Taxation of Low-income Families

Andrew Selous Excerpts

Wednesday 16th January 2019 Westminster Hall

[Andrew Selous (South West Bedfordshire) (Con)]

It is a pleasure to speak in this debate under your chairmanship, Sir David. I pay tribute to my hon. Friend the Member for Stafford (Jeremy Lefroy) for opening it so well, to my hon. Friend the Member for Congleton (Fiona Bruce), who did so much to launch the report that we are considering today, and to my hon. Friend the Member for Bolton West (Chris Green), who was also part of that important work.

I will start by giving credit where credit is due, because it is always important to do that; it is both the polite and the correct thing to do. I therefore say to the Minister, who is a friend in these matters, that we need to put on the record our huge gratitude and appreciation for the 3.4 million jobs created under the Conservative-led Government since 2010. That is 3.4 million people who have the security of a monthly pay packet, who can look after their family, put food on the table and clothe their children. It is hugely important that that is recognised.

Consider youth unemployment rates around the world. I understand that in Greece youth unemployment is at 57%, and it is far higher in France and many other parts of the world. Our youth unemployment rate is a fantastic achievement. There has been a British jobs miracle since 2010 and we need to be hugely appreciative of it and not take it for granted. It has taken a lot of hard work and focus to create the environment in which businesses can flourish.

Universal credit has also been good, in getting rid of the pernicious effect of the old 16-hour rule. My hon. Friend the Member for St Austell and Newquay (Steve Double) talked about when he was an employer and he gave us the example of employees who did not want to work more than 16 hours a week, as it was not worth their while because they would be so penalised by the 16-hour rule. Universal credit has swept that away. Now, for every extra hour that people work, at least they get something more. Lastly, the increase in the personal allowance has been enormously welcome to the group of people we are talking about.

Many of us—certainly among Government Members, but I think across Parliament—understand the damage that high marginal rates of tax do in discouraging enterprise. Entrepreneurs do not have to set up businesses. It has to be worth their while to do so and if the odds are stacked against them, with regard to the returns they will make, they will not start up businesses. This Government understand that well, and because they do we have created this fantastic environment for businesses, which has created those 3.4 million jobs that I just mentioned. All credit is due to the Government for understanding that.

However, I say to the Minister that businesses do not just exist for their own right and for their own benefit; they exist to benefit society and to benefit their employees. Humans are not resources; they are the point of it all. Businesses are there to benefit their employees, and if we are trapping people in low-paid work, so that they cannot progress in the way that many of us here in Westminster Hall have been able to progress throughout our careers, that should be of acute concern to our friends in the Treasury. I am sure that point is not lost on the Minister.

I reiterate the point that, sadly, the United Kingdom is an outlier in this respect, because the marginal tax rate for a one-earner couple with two children on 75% of the average wage is 73%, which is more than twice the EU average of 22%. No other OECD country treats low-income working families as badly as the United Kingdom does, with regard to effective marginal tax rates and work incentives.

It is really important to put on the record that, notwithstanding all the good work that has been done since 2010, this area is unfinished business. I want the Minister to go back to the Treasury and impress on the Chancellor and his fellow Ministers, who I think have an appetite for this work and do get it, the need to say to officials that more work has to be done in this area, so that everyone can benefit from the fruits of their hard work throughout their working life.

The problem of high effective marginal tax rates does not just affect single earners. It affects a million of them, but we know that there are also 600,000 dual earners who are similarly affected and—really importantly— 900,000 single parents as well. So this is a problem for all types of family structure.

We are not calling for the abolition of independent taxation; I do not think that would be the right thing to do. However, I think it would be right to introduce an element of choice, because Government Members certainly believe that choice is a good thing. It gives flexibility, because families have different priorities and different needs at different stages of their lives. As has also been said before, we are in fact extremely judgmental, because the tax system is very prejudicial when only one member of a couple chooses to work and the other member chooses to care for children or frail elderly relatives.

[Chris Green]

I agree that this sense or understanding of the system being judgmental is a problem. Would it not be far better if the system, rather than judging one way or another way, had a far more neutral position, because that would enable individuals and families to make their own decisions?

[Andrew Selous]

Yes, I completely agree. I think that it comes back to choice and recognising that families face different challenges at different times of their lives, particularly regarding the needs of children, the frailties of elderly parents and so on. I hope that our social care reforms, which are forthcoming, will go some way towards addressing that situation, but the tax system absolutely has a huge role to play in addressing these important issues, which my hon. Friend quite rightly raises.

Effectively, what we are saying through the tax system is that, despite praising with warm words family members who choose to stay at home if they can make the financial choice to do so—not every family has members who can make that choice, but there are families in which one person makes the sacrifice to stay at home, to be with their children or to look after elderly relatives—we think they are making the wrong choice, because we penalise them for doing so; there is no recognition of what they do.

The Centre for Policy Studies, which was referred to earlier, has made a proposal that we should consider, which is to look at the transfer of unused personal allowances. The Child Poverty Action Group—the report that we are considering today looked across the political spectrum; I have great respect for CPAG—made some suggestions about perhaps increasing child benefit for children under five in lower income families. One way that we might be able to fund that—it is a golden rule with me that if anyone calls for an increase in expenditure, my next question is, “Where is the money coming from?”

[The Financial Secretary to the Treasury (Mel Stride)]

indicated assent.

[Andrew Selous]

I see that the Treasury Minister is nodding; let me give him a suggestion, as I have made a call on the public purse. At the moment, we give child benefit to families that have an income of £100,000, where both members of a couple are earning £50,000, whereas that stops at £62,000 when there is only one earner in a family. So there is £38,000 worth of income in respect of child benefit to play with.

The Minister will have to go back to the Treasury and get all his super-clever officials to run those figures through the Treasury modelling system, but there will be some money there that could perhaps be better targeted at child benefit or the transfer of unused personal allowances. We are not being prescriptive here; we want Ministers to go back and look carefully, and reflect carefully, on these matters.

In respect of the work that parents do within the home—looking after children, or looking after frail or elderly relatives—last October the Office for National Statistics said that unpaid household work had a value to the British economy of £1.24 trillion. That is a big figure, as the Minister will appreciate, and just some recognition of the good that is done to society by that work—the costs that are not accruing to the public purse because of it—would be welcome. I think that on average that work comes down to a value of £18,932 per person, which is a significant amount.

[Fiona Bruce]

Are we therefore saying that some recognition by the Government of family in the tax system would go a long way towards changing the culture in our society, whereby we ought to value much more greatly that kind of work within the home, which is unpaid but provides so much benefit to society, economically as well as socially?

[Andrew Selous]

I agree with my hon. Friend, who makes an entirely reasonable request, and I will tell her why it is so reasonable: all our main economic competitors across the OECD do exactly what she suggests. It needs to be said a lot more often in this House that, as I said at the start of my contribution, we are an outlier in not doing this. We have taken for granted the fact that we have independent taxation that quite often ignores the second person in a family if they are not earning, which has led to some perverse consequences. I ask the Minister to go back to the Treasury and ask his officials to contact the economic councillors in British embassies around the OECD to get good data on how other countries do this, whether Finland, France or Germany. Let us look at what those countries do; let us look at how that increases the net take-home pay of lower income families; and let us look at the choices that it gives to those families, and at the overall satisfaction that is derived.

We have been talking about low-income families, and it is important to get on the record that the effects of high effective marginal tax rates can go quite high up the income scale. For example, a single-income family with three children paying rent of £157 a week has a marginal tax rate in 2018-19 of 96%, but that does not come down to 32% until income reaches £40,776. That might sound like a very high income, and for a lot of people it is, but for a person who lives in a high-cost housing area, that income disappears very fast. We need to remember that across large parts of the country, particularly those regions south of Birmingham in which many millions of our fellow citizens live, housing costs are extremely high, and that leaves a much smaller net take-home income for families to pay for all their needs with.

To repeat a point that was made earlier, in 1990 the effective marginal tax rate for a single-earner family on 75% of the average wage with two children in the UK was 34%. Today in the OECD it is 33%. Today in the UK it is 73%. We have diverged massively from our friends and competitors in the OECD since 1990, and I do not think that is because of some malicious plot in the Treasury; I think it has happened in spite of good policies.

[Fiona Bruce]

Does my hon. Friend think it is interesting that we also have one of the highest rates of marriage breakdown in the developed world? Is there perhaps some interesting connection to be made there?

[Andrew Selous]

We need to look at everything we can do to strengthen family life, because we know that strong families—healthy, supportive, committed, mutually respectful couple relationships—are the bedrock of our society. As a Government, we used to talk a lot about reducing the couple penalty; certainly when we were in opposition and preparing for Government, that was a significant objective. We have made some progress towards that, given what we have done through universal credit, but it is still a big issue, as all of us see week after week in our constituency surgeries. We sometimes speak to single mums who are on their own, who are not acknowledging their partner because of the loss of income that would entail. That is not a good state of affairs, because there exists a loving, respectful relationship in which mum and dad want to live together, but they are not doing so because they would be penalised. It is all very well for us to talk about people doing the right thing, but for a lot of our constituents that is not possible if they are hit in the pocket. That message needs to hit home.

I will conclude by coming back to the importance of family, which my hon. Friend the Member for Congleton has quite rightly pressed me on. I know that I am pushing at an open door, because I rechecked the excellent speech that the Chancellor made in Birmingham in October. When he listed the principles that inspire him as a politician, strong families and family stability were right up there. I think the Chancellor gets this—I think the whole Treasury team gets this—so I hope that when the Minister responds he will give us a commitment that he will go back to the Treasury, talk to the Chancellor, and do detailed preparatory work and study of other countries to look at how we can make some of these changes. We are not asking the Minister to come up with specific answers today, as we know there is a lot of detailed work to be done, but I hope he will give us an undertaking that he will go back to the Treasury and make sure this work gets underway.

[Sir David Crausby (in the Chair)]

I had wanted to call the Front Benchers by 10.25, but I will call Sir John Hayes for a tiny contribution.

--- Later in debate ---

[Alison Thewliss (Glasgow Central) (SNP)]

It is a pleasure to see you in the Chair, Sir David. I must say that as a feminist, I feel as though I have fallen down some kind of vortex to the 1948 film “Every Girl Should Be Married” in this debate. I fundamentally disagree with many of the arguments that hon. Members have put forward so well; I respect their right to do so, but they have ignored the elephant in the room, which is that lots of the stresses and strains on our society are caused by austerity, not by whether people are married or not. That is a personal choice.

Tax is often thought of as a boring, dreaded thing—a duty to be avoided, something best left to stuffy men in suits. However, like all economic tools, tax is a mechanism that opens up opportunities to shape the kind of society we want to live in. It incentivises good behaviour and punishes what some would consider to be bad behaviour. The UK Government’s tax system remains quite a blunt tool with which to tackle income inequality. It is riddled with loopholes that benefit the wealthy, and according to figures from the Institute for Public Policy Research, the UK is the fifth most unequal country in Europe when it comes to income.

The tax system is very gendered. In its analysis of last year’s Budget, the Women’s Budget Group said that raising the income tax threshold is not a policy that helps women. It argues that 70% of those taken out of the higher rate of tax, and 73% of higher rate taxpayers who will benefit from raising the higher rate threshold, are men. We cannot claim that this will benefit women in any particular way, especially those in low-income jobs. According to the Joseph Rowntree Foundation, minimum household budgets have risen by about a third since 2008 for most types of household. Inflation is sky high, wages are being squeezed and a no-deal Brexit would see an additional 6.4% of lower incomes being spent on food. That is a penalty that most families cannot afford.

I mention families, because they are central to what many Members have talked about. The hon. Members for St Austell and Newquay (Steve Double), for South West Bedfordshire (Andrew Selous) and others have mentioned universal credit and the impact of the 16-hour rule. Figures from the Church of England show that a single mum with three kids, who is working 16 hours, would have to work 45 hours to make up for the cuts that the Conservative Government have made to the benefits system. What impact would a single mum working 45 hours have on family life? When is she actually going to see her kids? Who is going to tuck them into bed at night? That is not going to happen.

I have been working on a campaign for the removal of the two-child limit in the universal credit system, for which I would welcome hon. Members’ support, if they wish to give it. There was some movement from the Secretary of State last week, but it will still be in place for children born after 6 April 2017. The disincentive within the system is rife. Someone with two children who wants to get remarried, into another family, will lose out, because that will cause a change to benefits. If that person, once they have remarried, wants to have a child in that new family, they will not get the child element of universal credit, which is nearly £3,000. If any Government Member wants to speak to their colleagues in the Department for Work and Pensions and get them to get rid of this policy, that would be welcome, because it is a disincentive. If a family has four children, there is actually an incentive under this policy to separate and become two families with two children each, rather than one family with four children, thereby saving a huge amount of money. That needs to be removed from the universal credit system. If hon. Members are serious about it, they need to ask their colleagues in the DWP to do that.

Nobody mentioned the impact of the immigration system on families. I get many people coming to my surgeries who, because of the minimum income threshold in the immigration system, cannot bring a spouse to live here. I met a chap who is working two jobs at the moment, but cannot meet the threshold to bring his wife and his child over from another country. That is separating families. The number of Skype families out there, who are not being well served by this Government, who claim to support families, is an absolute scandal and we should do something about it. The stress of living in poverty probably contributes more to the break-up of families than anything else.

The report by Philip Alston, the United Nations special rapporteur on extreme poverty and human rights, which Conservative Members never want to mention, says:

“Families with two parents working full time at the national minimum wage”—

that is the Chancellor’s pretendy living wage, because it is not a living wage that anyone can live on—

“are still 11% short”—

11% short—

“of the income needed to raise a child.”

[Andrew Selous]

There is no disagreement on these Benches that poverty leads to family breakdown, but in the impact assessment for the Child Poverty Act 2010, brought in by the last Labour Government, there was also a recognition that family breakdown leads to poverty. Does the hon. Lady accept that it is circular and that the one leads to the other, both ways?

[Alison Thewliss]

I would accept the hon. Gentleman’s arguments far more if he would argue for an end to austerity, for an increase to low wages and for the minimum wage to be equalised. At the moment the thresholds for 16 and 17-year-olds and for 18 to 21-year-olds are very different. The gap between the lowest paid—those on the UK’s pretendy living wage—and the people at the top of the age threshold is increasing. It has got wider over the last three Budgets because increases at the top of the scale have not been met with increases at the bottom of the scale. It should be a fair wage for everybody. A 21-year-old parent does not get enough income in to support a family, and that will bring additional pressures to bear on what they can bring in and provide. People who have spoken today have entirely missed the point.

Treating families as a unit within the tax system, as often happens with universal credit, has been widely criticised by women’s organisations because it removes women’s agency. It also removes women’s ability to provide for their families. Under the universal credit system, a woman is disincentivised from leaving a relationship, because all the money goes to the man—the main earner in the household. I appreciate that the Secretary of State has said that she is looking at this issue, but it creates a risk. That also exists within the rape clause of the two-child policy, where the only way a woman can claim this vile clause is to leave the relationship. Women’s organisations across the board say that the most dangerous time for a woman is when she leaves a relationship; that is when she is most likely to be murdered. There is serious stuff about women’s place in this policy.

I was glad to hear that the hon. Member for South West Bedfordshire is not calling for the abolition of independent taxation. I am relieved about that. Individuals should be able to exist within the system by themselves, for a very serious reason, which leads on from my point about universal credit. Incentivising marriage is disincentivising separation. There may be very reasonable grounds for separation, particularly in cases of domestic abuse. The marriage allowance, which benefits the higher earner in a family—almost always the man, as I have laid out—exacerbates inequality. To take this to its logical conclusion, if a man assaults his partner, so she cannot go to work, or he prevents her from working through coercive control and financial control, which we know a lot more about and which the Government have said they want to tackle in the Domestic Abuse Bill, he effectively gets a tax break for doing so. That is why this should have no place in the taxation system. It is important that women have agency and are able to get money in. When money is taken away from women, that agency is removed, as well as their ability to look after themselves.

I had many more things I wanted to say about this policy. I had a whole speech written out about other things. We need to recognise that indirect taxation is also a huge issue. VAT disproportionately affects low-income families. According to the latest figures, those at the bottom end of the income distribution now pay nearly one third of their income in indirect taxes. The poorest fifth pay 31% in taxes such as VAT, alcohol and fuel duties, which is much higher than the 13% paid by the richest households. As I have been sitting here, I understand that the European Parliament has finally agreed to abolish the tampon tax. That is something that the UK Government have now delayed for almost four years. I hope that, now that the Minister has the green light that apparently the UK Government were waiting for, that tax on women will go as soon as possible.

While we can talk about taxes and marriage, the real elephant in the room is austerity and the cuts that have been made to women’s budgets. Women need to have agency; that is the most important thing for families across the UK.

--- Later in debate ---

[Peter Dowd]

No, because I have not got much time and I have given way several times. I have other points to make.

The manifesto is linked to the issue of taxation of families, but it is not just the fiscal issue that we have to identify—that is the problem; it is the wider determinants that go way beyond issues of taxation. The hon. Member for Stafford referred to the Christian background. I think it is in Matthew that Christ says,

“render to Caesar the things that are Caesar’s, and to God the things that are God’s”.

Effectively, he was saying, “Pay your taxes.” He is a fantastic role model for people who avoid paying their taxes. The bottom line is that a society can be cohesive only if everybody plays their part in it, whether through paying their taxes, charitable interventions or political inventions of the sort we make every day. That is what we have to do.

In the report, the hon. Member for Congleton talks about fathers being registered on birth certificates. That is fine, but an Office for National Statistics report on registration identified the fact that the vast majority of fathers are registered on birth certificates and that of those who are not, something like two thirds or a third are identified as being very much involved with the family. The idea that the registration of a father on a birth certificate will somehow solve some sort of problem is—I will not say laughable—only one element of the totality.

[Andrew Selous]

Will the hon. Gentleman give way?

[Peter Dowd]

I will, but the hon. Gentleman will appreciate that I do not have much time.

[Sir David Crausby (in the Chair)]

Order. Interventions should be short.

[Andrew Selous]

It will be, Sir David. The point that my hon. Friend the Member for Congleton (Fiona Bruce) was making was that if registrations take place in family centres, the fathers become more involved in what the family centre can provide.

Briefly, in the impact assessment of the Child Poverty Act 2010, which was introduced by the hon. Gentleman’s party when it was in government, there was a recognition that, although poverty leads to family breakdown, family breakdown also leads to poverty. Is that still the Labour party’s position?

[Peter Dowd]

We would reintroduce the targets that we set in relation to child poverty, which the hon. Gentleman’s Government got rid of. That is what is frustrating—Conservative Members are coming to us with all these ideas that the Labour party had for many years and which the Conservative party got rid of when it came to power. The Government got rid of all the things that hon. Members have been talking about and introduced austerity. They said, “Austerity is here. We’re all going to play our part. We’re all in the boat together,” but in reality, we are not.

Although I recognise many of the worthy points made by hon. Members, that worthiness has got to be put in place, not by mechanisms, but by everybody playing their part in society and paying their taxes, and by corporations not getting tax breaks or being able to avoid this, that and the other. The point that the hon. Member for Stafford makes about tax reliefs is fair; I will potentially look at them.

There is a complicated pattern, and on that basis, although I understand some of the points that the hon. Members for Congleton and for Stafford have made, I would say that actions speak louder than words. We need more action and fewer words.