Scrap High Income Child Benefit Charge, say MPs

The Westminster Hall debate was obtained by Martyn Day (SNP), who began by saying that the HICBC is not fair and its administration is not effective. While withdrawing child benefit from higher earners might initially be regarded as a reasonable proposal, he said the reality was that the charge has consequences for some who do not consider themselves to be on a high income, as it does not consider family size, number of breadwinners and available income after basic needs are met.

Intervening, Margaret Ferrier (Ind) observed that HICBC is very complicated and the main cause of many families not claiming child benefit despite being eligible.

Day noted that Conservative MP (and Chartered Tax Adviser) Craig Mackinlay had set out concerns about the charge during a debate he had secured in 2019. He quoted Mackinlay’s opinion that HICBC was “a salutary lesson in how not to withdraw a universal benefit through the tax system.”

Day raised the cases of a number of his constituents who saw the charge as unfair. One had been pursued by HMRC for an overpayment of £6,000 with interest and five years of penalties. He had highlighted the Wilkes case, in which the Court of Appeal determined that HMRC was wrong to impose the charge using discovery assessments. Yet, said Day, “a retrospective change in tax law that was announced by the then Chancellor… meant that HMRC ensured in advance of the Wilkes judgment that the hundreds of thousands of other taxpayers who were similarly subjected to the charge discovery assessments could not benefit from the Wilkes case.”

Day suggested that the Treasury’s position in this matter was somewhat conflicted. “On the one hand, it thinks the threshold that was set for the charge 10 years ago is regarded as “high income”, and on the other it thinks it is acceptable for the basic rate tax band to breach this threshold.” Additionally, although ignoring total household income and focusing only on the highest earner, the charge breaches the principle of independent taxation, he argued.

Additionally, Day addressed the financial implications of the policy, noting that when someone opts out of receiving child benefit – rather than receiving it and then paying the HICBC – the tax revenues going into the Treasury are impacted. He asked the Treasury to provide figures on how much the department has saved due to lack of take-up of child benefit, to compare it against the £15 million drop in HICBC receipts between 2013-14 and 2019-20.

Day concluded by asking the minister whether it was “time to address the many failings of the unfair high income child benefit charge? Is it not time to finally review this flawed policy, make it fit for purpose and thereby truly support households with children?”

Day argued that, first of all, “the best solution to meet the needs of families in my constituency is for the full powers of social security and taxation to be in the hands of the Scottish Parliament.” But in the meantime, he said, the UK Government should “[make] child benefit a universal benefit again, restoring the value of child benefit and increasing the take-up of child benefit.”

Jim Shannon (DUP) mainly focused on the child benefit threshold and the issue that a family with one earner on £52,000 pays the charge while one with two earners each bringing in £49,000 does not. He called this “an anomaly that we have to try to address.”

Shannon said that child benefit is supposed to support families, but it has become a hindrance for many. He claimed that many families who are entitled to child benefit are deciding to opt out of it “for fear that they will be hit with tax returns that they should have done but perhaps were unaware of”.

Acknowledging the other members’ points, Douglas Chapman (SNP), said that the Government should increase the threshold from £50,000 to reflect pay inflation, and also must ensure that the system is fit for purpose. He asked whether the Government would consider devolving child benefit to the Scottish and Welsh Governments, adding that the Scottish Government has invested £8.5bn to support families, particularly tackling child poverty, as well as introducing Scottish child payment.

He concluded with a challenge to Labour: “This policy is being driven by the needs of the Treasury, when it should be the needs of children and families. This is not just a challenge for the current Government, but, as the next election looms, a question for the Opposition, who aspire to be in Government. Is it therefore the policy of the Opposition to introduce universality to child benefit? It would be wonderful if that could be confirmed and a firm commitment given today in the summing up.”

Shadow Economic Secretary Tulip Siddiq, summing up for Labour, did not give such a commitment. She pressed the minister “to explain the fiscal drag of freezing the threshold for the high income child benefit charge” but otherwise focused her remarks on broader issues around poverty levels and the benefit system.

Responding to the debate, Financial Secretary Victoria Atkins said that the Government is aware of these ‘points of tension’, “not just in the context of child benefit but across the tax system”. She said she understands that child benefit is critical for many families, which is why the Government protected it in real terms during the Autumn Statement.

Regarding the threshold level, the minister said that the Government has never ‘’aligned the threshold for the charge with the UK higher rate threshold or, indeed, other thresholds for income tax’’. She argued that increasing the threshold to more than £50,000 could impact the Government’s spending on public services.

Atkins acknowledged that the system of independent taxation creates tensions, but she defended it, saying that: “I, as a feminist, am entirely comfortable with being—indeed, demand the right to be—taxed on my income, rather than that of my husband.” She observed that in the context of domestic violence legislation SNP MPs had made the point that, particularly for victims of domestic abuse, they would prefer universal credit to be paid to the individual.

Given we have independent taxation, the child benefit charge, sitting as it does within the income tax system, should abide by those rules, said the minister. If the Government were to consider basing the charge on household income, all families in receipt of child benefit payments would need to report their household income information to HMRC. This would create a huge administrative burden on HMRC and families, she suggested, as well as ‘chipping away’ at the principle of independent taxation.

Atkins also addressed the issue of PAYE employees who have to submit a self-assessment tax return, saying that it is necessary because “the charge is based on the amount of an individual’s adjusted net income, which is an individual’s total taxable income before any personal allowances and less certain tax reliefs”. Using that measure avoids using estimates of income that could result in too little or too much tax being paid, she explained.  

On the Wilkes judgment, she said that, “obviously, we have to have heed to the ruling in that case, so we have legislated to put beyond doubt that the longstanding rules that HMRC uses to recover tax that it discovers has not been assessed can continue to operate in relation to the charge.”

In her final remarks, the minister welcomed the scrutiny on this policy and assured the MPs that the Government will keep this issue and other tax policy under review.

You can read the full debate here.