TAX TREATMENT OF CHILD BENEFIT

HC Deb 13 July 1976 vol 915 cc438-65

'(1) The Income Tax Acts shall have effect with the following amendments being amendments which—

1. (a) apply to child benefit the provisions applying to family allowances; and
2. (b) make other changes in those provisions,

(2) In section 8(2)(b) of the Taxes Act (wife's earned income relief) for the words "on account of an allowance under the Family Allowances Act 1965 or the Family Allowances Act (Northern Ireland) 1966" there shall be substituted the words "of child benefit".

(3) In section 24 of that Act (reduction of reliefs on account of family allowances)—

1. (a) in subsection (1) for the words "on account of an allowance under the Family Allowances Act 1965 or the Family Allowances Act (Northern Ireland) 1966" there shall be substituted the words "of child benefit in respect of one child" and for the words from "on account of two or more allowances" onwards there shall be substituted the words "of child benefit in respect of two or more children the appropriate reduction shall be made under the preceding provisions of this subsection in respect of the child benefit in respect of each child";
2. (b) subsection (2) shall be omitted;
3. (c) in subsection (3)(a) for the words "or child's special allowance" there shall be substituted the words "child's 439 special allowance or invalid care allowance";
4. (d) after subsection (3) there shall be inserted—

(3A) The said subsection (1) shall not apply to payments of child benefit in respect of a child in respect of which the individual to whom the payments are made is entitled to a guardian's allowance under the Social Security Act 1975 or the Social Security (Northern Ireland) Act 1975.

(4) In section 219(1)(b) of that Act (benefits chargeable to tax under Schedule E) for the words "on account of allowances under the Family Allowances Act 1965 or the Family Allowances Act (Northern Ireland) 1966" there shall be substituted the words "of child benefit".

(5) In section 530(2)(c) of that Act (meaning of "earned income") for the words "family allowances" there shall be substituted the words "child benefit".

(6) In paragraph 1(b) of Schedule 4 to the Finance Act 1971 (separate taxation of wife's earnings) for the words "on account of an allowance under the Family Allowances Acts 1965 to 1969 or the Family Allowances Acts (Northern Ireland) 1966 to 1969" there shall be substituted the words "of child benefit".

(7) Section 32 of the Finance (No. 2) Act 1975 (interim benefit for unmarried or separated parents with children) shall cease to have effect.

(8) The provisions of subsections (2) to (7) above (other than subsection (3)(c)) do not affect the operation of any of the enactments there mentioned in relation to any allowance or benefit payable in respect of a period before the appointed day for the purposes of the Child Benefit Act 1975 and the Child Benefit (Northern Ireland) Order 1975.'.—[Mr. Joel Barnett.]

Brought up, and read the First time.

The Chief Secretary to the Treasury (Mr. Joel Barnett)

I beg to move, That the clause be read a Second time.

Mr. Speaker

With this we may take Amendment No. 13, in Clause 29, page 16, leave out line 37 and insert— (2) In the year 1976-77 only, the allowances set out in section 10(3) of the Taxes Act (children) shall be amended as follows—".

Mr. Barnett

Perhaps it would be helpful if I briefly open on the new clause and then, with the leave of the House, deal with any points that might arise on the amendment.

The clause ensures that the same tax arrangements shall apply to the child benefits, which start in April 1977, as applied to family allowances—that is to say, that they should be subject to tax and clawback. The clause also extends the present freedom from clawback enjoyed by the recipients of certain long-term social security benefits so that it shall apply to recipients of the new invalidity care allowance, which begins this month.

There are certain exemptions from clawback. Since it was first introduced, clawback has not applied to widowed mothers, pensioners and recipients of some other taxable social security dependency benefits for children. The reason is that the amount of dependency benefit is calculated on the basis that the recipients are in receipt of taxable family allowances, so that any further reduction in the net value of family allowance through clawback would make them worse off. Those people will continue to be free from clawback when child benefit replaces family allowances.

Under the clause, it has also been decided to extend freedom from claw-back to two other groups of social security beneficiaries. The first are recipients of the new invalid care allowance which is payable this month. The second group consists of recipients of the guardian allowance payable at the rate of £6.50 a week to someone who takes an orphaned child into his family. That is the objective of the clause. I hope later to deal with any other points that may arise on the amendments.

Mr. Kenneth Clarke (Rushcliffe)

This new clause arises directly out of the Government's rather shabby decision to abandon—or, as they prefer to put it, postpone—the Child Benefit Scheme due to be introduced in April 1977. The new clause proposes that the new family allowance for the first child which the Government are introducing as a pale substitute for the Child Benefit Scheme should be subject to tax and clawback, just as family allowance is now.

It is rather startling to find the Government going ahead with this new clause at all, making the necessary legislative changes to introduce the substitute for a Child Benefit Scheme. That scheme has already been debated fully, and another debate on the merits would be outside the scope of this new clause. After a discussion on the merits, the Government declined to vote on an Adjournment motion because they could not carry the House. The Government's decision to introduce family allowances to first children instead of introducing the child benefit found few friends inside or outside the House. The Government have not been able to command parliamentary approval in carrying it out. Yet without a parliamentary majority they carry on with a new clause to implement a change of policy that they have never presented to the judgment of the House.

One wonders whether in the course of the debate there will be the first hon. Member who is not sitting on the Treasury Bench to speak in support of the Government's decision to abandon child benefits and to substitute family allowances for first children. There is not a solitary hon. Member who has been prepared so far to make a speech or to vote in support of that shabby decision in the House a week or two ago.

A great deal of the draftsmanship of the new clause is taken up by making clear that child benefits are subject to the same arrangements as family allowances. A great deal of the drafting is necessary because the Government have chosen to call family allowances for first children child benefit.

This is a complete confidence trick. What is proposed by the Government and what the clause deals with bears no genuine comparison with the system originally proposed. A great deal of the verbiage on the Amendment Paper today is designed to cover up that fact and to use the name simply to deceive the public and to try to get the Government's proposals in line with their manifesto commitments. Without that, the Government would have been totally out of line with their election promises and the promises of the right hon. Lady the Member for Blackburn (Mrs. Castle) when she was Secretary of State.

6.45 p.m.

This debate gives us an opportunity to look at the effects of tax and clawback on family benefits and the proposed family allowances for first children. Subsection (7) of the new clause ends the temporary arrangements for the taxation and claw-back of the child interim benefit, the last interim stop-gap measure brought forward by the Government when they had to postpone the Child Benefit Scheme in April 1976. For 12 months, the child interim benefit will be subject to tax and clawback. The effect of this has been to make a number of recipients of child interim benefit worse off by applying for the benefit than they would have been if they had not applied. I am thinking of that fair number of recipients who pay standard rates of taxation, who are subject to tax and clawback on the child interim benefit and who also qualify for family income supplement.

A single-parent family who applied for child interim benefit found that after tax and clawback the purported £1.50 was worth only 67½p to a standard rate taxpayer. The full £1.50 was taken as an increase in income for the purposes of assessing FIS, however. The result was that the child interim benefit, if claimed, was then worth 67½p but a FIS recipient lost 75p of the supplement. The recipient could also lose entitlement to free school meals. A substantial loss might be involved.

The Government always said that FIS was reviewed annually. So, in practice, the new scheme would not have this effect until 20th July this year, the date of the next FIS review. FIS is being reviewed from 20th July this year, and many one-parent families will be worse off if they continue to claim the child interim benefit. The Government acknowledge that, but do not intend to warn single-parent families that they will lose money if they continue to apply for child income benefit.

On 20th May I pointed this out to the Minister and asked him to make clear that those claiming child interim benefit should cease to claim it after July of this year if they paid standard rates of tax. The Under-Secretary said: There would not be time, with only two months before it comes into effect, but we have given notice that CHIB would be taken into account in the operation of FIS in July. It will be up to the individual family. It is a complicated problem and many families will need advice but there is no advice which can be given generally by the Government or any organisation. However, I strongly recommend a pamphlet written by Mr. Lewis of the National Council for One-Parent Families, which sets out as clearly as I have seen in a document, official or unofficial, considerations which one-parent families should bear in mind in considering their attitude to FIS and CHIB and the uprating this year."—[Official Report, 20th May 1976; Vol. 911, c. 1903.] The hon. Gentleman was admitting that the taxation of child interim benefit and the interaction of FIS would make many single-parent families worse off if they continued to claim the benefit after July. He said that the Government could do nothing to warn them and that he was relying on outside bodies to tell them that they would be swindled out of money if they applied for the benefits that the Government had offered.

Subsection (7) of the new clause removes that but applies tax and clawback for the new family allowance from April 1977. In the light of our experience with the child interim benefit, we have to consider whether this is likely to happen again in the case of the new family allowances. It is my belief that, once more, many parents who claim the new family allowance will be worse off. If they are paying standard rate tax and receiving FIS, they will be financially better off if they are not deceived by the Government into claiming what appears to be an attractive innovation.

After the tax and clawback proposed in the new clause, the allowance for a first child will be worth only 30p in cash terms instead of the apparent £1 for every standard rate tax-paying family. If a family also claim FIS—because they are low-wage earners—they will lose 50p of the supplement and may also lose their entitlement to rent and rate rebates and other means-tested benefits.

Once more, there is an important category of people who will be worse off by claiming the new family allowance under the arrangements proposed in the new clause. They are the FIS recipients—lowwage earners with families, who are among the most deserving of the working poor. They may be misled by the Government's propaganda for their new scheme into thinking they will get additional help. My understanding, supported by experience of the child interim benefit, is that they will he worse off if they fall for the Government's propaganda and claim the allowance.

I hope that the Minister will also deal with what will happen if a person decides not to claim the new benefit. With the child interim benefit, the Inland Revenue automatically adjusted the tax codes of single parents on the assumption that they were claiming the benefit—even though they may never have heard of it or decided not to claim it because they realised that they would be worse off. Unless the single-parent families were astute enough to send a note to the Inland Revenue saying that they were not claiming the benefit, they could have found themselves paying tax on a benefit which they were not receiving and which it would not have paid them to claim.

Will that happen with the family allowance for the first child next April? I assume that it will. I assume that every standard rate tax-paying family will receive a code adjustment on the basis that the new benefit is being claimed. Unless the Government revise their approach, a number of people may be worse off. Some might be treated adversely on the basis that they are claiming a benefit which, in fact, they are not receiving.

The Minister will no doubt attempt to defend the main principle of the Government's proposed change. I ask him to explain what went on in the Cabinet and what was and was not leaked. The Government are happily persevering without a parliamentary majority to put into effect the change outlined in the clause.

I hope that the Minister will also deal with the tax and clawback problems and the problems facing the working poor—those on low wages and in receipt of FIS. The Government now depend on this supplement, which was originally a temporary measure, as their main form of family support. Will they explain that many FIS recipients who pay the standard rate of tax will be made worse off by the appalling blunder of the Government in abandoning the Child Benefit Scheme?

Mr. George Cunningham

I hope the Minister will resist one of the invitations addressed to him by the hon. Member for Rushcliffe (Mr. Clarke) who wanted to know who said what to whom in the Cabinet discussions and elsewhere. I am not interested in that because the Cabinet will not decide this matter. It will be decided by the House. We should not be much concerned at the processes by which the Government reach their decisions, but rather with changing them when we disagree.

I have a lot of sympathy with much of what the hon. Member for Rushcliffe said, especially on the question of tax codes. Unfortunately, a lot of people never bother to read the notifications they receive of code changes and, indeed, they might find it difficult to understand the wretched pieces of paper if they did read them. However, they ought to be encouraged to read them because if they receive a tax code which reflects an allowance that they do not propose to claim, they can appeal and have the code altered.

The new clause will make the child benefit taxable and subject to clawback in a similar way to family allowances. There is almost certainly in this House a majority which dissents from that proposition. If there were a genuine vote—I do not say a free vote, because all our votes are free—on that propostion, it would not be carried, but it will carry tonight because the Opposition Front Bench are not going to march. If they were marching and voting on this issue the clause might not pass. I hope that the House realises that if this proposition is carried and the child benefit is made taxable and subject to clawback, that will have happened for one reason—that the Opposition are not prepared officially to put their votes where their mouth is.

Mr. Patrick Jenkin (Wanstead and Woodford)

The hon. Member is asking the Opposition to do a rather strange thing. He wants us to treble the cost of the new allowance by voting down the tax and clawback provisions without any assurance that the child tax allowance will be replaced by a new, enlarged benefit. It would be ridiculous to vote down one feature because we dislike the whole scheme.

Mr. Cunningham

I understand that, but we have my amendment which would save £300 million. However, I accept that the Opposition are officially supporting the Government's proposition which will be carried tonight.

My Amendment No. 13 is a central part of the child benefit argument. In this year's Budget it was suggested that the children's tax allowance should be increased to £60 per child. It is the normal practice to increase such allowances, not for any specific year, but for all time—till the next amendment of the allowance. My amendment is asking for something which is not unique, but which is very unusual—that the increase in the allowance should be provided only for the current year and that it should cease next April when we should revert to the previous rate.

There are two parts of this child benefit business—extra cash payments and taking away tax allowances. Any fool can make extra cash payments as long as he can get his hands on the money to do it. The difficult part of the exercise is the taking away of the tax allowances.

Some operations are difficult, almost impossible, but become terribly easy if they are done gradually. I am a Fabian by nature and believe that the main thing is to get started and keep going. The tortoise gets there in the end, when many faster animals never leave the starting line because someone shoots them dead before they get going. I am in favour of the tortoise approach. It is not as if the House normally operates at lightning speed. The main thing is to get started and keep going.

7.0 p.m.

Here we have an opportunity to take away roughly a fifth of the tax allowances next April. The gain to the Revenue would he about £300 million, more than enough to make the proposed child benefit, which as the hon. Member for Rushcliffe said, is really family allowances in disguise, into a genuine child benefit which is not taxable and not subject to clawback.

There is also a procedural reason why we should pass the amendment. If the Bill is sustained in the form in which it is introduced by the Government it will not be possible for any Private Member or any Opposition party to move for the tax allowances to be reduced in next year's Finance Bill. Because of the daft and decadent rules of this establishment, it is not possible for anybody except a Minister to move for an increase of taxation or of expenditure. I do not want to lose the option to move for such a reduction next year.

By providing for the increase to apply only to the present year, I not only make it possible to use £300 million next spring to shift over to child benefits but, at the very minimum, to retain a procedural option to operate on that issue next April, without having first to bludgeon the Government into creating an opportunity to do so by asking them to table a motion to that effect.

I hope that the working party between the Labour Party and the TUC, which has been well publicised in the past few weeks, will find means of making a gradual but not too slow transition from tax allowances to child benefits, the kind of transition which the Government, unfortunately, did not find for themselves.

I hope that we shall get the Government and the whole House off the hook on this business and get progress started again. It is as part of that operation that I tabled Amendment No. 13, to keep the procedural option available and to free £300 million to begin the switch next April. I hope that on that basis the Government will, no doubt reluctantly, accept the amendment, knowing full well that if they do not it will still carry into statute by the decision of a majority of the House.

Sir George Young (Ealing, Acton)

Having strayed into the deliberations on the Bill a little earlier I feel that the Government are giving more favourable tax concessions to trees and works of art than to children.

I wish to speak briefly on Amendment No. 13, which is an all-party amendment, the impact of which, if it is not subsequently interfered with, will be to ensure that child benefits as originally envisaged are phased in next year. I believe that to be the wish of the majority of hon. Members. I do not think that the Government strategy embodied in New Clause 23 would get very far if there were a free vote.

Basically, the issue is how one tackles family poverty. What is disturbing is the complete absence of any strategy from the Government in the past two and a half years to tackle the growing problem of poverty. We are talking about switching resources to families. The amendment is not about switching money from the wage packet to the poorest. It is not about providing incentives to work. It is not about an incomes policy. It is about getting resources to families, who constitute a relatively small minority of the population. About three-quarters of all children are in one-quarter of all households; 50 per cent. of all children are in 13 per cent. of all households.

Any picture of family responsibility being borne equally is distorted. Households with children have had a raw deal over the past 15 years, for two reasons. Firast, tax allowances have not been revalued in line with other tax allowances. Secondly, many families have failed to have enough income to claim the tax allowances anyway.

The House would do well to look at how the tax allowances have changed since 1960, seeing how the single and married persons' tax allowances have increased and comparing them with the age-related child allowances. Taking 1960 as 100 the single persons' tax allowance has risen to 525 this year; the married persons' allowance has risen to 452; but the three age-related child tax allowances to only 300 for the under-elevens, 268 for the 11-year-olds to 16year-olds and 243 for those over 16. That means that the age-related allowances have risen about half as much. There has been a progressive discrimination against families with children and a corresponding increase in the part of the tax burden falling on their shoulders.

The second point relates to those families with insufficient income to receive the tax allowances anyway. A year ago there were 500,000 families with insufficient income to benefit from the tax allowances and 220,000 with insufficient income to make full use of the allowances. That means that there were about 2 million children not receiving through the tax system the support which was aimed at them.

I think that most hon. Members saw the child benefit scheme as a strategy for overcoming both those problems, first by converting the allowances into cash and secondly by over a period increasing them to their relative level of about 16 years ago. The Government have abandoned that strategy.

The amendment represents a last-ditch attempt to get the Government to reverse their posture and put them back on target. I think that the reason why they have abandoned the strategy is not to do with public expenditure, because they have produced a very expensive scheme. It is nothing to do with trade union resistance, because trade unionists are sensible enough to see the logic of the child benefit strategy. It is because of a total failure of co-ordination between the two Departments concerned, the Treasury and the Department of Health and Social Security. Family allowances come under the DHSS and the tax allowances come under the Treasury. To convert them into a combined child benefit requires a certain amount of co-ordination of approach and a determination to see the matter through. They have been totally absent over the past two years. That is why the scheme has lapsed. We see Ministers from the two Departments sitting together amicably on the Government Front Bench, but we wonder how often over the past two years they have talked about ways to tackle family poverty and implement the child benefit scheme.

I should like to give one example of the failure to co-ordinate. The child benefit scheme could never have been introduced at nil cost, giving £40 million to families too poor to receive the tax allowances. It cannot come solely from other families with children. It must come from the taxpayer, but the Treasury has never put any money in the Estimates for the scheme. It has failed to understand the implications of the strategy being adopted by the DHSS.

Likewise, the Bill only at the eleventh hour contained amendments relative to the Child Benefit Act of last year, although we were promised that this year's Finance Bill would have relative amendments when it was published. We have had to wait all this time for the appropriate amendments.

The Government should have introduced the child benefit scheme last year. That was when the child tax allowances reached their all-time low in relative value, and when the transitional problems and the problems of the wage packet would have been at their least. That is what we tried to get the Government to do in vote after vote in Committee and on the Floor of the House, but we failed. It is all very well for Labour Members now to try to save the child benefit scheme. If nine of them had voted differently about a year ago, implementation would have happened in April 1976. A year ago was when we needed their support.

I hope that the Minister will outline his Government's strategy for tackling family poverty and respond to the amend- ment, which still offers the Government an honourable way out of their dilemma.

Mrs. Barbara Castle (Blackburn)

The hon. Member for Ealing, Acton (Sir G. Young) is typical of his party. He is very vigorous in words, but remarkably lethargic in deeds. We are used to this posture by the Conservative Party on child benefit and on everything else. The picture they paint of Conservatives straining at the leash to introduce a child benefit scheme is so ludicrous. When we look at their history on this matter we realise that it is something which we must dismiss.

The simple fact is that the failure to introduce child benefits last year was not due to Treasury meanness, or lack of coordination between the two Departments —not that the Treasury ever co-ordinates with anyone—but to the impossibility of introducing the scheme administratively. That is a fact, and I say it as someone who is a severe critic of the Government in their posture on the child benefit scheme. The scheme could be administratively introduced now, but is not going to be. This is a very unhappy moment for many of us on this side of the House.

The debate on New Clause 23 is a debate on the sum total of a disastrous reversal of Government policy. It is nothing to do with public expenditure, or the trade union movement. It is just the failure of political will on the part of the Government, and it is nothing short of a tragedy.

My hon. Friend the Member for Islington, South and Finsbury (Mr. Cunningham), who said that he was a good Fabian, which I am not, claimed that the main thing was to get started and to keep going, but he knows that what we are presented with in this new clause, and what the Government propose on child tax allowances, are two major steps in exactly the opposite direction from the one in which we should be moving. We are being asked to legislate on this simple fact tonight.

The first step in the wrong direction is the increase in the child tax allowance which thus increases the transfer cost of introducing child benefit. It is increasing that by 40p per week per child at a cost of £300 million. This is a deliberate step to put an obstacle in the way of introducing a child benefit scheme at a time of economic stringency. It is a costly step in the wrong direction and is using money which could have fertilised an effective child benefit scheme if the will had been there.

The second step in the wrong direction is the extension of family allowances to the first child. New Clause 23 is proof positive of what we have always said—that the Government's extension of £1 a week to the first child is not, and never has been, a child benefit. It is a family allowance, subject to income tax and clawback. We can at least ask the Government to drop the hypocrisy of pretending that this is a child benefit, because it is nothing of the sort. It is a pathetic and dangerous alternative.

Amendment 13 limits the damage of the first steps in the wrong direction by putting a time limit on the increase in the child tax allowance. As my hon. Friend the Member for Islington, South and Finsbury said, it means that next year we shall be free to start putting this disastrous Government policy into reverse. Therefore, I hope that the Government tonight will accept this amendment, and thus free themselves, the House, and us Back Benchers, from the shackles they would otherwise put on us, and from the rigidity of policy into which they would otherwise force us.

7.15 p.m.

There is a working party due to meet for the first time tomorrow, comprising the National Executive of the Labour Party, the trade union movement, the Parliamentary Labour Party, and the Government. This working party will look at the present situation on child benefit and will consider how we can carry the scheme into effect during the lifetime of this Government, even though it may involve some phasing.

That is what is important—not what the Prime Minister threatened us with when he told us that the child benefit scheme could not begin before 1979 at the earliest. We challenge that tonight. I believe that if the Government participate in the meeting tomorrow in the spirit of moving forward towards the introduction of a real child benefit within the lifetime of this Government, taking account of public expenditure difficulties and pay policy difficulties, then we may well see the restoration of their political will.

Amendment 13 will restore our financial flexibility. This is an essential part of enabling us to find a way forward. When we have done this next year, we shall have to deal with the second element of the policy which goes in the wrong direction, the one which is embodied in New Clause 23.

It is tragic that it is not possible for the House to throw out this family allowance formula tonight. The Government have the advantage of dictating the procedural parameters within which we must work. Therefore they can come here and tell us the consequences which would occur if we failed to carry the new clause. But we were not the architects of this reversal, and if there were a clear way of saying either "Yes" or "No" to the Government's proposals as a whole, I am convinced that the overwhelming majority of hon. Members would say "No".

Therefore, we ask the Government tonight to have second thoughts—to begin the reform of character which is necessary to restore their good conscience, and to accept Amendment No. 13. They should take on board the fact that when the working party produces its solution and its formula we shall expect the Government to embody this in legislation next year.

Mr. Peter Bottomley (Woolwich, West)

The Minister can watch his front row now, instead of his back. The proposals the Government have put in the Bill have the effect not of raising the benefit floor for families but of pouring more cement on to the poverty trap ceiling.

Most people in this House would like to see the Government take the easy way out and use the Child Benefit Act which was passed last year with support from all sides. All of us have the basic interests of the poor families of this country at heart. This is not to say that the Government cannot be criticised for failing to bring in a proper level of child benefit, child tax credit or negative income tax, call it what we will.

Two things stopped it from being introduced earlier. One was the result of the 1974 election, and the second was the inability of the Department of Health and Social Security to implement the Child Benefit Act last year. The right hon. Member for Blackburn (Mrs. Castle) very kindly spared us the stories of high alumina cement, but those who write the history of family policy of the middle 1970s will probably put down the apparent recalcitrance of some of the Department of Health and Social Security officials to the way that one of the pension increases was forced through in a great rush, making it impossible for the then Secretary of State to get the co-operation of the officials—or so we were given to understand—and bring in child benefit, when it could have been brought in, last year.

I find it very sad, when we talk about distributing a certain amount of money, that we cannot discuss it openly, and that the Government do not take soundings on both sides of the House, in the trade union movement and among the family organisations to discover whether the Government's attitude towards take-home pay and the pay packet or family income is correct.

The one thing we have failed to have from the DHSS or the Treasury, since the Government climbed down on child benefit, is any realistic explanation of why the decision was made. I do not want to go into the question of leaks, and I shall not, but I hope the Chief Secretary will be able to explain why the decision was taken, and what obstacles there are in the Government's mind to reversing the decision.

The view of most of us is that virtually any scheme the Government may have introduced, at the cost of £95 million, could have been used to give greater help to those who need it. If the right hon. Gentleman can explain that this is not the case, we shall welcome an explanation, even now. I hope that, if the Government cannot introduce an amendment to the Bill this evening to bring in child benefit, they will recognise that there will be widespread support in all parts of the House if they care to do it in the next nine months before April 1977.

If the previous Secretary of State for Social Services had had the backing of her Cabinet colleagues it would have been possible for her, before she left office. to have announced what the rate of child benefit would be. This could have been done before the Government suddenly decided there was not sufficient in the contingency reserve, or before the White Paper concerning public spending was brought out. The right hon. Lady could then have committed the Government to the introduction of child benefit.

I find it rather strange that while Socialist planning made it possible for the Labour Party to go into the February 1974 election and the October 1974 election with a commitment to child benefit suddenly, a month or two before we expected to hear the full details, we heard that the Government had backed down on their commitment.

We have seen Governments in the past committed to raising family allowances or introducing family benefits and then backtracking on them. We have seen family income supplement introduced—a poor substitute for the last Government's opportunity to bring in higher family allowances in the period 1970 to 1974. We have seen the same thing in the two and a half years of this Government.

We have failed to see any discussions about this between the two halves of the Labour movement. We have had pay policies giving increases of up to £6 a week, followed by £4, for people at work, without any proper discussion of the impact of that on Government spending. The £6 a week policy was brought in in August last year at a net cost to the Government, I estimate, of about £7,000 million, with extra inflation for private firms in meeting their extra pay bill. There was apparently then no consideration of spending, say, £500 million on raising family allowances or bringing in child tax credits or child benefits. An extra £500 million last year could have brought in a child benefit scheme which would have had plenty of extra for all families, no matter what their income tax position or their earnings position. Again this year, when we have a pay policy which will give most of us £4 a week extra for being at work, the implications of this in regard to Government spending must be at least another £5,000 million. and yet we find that the Government can only find £95 million.

I do not intend to go on criticising the Government this evening, because I want to make it possible for them to use their slightly shabby working party to come forward with a proposal which can be accepted by the whole House. If by Thursday morning, the day after the working party has met, we do not see a headline saying that the Government have agreed to meet the views of this House, I think the working party itself will be discredited. It will mean that the Government are not paying attention to their own Back Benchers, are not paying attention to the Opposition, and are not paying attention to the decision the House made when the Child Benefit Act was passed. It will mean that they are certainly not giving sufficient attention to the 7½ million families and their 14 million children in this country.

I put on record now that I think one of the reasons I managed to wipe the floor with the Labour Party in my by-election last year was that I went all out on the importance of having proper representations for the family unit at home, and not having the House of Commons dominated by the representatives of those at work. My vote went up and the National Front vote was far lower than it has been in subsequent elections.

If hon. Members on both sides are willing to do what they believe to be right for the children and for the mothers of this country they will discover that we we can get away from the inflationary pay claim situation and back to having proper justice for the children and for the mothers, whether at work or not and whether single or not, in this country.

If the Government fail to change their mind and fail to produce a convicing explanation, they will, in my view, fail to represent the working people of this country and they will show that the Labour Government's policy is based solely on the person at work. This will lose the Government the next election.

Mrs. Helene Hayman (Welwyn and Hatfield)

I do not intend to follow the hon. Member for Woolwich, West (Mr. Bottomley) through all the paths he has taken this evening, nor do I intend to reiterate my reasons for supporting a full implementation of the Child Benefit Scheme and for thinking that the Government were sadly misguided in their decision to ditch the scheme.

I want to speak simply against the new clause that the Government have intro- duced and in favour of the amendment, because it is very important this evening that we make it clear as a House of Commons that we wish to maintain this argument and allow ourselves the option of voting again on these issues and on the whole question of the Child Benefit Scheme.

Earlier in the debate, analogies were made with tortoises. I heard my hon. Friend the Member for Islington, South and Finsbury (Mr. Cunningham) say that the tortoise was going backwards. In the context of the House of Commons, it may be a tortoise when it goes forward but the Treasury is a veritable hare when it goes backwards. The effect of having the new clause and not the amendment would be to put us back very disastrously in the battle on child benefit.

I do not feel that it is good enough for a Government who have said that they will be open-minded on the question of whether it is possible to implement child benefit, and who have set up a working party, to expect us to accept that in good faith when bit by bit we are being hemmed in by provisions in the Finance Bill and by Regulations which are to be brought before the House next Monday. We find ourselves trapped.

It is important that we as a House of Commons should be allowed to keep our options open on the whole issue of how we finance family support, and what measure of it we take from the realm of income tax relief and what measure we take in terms of cash benefit.

If the Government do not accept Amendment No. 13, we shall be disastrously limiting our options for the future. It would be a mistake politically as well as a mistake of social policy so to limit our options. As a measure of faith towards those of us who argue that their initial decision was wrong, and as a measure of faith towards the working party which they were instrumental in setting up, the Government should at least be willing to allow the option of changing their mind in the future. For that reason, I hope that my right hon. Friend the Chief Secretary will not force his hon. Friends into the Lobby against him. Being a reasonable man he will, I hope, accept our rational argument and the amendment.

7.30 p.m.

Mr. David Penhaligon (Truro)

I never cease to be amazed by how frequently I speak in debates of this nature when, to be candid, I do not understand what we are doing. I suspect that I am in the majority in the House, but I am one of the few with courage to admit it.

I will set out the position as I see it and, if I am wrong, I hope that the Minister will correct me. I instance a family which gets interim benefit and family income supplement and pays income tax. The £1 allowance for the first child could in some circumstances be lost in the following way: 50p off the family income supplement, 35p in tax and another 35p in clawback. That means a net loss of 20p a week. That situation has been mentioned several times in the debate and in leaflets that hon. Members interested in this subject have received through the mail. I shall look forward to the Minister's reply on that point. Is that simple calculation correct?

A single-parent family of two, three or four children which receives a family allowance for the new child will have its income reduced. Perhaps we should help to solve the problem by telling those families to disclaim the family allowance. It would appear that a two-child family by disclaiming the family allowance of £1.50, could in real terms increase its income. I do not understand it, but I look forward to hearing the Minister's reply. Perhaps the Minister will tell us how much the Government save by this 120 per cent. tax rate on families which claim family income supplement.

I never cease to be amazed by the sudden realisation by some people that the transfer of income from the husband to the wife under the child benefit scheme results in a loss of income to the husband. Those of us who have attended debates on this subject have recognised that problem for a long time.

The Government tell us that at this precise moment, because of the pay policy, the economic climate is not suitable for the introduction of the child benefit scheme. The implication is that next year or the year after there will be a change that will allow the scheme to be introduced. I can never see the day coming when we shall be able to award large enough pay rises in a single year to enable that problem to be overcome.

The Prime Minister suggested that we might do something about it in 1979. Is he prophesying that in 1979 there will be a rate of inflation of about 30 per cent.? Anything less than a 30 per cent. rate of inflation would mean, with the introduction of the scheme, that many people would have a substantial reduction in their take-home pay.

What economic circumstances does the Minister foresee that will make possible the introduction of the scheme? If he is unable to tell us that, we must accept the tortoise method outlined by the hon. Member for Islington, South and Finsbury (Mr. Cunningham). That appears to be the only way by which the scheme can be introduced.

It is a sad reflection on our democracy that one of the few proposals upon which all the party manifestos were agreed has not been implemented, yet many measures supported only by a minority get on the statute book. To those who are cynical about our politics—I am one—that merely increases the cynicism. It also increases the disregard in which the public hold the House.

Mr. Ron Thomas (Bristol, North-West)

I never cease to be amazed by the hyprocrisy of the Opposition whenever we talk about public expenditure or family provision. When the history of family provision comes to be written, all that will appear as the contribution of the Tories is a footnote on page 500. That will be sufficient to deal with their contribution to the alleviation of family poverty.

I appeal to my Front Bench to accept Amendment No. 13. Like my right hon. Friend the Member for Blackburn (Mrs. Castle) I believe that the Government took a step back which the majority in the Parliamentary Labour Party much regret.

One of the main reasons why I support the child benefit scheme is that for the first time it provides a meaningful payment to the mother. That is essential. For the first time the mother in the family receives an income which she can use for the benefit of the family. At this time, when we so often talk about equality, it was a slap in the face for mothers when the Government decided not to go ahead with the scheme.

It is an insult to the intelligence of trade union members to say that they do not realise exactly what the scheme means. That is certainly not the reaction of my trade union friends.

I appeal to my right hon. Friend to accept Amendment No. 13 in the hope that it will go some way to meet the disillusionment and anger felt by many active party supporters.

Mrs. Margaret Bain (Dunbartonshire, East)

I rise briefly to state my party's sympathy for Amendment No. 13. Before giving my reasons for supporting it in a Division, I wish to take up one point in the speech by the hon. Member for Bristol, North-West (Mr. Thomas). I wish that hon. Gentlemen would remember that there is not just one opposition party: there are several opposition parties in the House.

The Scottish National Party's record on cut-backs in public expenditure is clear. We are totally opposed to public expenditure cut-backs. We have supported the child benefit scheme throughout. I ask hon. Members not to accuse the SNP of hypocrisy. We agree with the accusation of hypocrisy against the Conservative Party.

We recognise that Amendment No. 13 is a tactical and procedural amendment. It is not perfect and it does not do everything we want. It is usually the procedural amendments that are the most important. We support the amendment because it gives heart to those of us who are genuinely concerned that the child benefit scheme has not been brought forward. It encourages us to think that next year it will finally get on the statute book.

My party's support for this concept is well known. The SNP's record throughout the whole child benefit debate is available for anyone who cares to examine it. We support the amendment because we feel that it will bring some help eventually to poor families. If we do not pass the amendment, or if the Government do not accept it, we shall only bring this place into even greater disrepute. People are fed up with hearing the empty promises of politicians and seeing nothing come forward at the end of the day.

I hope that the Government will accept the amendment not merely so they can consider it and discuss its possibilities, but by way of implying a categorical assurance.

Mr. D. E. Thomas (Merioneth)

I have always failed to understand how the Treasury is able to classify additional spending on benefits as public expenditure while not classifying tax allowances as public expenditure. I hope that the Minister of State will educate me on that matter when he replies.

I shall briefly highlight what is happening and what has happened as between tax allowances and family allowances. We have always realised that child tax relief has been most valuable to those with higher incomes. However, under the Government's policy family allowances are set at £1.50 and the total benefit, including the £1 allowance for the first child, will be a lower percentage of average industrial earnings in April 1977 than in 1968. Tax allowances are naturally of no value to those below the tax threshold, and there are some 200,000 families in that position who will not benefit from child tax allowances.

The Government substitute for the child benefit scheme that we have been asked to endorse in the new clause fails to restore the 1968 value of family allowances. They have decreased in value while child tax allowances and tax relief for high income families have increased. At the same time, the tax burden, especially for families just above the tax threshold and for middle income families, has increased. Families with a low income, families dependent on family allowances and families unable to enjoy the full benefit of the child tax allowances are in a worse position under this Government than in 1968. I endorse the amendment.

I hope that the right hon. Gentleman will not merely give us some general commitment that he will consider these matters. I hope he will say quite clearly that he intends to accept the amendment. If not, and if the amendment is not pressed by certain sections of the House. there are other parties that might press the amendment to a Division.

Mr. David Howell

We support Amendment No. 13 because we think, as hon. Members on both sides of the House have said, that this is a small attempt to try to rescue the Government from what most of those who have spoken in this debate recognise to have been a complete and serious failure of policy.

I agree with those who have said that the use of the word "benefit" to describe the additional family allowance is a most pathetic cover-up. I agree with the right hon. Member for Blackburn (Mrs. Castle) that, if nothing else, we should be spared semantic juggling. We should call a family allowance a family allowance and not pretend that in some way a benefit is being created.

This has been a very good cross-party debate. I am sorry that a slight note of bitterness crept into the comments of the right hon. Member for Blackburn. I think that we understand her problems and feelings. It might be argued that when she feels as she does now it is better to stand well back and let her take an unimpeded swing at her own Front Bench. That is, of course, what she is doing.

7.45 p.m.

We do not have anything to apologise for—indeed, the Conservative Party has a good record. It should be argued that if Labour Members had acted a little differently, we should be much further forward on the whole child credit issue. If the Labour Government had maintained the co-ordination that existed between the Treasury and the Department of Health and Social Security when the Green Paper was written on tax credits under the Conservative Government, if the Labour Government had not been quite so eager to throw over the whole tax credit system when they came into office, and if Labour Members had supported my hon. Friend the Member for Ealing, Acton (Sir G. Young) last year, we should all be further forward instead of rapidly falling backwards, as the hon. Member for Welwyn and Hatfield (Mrs. Hayman) has said. If we had moved further forward, that would have been to the benefit of both sides of the House.

However, it would be absurd to vote down the clause. I do not think it is fair that we should be expected to take that course. If we did, we should leave a yawning gap and we should have no guarantee that a proper benefit would be brought in to fill the gap. We shall not vote down the clause, and we shall support the amendment.

At the same time, we are right to say that this is an awful example of the drift of Socialist social policy. It is a drift so far backwards that Labour Members and others are yearning for that happy day when we may return to the level of family support attained under the Tories.

If Labour hon. Members want to compare social records or write history books, they will find where the performance lies in terms of family support and how policies and priorities have changed again and again. They are changing and they will continue to change towards the families of the working poor and those in need. That is what has happened over this whole area, and that is why we do not accept the strictures of Labour Members.

We accept the amendment as going a little way forward, or perhaps holding back the drift in Socialist social policy before it becomes a complete shambles.

Mr. Joel Barnett

The remarks of the hon. Member for Guildford (Mr. Howell) towards the end of his speech about Tory policy were those that rightly led my right hon. Friend the Member for Blackburn (Mrs. Castle) to say what she said. That is well understood by my hon. Friends. I say at the outset that coordination between the Department of Health and Social Security and the Treasury was excellent when my right hon. Friend was in charge. I have never disagreed with any Minister more pleasantly than I did from time to time with my right hon. Friend. That excellent co-ordination has continued ever since.

Mrs. Audrey Wise (Coventry, South-West)

Is my right hon. Friend saying that the Treasury consulted the Department of Health and Social Security about the changes that it proposed for child tax allowances, which pre-empted the whole child benefit situation?

Mr. Barnett

I am saying that all these matters were discussed with the Department of Health and Social Security and other Departments in the Cabinet.

Mr. Patrick Jenkin

Oh!

Mr. Barnett

I do not know what happened when the right hon. Gentleman was Chief Secretary. I was talking about co-ordination between the Treasury and the Department of Health and Social Security. It has been excellent and it is excellent.

The amendment in the name of my hon. Friend the Member for Islington, South and Finsbury (Mr. Cunningham), if accepted, would keep the £300 child tax allowance for the child under 11. It would keep it for 1976–77, and it would revert to £240 from April next year. Similarly, the allowance for the older child would be reduced by £60. My hon. Friend made it clear, as did my hon. Friend the Member for Welwyn and Hatfield (Mrs. Hayman) and my right hon. Friend the Member for Blackburn, that their purpose is not in any way to reduce the resources made available to families. Indeed, they would like, as I would, to make more resources available to deal with the problem of family poverty than so far we have been able to provide. I entirely accept their purpose.

My hon. Friends have not said that they are seeking an increase this year in the total amount available for family poverty. That was not their purpose. My right hon. Friend the Chancellor of the Exchequer made clear in his Budget statement that he regarded the increase in child tax allowances this year as part of the compensation offered to the TUC in the negotiations on the acceptance of the low pay limit. Given the agreement with the TUC, it is right to allow that allowance to stand when we were dealing with net take-home pay.

The hon. Member for Ealing, Acton (Sir G. Young) made the point well about the way in which tax allowances have not increased sufficiently over the years so that the family has been dealt with less well than single people in terms of tax allowances. There is a good case for increasing net take-home pay to increase it for the family more than for others.

My hon. Friends have made clear that their purpose is to leave the door open for discussions during this year with a view to seeing whether it is possible to divert the £300 million cost of the increase in the child tax allowances to make a start in the movement from wallet to purse. There is no disagreement on this side of the House about the need to consider that matter carefully. Discussions will be started shortly between the TUC and the joint working party comprising the Government, the TUC and the Labour Party. I hope that it will be possible to come to some conclusions on how to deal with the matter in the coming year.

My right hon. Friend the Member for Blackburn pleaded with me to free her from her shackles. That is a plea I can never resist. I am always happy to free my right hon. Friend, or any other of my hon. Friends, from any shackles.

I am prepared to accept their amendment in the spirit in which it was moved. We shall be joining with my right hon. and hon. Friends and representatives of the TUC in an examination of what further steps it might be possible to take. But I must make it clear that the final decision will remain with the Government. I emphasise that there can be no question of our devoting additional net resources to the child benefit scheme next April. The House is aware of the constraints on public expenditure, but we will consider whether there is any further scope for moving in the direction in which my hon. Friends wish to move. That is why we shall be having the discussions.

It will be necessary for the Inland Revenue to be told what levels of child allowances it must include for next year when it comes to calculating the annual codes this year. I hope that it will be possible to look at the matter urgently, because in that sense there is no time to be lost in coming to a conclusion. I am happy to assure my hon. Friends that I can accept the amendment, which will give us time to look at further steps in the direction that my hon. Friends seek to move, and I recommend the House to accept the amendment.

Mr. Kenneth Clarkerose—

Mr. Deputy Speaker (Sir Myer Galpern)

The Minister has already sat down.

Question put and agreed to.

Clause read a Second time, and added to the Bill.

Mr. Kenneth Clarke

On a point of order, Mr. Deputy Speaker. Is it in order for the Minister to move a new clause, to sit and listen to the debate which deals with taxation and clawback and which affects a large number of people, to look as though he is making notes and nodding wisely, and then to refuse to make any reply? It is important because a large number of families may be worse off next year as a result of these provisions.

Mr. Deputy Speaker

The Chair is not responsible for a Minister's speech.