It is a pleasure to serve under your chairmanship, Mrs Latham, and I thank all hon. Members for their participation in today’s debate. I also thank those who have submitted written evidence on a variety of the clauses we will discuss today, including the Institute of Chartered Accountants in England and Wales, the Chartered Institute of Taxation, the Low Incomes Tax Reform Group and others, and all those who have contributed to consultations as part of this Finance Bill process.

Clause 5 makes changes to the high income child benefit charge, or HICBC, as it is commonly called. It increases the threshold at which child benefit begins to be withdrawn, from £50,000 to £60,000. The Government are also increasing the threshold at which child benefit is fully withdrawn, from £60,000 to £80,000. That means that 1% is withdrawn for every £200 of income that exceeds £60,000; previously, the rate was 1% for every £100 of income that exceeded £50,000, and child benefit was fully removed once individuals earned £60,000 or above.

The HICBC is a tax charge and was introduced in January 2013 for recipients of child benefit payments, or their partners, on higher incomes. It applies where the highest earner has an adjusted net income—that is, their total taxable income, less certain reliefs, such as pension contributions—above the threshold, which is rising to £60,000. For individuals with incomes above the top of the taper, which is rising to £80,000, the tax charge is equal to the full amount of the child benefit payment.

The changes will ensure that the HICBC continues to withdraw child benefit from high-income families, as it was designed to, without unfairly penalising those on middle incomes. By halving the rate at which HICBC withdraws the child benefit gain, the Government are improving people’s incentives to continue working or to take up more hours. The Office for Budget Responsibility estimates that, as a result of both changes, those already working will increase their hours by a total equivalent to those of around 10,000 full-time individuals by 2028-29.

The changes made by clause 5 will have a positive impact for around 485,000 families, who will gain an average of £1,260 in 2024-25, which they can put towards the cost of raising their children. That includes around 170,000 individuals who will no longer be liable for HICBC, and 135,000 individuals currently paying the HICBC who will have it reduced. The remaining 180,000 are the families currently not claiming child benefit or families opting out of getting child benefit payments who are now eligible to receive payments without incurring a tax charge.

The increase in the HICBC’s adjusted net income threshold reaffirms the Government’s commitment to rewarding working families, by allowing them to keep as much of their hard-earned money as possible in a sustainable way. I therefore commend the clause to the Committee.

It is a pleasure to serve on this Committee with you in the Chair, Mrs Latham. I am pleased to respond on behalf of the Opposition in the Public Bill Committee stage of the Finance (No. 2) Bill.

As we have heard from the Minister, clause 5 increases the adjusted net income threshold for the high income child benefit charge from £50,000 to £60,000, with effect from the 2024-25 tax year. The clause also amends the rate at which the high income child benefit charge applies to individuals with adjusted net incomes of between £60,000 to £80,000 in a tax year, and contains an administrative easement to prevent backdated child benefit payments from triggering a charge in 2023-24.

As we all know, due to high levels of inflation during the current Parliament, families across the country have felt the impact of threshold freezes, particularly in relation to income tax. Millions of people will be paying income tax for the first time or paying it at higher rates as a result of high inflation and the frozen thresholds. Similarly, the fixed nominal thresholds for the high income child benefit charge mean that more and more people will have been affected by the charge as a result of inflation. The adjustment to the thresholds in this clause will therefore be a welcome step for many families, and brings the number of individuals affected by the high income child benefit charge closer to what Parliament envisaged when the policy was introduced in the Finance Act 2012.

Although we support the measures in the clause and will not oppose them, we would appreciate some clarification from the Minister on one point. In particular, we understand that subsection (2) effectively halves the rate of clawback in the calculation of the charge, so the child benefit is fully withdrawn when the relevant adjusted net income reaches £20,000 above the initial threshold —that is, £80,000. I am grateful to the Chartered Institute of Taxation for pointing out that, because the clawback happens across a wider range of incomes, some individuals will be caught out by higher marginal rates of tax and will therefore likely need to file a self-assessment return. Is the Minister concerned that that will introduce more complexity into the tax system, and if so, what is he doing to communicate these changes so that taxpayers are not caught out?

Finally, we understand that the Government will be moving the assessment of the charge to a household basis from April 2026. I would be grateful if the Minister confirmed when the Government will announce further details about the consultation on that change. Will he also set out the details of what he is doing to consult industry and professional bodies about it?

It is a pleasure to serve under your chairmanship, Mrs Latham. We will not be opposing the clause, but I do want to make some comments about this paltry measure, which will help very few people in a cost of living crisis that the Conservative Government are trying to pretend is over and done with—in fact, they are saying that that is the case. That is not the reality for people in their homes across the nations of the UK.

The Minister said that the intention of this provision —I think I am quoting him correctly—was to allow people to “keep as much of their hard-earned money as possible.” That reflects incredibly badly on the way that this Government have conducted themselves by artificially boosting the cost of living through reckless actions such as Brexit and, of course, the mini-Budget. If they wanted to do something that was meaningful to help families, they could have copied the Scottish child payment in Scotland, which has lifted 100,000 children out of poverty. But no: they have decided to do this. They have also decided to keep the two-child limit on universal credit. That should be scrapped, and the Labour party should be joining in calls for that to be scrapped. The rape clause has no place in our society, and this measure will not go far enough to help families.

I thank my opposite numbers for their comments. I respectfully disagree with several of their points, and I will remind my opposite number, the hon. Member for Ealing North—as I do on almost every occasion—of the significant changes to the income tax threshold that the Conservative Government have brought in. It was £6,475 under Labour; it is now £12,570. That is a significant increase and it has taken many people out of paying income tax altogether, which is something we are very proud of.

The hon. Gentleman will be well aware that, as we have discussed on multiple occasions, the reason why taxes are higher than any of us would desire is the level of intervention required to support households and livelihoods during the pandemic and, more recently, the cost of living challenges since the invasion of Ukraine and the energy price shocks in particular. I would make a similar point to the hon. Member for Inverness, Nairn, Badenoch and Strathspey, who also made those points. I remind him that we have made interventions in cost of living support to the tune of about £100 billion. With respect, half a million people will benefit from the changes that we are introducing. HICBC is not a small amount. It is a meaningful amount of money for a large number of people, and it comes on top of the many other support measures that we have introduced.

I thank the hon. Member for Ealing North for pointing out the easements and the fact that there will be automatic backdating. Hopefully, that will be a relief and good news, and be positive for many families. Child benefit is normally backdated by three months, but because of the timing of the implementation, some could overlap two tax years. We are trying to make that simple and bring it into one tax year.

The hon. Gentleman mentioned the increase from £60,000 to £80,000 and the impact on marginal rates. The changes that were announced will reduce the total marginal effective tax rates, which includes income tax, employee national insurance contributions and HICBC, from about 64% to 53% for someone with, for example, two children. That is a good thing.

We recognise that high marginal rates introduce complexity to the tax system, but that needs to be weighed against other considerations when designing tax policy. The Government must ensure sure that they are committed to a fair tax system that supports strong public finances. Individuals will, as the hon. Gentleman pointed out, still be required to submit a self-assessment tax return to declare and pay their HICBC liability. However, the Government announced in July last year that we are taking steps to allow newly liable taxpayers to pay the HICBC through their tax code without the need to register for self-assessment. Further details on this improvement will be shared in due course.

The hon. Gentleman also mentioned the consultation on moving to a household basis. We will announce further details of the consultation in due course and, as with all tax policy, any changes would be considered as part of future fiscal events. The Chancellor announced that the Government will be consulting on moving the HICBC to a system based on household incomes, and that change will be delivered by April 2026. If the hon. Gentleman is patient, we will announce further details on that consultation in due course.

A point was made about communication. There have already been significant communications on the changes to HICBC. There has been a lot of online and offline activity from His Majesty’s Revenue and Customs, various Government Departments and others. The campaign to raise awareness also includes working with, for example, parenting platforms such as Bounty and Emma’s Diary, and issuing emails through third party partners, including childcare providers. The hon. Gentleman raised an important point about not just making the changes, but ensuring that everybody is aware of them, so that everybody who is intended to benefit is able to.

Question put and agreed to.

Clause 5 accordingly ordered to stand part of the Bill.