In the midst of much media hyperbole, policy scrutiny and political chatter, the Universal Credit was finally unleashed on the British public this week, albeit through a small pilot in the town of Ashton-Under-Lyne. In what many have dubbed ‘the most significant welfare reform since tax credits’, I thought I would offer some observations on some of the opportunities and challenges of Universal Credit, the brainchild of Work and Pensions Secretary Iain Duncan Smith (IDS).

Simplicity

Many will tell you that for all the benefits of tax credits, they were extremely complex; both in terms of the bureaucratic behemoth required to administer the plethora of payments available, and in terms of claimants understanding what it was they were actually entitled to.

To this end, the Government and IDS argue that due to the Universal Credit combining many of the existing tax credits and benefits (such as Child Tax Credit, Working Tax Credit, Housing Benefit, Income Support, income-based Jobseeker’s Allowance and the income-related Employment and Support Allowance) into one uniform payment, simplicity will result. In turn, they argue that this will result in a less complex bureaucratic framework, meaning that fraud and error should be reduced and the demand on the public purse-strings eased.

As far as claimants of Universal Credit are concerned, one might also argue that increased simplicity will result in recipients being able to more easily establish how much (or little) they will be entitled to. This is of course on the proviso that claimants will be able to get online and fill out the forms that will tell them how much they’ll get in the first place (the form filling required for Universal Credit award will all be done online).

Whilst in my view this theoretical increased simplicity is to be applauded, we are yet to see how this will work out in practice. Given the recent news reports about apparent problems with the computer system behind Universal Credit, it may be best at this stage to reserve absolute judgement.

Simplicity matters, because (and this I think is often missed in policy and media debates on welfare) it affects what is known as the ‘take-up rate’ of a benefit or credit. In other words, a credit could be worth £1,000,000 to a certain individual or family, but if you need a PhD in order to fathom all the forms, then will the eligible family actually be able to claim the benefit and be any better off in reality?

Work incentives

Under the soon-to-be overhauled system of tax credits, it was, unbelievably enough, possible to be facing a Marginal Effective Tax Rate (METR) of some 96%, meaning that for every extra £1 earned through something like overtime, an earner would only see 4 pence come into the household!

In relation to this, IDS has said that under Universal Credit ‘work will always pay’ and he’ll argue this is backed up by the fact that no earner will face an METR higher than 76.2%; meaning that an earner subject to this METR will see 24 pence come into the household from every extra £1 earned.

However before we got too excited, where would this ‘reduced’ METR leave the UK in comparison to other developed countries? Not in a very flattering position. The latest data from the OECD shows, for instance, that an METR of 76.2% would leave a UK one-earner family on 75% of the OECD average wage at the top of the pile when compared to other families internationally, thus one-earner families facing this METR will still gain the least from any extra £1 earned in comparison to other OECD families.[1]  While it is welcome that the very highest METRs will be reduced under Universal Credit, it is still worrying that a quarter of all families will face an METR of 76%.

Generosity

Last, but most definitely not least, for all the design details and quirks of the Universal Credit, what most families and individuals will be most interested in is whether the Universal Credit will leave them in or out of pocket in comparison to Tax Credits.

As with most tax, benefits and welfare policy, the answer as to whether you will be a winner or a loser very much depends on who you are.

To take just two family types, the Institute for Fiscal Studies (whose conclusions have been confirmed by the Department of Work and Pensions) have said that:

Lone Parents with two children:

• Working less than 16 hours a week will be better off
• The difference will be very little for those working between 16 and 29 hours, and:
• Those working 30 or more hours per week will be slightly worse off.

For couples with two children:

• Single earner in-work couples will be better off
• Couples with savings of more than £16,000 will be worse off.

Taking a look at the bigger picture, the DWP published an Impact Assessment in December 2012.  This shows that 3.1 million households will have higher entitlement as a result of Universal Credit – gaining, on average, £168 per month. Around 1.9 million households will see an increase of more than £100 per month. 2.8 million Households will have lower entitlement – the average reduction will be £137 per month. The majority will have a reduction of less than £100 per month.

Conclusions

All in all, there appear to be some encouraging points to the Universal Credit, not least the fact that it will hopefully prove simpler to administer than tax credits and will reward those who work for any amount of hours (under tax credits, one has to work at least 16 hours per week before becoming eligible.)

However, there are still too many unknowns in the mix for us to judge whether the Universal Credit will be a success. Will the new computer system be able to cope? Will those without easy and convenient access to the internet end up losing out? How will the financial losers cope with the loss in income? With all these questions still to be answered, there’s still much to play for for all parties concerned when it comes to this wide ranging policy reform.

In the midst of the furore surrounding the Coalition’s wide-ranging welfare and benefits reforms, and amid claims made by many that the Government’s recent childcare changes discriminate against one-earner households, I thought it worth considering whether stay-at-home parents – i.e. those who spend the entirety of their working week at home caring for children or other dependents – should be paid a wage by the Government, recognising the many jobs they do around the home. By ‘jobs’, I mean tasks which it would not be unusual to demand a wage for, e.g. cleaning, taxi driving and cooking to name but a few!

It is possible to come at this from a number of angles. Of particular importance is the value – i.e. the status and respect commanded within society – placed on the work of stay-at-home parents in comparison to other professions. That is, many argue that the value of being a stay-at-home parent is significantly less than that of a ‘professional’ man or women. Many reasons for this have been proposed, but more importantly in the context of this article, would the value and standing of stay-at-home parents improve in the eyes of society if it were attached to a wage? More to the point still, would more families become one-earner households if doing so were tied to a financial incentive?

Whilst I am not saying that stay-at-home parents should consider becoming such for purely financial reasons, it is intriguing to note that, according to polling, many parents would consider the stay-at-home option if it were more financially viable. Indeed, when one considers research conducted both in the USA and UK, that suggests that when totting up all the tasks stay-at-home parents accomplish, it could add up to anything between approximately £30,000 and £75,000 per year.

Some will of course say that in this dire economic climate we simply cannot afford to pay stay-at-home parents from the public purse. Yet, as mentioned earlier, the Government has found some £1.4 billion for its latest childcare plans, and has found even more – £10.7 billion by 2016-17 – to raise the personal income tax threshold to £10,000, which will primarily benefit two-earner households in the upper half of the income distribution.

Hence, whilst it may be a little unrealistic to expect stay-at-home parents to be paid £75,000 per year by the Government, would it really be that unreasonable to give something to help households where one parent stays at home and has significant caring responsibilities? After all, as much research has highlighted, it is one-earner households who are especially likely to be in poverty (only households where there is no-one in work are likely to experience higher poverty rates, whilst lone parent families are also at high risk). In addition, as the Christian social policy charity CARE has pointed out, one-earner households currently lose out when it comes to the tax system and work incentives, seeing only 27 pence come into the household for every extra £1 earned in work (this is particularly true for poorer one-earner households on the minimum wage, 50% and 75% of the OECD average wage).

From a political and policy viewpoint (and let us not forget David Cameron’s pledge to make Britain the most ‘family friendly country in Europe’), any policy along these lines could be limited to families on incomes below a certain level, and could be limited to families with young children or with significant caring responsibilities for older children or adults. In any case, when considering the contribution stay-at-home parents make, the value of this role in society, the raw deal one-earner households are currently afforded and the policies the Government has introduced to help other household types, maybe offering remuneration to stay-at-home parents isn’t such a bizarre idea after all!

Agree or disagree with what I’m saying? Take part in the debate and comment below!

It occurred to me recently that in the midst of the current hyperbole and debate around the Coalition Government’s latest welfare proposals and reforms, a lot of confusing terms have been bandied around without much consideration as to what they mean or what they refer to.

Take the latest OECD press release on their new ‘Taxing Wages 2012’ publication as a case in point. As interesting and insightful as the press release was, and as crucial as their Taxing Wages publications are to many researchers and writers around the World such as myself, the mainstream and specialist press (quite understandably might I add) published what, to my mind, was inaccurate information regarding how UK families ‘pay the highest tax in the OECD.’

What the OECD actually said was that UK one-earner families with two children have the highest tax wedges (or tax burdens on labour income) in the OECD at average earnings, although admittedly this isn’t made especially clear in the press release. A ‘tax wedge’ as I will set out below is quite a wide term and actually includes far more than just Income Tax and National Insurance, as some of the press articles on the issue might have implied.

Please don’t misunderstand me: I am not having a go at the press (mainstream or specialist). I know as well as anyone through working in this area how complex and confusing the parallel universes of tax and benefits can be, but we (and I include myself here) must be careful when writing about these matters to make sure we mean what we say when we write about these sorts of things.

With this in mind, I decided to have a go at explaining – in as plain English as possible – some key terms and concepts around tax and welfare. Whilst the list below isn’t exhaustive, I hope to have covered all the key terms. If you feel that I have missed out a key term, or have defined something incorrectly, please feel free to leave a comment in the box below and I’ll do my best to rectify!

Tax Burden: This term comes up a lot in the family tax and benefits arena and is widely used by both the OECD and CARE in its ‘Taxation of Families’ publications, and when applied to the individual or household in the UK context, it refers to Income Tax plus National Insurance minus cash benefits (for example, tax credits) as a proportion of gross wages (explained below.) Hence, this term in my view, rather than ‘Tax Wedge’ better defines how much tax someone pays.

Tax Wedge: This term is far wider in scope than ‘Tax Burden’ and takes into account Income Tax, employer and employee social security contributions and payroll tax as a percentage of labour costs; hence this concept takes into account employer and labour considerations rather than just personal earnings.

Gross earnings: This term refers to the wages of an individual before Income Tax, National Insurance or any other deductions and before Child Benefit, Tax Credits or any other additions.

Labour costs: Labour costs means the total expenditure borne by employers in order to employ workers, including factors such as direct remuneration, bonuses, severance pay and benefits in kind. They also include indirect costs linked to employees, independently of the remuneration paid by the employer, such as collectively agreed, contractual and voluntary social security contributions, direct social benefits, vocational training costs, other social expenditure (cultural and medical services, transport costs, etc.), and taxes relating to employment regarded as labour costs, less any subsidies received.

Payroll Taxes: Payroll taxes consist of taxes payable by enterprises assessed either as a proportion of the wages and salaries paid or as a fixed amount per person employed.

Tax Credits: In the UK context, Tax Credits lie exclusively within the benefits system and are cash transfers from the Government to households and the amount given is based on a number of factors such as the amount of hours worked, gross earnings and the number of children in the household (for Child Tax Credit). Extra Credits are also available for childcare costs.

Child Benefit: Up until very recently, Child Benefit was a universal cash transfer given to families proportional to the number of children in the family, and disregarded the income of the household. However, the Coalition government have recently changed the eligibility rules so any household with an individual earning more than £50,000 per year will start to have their child benefit tapered away to the point where earnings exceed £60,000 per year, where child benefit will no longer be available. Nonetheless, for eligible families the amount given to the first child is £20.30 per week for the first child and £13.40 for each subsequent child.

Universal Credit: Universal Credit is a new means-tested welfare credit in the benefits system, due to be introduced from this year, which combines many of the existing benefits and tax credits into one single payment.

Marginal Effective Tax Rates: The Marginal Effective Tax Rate, or METR, when applied to the world of tax and benefits, is the amount an earner keeps from extra income earned. To take a current real life example, if an earner working 30 hours per week on the minimum wage earns £100 in overtime, and is a lone parent with two children, then that earner will see £27 of that £100 come into the household due to Income Tax and National Insurance increases and Benefit withdrawal.

David Binder is a Family Fiscal Policy Consultant for CARE.

Matthew Hancock, Conservative MP for West Suffolk and Parliamentary Under Secretary of State for Skills, speaking last week at the Resolution Foundation event ‘A Conservative agenda for tackling low pay’,  told the audience that ‘One of the best things Nigel Lawson did was to get rid of family-based taxation.’

The former Chief of Staff for George Osborne is of course referring to the decision of the former Chancellor Nigel Lawson  to introduce independent taxation in 1990.  In other words, the tax man would no longer take account of the number of members in the family when deciding how much to tax an individual. The net result of this is that any family recognition would come through the benefits system, albeit with small concessions remaining through the Married Man’s Allowance and Additional Person’s Allowance (both of which have now disappeared.)

The East Anglian parliamentarian’s strong opinion on this issue has raised a number of questions. Namely, does this opinion reflect a wider refusal by Tory modernisers, such as Hancock, to accept that income should than be considered on a wider, more reflective household basis rather than an individual standpoint? After all, as event panelist Nicola Smith (Director of Economic and Social Affairs at the TUC) correctly pointed out, a current Government tax policy – increasing the personal income tax threshold (which received the vociferous backing of Hancock yesterday) is both extremely expensive (the IFS estimate that it will cost the taxpayer £10.7 billion in 2016/17) and is relatively poorly targeted, with most of the income benefit going to those in the upper half of the income distribution (see the graph below, produced by the IFS).

Moreover, do Hancock’s views reflect those of other members in the Conservative Party? Most notably George Osborne, who once again failed to introduce in his budget this month a transferable allowance for married couples? His omission is important as this policy would begin to reintroduce some semblance of family recognition into our tax system. The policy was even noted on page 30 in the Coalition Agreement, and, rather unlike raising the personal income tax threshold, would predominantly benefit those in the lower half of the income distribution. This is due to households with one-earner being more likely to be in the lower half of the income distribution than those with two (see graph below, again with thanks to the IFS.)

In case you hadn’t guessed by now, it is my view that in order to tackle low pay we must start to think of incomes in the context of the overall household and not as just those of the individual tax-payer concerned. Only when this is taken into account will we begin to see how much some wages have to stretch in order to meet routine household costs. Thus if future policy can consider households more readily, then it will have done low to middle income UK households (whose living standards have stagnated in recent years) a great service. With this in mind, it is both surprising and worrying to hear Matthew Hancock’s apparent reluctance to consider the whole household in this debate on low pay.

David Binder is a Family Fiscal Policy Consultant for CARE.

The Organisation for Economic Co-operation and Development (OECD) has published a preview of its upcoming flagship publication ‘Taxing Wages 2012’ this week showing that families face a greater tax wedge than single people. The international study reveals that the tax wedge on one-earner UK families with two children on the OECD average wage, has, between 2011 and 2012 increased by 1.2%, whilst the wedge on single people without children on the same income has fallen by 0.3%.

Japan and New Zealand were the only two OECD nations which discriminated against their one-earner households more heavily than the UK within the period of the study. What is more, the difference between the increase in wedge on UK one-earner families and the decrease in burden on single people with no dependents was the greatest of any OECD nation at 1.5%.

Such findings come as no surprise to the Christian social policy charity, CARE, who conduct in-depth research into this issue and produce an annual ‘Taxation of Families’ publication. In their latest report entitled ‘The Taxation of Families – International Comparisons 2011’, CARE reveals that a one-earner family with two children bears a tax burden that is 42% greater than the OECD average for similar families in other OECD countries. This significantly larger tax burden on families contrasts strongly with the case of a single person in the UK earning the same wage as the one-earner family but who does not have children, as they face a tax burden that is almost identical to the OECD average.

Moreover, CARE’s analysis also shows that a one-earner family with two children has a tax burden that is 73% of that of a single person without children, whilst the corresponding OECD average is just 52%, a difference of more than 20%!

Speaking about the latest OECD findings CARE consultant and co-author of Taxation of Families, David Binder, said:

‘These latest OECD findings confirm what we have been saying for a number of years and yet again highlight the continued unfairness families (in particular those with a sole earner) face in the tax system, especially in comparison to single people without children.’

‘Unfortunately, the Chancellor, George Osborne, missed a golden opportunity in his recent budget to introduce transferable allowances for married couples, a policy measure which would begin the process of addressing the unfair treatment of families in the UK tax system. We hope politicians will start to see the injustice of failing to recognise family responsibility within the tax system. ’

Note: Tax Wedge defined as Income tax, employer and employee social security contributions and pay roll tax as a percentage of labour costs whilst tax burden defined as personal income tax plus employee social security contributions minus cash benefits as a percentage of gross wage earnings.

On Wednesday, the Chancellor of the Exchequer, George Osborne MP, delivered the fourth Budget of the Coalition Government.

There had been indications that the Government might not use this Budget to introduce transferable allowances for married couples.  However, it is astonishing to find that the Government has in fact made things far worse for one-earner families – those who would benefit from a transferable allowance.

We responded strongly to the news that families with a stay-at-home parent are – once again – being forgotten.  Please check out the links below where you can read much more reaction, reflection and analysis.

Press Releases

Charity astounded at further discrimination against stay-at-home parents

CARE speaks out as marriage forgotten yet again

Blogs

Stay-at-home parents left in the lurch. Again.

A ‘Budget for an Aspiration Nation?’

Detailed analysis

How the Budget affects families – a fiscal policy analysis

News featuring CARE

Charity calls for end to ‘astounding’ discrimination against stay-at-home parents – Daily Telegraph

Budget 2013: One earner families are now under siege – Centre for Policy Studies Blog

The contrasting impact of the 2013 Budget on two different families  – Daily Mail

Further Information and Reading

The Case for Transferable Allowances for Married Couples: Recognising the public policy benefits of marriage (produced March 2013)

The Case for Transferable Allowances for Married Couples: The fiscal fairness perspective (produced March 2013)

Progressive Fiscal Policy_CARE Pre-Budget Briefing (produced ahead of the March 2012 Budget)

‘The taxation of families – international comparisons 2011′ (CARE’s latest research paper, published December 2012)

The Prime Minister and Conservatives on recognising marriage in the tax system

How the Budget really affects families – An analysis for CARE by independent fiscal policy consultants

The Budget contained two proposals which directly affect the take-home pay of families. One was the fulfilment of the promise in the Coalition Agreement to introduce the £10,000 personal allowance. The other was the proposal to introduce a tax relief for childcare costs. Both these proposals were presented as part of a strategy to support those who “want to work hard and get on” and “to make the tax and benefit system fairer, support aspiration and keep costs down for households”.¹

The first of these proposals provides less help comparatively for one-earner couples than for others. The second gives them no help at all. This comes on top of the new High Income Child Benefit Charge which discriminates against them and the failure of the Government, to date, to honour the commitment made by the Prime Minister to introduce transferable allowances.

The Cost

• The cost of the £560 addition to the personal allowance to bring the allowance up to £10,000 in 2014-15 is £1075 million.²
• This is, however, on top of the £1100 increase announced in Budget 2012 which will cost £3700 million in 2014-15.
• And on top of the £235 increase announced in the Autumn Statement which will cost £1140 million in 2014-15.
• In addition there is the cost of the new tax relief for child care. The Red Book puts the cost of additional childcare funding at £750 million.

The Chancellor is spending over £6.5 billion on “supporting families “and “aspiration”.

These proposals are very costly. The question that has to be asked is whether this money is going to be well spent or whether there was a more cost effective way of supporting the least well-off families and supporting aspiration. Our view is that the money is not well spent and that the resources could have been, and should have been used, more effectively.

At a time when financial resources are under such strain and the priority is to reduce Government debt, this is a very large sum. It can only be justified if it does really support the least well-off families and improve incentives.

Supporting the least well-off families

The Government says that its economic and fiscal strategy is underpinned by its commitment to fairness. It says that it believes that the increase in the personal allowance is the most effective way of supporting those on low and middle incomes because it enables people to keep more of the money they earn.

If the tax system is to be fair, however, it should be giving most help to those families who are least well off. This depends not only on their income, which by itself is not a good measure, but also on the number of adults and children in the family.

The Chart below shows, where various households are likely to be placed in the income distribution in 2013/14.

The Government’s concentration on getting people into paid work and ignoring the value of unpaid work is thrown into relief by figures of one-earner couples.

• There are 2.2 million households where one member is in full-time work and the other is not earning.³
• 1.2 million (53%) of these households contain children.
• 700,000 (58%) of these households with children have a youngest child who is under 5.
• A further 300,000 (21%) have a youngest child between the ages of 5 and 10.
• Well over half – 61% of all one-earner couple families – have either a young child below 5, someone who is disabled, or someone with caring responsibilities.

Many of the remainder are likely to be doing voluntary work. Despite the opportunity of childcare, many stay-at-home spouses have very good reason not to take up childcare and should not be pressured into doing so.

Improving Incentives

For a very large number of in-work families there is a very little incentive to increase their earnings. When income tax and national insurance contributions are all taken into account, a typical family in receipt of tax credits will only see a 27p increase in their disposable income from any additional earnings. Their effective marginal tax rate is 73%.⁴ Income tax accounts for 20%, national insurance contributions 12% and the withdrawal of tax credits 41%.  This is the rate that applies to most in-work families receiving tax credits. The table below shows the income points at which tax credits cease to apply.

Income Points at which tax credits are phased out (2013/14):

(childcare credit not taken into account)

For families with incomes below these income points there is little incentive to increase income. Nothing in the Budget makes this position any better. These families will continue to live in a world where they cannot aspire to a better standard of living.  In 2014 some of these families will be switching over to the new Universal Credit. When this happens their effective marginal rate will generally go up to 76%. It is often overlooked that, whilst Universal Credit will improve the incentive to move off benefits and into paid work, it will reduce the incentive of many families who are already in paid work to increase their earnings.

Moreover when Universal Credit comes in, not only will they face a higher effective marginal rate but also they will lose most of the benefit of the increase in the tax threshold to which the Government attaches so much importance.  Universal Credit is based on net earnings i.e. income after tax and national insurance contributions.

The withdrawal rate under Universal Credit will be 65% with the result that a £1000 increase in the tax threshold will give a basic rate tax payer a £200 reduction in income tax but a consequential £130 reduction in Universal Credit. In other words the overall benefit of the hugely costly increase in personal allowances would only benefit a basic rate tax payer by £70.

If the Government wants to improve incentives for in-work families, increases in the tax threshold are not the way to do it. It is disingenuous of the Treasury to suggest that the Budget has done much to improve incentives for many in-work families.

For further information contact Ruth Bessant, Public Affairs Media and Communications Officer on mob: 07581 153693 or email: ruth.bessant@care.org.uk

To contact the authors directly call Don Draper on (01297) 442755 and Leonard Beighton on (01932) 863516.

Download a PDF of this Briefing here.

Notes:

1. Para 1.164,  Budget 2013

2. Table 2.1: Budget 2013 policy decisions, Budget 2013

3. Derived from DWP Households Below Average Income data from the 2010/11 DWP Resources Survey.

4. This figure and the comparable figure in the following paragraphs below leave out of account council tax benefit and passported benefits such as free school meals.

5. Analysis written by independent fiscal policy consultants Don Draper and Leonard Beighton who have spent most of their lives working on tax policy and now advise CARE on family taxation.

Interesting research was released earlier this week by the Resolution Foundation and IPPR looking into the opportunities and challenges of the Living Wage (see here). It notes that from a local scheme launched in East London some 11 years ago, the Living Wage has now become a major part of the national tax and benefits debate.  Indeed, individuals and organisations from across the political spectrum have called for the introduction of this policy (the wage being currently set at £8.55 for London and £7.45 for the rest of the UK – see here).

Mindful of the increasing influence of the notion of the Living Wage, it begs the question: in the current system of Tax Credits (which will exist in some form until 2017), how much better off will those on the minimum wage (currently £6.12 per hour) be if they were to take on a living wage? Additionally, is this set to improve under the Universal Credit? In truth, what we’re really interested in here is the Marginal Effective Tax Rate (METR), something which is quite rightly raised in the Resolution Foundation/IPPR report (see p.40).

METRs (which are comprised of Income Tax and National Insurance increases and benefit withdrawal rates) tell us how much an individual or household will gain from any increase in their income. For example, if someone was to gain an extra £10 in their income from working overtime, and they experienced an METR of 50%, they would see £5 come into the household.

Unfortunately, under the current Tax Credits system, it is in earning additional income that things start to go rather wrong for many families. For example, a one-earner family with two children on the minimum wage that experiences an increase in their hourly rate up to the London living wage would perhaps expect to see all of the £2.43 increase come into the household. However, according to ‘The Taxation of Families 2011’ – a research paper published by CARE in December – one-earner families would face an extraordinary METR of 73%, meaning they would take home just 27 pence from every additional pound earned. It is the same story for many other family types too, with lone parents with two children, married couples with no children and single people with no children all facing this sky high rate. It may well be true for more family types, but the Taxing Wages data released by the OECD only analyses the families noted above.

To put this into some context, these METRs for one-earners at 75% average wage in particular are the highest in the OECD (as the graph below demonstrates). METRs of this nature are certainly not the norm!

Given the relevance of this to the issues of worklessness and poverty (which organisations such as the OECD and the Joseph Rowntree Foundation have duly noted) it is absolutely imperative that the METRs millions of families on low wages in the UK face is tackled as a matter of urgency. If high METRs for low income families can be addressed, this could have a profoundly positive effect on UK poverty rates.

Thus, whilst the Living Wage has much to commend it, many families under Tax Credits will continue to face METRs of up to 73%, with this rate increasing still further to 76% under Universal Credit, meaning that much of the benefit of any wage increase will go to the Treasury rather than the household. However, it is not too late for the Universal Credit to be amended in order to remedy the problem of excessive METRs and ensure more money enters households.

What can be done? Do look out for more on this blog in the coming weeks as we outline how to address this problem.

New analysis finds:

• 61% of all one-earner couple families have significant caring responsibilities
• 1.2 million (53%) of one-earner households contain children
• 700,000 (58%) of these households with children have a youngest child who is under five
• 300,000 (21%) have a youngest child between the ages of five and ten
• Average income for a one-earner household is just £28,000 per annum

New analysis from the social policy charity, CARE, illustrating that many one-earner families are not so by choice will be revealed in a House of Lord’s debate today¹. It is expected that the substantial concerns raised in the last couple of weeks about child benefit will take centre stage putting the Government under even more pressure.

The latest figures from the Department of Work and Pensions’ Family Resources Survey demonstrate that out of the 2.2 million UK one-earner families, the majority, or 61%, have dependent children under the age of five, care for someone who is disabled or bear other caring responsibilities².

The reality for the majority of one-earner households is that the single earner is in full-time work and the non-earner has significant caring responsibilities.

Furthermore, figures from the Department of Work and Pensions’ Family Resources Survey illustrate that the average income for a one-earner household was just £28,000 per annum, only marginally above the UK average wage of £26,500. This evidence reveals the inaccuracy of popular assumptions that one-earner households have the luxury to choose to be so on the basis of wealth.

Such data is unsurprising, particularly in relation to caring for children, given that a recent report by the think tank Centre Forum clearly demonstrates that the UK has some of the most expensive childcare arrangements in the developed world. It is evident that many stay-at-home parents cannot afford to go back to work even if they wish to.

What is more, polling conducted by Uswitch confirms that 75% of mothers would like to stay at home to look after their children if money was no object, with six out of ten saying that they re-entered the workplace due to financial pressures and to pay off debts.

These numbers come in the midst of recent child benefit policy changes whereby one-earner households will begin to lose their child benefit if earnings exceed £50,000 per year and will lose it completely by the time earnings reach £60,000 per year. Two earner households where both partners earn £49,000 meanwhile will keep all of their child benefit.

CARE’s Director of Parliamentary Affairs, Dr Dan Boucher, said of the figures uncovered by CARE: ‘It is clear that the majority of one-earner families are one-earners out of necessity rather than by choice. The truth is that most one-earner families do not have the option of the stay-at-home parent finding paid employment.’

‘For single-earner households earning just over the average wage it is vital that the Government honours its commitment to support them through transferable allowances, as promised in the Coalition Agreement. 20 March is the last opportunity to do this in order to have transferable allowances up and running by the next General Election.’

He continued: ‘In light of the child benefit changes it is particularly unfortunate that one-earner households on incomes of between £50,000 and £60,000 are being discriminated against , whilst the Government treats dual earner households more favourably allowing those on incomes of up to £100,000 to keep their child benefit in its entirety.’

For further information contact Ruth Bessant, Public Affairs Media and Communications Officer on tel: 020 7227 4731 or 07581 153693 or email: ruth.bessant@care.org.uk.

Notes:

1. The debate in the House of Lords has been tabled by Baroness Hollis for 17 January: Baroness Hollis to move that this house takes note of the impact on families of changes to tax and benefits.
Watch live: http://www.parliamentlive.tv/Main/Player.aspx?meetingId=12244

2. Figures derived from Department of Work and Pensions’ Family Resources Survey 2010/11. The 61% figure refers to a one-earner couple who has one of the following three characteristics: is caring for a child under 5, where there is a disabled member of the household, or where there are caring responsibilities.

3. CARE (Christian Action Research and Education) is a well-established mainstream Christian charity providing resources and helping to bring Christian insight and experience to matters of public policy and practical caring initiatives. CARE is represented in the UK Parliaments and Assemblies, at the EU in Brussels and the UN in Geneva and New York. CARE is a company limited by guarantee registered in England and Wales at 53 Romney Street, London, SW1P 3RF, Company No: 3481417, Charity No: 1066963, Scottish Charity No: SC038911

New research finds:

• UK Marginal Effective Tax Rate (METR)[1] levels on both one-earner couple families and lone parent families are the highest in the developed world
• Point at which many UK families pay income tax is lower, in real terms, than it was in 1990
• Tax burden on one-earner married families for 2011 was 42 per cent greater than the OECD average
• Tax system remains insensitive to family responsibility
• UK in worst place to facilitate the creation of an ‘aspiration nation’
• Coalition Government must act on its pledge within the Coalition Agreement to recognise marriage in the tax system through the introduction of a transferable allowance

New research released today by the social policy charity, CARE, reveals the alarming truth about family taxation in the UK.

CARE’s research shows that – despite the Coalition Government’s pledge to help families by raising the income tax threshold – families in Britain face an income tax threshold[2] that is lower, in real terms, than it was in 1990.

The research reveals that in 1990-91 the threshold for a single person under 65 was £3,005; in 2012/13 it is £8,105, an increase of 170%. By contrast, in 1990-91 the tax threshold for families, both one-earner couples and lone parents, was £4,725; in 2012 it is £8,105, an increase of just over 71%. Taking account of inflation, the threshold for a single person is 24 per cent higher than it would have been if the 1990/91 threshold had been set in line with RPI. By contrast, the threshold for both one-earner couples and lone parents is 21 per cent lower.

Another piece of research by CARE – to be published on 11 December – shows that UK Marginal Effective Tax Rate levels on both one-earner couple families and lone parent families remain significantly out of line with most of the developed world.

The report, titled: ‘The Taxation of Families – International Comparisons 2011’, demonstrates that, the UK’s Marginal Effective Tax Rate – on a married couple, with two children, where one parent stays at home whilst the other goes to work, earning 75% of the average wage – is higher in the UK, at 73%, than in any other developed country (see Graph 1, below).

An METR of 73% means a household with a single earner would only see 27 pence go into the home from each additional £1 earned.

On this basis, and despite the Prime Minister’s pledge to create an aspiration nation, the UK is, in fact, in the worst place to facilitate the creation of an aspiration nation.

Moreover, the study shows that the tax burden faced by married couples on the average wage, where one parent stays at home to look after the children, is 42% higher in Britain than the OECD average.

On a comparative basis, the income tax bill faced by UK one-earner couples with children on an average wage is significantly out of line with many other developed countries. For this group, the income tax burden is 67 per cent greater than the OECD average.

The findings come despite the Government’s pledge, outlined in the Coalition Agreement, to recognise marriage in the tax system through the introduction of a transferable allowance.

Commenting on the charity’s findings, Nola Leach, Chief Executive of CARE explained:

“Our tax system remains very individualistic and insensitive to family responsibility, compared to those of comparable OECD countries.

“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 today’s research. It is unfortunate that the Coalition Government still has not introduced the necessary legislation.

“The introduction of a transferable allowance would both decrease the tax burden faced by one-earner families, whilst reducing the extortionately high METRs faced by the poorest households, due to it lowering their tax liability.

Unfortunately, time is 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 must now prioritise implementing its marriage commitment in Budget resolutions immediately following the 2013 Budget.”

ENDS

For media inquiries, please contact Alistair Thompson of Media Intelligence Partners Ltd on Mob: 07970 162225 or 0203 008 8145, or Ruth Bessant of CARE on 020 7227 4731 or 075811 53693.

Notes to Editors:

CARE (Christian Action Research and Education) is a well-established mainstream Christian charity providing resources and helping to bring Christian insight and experience to matters of public policy and practical caring initiatives. CARE is represented in the UK Parliaments and Assemblies, at the EU in Brussels and the UN in Geneva and New York.