Taxes on married couples on the average wage where one parent stays at home to look after the children are proportionally higher in Britain than in other Western countries, according to shock new research.

At present such families in the UK are bearing a tax burden that is 39 per cent higher than that on comparable families (on average) across the 34 countries making up the OECD.

But despite David Cameron’s promise to make Britain the most family-friendly country in Europe, their plight is set to worsen alarmingly in future years.

Their tax burden will soar to 50 per cent greater than that faced by the same families elsewhere in the advanced industrial world by 2012-13.

The staggering tax blow for families on the average wage of £33,745 a year arises because of changes made by the Coalition Government – not least the decision to axe child benefit for families where one parent earns more than £42,000 a year.

The 75-page analysis has been drawn up by experts working for the Christian social policy charity CARE.

They compared tax levels for 2009/10 for one-earner families on the average wage with those paid by their counterparts in 33 other OECD countries.

CARE chief executive Nola Leach criticised the widening tax gap: “The treatment of married couples on modest and average incomes in the tax system remains unfair and out of line with the rest of the OECD.

“This failing is damaging family life, trapping children in poverty and hitting those on middle incomes the hardest.”

The report concludes by saying that changes to the higher rate tax thresholds and withdrawal of child benefits will disproportionately hit married couples on moderate incomes, while the poorest families are being protected.

The report, The Taxation of Families 2009/10, co-authored by Don Draper, Leonard Beighton and Alistair Pearson, is a detailed annual assessment of the impact of the tax system on families in the UK compared to other OECD countries.

It will make for uncomfortable reading for Prime Minister David Cameron, who pledged to make the UK the most family friendly country in Europe and who previously backed greater support for married couples, a married couple’s tax allowance and an end to the couple penalty.

The report found that the withdrawal of child benefit would have little effect on the richest households in the UK, but would impact on those around the middle and the upper lower half of income distribution. From 2012/13 one earner couples with two children who earn slightly more than £42,000 would be hit with an effective 25 per cent increase in their tax burden, compared with single people with no dependents on the same wage who would see little change in their tax burden.

Meanwhile two earner couples who are right at the top end of the higher half of the income distribution will not be impacted by these changes at all.

But the report is not all bad news for the Government, as the report’s authors pay tribute to the work of Secretary of State for Work and Pensions Iain Duncan Smith for his universal credit welfare reforms. The new system, the report concludes, will reduce the couple penalty for those on lower incomes.

The tax burden on lone parents compares favourably to the OECD average. At two thirds of an average wage the net tax burden on single parents with two children was close to zero. The OECD average was 15 per cent and the European Union average was 23 per cent. The position of one parent families on lower incomes is even more favourable. For a lone parent with two children on 50 per cent of an average wage (£16,873) the tax burden was negative.

Nola Leach, Chief Executive of CARE said, “The treatment of married couples on modest and middle incomes in the tax system remains unfair and out of line with the rest of the OECD. The tax inequality experienced by these couples worsened during the last year of the Labour Government and there is little sign that this situation will improve in the next couple of years.

“Despite much rhetoric from leading members of the Government, including the Prime Minister, about making the UK more family friendly and backing marriage, what we see with the lowering of the higher rate threshold and removal of child benefit is that married couples on modest and middle incomes will continue to pay disproportionately more in tax than their OECD counterparts. This failing is damaging family life, trapping children in poverty and is hitting those on middle incomes the hardest.”

“We welcome the protection of those at the very bottom of the income scale, but believe that those in the middle who are not rich are shouldering a heavy burden.”
Mrs Leach added, “We applaud the work of Secretary of State for Work and Pensions Iain Duncan Smith and the introduction of the Universal Credit System, which will start to erode the couple penalty for those on lower incomes.

“We now need to see the Coalition deliver on its commitment to recognise marriage in the tax system, because if the Chancellor makes no further tax changes the tax burden on one earner married couples is set to rise to a staggering 50 per cent greater than the OECD average (2012-13).

She concluded, “The imperative for recognising marriage in the tax system as quickly as possible is overwhelming. We very much hope that the Chancellor will do this in the budget later this month.”

The Taxation of Families is available for purchase for £8 from our store here.

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Update: a number of media outlets have highlighted the findings of The Taxation of Families 2009/10.

To read media reaction to the report, use the links below:

www.telegraph.co.uk/family/8365211/Britain-worst-place-for-tax-burden-on-single-earner-families.html

www.independent.co.uk/news/uk/home-news/uk-families-have-worst-tax-burdens-2234509.html#disqus_thread

www.dailymail.co.uk/news/article-1363642/UK-offers-worst-tax-deal-traditional-families.html

conservativehome.blogs.com/thinktankcentral/2011/03/britain-has-most-anti-family-tax-system-in-europe.html