Speaking in a debate in the House of Commons today Fiona said:
"I congratulate my hon. Friend the Member for Stafford (Jeremy Lefroy) not only on securing the debate but on the excellent way in which he touched on all the key concerns. We need to address what is surely one of the “burning injustices” that the Prime Minister referred to on the steps of 10 Downing Street. If there are any just-about-managing people, it is surely those striving to take their families off benefits, go into work and improve their families’ lives. We are particularly concerned about families with children.
Yet just as those people aspire to improve themselves, the system knocks and disincentivises them, as we have heard—the opposite of Conservatives encouraging aspiration. Effective marginal tax rates of 70%, 80% or even 90% surely cannot be sustained by a Conservative Government. However, this is not a new issue. We have sustained it. It has been known about for years. It has been eight years since the Conservatives entered Government and we have failed to address the matter.
For many of those years, CARE has held annual meetings about this issue and published annual reports on the taxation of families. I pay tribute to CARE for its assistance in the production of “Making Work Pay for Low-Income Families”, which, as my hon. Friend the Member for Stafford says, we are publishing today. It is being published by the Manifesto to Strengthen Families, the executive director of which is our highly respected former colleague, David Burrowes, and can be found on strengtheningfamiliesmanifesto.com.
I will give some examples that detail the complexity and show how low earners can end up paying such high effective marginal tax rates, losing so many of the benefits that they had once they start to earn. We need to change that. This example has been given by the Centre for Policy Studies, so we are not alone in raising this concern.
Imagine Jane, a 28-year-old single mother of one school-aged child. They live in Northampton. She receives benefits of £13,908 a year, comprising three elements: a standard allowance, a child element and a housing element. She starts work, earning £8,143.20 per annum. Her benefits are reduced by 63p for each additional pound she earns, which is the taper relief figure; interestingly, the CPS suggests reducing the universal credit taper rate to 50p as one solution. Jane’s effective marginal tax rate at this point is 63%. She then earns a little bit more, becoming liable to pay national insurance, putting her effective marginal tax rate up to 67%. She then earns a little bit more again, earning £12,850 a year—£1,000 over the current personal allowance rate—so is liable to pay income tax. Of that £1,000, she takes home just £251.60. She is being taxed at a 75% effective marginal tax rate. As my hon. Friend the Member for Stafford said, if that was the tax rate paid by multimillionaires on their highest earnings, there would be an outcry.
One aim of universal credit, which was intended to be simpler to understand, was to help ease the transition between welfare and work. It is certainly an improvement, but it has not solved the problem of people entering work and losing an average of 73% of their earnings, or even more. We appreciate that the Chancellor promised in his recent Budget to increase the work allowance by £1,000 a year, at a cost of £1.7 billion, which many of us asked for. However, that still leaves us with the problem that we have identified. Working claimants will lose most of the extra money that they earn when they increase their hours or progress in their jobs. It will just mean that they keep a little bit more of their money before they reach that point.
I remind colleagues that the Manifesto to Strengthen Families is supported by more than 60 Conservative parliamentarians; not a small group in our party. Some 20 of us tabled an amendment to the Finance Bill, which my hon. Friend the Member for Mid Dorset and North Poole (Michael Tomlinson) referred to, and it was very much as a result of that amendment not being selected that we called for the debate. However, we had been working on an inquiry into this issue for some time, chaired by David Burrowes. We took evidence from several organisations, including the Child Poverty Action Group, the Resolution Foundation and Tax and the Family, which all indicated in their evidence that they share our concerns on this issue. I will touch on one or two of the reasons why we really need to address it.
As we heard from my hon. Friend the Member for Stafford, the British effective marginal tax rate of 73% is the highest anywhere in the developed world, where the average is 33%. However, it is not only the very low-paid who are affected. Our inquiry found that families with earnings that appear high can also be affected. For example, a single-income family with three children earning £21,000 and paying rent of £157 a week could this year have a marginal tax rate of, incredibly, 96%. That does not come down to 32% until income reaches £40,776. Where housing costs are greater, that 96% rate could be even higher. I appreciate that something may be done to look at this, as my hon. Friend the Member for Stafford said, but that is not enough."
Mr Gregory Campbell MP said:
"I commend the hon. Lady for her continuing interest in this issue. Does she agree that its effect on middle or average-income families earning around £22,000 to £26,000 per year causes particular resentment among people in that category? They are the aspiring families who want to earn more and contribute more to society, and they feel that they are being penalised as they do so."
"That is absolutely right. We outline in our report several reasons why this needs to be addressed. I will touch on four of them.
First, the hon. Gentleman is right that these arrangements are anti-aspirational. Secondly, we believe that they are illogical. While we as Conservatives celebrate the family—my hon. Friend the Member for Stafford said families are the bedrock of a strong, stable and flourishing society—we tax them as if they are individuals while at the same time operating a benefits system that views them as families.
Thirdly, the current arrangement is anti-choice. The best systems of independent taxation give couples the choice as to whether the two people are taxed independently or jointly. Fourthly, it appears judgmental. Any family in which the second earner is either not in work or earning less than their personal allowance will be hit hard and judged for that arrangement. My right hon. Friend the Member for Chingford and Woodford Green (Mr Duncan Smith) gave evidence to our inquiry and commented that we find ourselves in the peculiar situation of saying that we are not very judgmental, but being very judgmental at the same time. We are judgmental about couples who choose for only one spouse to work. The huge impact of that was underlined in evidence to us from the Child Poverty Action Group, which said that it looks like “having a second earner in the labour market in Britain today is necessary to get oneself out of poverty”. To some extent, we are telling parents staying at home to look after children or relatives that they are making the wrong choice, yet, as our report says, it is in the long-term interests of Government and society to have stable families in which children are nurtured and cared for to give them the best start in life, and if, in some situations, that means taking time out from work, particularly when children are under five, surely that should be encouraged and accommodated."
Jeremy Lefroy MP
"My hon. Friend makes the incredibly important point that this is certainly about children, but is also about carers. The enormous number of unpaid carers in this country do a massive amount for our country and society, but the current system does not help them, either."
Fiona Bruce MP
"That is absolutely right: they do indeed.
We talk about cripplingly high effective marginal tax rates, but actually it costs money to go out to work. Often, it costs money to clothe oneself for work and to travel to work, and it is more expensive if one has to buy lunch out, so some people will effectively earn nothing when they go to work. That cannot be right. As my hon. Friend has said, what is proposed will help different types of family: single parents, married couples and couples in which one person works or one person provides care for other members of the family. Work is good—we know that—but it costs, and it is outrageous that some of the poorest in our society face some of the highest tax rates. One of the highest priorities of the Conservative Government should be to tackle and solve this burning social injustice."
The report referred to in Fiona's speech is attached below.
|Family Report||660.28 KB|