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Session 1999-2000
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Standing Committee Debates
Finance Bill

Finance Bill

Standing Committee H

Tuesday 23 May 2000


[Mr. Frank Cook in the Chair]

Finance Bill

(except clauses 1, 12, 30, 31, 59, 102 and 113)

Clause 34

Children's tax credit

10.30 am

Mr. Richard Ottaway (Croydon, South): I beg to move amendment No. 65, in page 21, line 10, leave out subsection (2) and insert-

    `(2) In section 30(5) of the Finance Act 1999 (which specifies the year in which the children's tax credit is to start) for ``200102'' substitute ``200001''.

    (3) In section 30(6) of the Finance Act 1999 for ``200203'' substitute ``200102''.

    (4) This section has effect for the year 200001 and subsequent years of assessment.'.

Mr. Cook, I welcome you back from the weekend and hope that you have had a good time since our previous deliberations.

The amendment would bring forward by one year the introduction of the children's tax credit. The reason for that is straightforward. When he announced the introduction of the children's tax credit, the Chancellor made it clear that it was to replace the married couples allowance, which ceased to have effect at the end of the last financial year on 4 April 2000. However, the children's tax credit has not been introduced as a replacement. We tabled the amendment to find out from the Minister the reason for that. What will happen this year? Are people to receive no benefit or has an adjustment been made to other benefits that we may not have spotted? After all, this is not an easy year for the average taxpayer. We have had a phasing out of the married couples allowance and of mortgage interest relief at source, which, as I am sure all members of the Committee are aware from their postbags, is just beginning to dawn on the British electorate.

Kali Mountford (Colne Valley): What is beginning to dawn on people is that the 10 pence starting rate in tax is offsetting significantly the change in pay-as-you-earn codes. People are finding that they are not so badly affected as the hon. Gentleman is suggesting.

Mr. Ottaway: Well, who are we to quarrel with the starting rate of tax? We have a hiatus of a year. We have had the starting rate of tax this year. We shall have it next year, too, and, I presume, the year after that, but we do not have the children's tax credit this year; nor do we have MIRAS. There will be a year in which nothing will happen at all.

Kali Mountford: With what did the Conservative party propose to replace the married couples allowance?

Mr. Ottaway: I am heartened. I was sure that the famed Millbank machine would have at least briefed Labour Back Benchers before they came into Committee. I see that the brief has now been passed to the hon. Lady. It was clear from our manifesto that we would introduce transferable allowances. In 1997, the Conservative manifesto stated:

    We will give priority to future reductions in personal taxation that help families looking after dependent children or relatives by allowing one partner's unused personal allowance to be transferred to a working spouse where they have these responsibilities.

Kali Mountford: Will the hon. Gentleman give way?

Mr. Ottaway: If the hon. Lady will let me finish reading the quote, she can then start quizzing me on it. As explained in the manifesto,

    Around two million one-taxpayer couples with dependent children-

or dependent relatives-

    would gain up to 17.50 a week.

There would be no losers, although 3 million two-taxpayer couples and tax-paying lone parents would not benefit, and the cost would be 1.2 billion.

Kali Mountford: We would argue that child benefit went up at the time at which married couples allowance was altered. Was 1993 not when the change in the married couples allowance began?

Mr. Ottaway: I am not sure how far back we want to go. The reductions in married couples allowance began in 1993. In a way, it became a credit rather than a benefit. In one of the hon. Lady's interventions, she asked what we proposed to phase out the married couples allowance with, and I made it clear that that was set out in our manifesto. I am not sure whether that is a sufficient explanation, as she is shaking her head. Perhaps she would like to tell me what is troubling her.

The Chairman: Order. The style of debate is becoming distinctly conversational. We must conform to procedures. Also, we must return to the subject of the amendment. Can we please do so?

Mr. Ottaway: I am afraid that I have some difficulty discussing the children's tax credit without discussing tax and marriage, as the Chancellor made it clear that the CTC is a replacement for the MCA. I would find it difficult to debate a benefit in isolation without putting it in its context. I defer to your opinions, Mr. Cook, but I would like to make that point.

The credit is designed to help people. The figures are clear from the explanation of the Budget. The hon. Member for Colne Valley (Kali Mountford) will see, if she glances at page 13 of the Red Book for 1999, that the married couples allowance was worth 2.05 billion when it was abolished, and that the introduction of the children's tax credit from April 2001 will cost 1.4 billion. There is a gap between the phasing out of the married couples allowance and its replacement by the children's tax credit, and the sum is not even similar. There is no benefit whatever this year. If the benefit is considered good for future years, why is it not for this year?

Kali Mountford: The hon. Gentleman's argument would hold some weight if it were true that there were a straightforward substitution. I have not noticed the hon. Gentleman give a direct quotation to say that there is such a substitution. Is it not the case that other benefits were introduced for children and families when the married couples allowance was changed?

Mr. Ottaway: I confess that I have not brought a quotation from the Chancellor with me, as I thought that the fact that the credit was a replacement was such common knowledge. The Financial Secretary will no doubt have heard our exchange and will let us know whether he considers that the children's tax credit is a replacement for the married couples allowance. That may cast some light on the gap. However the matter is considered, the money goes into families' pockets to help families with children, but it is not available this year.

It is a matter of regret that there is now no recognition of marriage in the tax system. From research, we know that marriage has a beneficial effect on crime rates, strengthens communities, cuts welfare dependency and, I am told, increases happiness. It also provides a psychological benefit for women. I am rather surprised that the party that believes that it has done so much for women is phasing out the recognition and encouragement of marriage in the tax system. Married women with children have far more protection than unmarried women with children.

Mr. David Heathcoat-Amory (Wells): My hon. Friend mentions that the Chancellor asserted that the children's tax credit replaced the married couples allowance, and he was challenged on that point. Page 85 of the Red Book states that the children's tax credit

    will replace the married couple's allowance and its related allowances.

It may have been designed to replace it, but as my hon. Friend correctly pointed out, it will not, because there is a gap of a year and the replacement allowance is much less generous than the one that is being abolished.

Mr. Ottaway: I am obliged to my right hon. Friend, who has demonstrated that Labour members not only do not know about the Conservative party's policies on marriage, but do not even know about their own party's policies on marriage. I suggest that the quality of briefing be improved before they make such interventions.

As a replacement of the married couples allowance, the children's tax credit is an important proposal. It is also a means-tested proposal, even though, as we all know, in 1993, the Chancellor said that he would abolish means testing from the benefits system. We have seen a spectacular U-turn on that matter, with all benefits slowly being moved toward means testing. When the Prime Minister said after the general election that he would reduce social security bills, I am not sure that he had in mind reducing the children's tax credit by the sum proposed, which will result in a saving for the Treasury of some 600 million.

Dr. Nick Palmer (Broxtowe): Is the hon. Gentleman advising the Government, in introducing the children's tax credit, to increase net spending by 600 million this year, or is he suggesting that it should be compensated for by other tax increases?

Mr. Ottaway: I sense the significance behind that intervention: the hon. Gentleman wants to know whether that is an Opposition spending pledge. As our amendment relates only to this year, unless a general election is held before the end of the next financial year, it has no relevance to future spending plans. However, that is the gist of our amendment. Of course the proposal will cost money, and that money will not be available to families. I do not know whether it has dawned on Labour Members that the money involved will be withdrawn from the most needy families.

Mr. Oliver Letwin (West Dorset): I fear that my hon. Friend runs the risk of being churlish in not having acknowledged the great boon that the hon. Member for Broxtowe (Dr. Palmer) has granted the country, and especially us, by being the first in the history of the Labour party's recorded views on the matter to admit that the children's tax credit, and presumably, therefore, the working families tax credit, too, will constitute public expenditure, notwithstanding the fact that it is so carefully edited in the Red Books as negative taxation rather than public expenditure.

Mr. Ottaway: My hon. Friend draws attention to the fact that an advanced degree is necessary to understand the logic of some of the Red Book, with its random, haphazard descriptions and headings that can best be described as spin.

I shall illustrate with an example my point about the proposal to phase out the MCA this year, but not introduce CTC next year. In the financial year 1999-2000, a one-earner couple who earned 34,000 a year would have paid income tax at the basic rate of 23 per cent. As a result of the abolition of the MCA, the couple would be brought into the 40 per cent., higher-rate tax bracket in 2001. In 2001-02, the couple would be eligible for the children's tax credit, but it would be withdrawn from them because they were paying the higher rate of tax. I want to probe that issue when we come to the stand part debate. The credit is withdrawn at the rate of 1 for every 15, which gives a penal 47 per cent. tax rate. In the space of two years, that family's marginal tax rate might double without there being any increase in their earnings. That could affect up to 1 million people.


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