CARE’s latest tax report again looks at the way different family models are currently treated in the UK tax system in comparison to other OECD countries. Like previous years, it demonstrates that the UK is an extremely cold place for one-earner families with two children on the OECD average UK wage. In fact, if you compare how a traditional family model is treated compared to a single earner with no family responsibilities, it quickly becomes apparent there is a deeply entrenched bias in our tax system against family responsibilities. Using the latest OECD figures, our analysis makes the case for the government to expand the transferable allowance for married couples as a means of addressing this unfair tax burden.
For nearly a decade now we have been producing reports demonstrating the problems faced by one-earner families. In 2007 we argued that the best way to address this problem would be through the introduction of a transferable allowance for married couples. We were delighted when the Conservative Party embraced this but very disappointed that when it came to it all that was offered was a provision allowing a non-working spouse to transfer 10 per cent of his/her tax allowance to the working spouse, leaving 90 per cent of their personal allowance, unused and unrecognised. While we were very pleased when the provision finally came through last April, we are concerned that what is a good idea has been reduced to a symbolic gesture because it offers too small an incentive to married couples. So small, in fact, only 330,000 couples out of an eligible 4 million have actually signed up. While the recent advertising blitz by the government to persuade more couples to take advantage was welcome, the real problem is it is simply not big enough.
Our new report shows traditional families with two children on the average UK OECD wage face a tax burden that is 25 per cent higher than the OECD average. For single parents with two children on the average wage, the burden is 17 per cent higher.
Even more staggering are the eye-wateringly high marginal tax rates traditional families face at key income points. At 75 per cent and 50 per cent of the average wage, key earning points where aspiration should be encouraged, the marginal tax rate is a shocking 73 per cent. We already know that under Universal Credit, this is set to rise to 76 per cent. This will completely stifle aspiration. It will crush those who wish to get on and better themselves.
Much of the Prime Minister’s social justice rhetoric has been heavy on recognising the importance of the family. Now we need proactive, bold, conservative policies from this One Nation government. Marriage brings with it public policy benefits. The evidence suggests communities and children especially benefit from stable marriages. Yet in the UK, we make marriage less fiscally accessible than is the case across the OECD on average. There needs to be a cultural shift away from focusing so exclusively on the individual to re-recognising family responsibilities in the tax system.
The Prime Minister made it clear during the general election campaign that he wanted the tax break to be expanded. He has said this more than once. But now words need actions. Social justice is a key part of the Prime Minister’s legacy, but a truly strong society is one where families are supported by family-friendly policies. The announcement of a family test was a step in the right direction. Expanding the marriage tax break would send an even better message that this Conservative government recognises the public policy benefits of stable marriages. We urgently need the Prime Minister to rediscover his reformist zeal and to make good his commitment to increase the marriage tax allowance. Freed from the shackles of coalition government the only question is how much worse the situation must become for traditional, one-earner families before action is taken?
Nola Leach is Chief Executive of CARE