THE way the UK tax system treats those with family responsibilities could not be clearer from CARE’s latest report. The UK continues to give families, and especially one-earner married couples with two children, a bad deal when it comes to income tax and overall tax burden. Completing the ‘triple whammy’ they are up against is the ongoing and thorny issue of our absurdly high effective marginal tax rates. These remain the highest in the developed world.
The research which CARE (Christian Action, Research and Education) has been undertaking, with tremendous support from Don Draper and Leonard Beighton, uniquely compares how different countries across the OECD treat those with family responsibilities and those without. We’ve been doing this research annually since 2008. The findings, time and again, have been remarkably consistent. Thanks to the UK’s hyper-individualised tax system, families are being treated unfairly.
Our latest report shows that on the average wage for the UK, both a single parent with two children and a one-earner married couple with two children face a, overall tax burden (income tax plus other taxes) that is 28 per cent greater than the rest of the OECD. By contrast, a single person with no family responsibility does better than the OECD average, with a tax burden 8 per cent less than the rest of the OECD.
When it comes to the income tax burden, one-earner married couples with two children do significantly worse than other OECD nations. Overall, such a family in the UK can expect an income tax burden 27 per cent greater than the OECD average. To put this in some context, such a family in the UK can expect to pay 39 per cent more income tax than an equivalent French family, three times as much as a US family and more than ten times as much a Germany family.
UK families on 75 per cent of the average wage (which is approximately £30,000), which is a key aspiration point where ordinarily families should be encouraged to push on, face an effective marginal tax rate (EMTR) of 73 per cent. That means that for every additional pound they earn, they keep only 27p. If they are on housing benefit as well, the EMTR is a staggering 90.4 per cent.
Every time we’ve published the report, we’ve made serious, genuine and entirely feasible policy suggestions. For example, we’ve consistently called for a halt to endless increases in the personal allowance and instead, increases to the paltry marriage tax break on offer. We’ve also argued for a range of other measures. This year, we’re calling for a full-scale review of the income tax system. We have a new 80-seat majority government. It can afford to be radical and it should seize the moment. Based on the dismissive attitude of previous administrations, I’m not holding my breath, but if the Prime Minister is serious about ‘levelling up across the country’ he cannot afford to ignore the issues raised by CARE’s report.
It remains utterly paradoxical that the current situation should exist when there is a Conservative government. The current arrangement is anti-aspirational, philosophically illogical, anti-responsibility and is also very judgemental. The current tax system sends a disturbing message to couples where one spouse chooses to stay at home that they are not as valued as a couple who both decide to work. Surely, choosing to invest in your children, if that is what you want to do, should not be financially penalised. But right now, it is.
Ultimately it comes down to this basic point: the tax system is not neutral. It never has been, and it never will be. The way we choose to arrange taxation in the UK communicates a message about where our values are. Right now, our tax system sends the message that family responsibilities do not matter all that much.
Of course, there will be those who dismiss this report, lazily claiming it is anti-single people and anti-women. This is nonsense, of course, but it conveniently allows people to ignore what’s in front of them. CARE’s report makes chilling reading for those with family responsibilities. Without urgent action, the situation will only get worse. The UK is already experiencing epidemic levels of family breakdown. In such a context, the Government has a duty to act. Whether it will remains to be seen.