Average Family Income (Hansard, 16 November 1976)

§ Mr. Orme,

pursuant to his reply [Official Report, 3rd November 1976; Vol. 918, c. 627], circulated the following information:

The estimates are as follows:

child tax allowances should be phased out and replaced by child benefit. By April 1979 it is intended that child tax allowances at the current £300 rate for children under 11 should be entirely phased out, leaving only residual allowances for older children which will themselves be subsumed in child benefit as soon as possible thereafter.

2. For 1977–78 it is proposed that, as the first steps in the phasing, child benefit, at the previously announced rates of £1 for the first child—£1.50 for families now getting child interim benefit—and £1.50 for each subsequent child, should be exempt from tax clawback, and that child tax allowances should be reduced as compared with their current rates by an amount corresponding to the restrictions which would, under the Government's earlier proposals, otherwise have had to 503W be made to take account of tax and claw-back on the child benefit. These restrictions would have been £104—£52 For tax and £52 for clawback—in respect of the £1 benefit payable for the first child, and £130—£78 for tax and £52 for clawback—for each subsequent child. It is therefore proposed that the child tax allowance for a first child should be reduced by £104 and the allowance for each subsequent child by £130. Legislation will accordingly be introduced in next year's Finance Bill to exempt child benefit from tax and clawback and to reduce child tax allowances as follows: Age not over 11 on 6th April 1977 (1976–77 rate £300), first child £196, subsequent children £170. Age over 11 but not over 16 on 6th April 1977 (1976–77 rate £335), first child £231, subsequent children £205. Age 16 or over on 6th April 1977, if receiving full-time instruction at a university, college or school, or being trained for not less than 2 years for a trade (1976–77 rate £365), first child £261, subsequent children £235.

3. These new rates of allowance will apply whether or not child benefit is actually paid or is paid for less than a full year and irrespective of the rate paid for a particular child.

4. A separate statement will be made shortly on the treatment of parents of children who live outside the United Kingdom.

5. With regard to parents of students, those who are liable to a parental contribution will benefit from adjustments to be made in the parental contribution scales for student grants in the academic year commencing in September 1977, and subsequent years, to take account of the reduction in child tax allowances. Child benefit is not in any event payable for any child aged 19 or over, and in view of the adjustments to be made in student grant arrangements, it is proposed as from October 1977 to exclude from entitlement to child benefit students under 19 on advanced courses.

6. The "first child" for the purposes of the new rates of allowance will be the eldest child for whom the taxpayer is entitled to child allowance. Where a child tax allowance falls to be apportioned, the allowance to be apportioned will be the highest rate of allowance which would be due to any claimant.

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7. Widows and others receiving taxable social security benefits—including pensioners—who have dependent children for whom they receive taxable dependency allowances are at present subject to tax, but not to clawback, on any family allowance received. When from April 1977 the first £1 of the dependency allowance for the first child is replaced by the £1 child benefit, the proposed reductions in child tax allowances, which take account of both tax and of a £52 clawback element, would leave some widows, etc., liable to pay more tax if no adjustment were made. It is, therefore, proposed for 1977–78 to exempt from tax £52 of the taxable dependency allowance for each child. No tax adjustment is to be made for war widows, whose dependency allowances are not taxable, but their dependency allowances for the first child will be reduced by 30p a week instead of £1, and for subsequent children increased by 35p. This will ensure that those who are liable to tax on other income are not any worse off.

8. One-parent families who receive the child interim benefit of £1.50 for the first child, and who will in future receive child benefit at a special rate of £1.50 for the first child, will have their child tax allowances for the first child reduced by £104, as for first children generally. This is less than the total restriction in allowances of £130 which they at present suffer to take account of tax and claw-back on their benefit, but it would be difficult operationally for the Revenue to cope with a different rate for first children in one-parent families. These families will, therefore, be better off in 1977–78 by an amount equivalent to £26 allowances—£130 less £104—vis., about 18p a week. This is not intended to be a permanent feature, and they will be put on the same footing as other families as soon as that is practicable.

9. The changes proposed for 1977–78 will leave the great majority of taxpayers, including taxpayers at the higher rates in the same position, both in terms of take-home pay and net family income, as they would have been under the Government's earlier proposals. The father's take-home pay will go down as compared with 1976–77 by 70p, while the mother will receive the new tax-free child benefit of £1. Thus the family as a whole will be 30p a week better off.

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10. A minority of higher rate taxpayers could be slightly worse off than they would have been under our earlier proposals, but this only arises for those paying at a marginal rate of 55 per cent. or over for whom it would have been advantageous to renounce child benefit had it been subject to tax and clawback, and then only if they had in fact chosen to do so. We do not consider that the position so far as 1977–78 is concerned calls for any special measures, given that the losses are small and only arise for a minority in the higher ranges of the higher rates. The position for subsequent years, when further reductions in child tax allowances are to be made without any compensating tax and clawback adjustments, is under consideration.

11. The Inland Revenue will, as has already been stated, be taking account of the changes proposed for 1977–78 in

	31st December
			1972	1973	1974	1975	Present strength
Collector of taxes (higher grade)	…	…	1	1	1	1	1
Collector of taxes	…	…	2	2	3	5	4
Senior assistant collector of taxes	…	…	2	2	1	—	—
Assistant collector of taxes	…	…	11	13	13	14	17
Clerical assistant	…	…	3	3	3	4	4
Typists	…	…	2	2	2	2	2
			21	23	23	26	28