Taxation: Families

Lord Bishop of Exeter Excerpts

Thursday 17th January 2013 Lords Chamber

[The Lord Bishop of Exeter]

My Lords, I too thank the noble Baroness for securing this important debate. There is much I could say, but in the time available I shall look particularly at the experience of one-earner couple families in the context of recent child benefit changes and our tax system in general. Before doing so, I make two crucial points about one-earner families in general.

First, one-earner families are often families where a couple has made a deliberate decision to sacrifice having a second salary so that one parent can be at home for the children. The stay-at-home parent in such a family performs an important job, investing in their children’s development which can save the state significant amounts of money to the extent that it helps the children in question develop into adults who are more likely to fulfil their potential and make a net contribution to society. The social science evidence is very clear about beneficial child development outcomes by every benchmark. In the context of all the concerns about “Broken Britain”, this is an important consideration. Such families should be valued and supported rather than penalised.

Secondly, the DWP’s own figures show that most one-earner families have good reason for being one-earner couple families. Figures derived from the 2010-11 DWP family resource survey demonstrate that well over half—61%—of all one-earner couple families have either a child below five, someone who is disabled or someone with caring responsibilities. So the majority of one-earner families are one-earners out of necessity rather than by choice. This is extremely important because, as we have already heard, there are those who give the clear impression that one-earner families should not be helped because all stay-at-home parents should get paid employment. This is a deeply misguided view that has no regard for the constraints that one-earner families operate in, the sacrifices they make and their significant contribution to the national well-being.

I now turn to the recent child benefit changes that took effect last week. While no one wants to pay tax, we accept that it is necessary for the common good. For any tax to be sustainable, it is vital that it is fair and is seen to be fair. However, that is not the effect of the higher-income child benefit charge. Under the charge, a one-earner couple begins to lose its child benefit at £50,000 and loses it completely at £60,000, while the two-earner family next door has the potential to earn up to £100,000, so long as neither income rises above £50,000, and keeps all its child benefit up to nearly £120,000, so long as neither income reaches £60,000, before losing it completely. This is not a small unfairness. It is very significant.

On 6 January the Prime Minister argued on the “Andrew Marr Show” that the higher-income child benefit charge was fair because it is right to ask the top 15% of the country to make a greater contribution during difficult financial times. That would be entirely defensible if the higher income child benefit charge really were to have this impact but it does not. The social policy charity CARE has released figures that help to put the problem in focus. A one-earner couple with four children on £50,000 is already in the least well-off half of the population, with a higher net income than only 45% of the population. The removal of child benefit will push it even further down the income distribution. A one-earner couple with three children on £60,000 and in receipt of child benefit is just in the seventh decile, but will drop well into the sixth decile if child benefit is removed. Meanwhile, a two-earner couple with two children on the same wage will be well up in the eighth decile and keep its child benefit. Thus, not only will the higher income child benefit charge impact one-earner families in the lower half of the income distribution, two-earner families right towards the top of the income distribution—in the eighth decile—will keep their child benefit. If this is fair, it is a very odd definition of fairness.

The unfortunate impact of the higher income child benefit charge must also be seen in the context of an appreciation that even before the charge took effect our tax system already gave one-earner couples a very rough ride and continues to do so. As the noble Baroness, Lady Jenkin, has pointed out, the latest available OECD figures demonstrate that the tax burden on one-earner married couples on an average wage in the UK and with two children is 42% greater than the OECD average. In this context the higher income child benefit charge is particularly unfortunate. Once again, CARE has released figures that illustrate the problem. At the moment one-earner couples already pay far more tax than two-earner couples with the same income, largely because they access only one tax allowance rather than two. A one-earner couple with two children with an income of £60,000 pays income tax of £13,950. A comparable two-earner couple, each earning £30,000, pays £8,768. After the HICBC is added, the one-earner couple’s tax bill rises to £15,667. This is £6,899 more than that of the two-earner couple. Put another way, a one-earner family with two children and on an income of £60,000 already pays 60% more tax than a comparable two-earner couple, each earning £30,000. With the introduction of the HICBC, the one-earner couple will pay 80% more tax. The charge will increase the one-earner two-child family’s annual tax bill by £1,717. Over the lifetime of the children, if child benefit is claimed for each child up to the age of 18, this represents a £30,000 increase in the family’s tax bills.

There is an extraordinary irony in all this. Prior to the general election, the then Leader of the Opposition talked at great length about his commitment to helping one-earner married couples by giving them a transferable allowance. This commitment was a key part of the “Broken Britain” narrative that made it into the coalition agreement, and yet, to date, the only thing the Government have done is actually to make life much harder for one-earner couples. Some might say, “Well perhaps there has been no action because there is no money”. But that does not make sense because the Government have found literally billions of pounds to fund a huge increase in the personal allowance that the Institute for Fiscal Studies has demonstrated disproportionately benefits those in the top half of the income distribution. The transferable allowance is far more progressive as it has been shown disproportionately to benefit those in the bottom half of the income distribution.

Of course, to the extent that the introduction of transferable allowance was made as a commitment to recognise marriage, albeit only in a one-earner context, the Government’s failure to act has been rendered even more perplexing by the fact that this marriage commitment in the Prime Minister’s manifesto has received no attention, while proposals to redefine marriage that were not in any party’s manifesto are proceeding with undue haste.

I recognise that the Government’s transferable allowance commitment still stands. Given, however, that the coalition agreement pertains only to the period 2010-15, time is running out. Transferable allowances can be introduced only through Budget resolutions and it is widely appreciated that the next Budget, on 20 March, just over two months away, is the last opportunity that the Government will have to introduce a transferable allowance and have any chance of it becoming operational before the next election. I firmly hope that the Chancellor will listen and make this a priority on 20 March. I also hope that he will reflect on reforming the higher income child benefit charge so that it does indeed target only families in the top 15% of the country and that it does not discriminate against one-earner families. As I said earlier, let us not forget that most one-earner families do not have the option of becoming two-earner families, and that they make an incredibly important contribution to our national wellbeing and should not be penalised for doing so.

On 11 February 2009, Philip Hammond, the then shadow Chief Secretary to the Treasury, spoke to the Daily Express about,

“the continuing bias in the tax system against two parent families where only one adult works. No other European country penalises families in this way. If we want to end child poverty we must end this discrimination”.