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SOCIAL FABRIC

Family Fortunes

The case for a broader and deeper family tax allowance
Luke Stanley, Will Tanner, Fjolla Krasniqi
December 21, 2021
Family Fortunes
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The single most important unit of society is the family, yet many families feel under financial strain on a daily basis. The proposal for a family allowance would recognise - like most other European nations do - that having strong families is essential for a strong social fabric, and give parents more options for how to arrange family life.

Lord O’Shaughnessy, Chairman of the Social Fabric programme

Reward working families that want to spend more time caring for loved ones.

The Government should introduce generous tax breaks for single-earner couples and families with caring responsibilities in order to reward families who want to spend more time looking after loved ones.

Our new report, Family Fortunes, shows that single earner families experience a particularly high tax burden compared to those in similar countries. In the UK, single earner couples face a tax burden of 18% on earnings, the 9th highest tax burden among Organisation for Economic Co-operation and Development (OECD) countries and well above the developed world average of 13%.

Addressing this tax penalty would give more families the financial freedom to structure their commitments however they wish, helping those parents who want to spend more time at home caring for their children to be able to do so.

While the Coalition Government introduced the Marriage Allowance to allow married couples to transfer up to 10% of their unused personal allowance on income tax to their spouse in 2015, the relief suffers from very low take-up, with just 43% of those eligible making use of the scheme. Furthermore, the amount a spouse can transfer is small, reducing a couple’s tax bill by just £252 at most. 

Ministers should strengthen the current allowance to reduce cost of living pressures on families, broaden the base of beneficiaries and further strengthen the institution of the family.

Jul 18
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Easing the financial burden on families, regardless of marital status

There are three key arguments for reforming marriage allowance.

  1. Recognise the value of strong families, regardless of marital status. Since 1990, the proportion of children across the UK born to married couples has dropped from 72% to 51%. As a result, marriage and family are no longer synonymous and the allowance should be updated for the modern day.
  2. Give families the financial security to shape their family structure. While most parents want to work, many do not, and would prefer to reduce commitments in order to be able to spend more time on family care. This is demonstrated by ONS data showing a third of parents with children under five claim there are work-placed obstacles making fulfilling childcare responsibilities more difficult.
  3. Reduce the tax penalty on single earner families. The tax burden on single-earner married families with children in the UK is 9th highest in the OECD, well above the developed world average (18.3% of gross wage earnings compared to 12.9%). Single-earner households are also considerably more likely to be represented in the bottom-fifth of families for disposable income (35%) than lone parent families (24%). 

Expand marriage allowance into a broader and deeper Family Allowance

A more generous relief applied to a broader range of families would be more effective at strengthening family life in Britain and helping families to care for their loved ones.  To achieve this, we recommend three key reforms:

  1. Extend the marriage allowance into a wider Family Allowance, to allow cohabiting couples with children as well as married couples to transfer 10% of their personal allowance to their spouses, worth around £252 per couple per year. This would cost the taxpayer £98 million a year. 
  2. Drive take-up of the Family Allowance by making it easier to access and more attractive for parents. This would include paying the allowance as a lump sum directly to the lower earner and signposting through the marriage and birth certificate process and antenatal classes.
  3. Radically expand the tax break by allowing certain families to transfer their full £12,570 personal allowance to their spouse. The costs of this policy would depend on how widely the eligibility criteria was set, but it would cost £665 million a year to extend to families with young children and £457 million a year to extend to families with full-time caring responsibilities. Individual families would benefit by up to £2,514 per year.

Easing the financial burden on families, regardless of marital status

There are three key arguments for reforming marriage allowance.

  1. Recognise the value of strong families, regardless of marital status. Since 1990, the proportion of children across the UK born to married couples has dropped from 72% to 51%. As a result, marriage and family are no longer synonymous and the allowance should be updated for the modern day.
  2. Give families the financial security to shape their family structure. While most parents want to work, many do not, and would prefer to reduce commitments in order to be able to spend more time on family care. This is demonstrated by ONS data showing a third of parents with children under five claim there are work-placed obstacles making fulfilling childcare responsibilities more difficult.
  3. Reduce the tax penalty on single earner families. The tax burden on single-earner married families with children in the UK is 9th highest in the OECD, well above the developed world average (18.3% of gross wage earnings compared to 12.9%). Single-earner households are also considerably more likely to be represented in the bottom-fifth of families for disposable income (35%) than lone parent families (24%). 

Expand marriage allowance into a broader and deeper Family Allowance

A more generous relief applied to a broader range of families would be more effective at strengthening family life in Britain and helping families to care for their loved ones.  To achieve this, we recommend three key reforms:

  1. Extend the marriage allowance into a wider Family Allowance, to allow cohabiting couples with children as well as married couples to transfer 10% of their personal allowance to their spouses, worth around £252 per couple per year. This would cost the taxpayer £98 million a year. 
  2. Drive take-up of the Family Allowance by making it easier to access and more attractive for parents. This would include paying the allowance as a lump sum directly to the lower earner and signposting through the marriage and birth certificate process and antenatal classes.
  3. Radically expand the tax break by allowing certain families to transfer their full £12,570 personal allowance to their spouse. The costs of this policy would depend on how widely the eligibility criteria was set, but it would cost £665 million a year to extend to families with young children and £457 million a year to extend to families with full-time caring responsibilities. Individual families would benefit by up to £2,514 per year.

Families play a central role within our society. Their benefits extend well beyond economic materiality to physical and mental welfare, social stability, and resilience. In addition to countless academic studies, these benefits have been shown recently by our analysis in The State of our Social Fabric.

The reforms outlined in our new paper would radically strengthen families, helping couples struggling to juggle care for their children and parents, and be relatively affordable, depending on how far the full allowance flexibility is extended.

Our analysis also shows that advantaging single earner households in the tax system does not necessarily mean undoing the gains in female employment in recent years. Germany and Canada offer more generous family tax breaks than the UK but have similar rates of female participation in the labour market (73% and 71%, compared to the UK’s 72%). Iceland, meanwhile, provides fully transferable tax allowances between married couples while maintaining the highest level of women’s employment in the OECD (82%). 

The report is backed by Miriam Cates MP, Conservative MP for Penistone and Stocksbridge, as well as the campaigning research organisation, Tax and the Family.

Luke Stanley, Senior Researcher at Onward and report author, said:

“Family life is expensive, but it is even more so for single-earner parental couples in the UK, hit by a tax burden far higher than the average for developed countries in each of the last twenty years.

“Extending the existing marriage allowance to cohabiting couples with children and deepening its generosity for those with young children and caring responsibilities would help address this injustice and give families greater financial security.”

Miriam Cates MP, the Member of Parliament for Penistone and Stocksbridge, said:

“This report is a fantastic addition to the conversation around how we best support families in all parts of public policy.

“Families really do sit at the very heart of our society, and it’s important that the state recognises this across all the different aspects of government. We have seen some welcome progress recently in terms of early years and the funding announced for the family hubs programme.

“Making sure that the tax system also gives families the support and – most importantly – the flexibility that they need is the next big step. Every family is different, but we have to trust parents and couples to know what is right for them and their children. Giving them the support to do this through reforms to the tax system would be a very positive change for the better.”

Don Draper, co-founder of Tax and the Family, said:

“The income tax system takes almost no account of how well off taxpayers are, with the result that taxpayers with children have a much lower standard of living than taxpayers without children and yet they pay the same or almost the same tax. Onward has shone some much needed light into a dark corner of our tax system.”

Lord O’Shaughnessy, former Government Minister and Chair of the Onward “Social Fabric” programme, said:

“The single most important unit of society is the family, yet many families feel under financial strain on a daily basis.

“The proposal for a family allowance would recognise – like most other European nations do – that having strong families is essential for a strong social fabric, and give parents more options for how to arrange family life.

“Most importantly, it would give them more time to care: for their children, their parents or their communities.”

Will Tanner, Director of Onward, said:

“Politicians routinely compete to be the most pro-family but successive governments have presided over a tax system that discourages people from taking time off work to look after their loved ones.

“It is time to put that right – following in the footsteps of many other developed countries – and to recognise the importance of the family in the tax system. Our proposals are affordable and practical – and would mean that thousands of parents could look after their children without being penalised for it financially.”

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