§ In section 212 of the Income Tax Act 1952, as amended by section 12 of the Finance Act 1963, for the references to f165, £140 and £115 there shall be substituted references to £175. £150 and £125.—[Mr. Dean.]
§ Brought up, and read the First time.
§ The Temporary Chairman
If the Committee agrees, with this Clause we can discuss new Clause No. 23—"Child allowances for widows".
§ Mr. Dean
Thank you, Sir Beresford.
The Clause deals with a subject on which there has been much discussion in recent months, namely child allowances. It proposes to raise child allowances by a token amount of £10, and new Clause 23 proposes to raise child allowances for widows, again by a token amount, in 884 this case £20. These allowances were last raised in the 1963 Finance Act, when they were also graduated according to the age of the child. They were then raised from £70 to £115 for children under 11, to £140 for children between 12 and 16, and to £165 for children over 16.
To justify this increase in child allowances I ask the Committee to consider what these allowances are designed to achieve, and I hope the Government will welcome this opportunity to state their views and their intentions in this respect. There is considerable confusion about the Government's intentions. There have been surveys, and indeed a good deal of discussion, during the last 18 months or so which have focussed attention on the general problem of child poverty. The Government have told us on a number of occasions that action is urgent, but no action has yet been taken, and we 885 have had no indication from the Government of what action they propose.
No doubt hon. Members read in the Press last weekend that the Government intend to introduce a Bill to increase pensions and other cash benefits, but there was no clear indication in these announcements whether the Government intend to act on family allowances, or child allowances. I therefore ask the Financial Secretary to say whether, in this forthcoming legislation, the Government intend to increase family allowances and/ or child allowances. If the answer is "No", I hope that the hon. and learned Gentleman will tell us when the Government intend to act, because it will be very difficult to decide on these new Clauses without this information.
What is the Government's attitude to child allowances in general, and to these new Clauses in particular? There was a very interesting debate in the House on 20th April on the subject of family poverty. At the end of the debate many of us on this side of the Committee were confused about the Govermnent's attitude to this problem. In her opening speech the right hon. Lady the Minister of Social Security suggested various methods of tackling the problem. It was quite clear that her sympathies lay with increasing cash family allowances, and reducing the child tax allowance to pay for them. Yet the Minister without Portfolio, when winding up, dwelt on the disadvantages of this method. Only yesterday, in answer to an Oral Question, the Chancellor drew a clear distinction between cash family allowances and child allowances through the tax system.
It looks as if there is a good old battle raging in the Government about what the policy should be and I have no complaint if they find it difficult to decide on their action on this difficult issue, but, the longer they delay, the less action is being given to what they admit is an urgent problem. This confusion about their policy on child allowances should be cleared up as soon as possible.
We believe that there is a strong case for the allowances and for increasing them and we should be strongly opposed to their reduction or abolition. This is one of the methods of getting equity in taxes and of recognising the necessary expenses of a family man. If they were reduced, it would be a back-door increase 886 in taxation of the worst kind, as it would fall on the family man and not on the bachelor.
It would penalise the highly qualified young executive of the kind who is already leaving Britain in the brain drain in disturbingly large numbers, and most important of all, it would bring within the tax bracket large numbers of people who are not paying Income Tax at all. A man with three children can now earn nearly £1,000 a year without paying tax, whereas without child allowances he would start paying on an income of £437. Finally, increased Budget problems would be involved were these arrangements made through cash allowances. These are strong arguments for maintaining child allowances.
These proposals are very modest, involving an increase of £10 for most people and £20 for widows. They have not been increased since 1952, since when costs have risen substantially. The proposal to treat widows preferentially is in line with the National Insurance cash benefits and recognises that widows are both breadwinners and the housewives to their families. Their earnings are mostly lower than those of their late husbands, but their expenses are often as great, if not greater. They must still pay the cost of home maintenance, fuel and rates. They are usually in the same house as when their husbands were alive because the children need the space.
This subject has great topical interest. This is a probing Amendment to give the Government a chance to state their policy over the future of child allowances clearly. We have waited many months for such a statement on what they regard as an urgently important matter. There have been confused and conflicting arguments and I hope that the Financial Secretary will give us a clear statement of the Government's intentions.
§ 8.45 p.m.
§ Mr. MacDermot
The hon. Member for Somerset, North (Mr. Dean) said that the new Clauses are intended as probing, so as to raise wider questions. New Clause 22 proposes an all-around increase of £10 in the child allowance, which he described as a token increase. I do not know whether he realises what sums are at stake in these allowances. Rising prosperity has meant that increasing numbers of people can and do 887 claim them. An increase of £10. which is apparently modest, would cost £33 million in the current year and £41 million in a full year. In the light of my right hon. Friend's Budget statement and cost of this Budget, hon. Members will realise that he could not accept that this year.
Naturally, there is sympathy for any proposal to increase child allowances, but we must consider them in relation to other allowances as a whole. They are not unfavourable, particularly when compared with the wife element in the married man's allowance, which is £120 more than the single person's allowance and thus is less than that for a child over 11. If we raised child allowances by £10, the allowance for a child under 11 would be above that for a wife.
The hon. Gentleman said that the intention of the second new Clause was an all-around increase of £20 in child allowances to widows, single women and separated or divorced wives. I think that there has been a typing error and that one would be raised by only £10 and not £20, which I think is not the intention—
§ Mr. Dean indicated assent.
§ Mr. MacDermot
—as the hon. Gentleman confirms. The cost of this would be much less because it would apply to only a relatively narrow class of taxpayers. It would cost about £1 million in a full year.
I have no doubt that this new Clause is prompted by Clause 16 of the Bill, which proposes a higher dependent relative allowance for this category of taxpayers. When considering Clause 16(3) in Committee, I said that it gives a bigger child allowance for the first child of a widow, single woman or separated or divorced wife who has the sole responsibility for a child or children. In those cases, under that subsection, an additional personal allowance of £75 will now be due, whether or not a resident child minder is employed to look after the child—provided that the conditions in regard to employment or incapacity are satisfied in the case of a single woman or divorced or separated wife.
This is a substantial recognition of the extra difficulties that women face when 888 they are left with the single-handed responsibility of a young child, and I suggest to the Committee that it would be going too far to give them a bigger basic child allowance as well.
On the more general question to which the hon. Member for Somerset, North referred, I am afraid that this is not the occasion for me to satisfy his request for a statement of Government policy on this matter. He indicated that this was partly a probing Clause, to probe the Government's intentions about how they intend to handle this admittedly difficult problem of child poverty in large families.
This matter was debated on 20th April. The whole problem, and the suggestions made for tackling it, were discussed by my right hon. Friend the Minister of Social Security in that debate. One suggestion was what has been called the "give and take" scheme for financing additional family allowances by withdrawing some child allowances. That is one of the proposals being examined and, as my right hon. Friend said, this whole problem is being thoroughly examined by the Government; and an undertaking has been given that an announcement will be made about it this summer. I am not in a position to do so. Nor am I the person, nor this the occasion, on which to make such an announcement. I must, therefore, ask the Committee to be patient and await the promised announcement. In the meantime, I must advise the Committee to reject the new Clause.
§ Mr. Douglas Houghton (Sowerby)
This is a subject in which I have a close interest and about which, as Minister, I did a great deal of work. The hon. Member for Somerset, North (Mr. Dean) has not succeeded in getting much additional information. I am not surprised at that, but it surprises me that here we are in June without any decision from the Government about what is to be done to solve this problem of child poverty.
This is an intricate subject and there are many considerations to be weighed in deciding the policy to adopt. However, we said how urgent the matter was and how devotedly and continuously we were giving attention to it. It is a matter of deep disappointment to me that we are still without a decision on policy. If we are to have a tax scheme which combines 889 Income Tax and child allowances with family allowances, the timing, for administrative and other purposes, is of great importance. One would have to change the child allowances, which would mean changing the coding for P.A.Y.E. purposes.
I discovered when I went into the matter how difficult it would be to change the amount of child allowances for tax purposes in the middle of a tax year. The conclusion I reached was that it was almost inevitable that, if we were to vary the amount of child allowances, that would have to be done at the beginning of the tax year. To do it then would mean that either the amount would have to be decided before the main work of coding was done in November, before the beginning of the tax year, or it would involve a massive recoding operation following a budgetary change after the introduction of the Bill in April.
It is desirable, in these circumstances, to reach a decision in time for the job to be done in the normal course of pay-as-you-earn coding, which is this autumn, rather than have a big rush recoding job done between April and June of next year. This points to the need to decide before next year's Budget if Income Tax allowances are to be brought into the scheme introduced. This would suggest that there must be a decision in the summer—and if we are talking of summer, I think we are having it now.
It is probably the only bit we shall get, and the Government should hurry up to catch the summer while it is here. But if we are to have a decision in the summer we must also have a Bill in the autumn. This is important. If it is left over to next year, we shall have this very big recoding job being done in extremely difficult circumstances in the early part of next summer.
These are very important considerations. If we are improving personal allowances, a recoding operation can be undertaken after the introduction of the Budget bringing in the improved allowances in June without any serious difficulties, because people then get the benefit of the delay in accumulated tax reductions which lead to a mini-tax holiday in the week in which the improved allowances first come into operation. But what no Chancellor of the Exchequer has been able to do since pay-as-you-earn was 890 introduced has been to reduce personal allowances with a delayed coding operation and an accumulation of tax debts instead of an accumulation of tax credits.
That is why it is so important that if Income Tax child allowances are to be reduced as part of an interlocking scheme for family allowances the job should be done in readiness for the new coding, so that the changed allowances can come into operation at the beginning of the tax year.
The Committee will remember that when the Chancellor of the Exchequer increased the standard rate he made provision for it in a Bill in the autumn preceding the beginning of the tax year in which it was to operate. Otherwise, he would have been confronted with exactly this problem. The tax tables providing for the increase in the standard rate would have come into operation in the June, with an accumulation of tax debts leading to a stiff increase in pay-as-you-earn on the new rates of tax. We must understand that we not only want an announcement in the summer, but, if it is to be done in this way, must have legislation in time for the coding to be done on the new basis at the proper time so that the new levels of taxation, if such there be, may be introduced at the beginning of the tax year.
It may be questioned whether this is the way to do it at all. There are strong opinions held both ways about a scheme of this kind, as to what it would involve if there were to be some element of self-balancing, for there are many permutations in such schemes. But if, so to speak, there is an element of compensation for improving all the family allowances by reducing the Income Tax child allowances—
§ The Temporary Chairman
I am sorry to interrupt the right hon. Gentleman, but he has been long enough a Member to know that he is going a bit wide of this new Clause.
§ 9.0 p.m.
§ Mr. Houghton
I have been so long out of Finance Bill debates that I had not realised how narrow the debate could be on matters of this kind. I appreciate that I am getting on to a rather wider aspect of the Clauses. I was perhaps 891 misled by the ease with which the hon. Member for Somerset, North (Mr. Dean) got away with probing into the Government's social security policy.
However, I think that I have said enough, not only to reveal my own anxieties but also to show that it is necessary for us to have a decision in good time if changes of this kind are to be made. I therefore conclude that this is not the moment to improve Income Tax child allowances. While consideration is being given to a system of linking Income Tax child allowances with a change in the level of family allowances, this is not the moment to tinker with Income Tax child allowances. If the two things are to be done together in an interlocking way, one does not improve child allowances if part of the combined operation would be to scale them down to give additional benefits elsewhere or in some other way.
On child allowances generally, it is always difficult to make out a case for improving the personal reliefs under the tax system. I tried this many times when in opposition. How is a higher allowance for a wife, dependent relative, housekeeper, or children, justified? No longer is it related to assumed ability to pay. The Radcliffe Commission, in 1955, discounted that idea and said that there were almost outright fiscal judgments. There was no longer a sophisticated method of adjusting the tax burden to any ascertained financial responsibilities that the taxpayer had. It would be difficult to justify them on any precise basis.
The hon. Member for Somerset, North based such proposals as he made on very much the same grounds as I used to employ, that it is so many years since they were last improved. This is always a very good argument—"Nothing has been done with them for three or four years". I remember one Chancellor saying, "Last year I improved the personal allowances. This year it is the turn of the standard rate". This shows how empirical the whole fiscal judgment has become.
If the hon. Member presses the Clause to a Division, I shall not be able to give him my support, because I think that it would only complicate the sort of plan that I know is under consideration and which I want to see emerge from the 892 Government's study of this problem. I hope that next time we discuss the matter we shall know what the Government's plans are and that we shall be able then to make our judgment on whether they are suitable and whether they will meet what we believe to be the needs of many families.
§ Mrs. Thatcher
We shall not be pressing the Clause to a Division, but we do not wish to withdraw it, because we wish to register a protest at the fact that we have not got anything out of the Government spokesman about future plans.
The speech of the right hon. Member for Sowerby (Mr. Houghton) is the best we have had from the Government side during the whole of the debates on the Finance Bill. Most of us regret very much that his speech had to be made from the Front Bench below the Gangway instead of from the Treasury Bench. We should feel very much happier about the taxation handling of these matters and about the future of social service provisions if the right hon. Gentleman were still a senior member of the Government.
However, I do not wish to embarrass the right hon. Gentleman too much by telling him how devoted to him we all are. We shall not divide on the Clause, but we shall not withdraw it.
§ Question put and negatived.