Anti-Family UK tax system out of line with rest of the world

Many British families are paying a far higher proportion of their income in tax than their counterparts in other advanced countries, according to a major new research study, Taxation of married families: How the UK compares internationally

 In 2006 a one-earner married couple with two children on average earnings of £30,800 a year paid 40 per cent more tax in the UK than in comparable countries belonging to the Organisation for Economic Cooperation and Development.

Compared with European Union states, one-earner married families are paying 25 per cent more tax.

The study also finds that the UK tax system disadvantages families in comparison with single people without children.

In other OECD countries, the tax paid by one-earner married couples on average wages is around 50 per cent of that paid by a single person on the same income.

But in the UK , the figure is 75 per cent even when tax credits and child benefit are taken into account.

“Among highly developed economies, the UK is almost alone in operating a tax system that ignores spousal obligations,” the report says. Only Finland, Sweden and New Zealand have a system like the UK’s. All other such OECD countries - including the US, France, Germany, Australia and Canada - take account of family circumstances.

The study, believed to be the first of its kind, has been conducted for the charity Christian Action, Research and Education, which is campaigning for fairer tax treatment of families with children.

It charts the way over the past 40 years in the UK , the tax system has been increasingly tilted against one-earner married couples with children.

It reveals that since the 1960s, in the UK the tax burden on a one-earner married couple with two children earning 75 per cent of the average wage has trebled. But the burden on a single person with no dependents has risen by only 16 per cent.

In the mid-60s, a one-earner family on an average wage paid just 9 per cent of its income in tax. In 2006/7 that figure was 20 per cent ­ more than double the level of the mid-60s.

The authors of the study, fiscal consultants Don Draper and Leonard Beighton , warn that the UK ’s bias against families is deepening child poverty. They point out that more than two million children live in one-earner homes and they estimate that reducing the tax burden on one-earner couples could take as many as 500,000 children out of poverty.

The new study will galvanise the debate over family taxation and child poverty with the Conservative leader David Cameron pledging to bring in a tax allowance transferable from a stay-at-home parent to a working spouse and the Liberal Democrats arguing that tax credits should recognise the financial needs of a second parent. The authors conclude that if in 2006 there had been a transferable tax allowance this would have gone a long way towards bringing the into line internationally, making the tax system fairer and reducing child poverty.

In the mid-60s, a one-earner family on average income paid just 9 per cent of its income in tax. By 2006/7 that figure was 20 per cent, the study finds.

And this increase is out of line with the rest of the world.

The average tax burden in OECD countries (excluding the UK ) is 14.5 per cent and among 15 EU states it is 16 per cent. This compares with the 20 per cent figure in the UK .

In a foreword to the report, Professor Robert Rowthorn of Kings College , Cambridge says:

“At one time, marriage and family obligations were extensively acknowledged in the British tax system through special arrangements for married couples and tax allowances for dependent children.”

“These have been almost entirely abolished by politicians who regard themselves as the standard bearers of modernity and women’s emancipation. Kenneth Clarke, when he was Chancellor of the Exchequer, famously called the married couples tax allowance an ‘anachronism.’

“Those who question the wisdom or fairness of what has happened are dismissed as reactionaries seeking to turn the clock back to a mythical golden age. To accept their proposals, it is claimed, would put Britain out on a limb and cut off from the common practice of other economically developed countries.”

“Nothing could be further from the truth …modern Britain is now the exception. The vast majority of developed countries have tax systems that acknowledge family responsibilities towards children and also dependent adults.”

“Many of them also have special tax arrangements for married couples. In some cases, these arrangements are also available for same-sex or mixed-sex couples living in registered partnerships.”

“One striking difference between Britain and other countries lies in their treatment of one-earner couples. In this country, the tax system penalises couples of this type. Neither income tax nor tax credits allow for the fact that family earnings must be shared between two adults.”

“In most other countries, the tax system takes into account the number of adults who must share in the family income, and the tax burden on one-earner couples is reduced accordingly.”

“There is now a groundswell of support for reforming the British tax and benefit system. The system is resented because it so biased against one-earner couples who wish to look after their own children.”

“There is growing recognition that it penalises stable couples and encourages family breakdown and un-partnered childbearing. There is also a widespread belief that the government should provide more support for marriage. In a recent Mori poll, 63 per cent of the people interviewed agreed that there should be tax breaks for married couples.”

Tax burden on one-earner married couples (average wage) with two children as a percentage of the tax burden on a single person (average wage) 2006

Tax burden on one-earner married couples (average wage) with two children as a percentage of wage, 2006

FOR MORE INFORMATION, PLEASE CONTACT DAN BOUCHER OF CARE ON 07768 165543 OR NICK WOOD OF MEDIA INTELLIGENCE PARTNERS ON 07889 617003. To discuss technical details of the paper please call Don Draper on 07751199747 or Leonard Beighton 01932 863516.

NOTES TO EDITORS:

1. To access Taxation of married families: How the UK compares internationally visit www.care.org.uk/internationaltaxcomparison

    

2. To see the points of the paper made via graphs please see diagrams.

    

3. CARE is a registered Christian charity which seeks to combine practical caring initiatives with public policy on social and ethical issues. CARE campaigns, provides resources, undertakes caring work and brings Christian insight and experience to matters of family, education, media, citizenship and bioethics. For further information please visit www.care.org.uk