Backbench Business – in Westminster Hall at 2:50 pm on 2nd February 2023.
I beg to move,
That this House
has considered the High Income Child Benefit Charge.
It is a pleasure to serve under your chairmanship, Mr Stringer. I put on record my thanks to the hon. Members who supported my application for this debate, and to the Backbench Business Committee for granting it and the Minister for attending.
I invite the House to consider the unfairness of the high income child benefit charge, and the ineffectiveness of its administration. The high income child benefit charge, which for brevity I will forthwith refer to as “the charge”, has its origins in the 2010 Conservative party conference, when George Osborne—the Chancellor at the time—proposed withdrawing child benefit, a previously universal benefit, from higher-rate taxpayers. One might initially approach that as a reasonable proposal; however, the reality is that the charge has consequences for some who do not consider themselves to be on a high income, as it ignores family size, how many earners are in the household, and what disposable income is available after basic needs such as food, housing and energy costs are all met.
Mr Osborne modified his proposals in the 2012 Budget, and went on to announce that, from January 2013, child benefit would be clawed back from families when the highest earner had an adjusted net income of between £50,000 and £60,000. The detail of how the adjusted net income works after taking account of any gift aid or pension contributions, and how those with a £60,000 adjusted net income effectively lose all entitlement to child benefit, was well set out in Westminster Hall by Craig Mackinlay during a debate that he secured on the charge in 2019.
I congratulate my hon. Friend on securing this debate. The high income child benefit charge is too complicated, which leads to many households that are entitled to child benefit not claiming it. What they may not realise is that not claiming means that they do not accrue the national insurance credits that claimants are given until a child turns 12, impacting on state pension and other benefits if one parent is not working. Does my hon. Friend share my concerns about that knock-on effect?
I do indeed share my hon. Friend’s concerns, and I will come on to them in my speech, although she has summed them up more succinctly than I have in the verbiage I am about to read.
In the previous debate, the hon. Member for South Thanet said that he had
“not found figures for how much the clawback and the lack of take-up of child benefit have saved the Treasury”—[Official Report,
but estimated it to be £2 billion to £3 billion a year. I would be interested to know from the Minister whether the hon. Member’s estimate was accurate; I will return to the financial implications of the charge later. The hon. Member went on to say that its administration was
“a salutary lesson in how not to withdraw a universal benefit through the tax system. What we have on the statute book, which runs to many tens of pages of tax law, is the truly mad basis of trying to claw back a benefit. It is not related to overall family income, which many people describe as one of the real drawbacks of the system.”—[Official Report,
I have several constituents who agree with the hon. Member—indeed, this goes to the heart of why the charge is seen as unfair. One of my constituents, Andrew Malloy, summed it up when he asked why a family with one parent earning £50,100 could be hit with a tax payback, while a family with two parents earning over £49,000 each was not affected. He has a valid point: a household with a total income of over £99,000 can still receive its full entitlement to child benefit. Shaun Boyle also struggles to understand why that is the rule, as households earning much more than his are entitled to benefits that his household is not. After deliberations, he concludes that
“this cannot be a fair system.”
From my questioning and research, I am inclined to agree with him entirely.
David Stuart is another constituent who stopped his child benefit payments in 2018 after only becoming aware of the high income tax threshold when his second child was born in November 2017. However, that did not stop His Majesty’s Revenue and Customs pursuing him for an overpayment of £6,000 with interest and five years of penalties covering the years from 2016 to 2020 for his two children. I raised David’s case directly with HMRC. It agreed it had made an error both in its assessment and in asking him to contact the child benefit office to get proof of the cessation. The HMRC respondent added:
“I will be providing feedback to the business in order to learn from our mistakes and avoid the same from happening again in the future.”
So far, so good. But David had to contact me again just last month as he had once again been asked to provide proof of how much child benefit had been paid. It therefore appears no action was taken to rectify the failings highlighted in his initial complaint, which HMRC said it was going to address.
David also raised the Wilkes case with me, on which the Court of Appeal ruled on
Yet a retrospective change in tax law that was announced by the then Chancellor,
As David’s case was delayed awaiting the Court of Appeal judgment, he has now received a further discovery assessment for the charge between the 2016 and 2018 tax years. Understandably, he is “totally miffed” that one person’s case was upheld against HMRC, yet HMRC can continue to pursue others in exactly the same circumstances. In light of the Wilkes case, David hopes that today’s debate will shine a light on the poor handling and unfairness of the discovery assessments.
Another constituent, Stephen Waldron, calls the charge “wholly unfair” because child benefit is a payment to support people with the additional cost of raising a family. Stephen also says the charge is “unjust” because it is not based on a household’s total income. He has questioned why, when people decide to pool their resources and live and raise a family together, does the charge not reflect that? Perhaps the Minister can answer that question for Stephen today.
It was 2006 when Stephen first claimed child benefit. In 2013 he received a letter to advise he was not entitled to it, but it continued to be paid over the next seven years by HMRC, who then reclaimed it and blamed Stephen for not telling it. What really upset Stephen was that the demand for over £8,200 included interest and a 20% penalty for “failure to notify” the tax office to file a self-assessment for all those years, despite HMRC being fully aware of his household’s finances.
The circumstances of Stephen’s experience with HMRC over the charge was robustly argued in the 2019 debate, yet nearly two years later HMRC has not dealt with the previous criticisms of its practices. Things worsened for Stephen and many others as the clawback came in the midst of the covid-19 pandemic at a time when job stability was under one of its greatest threats, and he had to use his “safety net savings” to pay the demand.
I fully appreciate that the abbreviated examples of my constituents that I have highlighted today do not reflect the sense of injustice and stress that they have felt. None the less, it is important that the empirical impact of such an unfair policy is illustrated by individual experiences.
I have been tabling parliamentary questions on the charge since April 2019, after it was first brought to my attention. The answers I received at that time stated:
“If total household income was taken into account, information on the incomes of everyone in each of the eight million households receiving Child Benefit would need to be collected and would effectively introduce a new means test. The Government’s approach withdraws Child Benefit from those on high incomes, whilst having no impact on the majority of claimants.”
That implies that the charge affects only a minority. On means testing, the answering Minister in the 2019 debate stated that this would create
“a substantial administrative burden on both the state and families.”—[Official Report,
However, we should not forget that the increase in the number of self-assessments that the charge creates brings its own administrative burden.
Another written answer, which referred to the £50,000 and £60,000 thresholds, said:
“The Government believes these are currently the correct level for the HICBC thresholds, but as with all elements of tax policy this remains under review as part of its annual Budget process.”
Those answers are in keeping with the response to a petition I presented in October 2021, which urged the UK Government to re-examine the charge policy to address the disparities it creates and ensure that any revised threshold was aligned with the basic-rate tax threshold. The basic rate of tax breached the £50,000 threshold on
After presenting the petition and receiving the Government’s response, I was contacted by a non-constituent who works in financial services, thanking me for presenting the petition as it was
“of national interest to any tax payer who earns over £50,000 GROSS per annum”.
They went on to refer to the Government’s response as seeming to say that it was
“too hard to calculate for little benefit”, and suggested that indexing the base threshold of £50,000
“would be a simple but effective solution to hundreds of thousands of households.”
I am aware of a letter from the Treasury, dated
“only affects a minority of Child Benefit claimants whilst helping to ensure the fiscal position remains sustainable.”
It appears that the Treasury’s position is somewhat conflicted. On the one hand, it thinks the threshold that was set for the charge 10 years ago is regarded as “high income”, and on the other it thinks it is acceptable for the basic rate tax band to breach this threshold.
Another tax-related conflict arising from the charge is that, although ignoring total household income and focusing on the single or only highest earner, at the same time it breaches the principle of independent taxation. It just does not add up to me.
That brings me back to the financial implications of the charge. When claiming child benefit, an affected individual can receive child benefit payments and pay the charge at the end of each tax year by means of self-assessment, and that is the case even if they are employed and normally pay their tax through pay as you earn. Alternatively, they can claim child benefit, but choose not to receive the payments and hence not pay the charge. That is known as “opting out”, and that is what my constituents David and Stephen, whom I mentioned earlier, have chosen to do. However, opting out impacts tax revenue going into the Treasury, with the most recent available figures showing a £15 million drop between the tax years 2013-14 and 2019-20. If the Minister is able to give figures for how much the clawback and the lack of take-up of child benefit have saved the Treasury, it would be helpful to know that the drop in tax revenue has also been accounted for in any figures that might have been found.
The drop in revenue is surprising when we consider that 7,000 more individuals have declared a liability for the charge over the same period. I would be interested to hear any explanation for that anomaly. The most recent available figures also show that the number of people who opted out of receiving child benefit increased by 252,000 between
Of course, those figures do not account for those who do not make a claim for child benefit. Not everyone with a gross adjusted net income of £50,000 will go through the process of claiming child benefit, which effectively signs them up to completing a yearly self-assessment for the charge.
The latest data on child benefit from August 2021 shows a decrease of 122,000 families claiming child benefit when compared with the previous year, which equates to 215,000 children. Many people will see claiming child benefit as a complete waste of time and effort for little or no gain, or they will simply not make the claim to avoid finding themselves in a position similar to my constituent David, who was pursued for a period that he had opted out of. Therein lies a danger, because those who do not make a claim to child benefit due to the thresholds of the charge, will lose out on vital national insurance credits that protect their entitlement to contributory benefits, not least the state pension. That situation invariably affects many women.
There is also the scenario that, for various reasons, not everyone is aware of what their partner earns, respecting the principle of independent taxation. That further deters those people from making a claim for child benefit and, again, it is mainly women who lose out. Will the Minister advise me today if there is any way for women, or indeed affected men, caught in those circumstances to make a retrospective claim for national insurance credits? If not, can that be rectified at the earliest opportunity?
Another unintended consequence of not claiming child benefit is that the child is not then automatically allocated a national insurance number when they reach the age of 16. The scale of that future impact can only be imagined if we use the latest data on child benefit that shows that that will affect 215,000 children in just one year.
Referring to the number of families who claim child benefit, the latest child benefit statistics state
“following the introduction of the HICBC in January 2013, these figures decreased sharply…Following the sharp decrease in August 2013, there has been a downward trend in the number of families and children for whom Child Benefit payment is received. In August 2021, the number of children for whom Child Benefit payment is received is at its lowest level since HM Revenue &
Customs (HMRC) began producing these statistics in 2003.”
Given the passage of time since its introduction and the constraints of the current economic climate, does the Minister not agree that it is time to address the many failings of the unfair high income child benefit charge? Is it not time to finally review this flawed policy, make it fit for purpose and thereby truly support households with children?
Ultimately, the best solution to meet the needs of families in my constituency is for the full powers of social security and taxation to be in the hands of the Scottish Parliament. Meanwhile, I hope the Minister will join me, my constituents and organisations such as Child Poverty Action Group in calling for making child benefit a universal benefit again, restoring the value of child benefit and increasing the take-up of child benefit. At the very least, will the Minister commit to reviewing the current policy?
I congratulate Martyn Day on raising the issue here today. I try to come to Westminster Hall as often as I can, but when I saw the subject of the debate I was very keen to come along and support the hon. Gentleman. I congratulate him on setting the scene so well.
I want to specifically focus on the child benefit threshold. As the hon. Gentleman mentioned, one person could earn £52,000 and their partner could earn £10,000, and they would be disadvantaged. However, partners who both earn £49,000 do not have the same issue. That is an anomaly that we have to try to address.
My party discussed this issue at our parliamentary meeting last Tuesday. We have a slot to move a ten-minute rule motion, and we are minded to bring forward this matter when the time comes. I have raised the issue in the Chamber on numerous occasions, as has my right hon. Friend Sammy Wilson.
I am pleased to see the Minister in her place—I always am, by the way. I know she always tries to give us a response that helps with where we are, so I await her response with anticipation—no pressure, Minister. We are pleased to see her here and we look forward to her contribution.
The cost of living crisis has had a detrimental impact on people’s finances across the whole of the United Kingdom of Great Britain and Northern Ireland. I have spoken in countless debates on this issue. Those who are struggling the most—working families—are among those who cannot make ends meet.
Child benefit is a great benefit. It was designed to be a helping hand, but instead the concept has become a hindrance for working-class families, and even some who were previously considered to be working class and are trying their best to provide their children with all they can. I am a grandparent now, but when we were endeavouring as parents, we tried to give our children as much as we could, as every parent would. That was not to spoil them, but to give them the opportunities that we perhaps did not have when we were younger.
The hon. Gentleman mentioned the cost of living crisis. The fact that the charge is not uprated in line with inflation means that thousands of liable families are losing part of the child benefit that they are entitled to. Does he agree that this must be swiftly addressed?
I thank the hon. Lady for her intervention; yes, I do agree. Later in my contribution I will ask for the very same thing, because I think it is important that we do so.
We were hoping to present a ten-minute rule motion on this issue in the near future. Our slot is probably in July of this year. I and my party feel that it is grossly unfair that the child benefit cap has remained the same for 10 years, while the price of bread has risen by 30% in Northern Ireland in this year alone. The cost of the diesel needed for people to get to work is up by 30p a litre from 2013, or 20%, while those who invested in electric cars have seen the price of electricity consumption increase from an average of £577 in 2013, with a current price cap of £2,500. Increases are not limited to those essentials. The Government’s retaining of the cap is nothing more than another squeeze of the middle class through taxes. The real burden falls on the middle class, and I, my party and others will do all we can to battle that.
I am pleased to see the shadow Minister, Tulip Siddiq, in her place, and I look forward to her contribution. No doubt she and others will be saying the same thing.
I am attempting to bring about a change that I encourage the Government to consider. I find it extremely unfair that two parents could be on £49,000 a year and receive child benefit, but one parent can be on £10,000 and the other on £52,000 and they must pay an additional tax charge as a result. That anomaly is critical. A family on £98,000 are okay, but a family on £62,000 are not because one parent earns over the £49,000 or £49,500.
Another issue is that working families feel unable to take a pay rise because they would lose their child benefit and be worse off. I know families who were offered a wage increase from £49,500 and said, “Actually, I’m going be worse off,” and did not take it, so it is a fact of life for many.
A conversation took place in my office just last week on this subject. I always like to put the issues that we debate to my staff members, who give me their perspective. When we discussed it, they said that £50,000 sounded like a very decent yearly income, and it is, but when the cost of living is taken into consideration, these statistics are nowhere near as realistic as they seem. In addition, the high income child benefit charge is collected completely though a self-assessment, whereby individuals who are liable to pay it are required to find an annual tax return and, if they do not do so, they may be charged legal penalties for failing to register their liability and to pay their charge through their tax return, as some 180,000 families have had to do.
It has got to the stage where even families who are entitled to child support are opting out for fear that they will be hit with tax returns that they should have done but perhaps were unaware of. For my generation and the one after that, that was not a problem; we went to work, we received our child benefit, whatever it was, and we were thankful for it. There has been no uplift to the individual salary allowance since 2013—that is 10 years. There has been uncontrollable inflation since 2013, but no uplift for parents.
The Child Poverty Action Group has been in touch with my office, stating that benefit freezes and sub-inflationary upratings mean that child benefit has lost 30% of its value since 2010. One way that can be fixed is for the Government to increase child benefit by just £20 a week per child. That would pull half a million children out of poverty—the very issue that Margaret Ferrier referred to.
I said earlier that more families are choosing to opt out of child benefits due to the tax self-assessment that must be done. Covid also played a part in the reduction in the number of people applying for child benefit, mainly because parents were unable to register new births due to lockdown and there was reduced contact between parents and health visitors. Now that we are more or less out of that era, efforts should be made to reverse that trend.
Many Members, and more importantly many of our constituents, have raised issues about child benefits. No parent should have to sacrifice good work or a pay rise to get the full amount. That is ludicrous. No parent should have to get an accountant to fill in a separate tax return if they earn over £50,000. We must do more to support those parents through child benefits. More importantly, we must ensure that children are protected and that poverty statistics are dealt with. This has become a critical issue in my office, which is why my party is considering introducing a ten-minute rule Bill on it in July. I am sure the hon. Member for Linlithgow and East Falkirk will be one of the signatories when the time comes. We are asking the Minister for some more compassion, understanding and sympathy, given that the process denies some people what they should have by right.
It is a pleasure to serve under your chairmanship, Mr Stringer. I thank my hon. Friend Martyn Day for securing this debate, which is timely because many families are concerned about their finances and are struggling to make ends meet in the current financial crisis.
There are three key measures or themes have emerged in the debate. The first is that the changes introduced by George Osborne way back in 2013 are unfair and flawed. Secondly, Members from across the Chamber have said that they can help the Minister make the child benefit system fit for purpose. Thirdly, we are asking the Government to implement changes. Even a Conservative Government can introduce the concept of universality again and see whether that is a better solution than the one we have at the moment.
On the first point, like other hon. Members I cannot understand for the life of me why a family with two parents both earning £40,000 a year—a total of £80,000 between them—can claim child benefit unhindered by any other consideration, yet another family in which the main earner’s salary is £50,000 is penalised and the children get less benefit or no benefit at all. How is that fair? How is that equitable?
Claimants whose earnings rise above £50,000 have their benefit clawed back through the tax system, which means that they are exposed to the self-assessment system—in many cases, for the very first time—and incur additional costs in hiring an accountant or tax specialist. How is that fair? How is that equitable?
The £50,000 threshold has never been uprated since 2013 to reflect wage inflation during that period, so more and more families are being unwittingly sucked into the tax trap set by Mr Osborne all those years ago. To compound the situation, taxpayers have been charged penalties for failing to register their liability. It is like the WASPI scandal mark 2: people are not given sufficient information about the changes made by the Treasury, so parents get trapped in the tax liability net without even knowing it.
For many parents, it is simply not worth the hassle of having to navigate through our clunky system, so more than half a million people have elected not to receive child benefit. I thought that might be a win-win for the Government—they save on all those admin costs, get off scot-free by not having to pay child benefit at all and, of course, they do not have to worry about these pesky kids—but my hon. Friend the Member for Linlithgow and East Falkirk has raised some questions that put those assumptions under some scrutiny. Again, I urge the Minister to reply to him so that we can get some clarity about that.
As my hon. Friend the Member for Linlithgow and East Falkirk pointed out, not claiming has some serious ramifications for both the parents and the child. As Margaret Ferrier alluded to in her intervention, for many parents—particularly women, or the lower earner—it means losing out on vital national insurance contributions, which could impact their state pension entitlement. As for the child, my hon. Friend has already highlighted the issue about national insurance cards for 16-year-olds.
The case is clear. The Government need to scale up the threshold from £50,000 to reflect pay inflation from 2013, but also to iron out some of these anomalies to ensure that child benefit is not only fair and equitable, but seen to be fair and equitable for all those families who are currently being penalised.
My second point is about the system being fit for purpose, which, from today, becomes a challenge for the Minister. I genuinely want to hear the solutions that are within her gift. Will she uprate the threshold beyond £50,000 in line with pay inflation from 2013, for example? If the clunky system has to remain, will she look carefully and sympathetically at the inequity of the families I have talked about, where family No. 1 is on £80,000 and has full child benefit, while family No. 2, on £50,000, is caught in the tax trap and offered limited or no benefit?
Will the Minister also consider devolving child benefit to the Scottish and Welsh Governments? Tackling child poverty is a national mission in Scotland. As part of our delivery plan, we already invest £8.5 billion to support families, a huge amount of which—£3.3 billion—is specifically targeted at supporting children. To help to mitigate the effects of the current cost of living crisis on households, our Government have also introduced the Scottish child payment, which they have uprated on one occasion. Better solutions can be found, and I hope the Minister is open to working with the Scottish Government and others to see where further devolution of budgets can take place. Will the Minister also solve the inequity of parents, especially women, who remove themselves from the child benefit tax trap but suffer other consequences, as other hon. Members have already highlighted?
I have left one issue until the end, which is universality. This policy is being driven by the needs of the Treasury, when it should be the needs of children and families. This is not just a challenge for the current Government, but, as the next election looms, a question for the Opposition, who aspire to be in Government. Is it therefore the policy of the Opposition to introduce universality to child benefit? It would be wonderful if that could be confirmed and a firm commitment given today in the summing up.
It is a pleasure to serve under your chairmanship, Mr Stringer. I am covering for my colleague who cannot be here today because of a constituency commitment. I thank Martyn Day for bringing forward a really important debate today. He spoke compassionately about his constituents, who are clearly struggling, and I applaud him for bringing this matter to the House. He will be pleased to know that Labour always welcomes the opportunity to highlight the significant pressures that families are facing across the United Kingdom, including in my constituency, as the cost of living crisis gets worse.
We have heard how hundreds of thousands more families are being pulled into the high income child benefit charge. Jim Shannon put it well when he said that a lot of them are not from wealthy families, yet they are still being pulled into that charge. It is sad that hard-working people are having to pay for the chaos caused in recent months, and for 12 years of economic failure.
I want the Minister to explain the fiscal drag of freezing the threshold for the high income child benefit charge. I am sure she will make the case that maintaining the threshold at £50,000 allows the Government to prioritise the majority of families, particularly the poorest households, and that she will talk about difficult choices that have to be made and how taxpayers’ money is best spent. We all agree with that, but the truth is that the current benefits system is not working for anyone, least of all the poorest. A report published by the Joseph Rowntree Foundation last week found that the benefit system is fundamentally “not fit for purpose” and has “trapped” millions of children and families in poverty.
Helping more people into good-quality work must be a priority of social security. Over 1 million people are out of work, despite wanting a job, and yet employers are struggling to fill over 1 million vacancies. I looked at the figures. Employment in the UK is lower now than it was before the pandemic, and the employment rate has had the biggest drop out of the major G7 economies.
A shocking 2.5 million of those who have fallen out of the workforce have done so because of ill health. We know that being out of work is bad for health. The longer someone is out of work for sickness reasons, the more difficult it is for them to return to a job. Unfortunately, it feels like nothing is being done to break that dangerous cycle. We cannot simply write people off. Only 4% of people in the employment and support allowance support group return to work each year. That is a huge waste of the potential of British people, who we know can contribute a lot to the economy.
Douglas Chapman wanted to know about Labour’s approach. We would take a very different approach to the benefits system. We would modernise jobcentres, turning them into new hubs that focus on work progression. They would be no longer just a conveyer belt to lower-paid work, but an escalator to well-paid, secure jobs.
I looked at the figures again. Only one in 10 older or disabled people who are out of work are receiving any support to find a job. That is because the Government impose programme after programme on local areas, regardless of their local economic needs. A massive £20 billion is being spent across 49 schemes, administered by nine different Government Departments. Even that statistic sounds so confusing.
The fragmented system is wasting taxpayers’ money and failing to get people into work. In contrast, when some limited local design has been allowed in pockets of the country, such as the inspirational “Working Well” initiative in Greater Manchester, there have been real successes in helping people get back into employment. That is why the Labour party will shift resources and power to the local level and guarantee local innovation in the design and delivery of employment support services.
We also want to address the hindrance to work in the social security system by empowering jobcentres to help to broker flexible working opportunities for those who have caring responsibilities. Crucially, we will reform the Access to Work scheme, for which the waiting list for an assessment has trebled. People now wait months for a decision, and overall the work capability assessment regime leaves too many people trapped in unemployment.
Order. This is not a high-pressure debate and there is plenty of time, but the title is the high income child benefit charge. I am willing to relax and let the hon. Lady go a bit off-piste, but I think she is wandering quite a long way off the subject of the debate.
Apologies, Mr Stringer. You will be pleased to hear that I am on the last bit of my speech.
I ask the Minister to respond to the specific concerns raised today, especially in relation to the growing number of people pulled into the high income child benefit charge. I sincerely believe we need a proper plan to lift families out of poverty. We need to get our economy growing, and we need to offer opportunities for people in every part of the UK. I want to hear what the Minister has to say.
It is a pleasure to serve under your chairmanship, Mr Stringer. I congratulate Martyn Day—I hope that I pronounced that correctly—on securing this important debate. I say from the very outset that I understand the experiences of his constituents that he described, and I hope that in previous correspondence we have acknowledged the tension—I suppose that is the word—of these points in the tax system, not just in the context of child benefit but across the tax system. There are points of tension where the next rating, if you like, of taxation falls, and those have repercussions. I promise him that I spend a great deal of my time considering that, not just in this context but, as he will appreciate, across many other forms of taxation.
Child benefit is an incredibly important form of state assistance. Historically, many decades ago, in previous generations when women did not tend to work or were not permitted to work in the way that, thankfully, we are nowadays, child benefit was often the way in which they could feed and clothe their children. Although our working economy has, thankfully, changed in so very many ways since then, we as a Government want to maintain that link between the state and helping families to raise children who need the help.
We genuinely understand that, for the lowest paid or the poorest of families, child benefit payments are vital to help families pay for clothing, food and other essentials. Some 7.7 million families are helped with the cost of raising their sons and daughters, and the Government are keen to continue that tradition. That is why, when we had to make difficult decisions in the autumn statement, we protected child benefit in real terms, which means that from April this year, subject to us approving it in due course in the Finance Bill, child benefit will rise in line with the consumer prices index, or 10.1%.
Of course, there are other ways in which the Government and local authorities offer support to parents with childcare responsibilities and costs, including for example early education through the Department for Education’s free hours entitlements and financial support for childcare through tax-free childcare and universal credit childcare offers. We all want to ensure the very best start in life for our beloved children.
The difficult challenges that we face in the wider economy, not just domestically but internationally, are having an impact on families up and down the country. Many of the worries circle around rising prices, or inflation. That is precisely why, in his new year speech, the Prime Minister pledged to halve inflation by the end of the year. We understand that if prices are rising, our money does not go as far. We want to ensure that we can halt the pace at which prices are rising, so that our hard-earned money goes further.
We have also taken decisive action to support households with those pressures over this year and the next, including by helping millions of the most vulnerable households through the additional cost of living payments over this year and next; the energy price guarantee, which will save households £900 this year and £500 next year; and the support for all UK households provided through the £400 energy bill support scheme. But we need to continue with our plan for stability and fiscal prudence and to be responsible with the nation’s finances. That is why we want to ensure that welfare spending remains sustainable and focused on those who most need the help. We continue to support the vast majority of families with child benefit payments, but the high income child benefit charge allows us to maintain that sustainability.
The charge affects a small proportion of child benefit claimants—namely, those who have relatively high incomes. Jim Shannon questioned the threshold. I hope that I can offer him some reassurance, on a national scale. In 2019-20—the last year for which I have been provided with figures—about 373,000 individuals in the UK declared a HICBC liability, HICBC being the acronym that the Treasury uses; I prefer what the hon. Member for Linlithgow and East Falkirk said—“the charge”. However, the vast majority of those 373,000 individuals have incomes above the UK higher rate income tax threshold of £50,270. That is in the context, as I have said, of 7.7 million families being assisted with the cost of raising children.
Many of the individuals who earn above the £50,270 mark will earn between £50,000 and £60,000, so they will not be required to pay back the entire value of their child benefit, because it is tapered in that £10,000 spectrum. We have, I am told, never aligned the threshold for the charge with the UK higher rate threshold or, indeed, other thresholds for income tax. Of course, I note that in Scotland the Scottish Government have set the higher rate threshold for Scottish income tax at a lower rate of over £43,000. We are very concerned that raising the threshold above the £50,000 figure would come at a significant cost to the Government at a time when support is needed for vital public services.
I was just about to come to the hon. Gentleman’s question about universality, if that is the point on which he is seeking to intervene. He raised the issue of universality, and my response to that would be that he and others are rightly focusing on the challenge of people just over the £50,000 mark or, indeed, making comparisons with couples who individually earn under the £50,000 mark but together obviously earn nearly £100,000. I do not quite know how I would justify extending child benefit to couples who earn significantly in excess of £50,000 each. Perhaps a mile or two down the river, in the City, there may be couples in banking, the finance sector and so on who are earning not just hundreds of thousands of pounds but even more. I for one would much rather that the tax paid by our constituents —those of the hon. Member for Dunfermline and West Fife and mine—was focused on those constituents on whom we have rightly focused, namely the poorest paid, rather than those earning astronomical salaries.
The point that I wanted to make was actually about whether we could get a view on the example that I gave of family 1 and family 2 and the inequity that there is for certain families. It may be that both parents or partners are under the limit but in total they earn a lot more than £60,000. I think that that is something that the Government could look at a bit more generously.
I very much understand this point. I do not know whether the hon. Gentleman was involved at all in the scrutiny of the Bill that became the Domestic Abuse Act 2021, which I had the privilege of taking through the House a year or two ago. Interestingly, one of the challenges that his SNP colleagues put to me, in the context of universal credit, was that universal credit is paid per household. They made the point that, particularly for victims of domestic abuse, they would prefer it to be paid to the individual. The reason why I raise that is that we have a long-standing tradition—since, I am told, the 1990s—of individual taxation. I, as a feminist, am entirely comfortable with being—indeed, demand the right to be—taxed on my income, rather than that of my husband. The system of independent taxation being what it is, every individual, including each partner in a couple, is treated equally and independently within the income tax system. That means that the child benefit charge, sitting as it does within the income tax system, must adhere to those principles; that is the idea behind it. I acknowledge the tensions that the hon. Members for Dunfermline and West Fife and for Linlithgow and East Falkirk have raised regarding those families where people fall just below the threshold, but Governments of all colours must do that kind of balancing when setting thresholds and rates of taxation, and so on. That is why the charge is set as it is.
I am a very simple person, and I am trying to work this out—Douglas Chapman referred to this example as well. If two people earn £49,000 a year, it is okay for them to have the benefit, but if one person earns £52,000 a year and their partner earns £10,000, that makes them liable for extra tax. Surely, the Government should look at that again—a collective income of £98,000 against a collective income of £62,000.
It is precisely because we are taxed as individuals. When HMRC considers the self-assessment forms that, I hope, colleagues across the House sent in in good time before the
I accept that that principle rubs up against this particular policy, but I would be concerned about doing otherwise, and not just from the perspective of it chipping away at the principle of individual taxation. When we debate means testing, we ought to consider that we would be beginning to ask HMRC to collate data about people’s relationships and family setups in the context of collecting taxation. While there may be circumstances in which that happens, I do think we need to tread very carefully: for example, means testing would mean that individual taxpayers would have to explain their family setup to HMRC. Of course, family situations can change—relationships break down and relationships are formed—and at the moment, that sort of information is not collected by HMRC through self-assessment. I think we would all want to be sure we were comfortable with that information, and the burden of telling HMRC about it, being part of an individual’s self-assessment.
HMRC holds records on individual incomes, allowing it to identify who is liable for taxes, and communicates with those people as appropriate to encourage compliance. Basing the high income child benefit charge on household income would require all families in receipt of child benefit payments to report their household income data to HMRC in order to ensure compliance, which I think would be a significant administrative burden on not just HMRC but, more importantly, the families we are seeking to represent. Of course, as the hon. Member for Strangford has highlighted, some of those claimants will be on very low incomes, nowhere near the threshold of £50,000. Again, I wonder about the unintended consequences for such people.
The hon. Member for Linlithgow and East Falkirk asked me a question about men. I am sorry that I did not have a chance to note it down, but I hope we will be able to discuss it after the debate and that I will be able to provide him with an answer, even if not immediately.
I am keen to address the matter of complexity because, again, I have heard and understood the experiences that hon. Members have highlighted of the complexities for people who perhaps are PAYE employees but have to submit a self-assessment tax return. The reason for that—this is where the tax technicalities of my role come to the fore—is the charge is based on the amount of an individual’s adjusted net income, which is an individual’s total taxable income before any personal allowances and less certain tax reliefs. Using that measure avoids using estimates of income that could result in too little or too much tax being paid. For example, it allows people who have saved more into their pension or have donated to charity to have that reflected in their income self-assessment. That is the only way we have of establishing a person’s adjusted net income, but we have tried to help people with the administration of this. Indeed, there is a calculator on gov.uk to help people work out how much tax they may have to pay, which I hope will be of assistance for colleagues corresponding with constituents.
HMRC takes steps to notify those who may need to complete a tax return, including writing to 70,000 people each year to notify them and outline what they need to do to pay. Of course, families can claim child benefit but opt out of getting payments. That means they do not have to pay the charge but can keep the non-monetary benefits of claiming child benefit, such as the national insurance credits for state pension reasons, which the hon. Member for Linlithgow and East Falkirk referred to.
On the point of families deciding not to claim child benefit, the question was asked, “What does that mean in terms of national insurance credits and numbers?” I hope I can assure the hon. Member by telling him that a national insurance record can be filled in a number of ways, not simply through child benefits. Not everyone will require the national insurance credits that come with child benefits, and individuals may build up sufficient qualifying years over an expected working life of 50 years even if there are some gaps in their NI record, which of course may happen because of caring responsibilities. Most individuals under the age of 50 will get a full state pension with 35 qualifying years, and we encourage people to claim child benefit regardless of their income to help them build the qualifying years of national insurance. In terms of the child’s national insurance number, if a person claims but opts out of receiving payments, HMRC will give that national insurance number to the child automatically, but if the family do not claim at all, there is an online service provided by DWP to enable the child to obtain a national insurance number. I ask Members to please let their constituents know of that service if they are not aware of it.
The hon. Gentleman asked about the Wilkes case and made the point that the changes arising from the case were retrospective. Obviously, we have to have heed to the ruling in that case, so we have legislated to put beyond doubt that the longstanding rules that HMRC uses to recover tax that it discovers has not been assessed can continue to operate in relation to the charge. All the taxpayers who have been assessed were still liable for the charge and nothing in the court’s judgment called that into question. Indeed, I am told that this has been operationalised in recent times. Anyone who has concerns about bills or letters that they receive should be encouraged to contact HMRC, because, when tax is owed, time can be given in the right circumstances to pay it, for example, so that we ensure that we are supporting people with their tax affairs.
I hope that I have addressed many of the interesting points raised by hon. Members across the House on this important topic. I very much understand and welcome the scrutiny that the House brings to this important benefit and the operation of the policy to ensure that the benefit is paid to those families who need it the most. I assure colleagues that we will always keep this and any other tax policy under review. We will listen to colleagues on how the system can be improved for the benefit of families, carers and children. I hope that I have reassured hon. Members or at least explained the Government’s position on the policy, with the need to keep the public finances and, importantly, child benefit on a sustainable footing.
I am grateful to hon. Members who attended and supported the debate. I am grateful to the Minister for her comments. It will probably not come as a surprise to her that I remain convinced—perhaps even more so—that universality is the easiest and simplest way to resolve the problems that the system has.
One way or another, my constituents still face so many anomalies, with the obvious one being family income versus that of the individual. There is also the fact that the rates have not changed in such a long period of time, so something needs to be reviewed. I look forward to becoming a firm pen friend of the Minister as we go further through these debates.
Question put and agreed to.
That this House
has considered the High Income Child Benefit Charge.