Samantha Callan is an Associate Director of the Centre for Social Justice and former adviser to David Cameron on family policy.
It’s official: HMRC is inviting spouses earning less than the tax-free personal allowance to register for the new marriage allowance. Transferring up to £1060 of unused allowance to their wife or husband will put £212 into the pockets of families who have seen scant benefit from a range of other measures such as raising the personal tax thresholds and tax-free childcare. Achieving this in the very difficult financial and political climate of austerity and Coalition government is laudable, but its low value makes it look like a token gesture. It is not high enough to benefit families appreciably, so it is an easy cut if the Conservatives are no longer in government after this May, denying them an important slice of legacy.
The Prime Minister says he wants to extend this support for marriage – and the forthcoming budget should make that ambition explicit.
Bolstering marriage does not hark back to the past, but recognises its importance for family stability at a time when the country is facing a relationship breakdown epidemic. Neither does it make us fiscal outliers internationally – in fact, quite the reverse. We are unusual in Europe and the rest of the OECD in not having family taxation. Canada’s Conservative Party recently allowed married couples to use income splitting to reduce tax bills by a maximum of 2000 Canadian dollars, a benefit approximately five times the value of our marriage allowance.
Stephen Harper, the country’s Prime Minister, deemed its previous income tax system which ‘treats families the same as roommates living under the same roof with no financial attachment’ to be unrealistic and unfair. The same could be said for this country: the tax burden for single earner families is 42 per cent higher in the UK than the OECD average.
Most of those opposing the measure want the £700 million or so that it will cost shovelled into the seemingly bottomless pit of childcare subsidies. The amount of public money we are giving parents to help them with their childcare costs has ballooned over the last two decades, through good economic times and bad. In 2005, the OECD referred to the ‘very substantial childcare subsidies being put in place since 1997 to reduce barriers to paid work’ in the UK, which peaked at over £7 billion in 2010-11. And this was before the Coalition’s tax-free childcare measures which will take effect later this year (without, according to the IFS, clear evidence that it get more women into work).
Whoever forms the next Government will be no less generous. The Labour Party will increase the number of hours of the free early years entitlement from 15 to 25, but only for families where both parents work. Liberal Democrat plans to help all families with younger children by giving all two year olds 15 hours free childcare, with the stated long term aim of extending free childcare to all working parents from the end of parental leave.
They say this would be paid for in part by abolishing the marriage allowance, and Labour has similar plans to remove this small but highly significant fiscal gesture. Yet it not only recognises, albeit somewhat modestly, that single earner couple families have been disregarded for too long (these are, in the main, the married couples who benefit), but it also sends a vital signal that marriage matters.
Why does marriage matter? Children tend to do best if they grow up with two parents committed to them and to each other; almost half of all children have experienced the breakdown of their parents’ relationships by the time they sit their GCSEs. Ninety-three per cent of all parents who are still together at this point are married. Fewer than one in ten married parents have split by the time a child is five, compared with more than one in three who were not married.
And marriage is a social justice issue: people with lower incomes aspire to marriage but face significantly higher financial and cultural barriers to realising this goal, creating a growing marriage gap. In 2001, those in the top occupational grouping of society were 24 per cent more likely to marry than those at the bottom; this divide has now grown to 48 per cent. Unsurprisingly, break-up rates also differ widely, with children in the poorest households seven times as likely to have seen their parents’ relationship founder by the time they start primary school as those in the wealthiest.
Support in the tax system for marriage acknowledges the importance of committed interdependence for family stability – and it is not regressive. Poorer people benefit more, pound for pound of public expenditure, from transferable tax allowances than from raising the personal tax threshold.
Finally, by allowing married couples to transfer unused tax allowances this Government has addressed the major fly in the ointment of individual taxation as identified by Lord Lawson, the then-Chancellor, when he introduced the new system way back in 1985.
Although our long-term aim should be to have a fully transferable allowance, at this point fiscal constraint dictates focusing support where it is most needed. As a first step, the amount transferrable (and the corresponding financial benefit) should be doubled for families with children below three years of age, at a cost of £480 million per year. Some of this cost could be met by withdrawing eligibility for tax-free childcare for parents where one earns more than £50,000, in line with the Higher Income Child Benefit Charge, instead of this subsidy to families where each individual earns up to £150,000.
This would be greatly valued by parents. The Department for Education’s own research found that over a third of women wanted to give up work to look after their children and our polling found 88 per cent of parents thought more should be done to help parents stay at home in the early years. Raising the marriage allowance is about increasing choice about the type of family life people can have, not restricting it.