PERSONS OUTSIDE GREAT BRITAIN (Hansard, 7 July 1975)

§ Sir George Young
I beg to move Amendment No. 12, in page 8, line 19, leave out paragraph (a).

Mr. Deputy Speaker
With it we may also consider Amendment No. 13, in page 8, line 23, leave out subsection (3).

§ Sir George Young
The clause deals with the residential qualifications for child benefit. My hon. Friends and I are very concerned that some British citizens currently paying tax in this country and currently in receipt of the child tax allowance will not be eligible for the new child benefit which will replace the tax allowance because very much tighter 258 residential qualifications will be insisted upon.
We believe that considerable injustice will be visited upon certain people under this clause unless it is amended in the way we suggest. Subsection (1) gives the Minister the absolute power to do what he or she wants regardless of anything else in the Bill. Those of us who served on the Committee have resigned ourselves to seeing paragraphs such as that.
Subsection (2) deals with residential qualifications of the child and subsection (3) covers the residential qualifications of the parent. Both subsections are drawn very tightly and provide that no child benefit is payable unless both parent and child are in Great Britain for the week in question. If the Minister were to operate the Bill within the strict guidelines set out he would be in difficulty. The Minister made it clear in debate and in the notes on the clauses that the Government would not insist on the letter of the law. However, he was not able to give us assurances that certain groups would not be unfairly penalised, which is why we have tabled the amendments.
Amendment No. 12 deals with the residential qualification of children. At present those people living in the United Kingdom and paying United Kingdom tax can claim child tax allowances even if their children are not in the country. This is reasonable and the situation has remained unchanged under successive administrations. The obligation of a parent to look after his child and the need to make financial provision for him is as strong whether the child is with him in this country or with friends and relatives overseas. As the Tax Credit Study Group said in evidence to the Select Committee that examined the tax credit scheme: The income tax child allowance is given in respect of non-resident children and there is no tax principle which would point against the payment of tax credits as a form of tax relief in respect of them. No objection was raised in Committee by the Government against the principle behind our amendment. The objection put forward by the Minister was that there was no effective means of checking abuse. I do not think anyone disputes for a moment that on occasions the 259 hospitality of this country is abused by heads of certain immigrant families who claim tax allowance for fictitious children. While it is an unfortunate characteristic of some British families to have children and then forget about them, some families from the Indian subcontinent do the opposite and remember children they have not had. I am sure that I speak for all hon. Members when I say that this type of tax evasion is to be roundly condemned, but the Government seem to be going a stage further and saying that it is not the abuse that must be stamped out but the benefit itself.
In Committee the Minister said that because a proportion of the claims for children overseas were fraudulent, all claims for children not resident in the country are to be disallowed and taxpayers in this country currently getting child tax allowance for children overseas, whose existence has never been disputed by the Inland Revenue or anyone else, are to be deprived of the benefit because of the activities of the minority the existence of whose children is in dispute.
It is common knowledge that many benefits administered by the Department are abused, and in the Daily Express today there are allegations of large-scale abuse of supplementary benefits by the IRA. But no one has said that because supplementary benefits or unemployment benefit are abused they should be totally withdrawn. The answer to abuse is to increase the penalties and the methods of detection. If a benefit is sensible—be it child benefit or supplementary benefit—it should not be discontinued for those entitled to it because it is being abused by those who are not entitled to it.
In Committee the Under-Secretary of State said that the scale of abuse was such that the Government could not turn a blind eye to it, and he quoted from the Third Report of the Public Accounts Committee in 1967–68 which suggested that half the claims from a sample immigrant group were fraudulent. I suspect that the evidence on which that conclusion was based dates from 1965 or 1966, and it is therefore getting on for 10 years old.
Are the Government saying that in the light of the PAC report seven years ago no action has been taken by the Inland Revenue to try to cut down on this 260 abuse? Is that because tax inspectors take no account of the existence of abuse? It was the Inland Revenue itself that made the investigations and brought to light the extent of the fraudulent claims. If it can determine that half the claims are fraudulent for the purpose of its investigations, the Inland Revenue can equally determine the number of claims that are fraudulent for the purpose of child benefit. If the Minister says that no progress has been made in the past seven years in cutting down fraudulent claims, he will have difficulty in persuading the House to move with him.
There is one final point on this aspect. If it were the case that the abuse was so widespread, can the Minister explain why the Treasury has never insisted on a residential qualification for the child tax allowance? In Committee the Minister admitted that there would be a significant loss to genuine claimants if our amendment were not adopted, and under pressure from Opposition Members he gave an undertaking that We shall look at it again and try to find some means of ensuring that genuine claimants continue to receive the previous advantages in the form of child benefits."—[Official Report, Standing Committee A; 26th June 1975; c. 213.] The Minister mentioned discussions with the Treasury on this question, and the Treasury has never insisted on a residential qualification.
We have scanned the Order Paper tonight for some Government amendments removing the injustice which the Minister said existed. Regrettably, we cannot find them. I must put two inevitable consequences to the Government if they fail to move in the direction of our amendment. First, there will be enormous resentment among immigrants, both among those with children overseas and those without, because when the tax allowances for children are phased out heads of immigrant households will suffer a drop in their take-home pay as will every other head of household. But unlike everyone else, the head of the immigrant family will not be entitled to go to the Post Office the following Tuesday to get child benefit.
Immigrant families will not only be considerably worse off if the Bill is unamended. They will be uniquely worse off. There will be an added pressure on 261 those families to bring their children to the United Kingdom. If they can only get the child benefit when their children are in the United Kingdom, they will try to bring them in. They have the right to bring their dependants in but it would be unfortunate if there were a sudden influx because of a defect in the Bill.
There is a second category of British citizens who are at risk if our amendment is not carried, namely those with children who have gone abroad for longer than six months but not for educational or medical reasons. There may not be many in this category but, for example, a child under school age could accompany its mother overseas while the father remained in the country for a few months before joining them. Currently he gets the child tax allowance in these circumstances. He would not get child benefit unless the amendment is carried. There seems no reason why child benefit should not be paid in these circumstances, particularly since benefit will be paid the moment the child starts going to school overseas.
With Amendment No. 12 we are also dealing with an amendment relating to the residential qualifications of the parents. As the Bill stands the parent has to fulfil certain strict residential qualifications before he is entitled to child benefit. No such restrictions are attached to the child tax allowances, which can be offset against United Kingdom income tax regardless of the location of the parent. Clause 13 (3) says that the parent must actually be in Great Britain during the week in which he collects the child benefit.
On the fact of it, employees of multinational companies whose work takes them regularly out of the country could forfeit the child benefit for the weeks they are away. In Committee and in the notes on the clauses, the Minister made it clear that there would be flexibility in administering this part of the Bill. He was not able to give us the assurance for which we pressed, namely that the qualifications should be the same relating to the child tax allowance. It seems quite unfair that the head of a household in the United Kingdom currently supporting his family and receiving tax allowances should, because of his obligations, forfeit child benefit simply because the Government have changed the residential rules 262 for the new benefit. He cannot alter his employment or his international movements simply to suit the convenience of the Minister.
Under pressure in Committee the Minister was forced to concede that it would not be fair to exempt the categories of employee cited in the notes on the clauses. We would like a commitment that any United Kingdom citizen paying tax in this country will receive the treatment proposed in the notes on the clauses for merchant seamen, civil servants and members of the Forces.
At no point has the Minister objected to the general principles behind our amendments which are embodied in tax legislation subscribed to by successive Governments. The Government shelter behind arguments of administrative convenience which we do not believe to be insuperable. We look for some reassurance that concessions will be granted by the Government to cover the particular injustices we have identified.

§ Mr. O'Malley
I do not wish to add a great deal to what I said on this subject in Committee. First, the Government will certainly administer the system flexibly and sensibly. Second, we are preparing regulations to provide that where a British citizen working overseas is paying United Kingdom income tax during a period of 365 days, the child benefit will be payable. Third, I recognise the concern felt on both sides of the House over the position of some of the families the hon. Gentleman has described.
It is nearly two years before the child benefit scheme comes into operation in April 1977. Therefore, there is ample time for this matter to be examined in detail. The Bill is not a rigid instrument and there is considerable flexibility to operate through regulations. The legislation affecting child tax allowances will not come before the House until next year's Finance Bill. Therefore, I am willing to give the House an assurance that the Government will consider whether it is possible to meet the views expressed in Committee. I make no commitment until we have studied the matter—I am in no position to do so—but we want to be fair. Our minds are not closed on the matter and we will look at it again to see whether anything can be done.
263 I cannot recommend the House to accept the amendment, but I hope that the hon. Gentleman and the House will feel that I have given some assurance on the issues he has raised.

§ Mr. Kenneth Clarke
On the question of the taxpayer who is overseas, dealt with in Amendment No. 13, we are grateful to the Minister for what he has said. He has put on the record the contents of a letter dated 4th July which he caused to be sent to me. Plainly he has carefully carried out his commitment to reconsider the restriction of the provisions of the Bill to a limited category of people working abroad. I understand that he confirms the sentence in the letter which reads: I have therefore decided that the regulations will ensure that not only civil servants and members of Her Majesty's Forces remain within the child benefit scheme whilst they and their families are abroad, but so will anyone else who with his family is sent abroad by his employer, for the duration of the time he has to pay United Kingdom tax on his salary or pay". That is the minimum which should be conceded because, as the Bill overtakes child tax allowances, as long as a person is subject to United Kingdom taxation, he should get the benefit of the child benefit.
I am grateful to the Minister of State for his assurance that in the next two years he will be looking at the problem of immigrant families, but I hope that he will accept that if he is not careful he will commit a serious injustice unless his review finds a solution. We agreed in Committee that there was a widespread practice, particularly among the immigrant community, of maintaining children who remain at home in the care of relatives either in the Caribbean or India. It would be wrong to introduce a child benefit scheme which was intended to be of assistance to heads of households in undertaking their family commitments if one ruled out family commitments of residents of this country who had part of their family abroad. The drop in their income to which reference has been made which they would suffer uniquely would be indefensible.
I am not rejecting but welcoming the Minister's reassurance but strongly restating our case and trust that, in addition to considering the problem, he will realise 264 that there is a serious injustice which must be put right before the regulations are introduced if there is to be no grave reaction from the immigrant community. The 4th July letter was not encouraging on the immigrant question. It stated: Your second point, the position of the immigrant whose dependent children are remaining in his country of origin, raises an entirely different question. These children have never been within the family allowance scheme of this country: indeed, they will be qualifying for whatever family benefits are payable in the country where they reside. It would therefore seem inappropriate to bring such dependants within the framework of the child benefit scheme at all (outside the EEC and reciprocal agreement countries) unless and until they come to the United Kingdom". The letter therefore rejects the case for immigrant children. It would seem to be inappropriate, using what I believe to be a false argument by pointing out that Service men who have remained in India or the West Indies have never received a family allowance but they receive the child tax allowance.
One of our criticisms throughout has been that there have been two different practices, one for child tax allowances and one for family allowances, and the family allowance qualification has always been more restrictive. One of our fears has been that in amalgamating the two the temptation would be to adopt the more restrictive rules applying to family allowances and therefore inflict some positive decline in income on those who get the benefit of the child tax allowances. An important illustration is that of immigrant families with children living abroad who are maintained by parents earning and living in this country.
While I welcome the assurance of the Minister of State, I trust that the Government will give some reality to that commitment. I hope that before the regulations are produced the apparent injustice enshrined in Clause 13(2)(a) will be removed from the people we have in mind.
I beg to ask leave to withdraw the amendment.