The Principle Has Been Set

Mary Dejevsky writes:

It hardly seems two minutes since the Chancellor delivered his Autumn Statement.

But this time next week we will be digesting the small print of George Osborne’s 2014 Budget – a pre-election exercise if ever there was one, given that most of its measures will take effect just a month before the country goes to vote.

The generally upbeat mood among economists suggests that he may be able to afford some surprise giveaways, while, of course, soberly acknowledging the amount of work there is still to do.

There is one little bauble, though, that we already know about. Well, to some it is a bauble; to others it is an intense irritation.

This is the so-called marriage tax break, foreshadowed by Osborne last December.

As outlined then, anyone who is married or in a civil partnership and does not use their personal tax-free allowance will be able to transfer £1,000 of it to their earning partner.

The value of this tax break is not huge. Any couple qualifying for the new concession stands to be only around £200-a-year better off.

But the change has, as David Cameron well appreciates, great symbolic value. It marks the first time for 20 years that marriage will be recognised by the UK tax system.

As such, it is a victory for those who have campaigned over many years against what they see as an injustice. 

If one half of a couple does not work for whatever reason – small children or disability in the family are common reasons – their personal tax allowance is lost.

For the Exchequer it has been irrelevant that the single earner has family responsibilities. The extra costs of children are acknowledged through child benefit.

So far, the size of the so-called marriage tax break makes the victory largely symbolic. But campaigners are cock-a-hoop that the principle has been set.

And for many, it is more about principle than cash.

They include some church leaders and many stalwarts of the “traditional” family, who regard the institution of marriage as a pillar of a solid society and believe that a government should support it.

This is precisely why the marriage tax break, so-called, also draws such ire, especially from many women. 

The Government is accused of trying to “bribe” people to get married and, because women are more often the ones who stay at home, of wanting to put women back into the kitchen. “You won’t persuade me to get married for £200 a year,” is a common refrain.

This, though, is not the point – or at least it should not be.

The real point is that the independent tax system, as it has operated in the UK for more than 25 years, has some seriously adverse effects.

One is that, for many people, it entails a marriage penalty.

One-earner, or low-earning, couples can be several thousand pounds a year better-off if they live apart, because tax is assessed  individually and benefits are assessed by household.

This encourages dishonesty and has fostered a state known as “living apart together”, which cannot be good for anyone.

It will take a larger transferable allowance than is now envisaged to change this, and recognition for cohabiting as well as marriage.

But the “marriage tax break” is grievously misnamed. Far from favouring marriage, it merely starts to redress a costly bias in the tax and benefits system against it.

A second adverse effect is on those, not only women, who stay at home, through necessity or choice. With childcare in the UK so expensive and so poorly organised, there are many who do this anyway.

But the strong bias in the tax system is in favour of paid work; only the well-off can really afford to stay at home.

This is not about putting women back in the kitchen, it is ensuring that they are not penalised – or are penalised less – for providing the care that the state would otherwise have to provide.

There is though a third adverse effect of individual taxation, which is rarely highlighted but ought to clinch the argument.

The failure of the UK tax system to recognise family responsibilities contributes directly to keeping children in poverty.

According to the charity Care’s annual update on the taxation of families, the marginal tax rate faced by one-earner families with two children in the UK remains higher than anywhere else in the developed world.

This means that it is more difficult for a single earner here to improve the family’s lot by working harder or earning more.

The UK and Mexico are the only two medium-sized OECD countries to have a strictly individual-based tax system. These figures show why most others prefer to tax according to household.

In some ways, it is unfortunate that this comparative paper is published by a Christian charity which has made the “marriage tax break” a cause.

Rightly or wrongly, this only reinforces the idea that the change is about moralising, repressing women and recreating outdated notions of family.

But Care is not alone in its findings.

A study by the Joseph Rowntree Foundation last year showed that one-earner couple households accounted for the largest group of children in poverty.

Its preferred remedies were different – higher pay, more flexible hours, better childcare – but a change in the tax system would be far simpler.

If family-based taxation is good enough for the vast majority of developed countries, it should be good enough for us, too.