Front-loaded Child Benefit Bill [HL]

Friday 2nd December 2022 Lords Chamber

Committee

14:19

Clause 1: Child Benefit (Rates) Regulations 2006 amendment

Amendment 1

Moved by

[Baroness Berridge]

1: Clause 1, page 1, line 5, leave out “on a sliding scale”
Member’s explanatory statement
This amendment removes any detail that could signal how arrangements for varying the rates should be made.

[Baroness Berridge (Con)]

My Lords, with the leave of the House, I will speak to Amendments 1 and 3 in the name of my noble friend Lord Farmer, who is unavoidably detained today. I thank the noble Baroness, Lady Sherlock, for helpful discussions and advance notice of the specific questions that her amendments seek to address. I hope that we can make the most of our Committee on this Bill. I am also grateful for the letter from the Exchequer Secretary to the Treasury outlining various concerns around this proposal.

Amendment 1 seeks to address the legislative difficulties that the Treasury has highlighted, as it would simply leave out the words “on a sliding scale”, which introduced unworkable complexity into the Bill and would potentially require HMRC to make very regular changes to the child benefit rates available to claimants. As the Treasury said, this would be challenging to operationalise and potentially expensive for taxpayers. This amendment would also hopefully answer some of the concerns raised by the noble Baroness, Lady Sherlock, around adding complexity for parents into the child benefit system.

With Amendment 1, the Front-loaded Child Benefit Bill would be deliberately simple and merely provide the legislative lever or framework around which the Government can then build detailed policy. They would of course be aided in this respect by the many respected think tanks that have published reports providing solutions to the cost of living crisis that we know is facing many families, going beyond giving money and aiming to help improve choice and encourage responsibility.

My noble friend Lord Farmer explained at Second Reading that the rationale is to increase choice for parents in how they manage childcare in the early years. We have all benefited from the research and information about the importance of those early years and the foundations that are laid at that time. During those first two or three years, many parents would like to care for their children themselves but face a considerable and increasingly insurmountable sacrifice of income to do so. Receiving the same flat rate of child benefit throughout childhood no longer fits with the financial realities of many families.

Interestingly, since the Second Reading debate in October, other think tanks such as Civitas have proposed a family support benefit, which would roll out £16 billion of government child benefit and childcare expenditure into a front-loaded payment. In August, the Policy Exchange think tank made a similar recommendation for what it termed a “baby boost” allowance for parents of children aged two and under, which would double child benefit and be funded by reallocating the significant underspend on tax-free childcare. It is that kind of thinking that this Bill is part of in terms of renewing the financial framework for families in the early years. Those costed proposals are important, because one criticism of the Bill was the upfront additional burden on His Majesty’s Treasury from a higher rate in the early years, even if the measure was ultimately cost-neutral, as there could be a correspondingly lower rate in later childhood. This reform of child benefit would be part of a much-needed redesign of financial support.

I heard at Second Reading what other noble Lords said around the expense of teenagers. No one is pretending that that is not also an expensive time, but parents are usually much less restricted in terms of the hours that they can work when their children are at school and childcare is much easier. That is also reflected in the fact that the Government give disadvantaged two year-olds, three year-olds and four year-olds all the hours that they do, usually free. Additionally, the age at which the benefit might taper off would be an age at which certain children find that they want to add to the family household income themselves.

There are advantages to this front-loaded child benefit being part of what we see as a greater overhaul of the system of financial support. However, that aspect of any new passage would need primary legislation, which is why this Bill has been brought forward. With the removal of the sliding scale, it is hopefully a very simple framework into which any Government could fit any detailed policy proposals.

Amendment 3 would insert a new clause to enable the Secretary of State to set different rates at which parents could choose to be paid in the early years and later in childhood. Importantly, that amendment would put all the policy implementation detail into the hands of Ministers to craft, so that it can be more easily changed as circumstances change than if it was in primary legislation. This would enable the front-loaded child benefit to be part of a suite of reforms benefiting parents in the early years. The second amendment makes that important change: it would no longer be up to parents to request a particular proportion, but the Government would set within the framework, for example, what proportion could be drawn down and within what age range of the children, et cetera.

As originally drafted, the Bill would have allowed the child benefit claimant to request the front-loaded payments without details of what the new rates would be and how they could be discounted in a child’s later life. That was not my noble friend’s intention, so that change in who has control would come through Amendment 3, and the delegated powers would be with the Government to develop the front-loaded system.

Briefly, I believe there is one point that the noble Baroness has raised which is not covered by the amendments. It is her query about why the Bill includes “without prejudice” in Clause 1(1B). The only reason that bit is there is as kitchen-sink legislation, just to make sure. Obviously, the provision referred to means that child benefit can never be lowered. We wanted to make it crystal clear now that even if you ended up with a group of parents claiming flat rate for the entirety of a child’s life, and then a group doing front-loaded plus decrease, none of those rates could be lowered. We are just kitchen-sinking it to make sure it does not provide any wiggle room for a future Government to say, “We’re raising child benefit, but those discounted years and the old years do not get the same percentage increase.” That is why the provision is there; it is without prejudice to that, so it would mean there could be no change to that fundamental principle—basically, that child benefit never goes down.

I hope that has clarified those questions for the noble Baroness and I beg to move.

[Baroness Sherlock (Lab)]

My Lords, I thank the noble Baroness, Lady Berridge, for standing in for the noble Lord, Lord Farmer, and introducing the amendments in his name. I shall speak to Amendments 2, 4 and 5 in my name. Having suggested to the usual channels that we have a single group, I will cover everything in one speech, so it may be slightly longer than normal. These are all probing amendments, which I have tabled simply to allow us to explore how the proposal to front-load child benefit would work. I would like to look at three sets of issues.

First off, there is the value of child benefit paid up front. At Second Reading, the noble Lord, Lord Farmer, argued—and the noble Baroness, Lady Berridge, agreed—that the aim of the Bill is to direct more money to parents in the early years to allow them to make different choices. For that to work, it would need to be enough to make a difference but that is going to be quite hard. Child Poverty Action Group research shows that last year the additional basic cost of a child from birth to age 18 was over £76,000 for a couple family, of which child benefit covers about 22%. If you add in housing and childcare costs, the figure rises to over £160,000. The figure for single-parent families is higher still, so how much extra could they get?

Amendment 3 would leave the framing of options to the Government, as we have heard, so my first question is therefore for the Minister. Could the child benefit computer cope with the level of complexity this would introduce? It is a long time since I was a Treasury spad, but my memories of it are such that it made me wonder: when Ministers decided to withdraw child benefit from higher-rate taxpayers, was there perhaps a reason they used the tax system, rather than deciding to means-test it in the more conventional way?

I ask the noble Baroness, Lady Berridge: would the Bill as amended allow Ministers to choose any combination of sums? Could a choice be to have 95% of lifetime child benefit in year 1 and the other 5% over the rest of a child’s childhood, or vice versa? More likely, I imagine, is the Policy Exchange model, to which the noble Lord, Lord Farmer, referred at Second Reading. That proposed that half the total entitlement to child benefit should be available during the first three years of a child’s life, and the other half spread over the remaining years of entitlement.

The Bill provides, and the noble Baroness has confirmed, that the intent is that the amount payable over a child’s life would be the same, whichever path was chosen. My Amendment 2 says that it should be the same in real terms, which is there to allow me to ask the noble Baroness, Lady Berridge: is it the intention that front-loaded child benefit would be paid at nominal value—in other words, at today’s child benefit rates—or would some account be taken of the impact of inflation and change in purchasing power over the years?

Because I am sad, I did some back-of-the-envelope calculations, using the example of a family with two children who took the Policy Exchange model at the start of this financial year. I confess that I made the children twins to make the sums easier. If the money is paid out at nominal value—that is, today’s child benefit rates—I estimate that the total amount paid over 16 years would be £30,160.

14:30

If what they got each year depended on the prevailing benefit rates and those went up by CPI inflation—one hopes they would—then they would get rather more in cash terms. Using inflation predictions from the OBR, which predict that inflation will spike, turn negative and then settle at 2%, the family would get an extra £5,772 in cash. If we follow Bank of England predictions and then move to 2% when they run out, it would be more than an extra £6,500. Finally, if inflation settled at 5% after next year, it would be an extra £11,000. In other words, the amount the family could get ranges from £30,000, if taken in today’s money, to over £40,000 if inflated. My sums may be completely out but, either way, it is quite a margin.

The noble Baroness, Lady Berridge, may say that purchasing power surely stays the same if child benefit rises by inflation. We can debate that—it depends on when it is paid and inflation rates—but even if it did, although the usual practice is to increase child benefit by CPI, there is no statutory requirement to increase it at all. As she will know, this Government froze it between 2010 and 2013, increased it by only 1% in 2014 and 2015 and then froze it again for the next four years. If that happened again, the value of the child benefit paid to someone taking the money up front would be much higher than for someone who had been paid under the traditional system.

Also, for any parent or carer who thinks they may at some point be a higher-rate taxpayer—fiscal drag is creating rather more of those—there would be a great incentive to get as much child benefit as possible, as early as possible, while they are still eligible. At the other end of the scale is the question of the benefit cap, which affects child benefit. Does that mean some parents would be worse off if they took the money now than if it were spread over the years? Can the noble Baroness, Lady Berridge, tell us how a scheme such as this would prevent a child getting more or less in real terms over their childhood than they would have got had it not been front-loaded? If the Bill’s supporters are happy for there to be a difference, how will parents be able to understand the choices they make?

Amendment 4 in my name is a probing amendment to explore whether and how conditions can be imposed on those who choose to take front-loaded child benefit. In 2007, the Social Justice Policy Group suggested that higher initial payments should be subject to satisfactory visits from health visitors or other professionals. The Policy Exchange plan said there was a case for making the payments conditional on the child not being raised in a “potentially harmful environment”, such as one where the parent was abusing drugs or alcohol or did not make sure that the child attended school regularly.

At Second Reading, the noble Lord, Lord Farmer, said that he would leave this to the Government, who

“might want to make higher rates of child benefit in the early years conditional on, for example, attending parenting education and/or objective indicators such as school attendance of previous children or professionally recorded signs of neglect.”—[Official Report, 8/7/2022; col. 1203.]

Does the Minister believe that current legislation would permit the use of parenting behaviour as a criterion for getting child benefit at all or choosing to get it front-loaded? If not, would this have to be done in secondary legislation? If so, can she and the noble Baroness, Lady Berridge, say from where the delegated powers to do this would come? Would it be this Bill, the Social Security Contributions and Benefits Act 1992 or some other legislation?

Finally, my Amendment 5 explores what would happen if a child’s care arrangements changed. At Second Reading, the noble Lord, Lord Farmer, said:

“During the first years of infancy, many parents prefer care to be carried out by themselves or, if available, by grandparents or other extended family members”.—[Official Report, 8/7/2022; col. 1201.]

Let us suppose that a four year-old was living with a parent who died or simply could not manage to raise them anymore, so the child was taken in by a grandparent or another extended family member. If that parent had chosen to take half the child benefit up front, is the plan that the kinship carer would then have to raise the child with only half of the lifetime child benefit, to last the next 12 years? It is not just kinship care; it would apply in many fostering cases, adoption cases or where parental responsibility is transferred from one parent to another. Can the noble Baroness say what would happen if an entitlement to child benefit were to cease because a child died or was taken into local authority care? Would a family have to repay child benefit?

Finally, I thank the noble Baroness for her clarification of the meaning of Clause 1; specifically, the phrase “without prejudice”. My curiosity was sparked by trying to work out what the effect would be of not inserting paragraph (1B) into Clause 145 of the Act. Can she help? I could not really work that out.

I have asked a lot of questions about what is a skeleton Bill, but at Second Reading the noble Lord, Lord Farmer, said:

“For this to become law, a government Minister will need to steer it through the Commons, with additional clauses concerning secondary legislation and statutory guidance where policy detail would lie.”—[Official Report, 8/7/22; col. 1203.]

However, these new amendments make it clear that, in fact, it is the Secretary of State who can determine all the details and impose them by regulation. Although the regulations will be affirmative, this House cannot amend them and would not reject them, save in exceptional circumstances, so this is our only opportunity to find answers to these questions where we can usefully interrogate them on the Floor of the Chamber. Given that, I look forward to the replies from the Minister and the noble Baroness, Lady Berridge.

[The Parliamentary Secretary, HM Treasury (Baroness Penn) (Con)]

My Lords, I start by thanking my noble friend Lord Farmer, and my noble friend Lady Berridge, for bringing these amendments in Committee on his behalf. I acknowledge the dedication they have both shown to this issue. As my noble friend knows, the Government wholeheartedly share her ambition to support parents in caring for their children. Recently, the Chief Secretary to the Treasury has confirmed that, subject to parliamentary approval, child benefit payments will increase in line with the September rate of inflation in 2023.

Like my noble friend, the Government are committed to supporting parents, regardless of whether they choose to leave the workforce in order to carry out childcare duties or remain in the workforce. Details of the UK’s generous parental pay and leave policies were set out at Second Reading. Moreover, it has recently been confirmed that, subject to parliamentary approval, statutory maternity pay, maternity allowance, paternity pay and shared parental pay will all also be uprated in line with September’s inflation in April 2023. For parents who wish to return to the workforce, the Government offer a range of support with childcare costs. I will not go into the details of these policies, which were described at Second Reading. However, the Government do consider these to be appropriate and robust measures to support families with childcare costs. These initiatives also ensure that families on the lowest incomes receive additional support.

To answer the noble Baroness, Lady Sherlock, I do not know exactly why the Government put the child benefit tax charge through the tax system, but I can tell her that the child benefit system is not designed to front-load child benefit payments in the way the Bill intends. It would involve a complex change to the IT system, which would include significant costs for both the IT system and upskilling staff—and we all know the risks around significant IT upgrades and the delays that can occur.

On the noble Baroness’s other questions, current legislation gives His Majesty’s Treasury the power to prescribe different rates of child benefit for different cases. For example, to date that power has been exercised to prescribe different rates, according to whether payments are being made in respect of the first child or subsequent children. Full legal analysis would be needed to determine whether current legislation allows for different rates to be prescribed for different patterns of parenting, but it would not be possible under the current system to prescribe different rates or make child benefit conditional on different parenting behaviours, as the noble Baroness set out. I hope that answers her questions.

Returning to the amendments tabled by my noble friend Lord Farmer, as I say, the Government set out our full position at Second Reading on why we cannot support the Bill as a whole. In addition to the previously raised issues, I will add a few further points worth considering in relation to these proposals. First, the current child benefit system already takes into account the higher costs that families face when they first have children, hence the higher rate paid for the eldest or only child.

Secondly, as the noble Baroness, Lady Sherlock, outlined, a parent’s circumstances may change over time, affecting their eligibility for child benefit payments. This may occur for many reasons. For example, a child may leave full-time non-advanced education, or a parent may lose custody of a child. A parent’s income may also increase, such that they become liable for the high-income child benefit charge. If they have chosen to front-load their child benefit payments but become ineligible or opt out in later years, that could affect the fiscal neutrality of this measure. Furthermore, different individuals may claim child benefit in respect of the same child but for different periods of time. The proposals in the Bill would mean that new claimants could be affected or bound by the decisions of the previous claimant. This could be particularly problematic in cases where separated parents are already in conflict over who should claim child benefit.

Thirdly, as the noble Baroness, Lady Sherlock, also noted, the Government currently review the rates of child benefit annually in light of inflation, helping families with rising costs. However, the lack of certainty around how child benefit rates will change in future means that it is not possible to ascertain what an appropriate rate for front-loaded payments would be.

I apologise; I said I was turning to the amendments, but those are our objections to the Bill in principle. I now come to the amendments themselves. I acknowledge that the amendments tabled by my noble friend Lord Farmer would make the Bill more workable for the Government. Amendment 1 would mean that the Bill no longer constrains the Government in setting up a system that specifically front-loads payments on a so-called sliding scale. Instead, as set out in Amendment 3, the Government would be given more flexibility to design such a system, which does not necessarily have to be on a sliding scale. Therefore, the Government have no objections to the amendments. The Bill would potentially need further tidying up to become fully workable, but we recognise that the amendments are a step in the right direction.

Nevertheless, although the Government remain committed to supporting families and children, it is for the reasons previously outlined at Second Reading, and the further points raised today, that the Government cannot support the Bill. I welcome the passion and commitment of both my noble friends in this area, and I am sure that they will continue to press the Government on these important issues. The Government will continue to listen to what they, and all noble Lords, have to say on family policy in the future.

[Baroness Berridge (Con)]

My Lords, I am grateful for the contributions made, and I hope to briefly answer the points raised. I accept that the calculations are very detailed, even if they on the back of an envelope, and this is precisely why the Bill is in the framework that it is. The modelling and viewing of real-terms changes and nominal rates can be done by the Treasury—we are in this strange triangular relationship here as it is a Private Member’s Bill—so that the Government can do the policy work in advance and work out how we would cope with the change in inflation and purchasing power, and what would happen during those years. I cannot give the noble Baroness detailed answers, but this is precisely why the Bill is in the framework that it is.

The Government should commend themselves rather more on infrastructure. They have set up systems recently that have worked very well—including for vaccines and the EU settlement scheme—so it is possible to create that infrastructure, though I am mindful obviously of the cost. As to what we could give parents, budgets are so tight at the moment that families may want to choose front-loading.

On conditionality, it is not envisaged by the Bill that we would have any kind of sanction. I recognise that think tanks have suggested that, but, again, that is for the Government to work out in the policy detail on people who want to front-load. The noble Baroness has raised queries before about people understanding what they are doing, so there may be some requirement to make sure that they understand what the implications of taking the child benefit, or a proportion of it, in a front-loaded way are.

On legislation, whether it is an additional clause here or it is done under previous primary legislation, I would rely on the Delegated Powers Committee to say which is the best piece of legislation to use to enact these changes.

In many areas of a child’s life, those the child is living with and who have parental responsibility are making all kinds of decisions that affect the outcomes for that child. If they then move, the other parent or foster carer might say that they would not have made that decision. The reality here is that, as in other areas of life, decisions will be made that will affect the child in future.

Repaying money is not what is envisaged, but the noble Baroness, Lady Sherlock, inadvertently raises precisely the first case in which a parent might want to front-load benefits, which is where they sadly have a young child or baby who has a limited life expectancy. Why would you not want to enable that family to front-load their child benefit, bearing in mind the prognosis they have been given? I know that they are often entitled to other benefits and support, but they might also want to do that. That would be a laudable way of using the Bill.

I accept that it is a skeleton Bill. I accept the criticisms and comments made about our statutory instrument procedure, which allows debate but not the opportunity to vote down. However, this is a principle Bill, which would then enable the Government to construct the detailed policy. I thank all noble Lords for their contributions.

Amendment 1 agreed.

Amendment 2 not moved.

Clause 1, as amended, agreed.

Amendment 3

Moved by

[Baroness Berridge]

3: After Clause 1, insert the following new Clause—
“Regulations(1) The Secretary of State may by regulations prescribe the rates from which people to whom child benefit is payable may choose to be paid, in accordance with section 1, and the arrangements for such choices being made and implemented. (2) Regulations under subsection (1) are to be made by statutory instrument.(3) A statutory instrument containing regulations under this section may not be made unless a draft of the instrument has been laid before and approved by a resolution of each House of Parliament.”Member's explanatory statement
This new clause delegates powers to government to develop a front-loaded payment system.

Amendment 4 (to Amendment 3) not moved.

Amendment 5 (to Amendment 3) not moved.

Amendment 3 agreed.

Clause 2 agreed.

House resumed.

Bill reported with amendments.