CARE’s research looks at how government fiscal policy impacts marriage and family policy in a number of areas:
This report examines how UK families fare in comparison to their OECD counterparts in regard to the tax burdens and Marginal Effective Tax Rates they face.
In previous years, our annual Taxation of Families report has examined the way in which the UK tax burden has been shared between those with and without family responsibility, both in comparison with the rest of the OECD, and from a purely domestic perspective.
In the interests of providing more focused and detailed analysis of each, however, we have decided that from now on we will produce two separate publications, one addressing the international comparison – of which this is the first – the other looking at the taxation of families in the UK from a domestic perspective. The first edition of the latter will be published early in 2013.
This publication demonstrates that the tax burden on one-earner married families for 2011 was 42% greater than the OECD average in 2011. Moreover, if we look at the income tax finally paid by households on a comparative basis we find that UK one-earner households on an average wage were well out of line, with an income tax burden that was 67% greater than the OECD average.
In short, our tax system remains very individualistic and insensitive to family responsibility, compared to most OECD countries. The tax burden placed on a one-earner married family with two children on average wage, as a proportion of that placed on a single person on the same wage with no family responsibilities, was 73% in 2011 when the comparable OECD figure is just 52%.
The report also shows that UK Marginal Effective Tax Rate levels on both one-earner couple families and lone parent families still remain well out of line with the developed world, changing very little since 2010. At 36% – that is the UK minimum wage – 50% and 75% average wage, Marginal Effective Tax Rates in 2011 were far in excess of the OECD and European averages.
Hence, these families that are most in need of financially rewarding work only saw 27 pence of every extra £1 earned go to the household. This is hardly evidence of an ‘aspiration nation’ at work.
Given that, as noted in the conclusion, recognising marriage in the tax system, as promised by the Coalition Agreement, would help bring the UK back into line with its international counterparts and go some way to address the problems highlighted by this publication, it is very unfortunate that the Coalition Government still has not introduced the necessary legislation. In truth, time is now running out. Leaving the change any later than the March 2013 Budget would provide insufficient time for the new arrangement to get properly up and running before the General Election. The Government, therefore, must now prioritise implementing its marriage commitment in Budget Resolutions immediately following the 2013 Budget.
I warmly commend The Taxation of Families – International Comparisons 2011 to you, trusting that it will be read and re-read by policy makers and really help the Government to fulfil its noble commitment to ‘make Britain the most family friendly country in Europe.’
- From the Preface by CARE Chief Executive, Nola Leach
The report is available to download in PDF format or you can read it online using the viewer below:
Previous year’s papers can also be downloaded in PDF format using the links below:
From 2006-2009, CARE provided an annual assessment of the “Couple Penalty” – the unwelcome fiscal incentive for couples with young children, on low to modest incomes, to live apart, which results from the tax credit and wider benefits system.
Over the period of three financial years, CARE Fiscal Policy consultant, Don Draper, conducted an annual review of the couple penalty and sadly the numbers of families negatively affected is increasing. The last thing a country wrestling with the unfortunate consequences of family breakdown needs is the creation of fiscal incentives for parents to live apart.
From the year 2009/10, the analysis of the couple penalty has been incorporated into the report ‘The Taxation of Families’, available in the section above.
To access past reviews, use the links below:
2006/7 Review (Link currently unavailable)
CARE’s Director of Parliamentary Affairs, Dr Dan Boucher, provides an overview of the erosion of government’s use of taxpayer’s money to support marriage in recent years.
To download a copy of the report, Marriage Support Services Review (2008), click here.
CARE’s research paper, ‘Supporting Marriage and Encouraging Couples to Come Together’ looks at options for reforming the tax system and tax credit system in order to provide better support for couples with children. The report was originally published in 2007.
Background to the report
Leonard Beighton and Don Draper, CARE’s fiscal policy consultants, were approached by the Social Justice Commission and asked to provide a report on the impact of welfare benefits and the tax and tax credit systems on family income. The Commission was particularly interested in changes which could be made to the tax and tax credit systems with the aim of supporting marriage and making it easier for couples to come together and stay together.
Beighton and Draper explained, ‘We considered two main options for improving the treatment of families – enhanced tax credits for all couple families and a transferable personal tax allowance for married couples. A transferable personal tax allowance would provide specific support for marriage and both proposals would reduce the “couple penalty” and make a significant contribution to reducing child poverty.’
The need for reform – highlighted by a number of previous CARE papers – results from the tendency of the tax credit and wider benefits system to provide a fiscal disincentive for parents choosing to marry or cohabit. This disincentive can be worth several thousand pounds per annum in lost tax credits and other benefits for those who wish to come together. This is profoundly ill-judged for at least two reasons. First, it is widely recognised that a stable two parent environment is the best place for the bringing up of children. Second, the majority of poor children live in two parent families.
To download a copy of the report, click here.