Miriam Cates is MP for Penistone and Stocksbridge
Britain’s vaccination programme and the Chancellor’s recent Budget will bring fresh opportunities to reimagine the policies and processes that govern us. So many of us have become remote workers, home-schoolers and serial Zoomers and, and while much of this will revert back to normal, I suspect some of our new patterns of behaviour will stick.
We know that by-and-large the pandemic has not been a ‘great leveller’. While some of my constituents have enjoyed their new-found flexibility, others have found balancing work and home commitments nothing less than impossible. Flexibility is great if you can get it, but not all people have the kind of jobs that allow them to juggle their caring responsibilities for children and elderly relatives. Many parents of young children live with the constant struggle of trying to make ends meet whilst longing to spend more quality time with their kids.
A re-emphasis on the value of family life could be the most exciting product of the changes brought about by the pandemic. We must ensure our tax system acknowledges people as mothers, fathers, sons and daughters who form a household, not just individual units who are worth more to the economy the more they work. After all, this is a false economy.
I was recently privileged to host the launch of a new CARE Tax and the Family report, Taxation of UK families 2019, which helps to highlight some of the challenges families face and how we might chart a way forward towards a fairer future.
As a result of Gordon Brown’s decision to abolish the Married Couple Allowance and Additional Person’s Allowance in 2000, someone who earns let;s say £40,000 a year, will pay the same amount of income tax and national insurance regardless of whether they are a single adult with no dependants, or a lone parent supporting three children.
For a one-earner household with four children to have the same standard of living as a single person earning £26 500, the working parent has to earn nearly £80,000, a salary over three times the median income. According to the new report, single parents with two children on the average OECD wage for the UK of £40,803 face an ‘overall tax burden’ (that is income tax and national insurance, less benefits) that is 26 per cent higher than the OECD average. For a one-earner married couple with two children on the same wage, the tax burden is 25 per cent higher. Meanwhile, singles in the UK without children on the same wage pay on average ten per cent less tax than they do across the OECD on average.
This problem is further compounded by the way that benefits are clawed back as parents try to work more hours. This gives UK families one of the highest effective marginal tax rates in the world, with some families losing 75p of every additional £1 they earn. It is the impact of this double whammy of the high tax rate and high benefit withdrawal that makes the British effective marginal tax rate so problematic.
How our tax system treats families is an indicator of how much society values children; the uncomfortable truth is that we are failing many families in this regard.
For years, the UK response to the problems faced by working families has been to strive for more and more cheap childcare, but I don’t think this is the answer and, in many ways, it has devalued the role of parents.
It was never any Government’s intention to create a tax system that is so individualistic, but tax policies reflect – and often drive – the behaviour we value as a society. Our current system encourages as many people as possible into paid work to drive up GDP, but fails to recognise any wider contribution made by individuals such as providing unpaid care.
I believe that at the heart of this unfairness lies a lost understanding of the value of parenting. Of course parents have a responsibility to provide materially for their children; but this is not their only important role. We don’t just have children to put food in their mouths and clothes on their backs, but also to pass on our values and to prepare them for adult life. Parenting takes time, effort and a huge amount of emotional resilience; resources that are in short supply when stressed parents are working long hours and have little energy to spare.
When parents can’t cope and families break down this is at great cost to the taxpayer. While reforming our tax system to recognise family responsibility would – in the immediate term – be costly, surely it is far better to invest in preventing families from collapsing than to spend money picking up the pieces.
There is another way. Almost all other developed countries have tax systems that recognise family responsibility and the significant costs of raising children. In Germany, families receive effective tax allowances that acknowledge the importance of parenting, encouraging parents to invest time and energy in raising their children. We could do a lot worse than learning from our friends and allies and the approaches they take.
Any review of the income tax system in the UK will take time, but it will be worth it. Supporting families should not be politically controversial; as Conservatives, we have always held families and the role of parents in high esteem. And as Conservatives we also know that we can’t afford not to.