Finance Bill

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Kali Mountford: The hon. Gentleman makes an interesting point. He said earlier that he was concerned about low-earner families with children, but his argument now is about the tapering of taxation at the upper end of earnings. How does that help poor families?

10.45 am

Mr. Ottaway: It depends what you call a poor family. The credit is introduced at the lower end, but starts to taper when it hits the higher rate of taxation and is added on to child benefit. You may feel that this subject would be better debated under stand part, Mr. Cook. The taper of CTC is integrated with national insurance contributions. The system of integrated tax credits and child benefits, contrasted with a non-means-tested child benefit, is fiendishly complicated. I am not surprised that the hon. Lady has difficulty understanding it.

Mr. Letwin: Perhaps I might help the hon. Lady by making the following point. Let us imagine that a single mother with one child, on modest earnings of 200 a week, marries a man on identical earnings. After the removal of MCA and the introduction of WFTC, those two people will end up paying 67 a week more tax as a couple than they did when they were living apart. Is that penalty on marriage not of some significance for those on low earnings?

Mr. Ottaway: My hon. Friend makes a powerful point. Let us compare that flaw or anomaly in the proposals with the following one. CTC is given to the highest earner in the family; if that earner earns 40,000 a year, the family do not get the credit because it begins to taper out at 32,000, and is not given to those who earn more than 36,000. If two people in the family earn 30,000 a year, making a family income of 60,000, the highest earner qualifies for the CTC, so the family receive it. Therefore, a family on 60,000 may qualify, although a family on 40,000 may not. What is the logic of the proposal? The benefit is muddled, has done nothing to recognise marriage and has left a hiatus.

Mr. Bill Rammell (Harlow): I follow the hon. Gentleman's arguments with interest. If the CTC is so fundamentally flawed in principle, why is he arguing that it should be brought forward to 2000-01?

Mr. Ottaway: The hon. Gentleman must wait for the stand part debate-that is all I can say. The measure is perverse, but we will not vote against it after the stand part debate. The Conservative party is not in the business of denying benefits to families, either this year or next year. However, the benefits system has become unbelievably complicated, given the gap year and the anomaly whereby the credit may be awarded to a family with 60,000, but not to a family with 40,000. That credit does not recognise marriage and is not a replacement for the married couples allowance. It is a step towards the alleged aim of improving the benefits system, which is not working. I believe that the Minister will confirm that it will in any event be phased out in 2003 and replaced by integrated child credit.

Mr. Roger Casale (Wimbledon): Will the hon. Gentleman give way?

Mr. Ottaway: I have been perorating on the amendment for about five minutes.

Mr. Casale: The hon. Gentleman seems to be implying that families, particularly working families and families on low incomes, will be worse off in the round, in terms of tax, this year than last year. If he takes into account the increases in child benefit, the child care component of working families tax credit and the 10 pence starting rate of tax, does he still think that working families, and poor families in particular, are worse off under this year's regime than last?

Mr. Ottaway: The hon. Gentleman wants to get into debate about whether families are better off this year than last-there may be some benefits for someone who does not smoke, drink, drive a car or have a mortgage. There was a benefit last year in the married couples allowance, but that is being abolished by the Chancellor. Working families tax credit was given last year and this year and will be given next year, and children's tax credit will be given next year-but not this year. Child benefit is on a flat rate-it was given last year and this year and will be given next year-and is not means tested.

Mr. Casale: The hon. Gentleman acknowledges that families are better off this year as a result of the changes that have been made. Perhaps I can help his argument, which seems to be that families, working families and families on lower incomes are better off this year than last year and next year will be even better off. That is why people want to keep the Government in power for as long as they can.

Mr. Ottaway: I suggest that the hon. Gentleman starts listening to his constituents. If he thinks that they are better off this year than last year, he has got another think coming. Since 1997, the burden of taxation on the average family has gone up by 670 a year. Those are not Opposition figures; they are independently verified figures confirmed by the Library. There is no way that the Government can say that they have stuck to their pledge not to raise taxes. They have raised taxes and the consequences of that are becoming apparent, particularly this year with the phasing out of the MCA, as well as MIRAS, and given that other benefits are not coming into play until next year. That is the rationale behind our amendment.

The Chairman: I serve notice on the Committee that I have been lenient, in view of the appeal that was made, and have allowed a fair range of arguments. However, when it comes to clause stand part, I shall take the view that the debate has already taken place.

Mr. Andrew Stunell (Hazel Grove): I hope not to detain the Committee for long. The amendment had been tabled in my name and those of my hon. Friends. The title of this morning's debate could be ``Little red riding hood has a visitor''. The only question is who is the visitor. If one listens to the hon. Member for Colne Valley, one would assume that the hon. Member for Croydon, South (Mr. Ottaway) was the visitor intent on doing mischief to little red riding hood. If one looks at documents produced by the Government and the business and transport section of the Library, one might form a view that the visitor was the Chancellor of the Exchequer. The Library briefing paper stated:

    The abolition of the MCA, and its replacement with a tax credit given to parents, is part of a wider reform in the system of child support, first announced by the Chancellor in his March 1998 Budget.

In that Budget statement, he said:

    Giving a child the best start in life takes more than money, but it cannot be done without money.-[Official Report, 17 March 1998; Vol. 308, c. 1107.]

I want the Government, including the Financial Secretary, to explain the missing 1.4 billion-the net saving as a result of the abolition of the married couples allowance and the failure to introduce the child support provisions for a year.

Mr. Rammell: I understand that the hon. Gentleman is arguing, as are the Conservatives, that the introduction of the change should be brought forward. Can I ask whether that change was costed in the Liberal Democrat alternative Budget?

Mr. Stunell: The hon. Gentleman can certainly ask. If he looks carefully, he will find that his point is covered.

Mr. Rammell: Will the hon. Gentleman give way?

Mr. Stunell: I shall just respond to the point. If it is part of Labour Members' argument that the Government cannot afford it, I would be happy to engage in that dialogue. I would point out, as the hon. Member for Croydon, South did, that we are discussing not a continuing increase in Government expenditure but maintaining the current level of benefit support and expenditure. A Treasury saving is built into the proposals.

Mr. Rammell: The point that I was trying to make was that this debate requires honesty about where the money will be raised and how it will be spent. Will the hon. Gentleman therefore confirm that bringing forward the children's tax credit was not costed in the Liberal Democrat alternative Budget? It is therefore a dishonest proposition to put to the Committee.

Mr. Stunell: No, it is not dishonest, although I accept the hon. Gentleman's point that that figure does not appear in the alternative Budget. If he looks at the full range of Liberal Democrat proposals-which you might not be happy for me to develop as part of my argument, Mr. Cook-he will recognise areas of expenditure and saving that are not part of this Finance Bill. It is not my purpose to move the Liberal Democrat alternative Budget. It would be delightful if you were to permit me to do so, Mr. Cook, and no doubt hon. Members would want to table amendments. My point is that the Government have set the context for the Finance Bill in relation to children and families, and have decided to withdraw 1.4 billion. That money was being paid into the system and used to support married couples and their families but will not be for the next 12 months. The purpose of the amendment is to restore that missing 1.4 billion.

Kali Mountford: May I remind the hon. Gentleman that the Government spent a great deal of money last year? When MCA was withdrawn, they introduced new money for families with children. How would he identify those families, this year, who would be entitled to the new allowance? Who would he give it to, and how would he find them?

Mr. Stunell: One argument is that the level of benefit is being sustained, and that there is no missing 1.4 billion. Labour Members have used that argument, at least by inference, in their interventions. As I was about to say, I want to hear the Government justify, with figures, the assertion made from the Labour Back Benches-that, if the changes are netted off, the amount of money being spent on families and children has not fallen. A second argument is that, administratively, the people who need the help cannot be found. Clearly, if that is the Government's argument, the married couples allowance should have been continued until the new system was ready to take over. It is outrageous to leave families and children all over the country in the lurch simply because the administrative procedures are not in place to ensure that the Inland Revenue paperwork is right.

Will the Financial Secretary explain clearly the reason for the gap? Is the gap the result of some so-called justification that other benefits have filled the gap or is it the result of administrative convenience? Do the Government know the reason? It has been expressed that families are better off this year and that they will be even better off next year. Such a statement needs careful examination. In subsequent years, the reduction in married couples allowance will be significantly higher than the increase that is proposed. However, we are willing to accept the argument that the increase in child benefits and other allowances may bridge the gap.

11 am

We remain deeply sceptical that the gap has been properly bridged this year. Call me a cynic, but if families are better off this year and the 1.4 billion will improve their financial position next year, it is a little surprising that the Chancellor has not made more of that 1.4 billion improvement. So far, his words strongly suggest that we shall not see an improvement until the new system is in place. We have a gap year and the amendment would close it. It has now been hinted that the gap may be more to do with administrative convenience than with the well-being of families and children.

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