Miriam Cates is MP for Penistone and Stocksbridge.
What comes into your mind when you hear the word ‘family’? Perhaps you think about your parents or picture a scene from your childhood. Though sometimes these memories carry pain, for many of us ‘family’ the single most important thing in our lives.
Families also play an invaluable role in society. For most people, being a parent is probably the most significant contribution we make to society, and there is a wealth of evidence that shows just how important families are when it comes to raising children to become healthy, resilient, and successful adults.
Conversely when things go wrong, we all pick up the cost. Estimates suggest that family breakdown costs the taxpayer £50bn a year.
Given the central importance of families in our lives and in our society, you might expect that our tax system would be set up to recognise and support the role that they play.
But a new report by CARE and Tax and the Family reveals that not only does the tax system fails to recognise families at all but also shows the extent of the pressure this is putting on British family budgets.
Unlike in countries such as France, Germany and the US, Brits are taxed on individual income rather than household income. This keeps things simple and superficially may seem fair. But the reality is that an individual’s annual earned income often bears no relation to how well off they are.
For example, a single person earning the average salary of £30,000 a year is obviously better off than a single earner family of four, where the earning parent’s wage is also £30,000. There is an enormous difference in both the cost of living and the amount of disposable income for these two households – and yet they pay more or less the same amount of tax.
This unfairness becomes even more apparent when we use the Government’s own statistics to compare the standard of living experienced by these two households. According to Treasury data, the couple with two children needs to earn £74,500 a year to achieve the standard of living as a single person on £30,000. For many families, that is an almost unachievable figure.
British families on low and middle incomes are therefore taxed at greater rates than people without children and face a much higher tax burden than families in many other comparable countries. A poor family on median income in Germany pays no tax at all; the same family in Britain will pay £5936.
This leaves many children growing up in poor households and makes it very difficult for parents to escape the poverty trap, because so much of what they earn is taken away by the Treasury. The problem is exacerbated when only one parent works or where there is a big difference between parents’ wages.
And although benefits like Universal Credit do help to boost household incomes, the way these benefits are ‘clawed back’ when parents earn a little extra income means that for each additional £1 that some families earn, they lose 70p in increased tax and lost benefits.
Things are already bad for British families, but they are about to get a whole lot worse. The cost-of-living increase is multiplied in households with children, and more and more children pushed will be into poverty because our tax system is blind to families.
The root of all this is that we don’t value parenting. With the ‘two-child’ benefit rule, the pressure on parents to work all hours, and the crazed idea that parents can somehow ‘work from home’ whilst simultaneously providing children with an education, we’ve begun to see children as a ‘nice to have’ rather than the foundation of our future.
Children are not a luxury item like a posh car; of course, the state shouldn’t help with the cost of servicing your Porsche. But whilst raising children is primarily the responsibility of parents, it is also an enormous service to the nation. How else will we produce our robust future workforce, our trailblazing entrepreneurs, our carers, our taxpayers?
Bringing up children is not a leisure activity to be enjoyed in your spare time; as any parent will testify, raising kids well demands time, money, energy, and emotional resilience – resources that are in short supply for millions of families right now.
Now is the time to reform our taxation system to recognise families and the crucial role they play by taxing household rather than individual income and by removing the ‘cliff edges’ that make it so difficult for families to improve their financial situation.
Just as society invests in infrastructure and defence to secure our long-term interests, so we must invest in families as they nurture the next generation.
Children are not an economic inconvenience; they are a blessing, and they are our future. We fail to recognise this at our peril.