguments that we are making.
The Minister has still not addressed one final issue: people who at the moment get national insurance credits by claiming child benefit. They will lose their national insurance credits, which will impact on their pension entitlements for many years to come.
I hope that the Minister, even at this last stage, will have a last-minute conversion.
I say gently to Helen Goodman that it is incumbent on her party to offer suggestions for alternative sources of funding, rather than the endless criticism. I speak as someone who is generally extremely sceptical of the policy, but alternatives came there none from the Opposition. Even the alternative offered by my hon. Friend Mark Field was cursorily rejected by the hon. Lady.
I have been consistent on the issue since it first arose at the end of 2010, following the Chancellor of the Exchequer’s announcement. It would be churlish and unfair of me not to concede that he took on board the issue of the cliff-edge effect. He sought to ameliorate that perverse issue with the taper system, which was broadly supported on the Government Benches.
Apart from administrative issues, there are a number of other criticisms that were comprehensively covered by Cathy Jamieson. For example, the Government are not abiding by their own tax consultation policy. My hon. Friend the Exchequer Secretary, who is proud to have been the tax personality of 2010, launched a document called “Tax policy making: a new approach” in June 2010. He also responded to the public consultation of December 2010, which called for thorough consultation and cost-benefit analysis and impact assessments for key stakeholders. That has not happened in the case of this change, which will affect 790,000 couples and 30,000 lone parents who will lose the entirety of their child benefit allocation, and 330,000 couples and 20,000 lone parents who will lose some of it. That is a major problem. Apart from the lack of consultation, we still have the unfair situation that a single-earner couple earning just above the threshold rate, which was then £42,475, will lose child benefit, but a two-earner couple earning just under that amount will receive it in full. That has not been properly addressed.
As my hon. Friend said, we have a moral responsibility to focus on clearing up the deficit left to us by the previous Administration, but this proposal, in particular, fails on the grounds of fairness. How can it be right? It will send the message that ambition is wrong, that the basic tenets of fairness will be disregarded, and that there will be a perverse anti-marriage and anti-home maker bias and an attack on hard work, ambition and family responsibilities.
The policy means that a two-earner couple with two children on a combined income of £100,000 will keep their child benefit while a one-earner family with two children on just over £50,000 begin to lose it and, if their income rises to £60,000, lose it completely. The former household is already far higher up the income distribution yet keeps its child benefit, while the latter household, which is lower down the income distribution, loses it. Let us remember that this proposal was predicated on clobbering the top 15% of the income distribution, but it does nothing of the sort. Only if the family has one child will they be in the eighth decile of the income distribution; if they have two, three, four or more children, they will, largely speaking, be skewed towards the middle. We are not clobbering the richest in society; we are clobbering people who want to do well and are ambitious and aspirational. Unfortunately, that will have perverse consequences that will backfire on this Government politically and in terms of what is needed to make sure that the administration of the system works properly.
This issue is inextricably linked to the popular commitment that we made in the 2010 general election to give a tax break for marriage and families, which we have not yet carried through. We need to keep faith with that, particularly as the coalition agreement guaranteed the Liberal Democrats, who had some ideological problems with it, the chance to abstain. If the Government want to keep the faith with the people who elected us as Conservative Members of Parliament, they should make sure that that is in the pipeline now, because after April 2013 administrative difficulties with IT systems might preclude its coming to fruition.
In terms of cash in the pocket and real tax bills, a one-earner, two-child family earning £60,000 currently pays £13,950 in tax per annum while a two-earner, two-child household with each person earning £30,000 pays just £8,768. That difference will increase substantially as a result of these tax changes. The first family will see their bill rise to £15,667, meaning that there will be a substantial difference of 59% between the tax paid by the two families.
My hon. Friend makes an important and astute point, which is that the Rolls-Royce minds at the Treasury, of whom Helen Goodman was one, can surely find alternative methods to collect income. We know that the deficit is a problem that the Government have to grapple with, mainly because of the splurge of public expenditure under the last Government and the debt millstone that they left. We must look at all the alternatives, including putting a cap on the number of children, such as two or three. Incidentally, that policy is hugely popular with the public, according to polls taken in the past few weeks.
The higher income child benefit charge fails on at least two bases. First, it is transparently unfair, because it treats families on lower incomes more harshly than those on higher incomes, merely because of the way in which the incomes come to them. Secondly, in the distinctions that it makes, it discriminates between different types of families in a way that is profoundly unenlightened and completely unacceptable. I urge Treasury Ministers to think carefully about the alternatives. This is a potential disaster in the making. It is unfair. I ask them to think again.
I will have to bring the Back-Bench speeches to an end at 19 minutes past, so there are three minutes left.
I strongly support the brilliant speeches of my hon. Friends the Members for Kilmarnock and Loudoun (Cathy Jamieson) and for Bishop Auckland (Helen Goodman). There are clearly qualms on the Conservative Benches about this disastrous policy.
I had the privilege of being at the TUC general council 37 years ago as a staff member when the original policy was approved by the TUC general council. At that time, we had the social contract between the TUC and the Labour Government, which I think was a brilliant success. Harry Urwin, the deputy general secretary of the Transport and General Workers Union, argued the case against some trade unionists who were concerned about a tax allowance, which would tend to go to male workers, being given through a universal benefit largely to women for their children. It was a massively progressive policy and was the right thing to do. It was in line with the principles of universality established by Beveridge and many brilliant social scientists and theorists later on, such as Richard Titmuss. It was of enormous benefit to families and children.
Nadine Dorries, my next door neighbour, talked about punishing children for the sins of their parents. If their parents, by accident or design, have large families, it is not the fault of the children. The money goes to the children, not to the parents. To punish the children for what their parents have done, by accident or design, is completely wrong.
The principle of universality is rightly carried through in the basic state pension, the winter fuel allowance and a number of other things. If we want to redistribute income, we do it through the taxation system, not with means-tested benefits. We talk about trying to get people back into work. If they receive means-tested benefits, they lose them when they get back into work. Sometimes it is cheaper to stay at home and claim benefits than to go to work. Universal benefits do not have that problem, because everything else comes as extra.
My hon. Friend the Member for Kilmarnock and Loudoun is right, our amendments are right and I hope that the House will carry them.
Clause 8 introduces a new income tax charge that will be used to withdraw child benefit from a claimant or their partner who receives income of more than £50,000. The charge will reduce the cost of child benefit to the Exchequer while protecting those on low incomes. This measure, like so many others, is a consequence of the previous Government’s profligacy. We are having to make these decisions because of the budget deficit that we inherited—the largest in peacetime history. Unfortunately, it is the British people who have to pay for the debt left by the last Administration. Without addressing the deficit we will face sterner economic conditions, so we are having to ask for more. However, we will do that in a way that is both fair and reasonable, and this measure will ensure that those on low incomes will remain unaffected and those with the broadest shoulders will bear the greatest burden.
Although reconsidering the universality of child benefit was never our first choice, it is the position we have been left. I recognise that many people are concerned about the change and believe that child benefit must somehow be sacrosanct. However, it simply is not fair that an individual who earns £15,000, £20,000 or £25,000 should pay for benefits for those earning £80,000, £90,000 or £100,000. When a Government need to raise revenue, it makes sense to turn to a measure with a broad base and significant numbers of recipients who do not rely on the additional payment that they receive. Child benefit is just such a payment. The steps that we are taking will raise £1.8 billion for the Exchequer by 2014-15.
What conceivable political point is there in a Conservative Government attacking 1 million of our own people—hard-working people on middle incomes and families in which someone, usually a woman, wants to stay at home to look after a child? What are a Conservative Government doing?
Speaking as a Conservative, I consider that all the British people are our people.
By raising £1.8 billion by 2014-15, we will ensure that those with the broadest shoulders bear the greatest burden. That was why my right hon. Friend the Chancellor announced that we would seek to withdraw child benefit from higher rate taxpayers. We always said that we would consider ways to implement the measure, but we have been clear that a complicated new means-testing system, which is what would happen if we extended the tax credits system in the way that some have proposed, would not be a sensible way forward. Instead, we should look to existing systems and processes to ensure that we can achieve our goal.
Clause 8 withdraws financial gain from child benefit from families in which one partner has an income of more than £60,000, and reduces the gain if one partner has an income of more than £50,000. It does so in the most efficient and pragmatic way possible, applying a tax charge on those high earners using existing processes. That charge will apply to an individual in receipt of child benefit, or to their partner if they are married or in a civil partnership or living as if they were married or in a civil partnership—a point that Cathy Jamieson made. That is an existing definition of partners within social security legislation and means that other adults living in the household will not affect the liability.
The changes will not affect those receiving child benefit who have income under £50,000, or whose partner does. Some 85% of families receiving child benefit, or 7 million families, need not be troubled by the changes. If an individual or their partner has income of more than £50,000, the charge will be tapered depending on their income. The equivalent of 1% of the child benefit award will be charged for every £100 increase over £50,000 in adjusted net income. Child benefit will be withdrawn in full only at an income of £60,000. Furthermore, the thresholds between which the taper will operate will not depend on the number of children.
The changes will take effect from
If my hon. Friend is going to consider the efficacy of different policies, will the Treasury undertake to consider alternative sources of funding as a corollary to this change, such as a cap on the number of eligible children?
My hon. Friend and other hon. Members have made the case for a cap on the number of children receiving child benefit. I hear his point about an alternative policy, but we must ensure that the child benefit regime provides support for those who need it most. The policy for which we are legislating maintains that principle—those on the lowest income will retain support.
The Government strongly discourage anyone from not registering for child benefit on the birth of their child, even if they decide to opt out of receiving payments. The child benefit system does not process only child benefit, and failing to register can affect state pension entitlement and make it less straightforward for the child to receive a national insurance number when they turn 16. It is therefore important that children remain registered.
Amendments 21 and 22 would allow those on the taper who have opted out of child benefit retrospectively to receive the payment. I am pleased to confirm that HMRC will apply the legislation as it is to enable such a claim to be made. I can therefore reassure the hon. Member for Kilmarnock and Loudoun that the amendments are not necessary. As I have said, the legislation provides a claimant whose income, or whose partner’s income, is more than £50,000 with the opportunity to elect not to be paid child benefit, so they are not liable for the high income child benefit tax charge. A claimant who has elected not to be paid child benefit can subsequently revoke that election and ask HMRC to reinstate payment of child benefit.
The payment of child benefit would then normally be made from the first pay day after the revocation has been received by HMRC, and not from the date when child benefit was first stopped. That is because it would make no sense to pay arrears of child benefit to those whose income, or whose partner’s income, is more than £60,000. However, the legislation provides for retrospective revocation when a claimant discovers that, contrary to their original expectations, they do not have an income of £50,000 or above. That retrospection will be limited to two years after the end of the tax year to which the original election applies. That means that child benefit can be paid for up to that two-year period.
When a child benefit claimant or their partner has income of between £50,000 and £60,000, the decision whether to elect to receive child benefit is not so clear cut, because the amount of the tax charge is dependent on their income. HMRC recognises that a couple might be nervous about making an election if a later decision to revoke the election would apply only to future payments, leaving them worse off. The legislation provides HMRC with the power to issue directions as to how the election process will be administered. I hope I have cleared up that point.
Let me try to deal with the few remaining points. Draft guidance is being prepared over the summer, during which time HMRC will consult external representatives, including the Social Security Advisory Committee and the HMRC benefits and credits consultation group. The directions will confirm that an election that has been made by a claimant whose income or whose partner’s income is between £50,000 and £60,000 can be revoked retrospectively, to the point at which the child benefit ceased.
I have dealt with this point on the state pension, but it is possible to be registered even if people are not receiving cash. I have also dealt with the point on the definition of partners used in the Bill. As for the argument that the measure is complicated, we have looked at alternatives, but we think the measure is the best available to us. On the principle of individual taxation, HMRC is committed to protecting confidentiality. For taxpayers who are unable to discuss their incomes with each other, HMRC will develop a process with appropriate security checks so that they can answer yes or no to simple questions about the income of their partner.
As I have said, the Government have had to make difficult decisions. The measure means we can continue to provide child benefit, and so, in a sustainable manner, protect those who need it the most. We accept that this is not an ideal situation, but the budget deficit left by the previous Administration is the challenge we must overcome if we are to avoid a far worse predicament. I urge the Opposition to withdraw their amendment.
In the very short time available, I want to say that we will press amendment 24 to a Division, although I accept what the Exchequer Secretary said about amendments 21 and 22 not being necessary. The only other point I would make is that it seems odd for him to say that he did not want a more complicated means-test system and then to introduce an extremely complex taxation system. It does not make any sense, and does not pass the test of competence or the test of fairness.