If the Tories really were the party of the family as they claim, they’d fix our grossly unfair tax system
As Is now customary, the Government has floated in advance one of the ‘goodies’ in the Chancellor of the Exchequer’s forthcoming Budget — in this case, the first one to be presented by Jeremy Hunt.
We are told that this week he will ‘deliver a childcare boost’, increasing by 50 per cent the amounts that parents on universal credit can claim back on childcare.
This is less generous than it seems, in that the maximum level has been frozen for the past 17 years, while childcare costs have soared. Mr Hunt’s main reason, it seems, is to try to encourage more mothers to enter the workplace. sadly for him, this won’t do it.
Why not? Because a family already on universal credits can only keep, at best, 31 per cent of new income. They have, in effect, a 69 per cent marginal tax rate — and sometimes higher. This is not much of an incentive to enter the workplace.
The root of the problem is the nature of our income tax system, which ignores the family and has to be backed by the (means-tested) benefits set-up.
And it is shameful that our system, unlike those of Germany, France or, indeed, the United states, discriminates against families with children; and, in particular, those where there is a single earner, with one parent staying at home to look after those children.
That has been true for many years, and, because they have been in government for longer periods than Labour, mostly so under the Conservatives. It is a betrayal of the Tories’ perennial claim to be ‘the party of the family’.
As Prime Minister, David Cameron declared that he would adopt a ‘family test’: ‘Put simply, that means that every single domestic policy that Government comes up with will be examined for its impact on the family . . . nothing matters more than the family. It’s at the centre of my life and the heart of my politics.’
A very similar line was expressed by Rishi sunak in his New Year speech setting out his values and objectives: ‘We cannot not talk about the thing that is most important in most of our lives. Not when the evidence is clear that strong, supportive families make for more stable communities . . . That’s why family runs straight through our vision of a better future.’
It is indeed striking that Labour rarely employs the ‘f’ word — or at least not under Gordon Brown, Ed Miliband and Jeremy Corbyn. This might help explain why Labour, under those three gentlemen, had a general election record of played three, lost three.
The word ‘ family’ is regarded as reactionary in Left-wing circles, and their political representatives much prefer to use, instead, terms such as ‘society’ or ‘the community’.
This is not, however, how most people view the world: family is at the centre of it. Family is what matters most to us — above all, our children.
Perhaps the most devastating analysis of how much this Conservative principle has been honoured only in rhetoric came in a recent report from the country’s most influential think tank, the centreright Policy Exchange: Taxing Families Fairly, by Professor Philip Booth and Andrei Rogobete.
It pointed out: ‘When we put the tax and welfare systems together, we find that family formation is penalised — to a substantial degree. If, for example, a woman has a child and does not work while the father is in paid employment, then, if they live together or marry, her entitlement to benefits is lost while he continues to pay tax at the same rate as if they were single.
‘They are, literally, better off apart. ‘The state, through having designed an individualised tax system alongside a benefits system based on household income, penalises the family as if, somehow, it is a bad thing that needs to be discouraged through taxation.’
That phrase ‘individualised tax system’ can be seen in a simple example. When a family’s income is £70,000, if it is earned entirely by one of the couple, that family will pay over £10,000 more in income tax than one in which both adults are earning £35,000 each.
When you consider that the non-earning member of the family (more usually, the woman) will typically be in this situation not just because she has childcare obligations, but, at a later stage in life, an elderly parent or parents to look after, this is iniquitous. And also inequitable.
This is not so much about ‘ oldfashioned’ values; it is a basic matter of fairness within the tax system — regardless of what you think about the family as the most vital of all institutions.
But if you want heroes — unsung ones — in this debate, let me introduce you to Leonard Beighton and Don Draper. These are two former very senior officials in the Inland Revenue, now in their late 80s. When they retired (both in 1994) they devoted themselves to campaigning to address these unfairnesses, which they had become painfully aware of as officials within the system.
They later set up a charity, Tax And The Family, which is a tremendous source of data and research. Recent work by the indefatigable Don, which he sent me, shows the extraordinarily unfavourable treatment of families within the British tax system.
Thus, while a single person on an average wage pays a lower proportion of his income in tax here than in France, Germany, or even the U.s., a single-earner family with two children relying on the average wage (actual wage is different in each country) pays almost 14 per cent of its income in tax in the UK, 9.5 per cent in France, 2.3 per cent in the U.s. . . . and no income tax at all in Germany.
In Germany, spouses can choose between joint assessment or individual assessment. For most families, joint assessment is much more favourable.
The two incomes are added together and then divided by two. Tax is calculated on this figure and then multiplied by two. A similar system is operated in the U.s. It makes all the difference.
speaking of families, this was exactly what my father, Nigel Lawson, had set in train (or thought he had) as Chancellor.
As he recorded in his memoir, The View From No. 11, he wanted a tax system that was neutral and fair: ‘Everyone, man or woman, married or single, would have the same standard allowance.
‘But if either a wife or a husband were not able to make full use of their allowance, the unused portion could be transferred, if they so wished, to their partner . . . It would end the present discrimination against the family, where the wife feels it right to stay at home, which increasingly, nowadays, means discrimination against the family with young children.’
But Margaret Thatcher objected strongly to his proposed reform. As my father recalled in an interview for Tax And The Family in 2018: ‘I was only able to get half the job done [introducing a Married Couple’s Allowance].
‘Margaret jibbed at the transferable allowances . . . her sympathies were always with women who “went out to work”.
‘But I never considered married women who stayed at home to look after their children as not working. They were working much harder, very often, than their husbands who went out to work.’
Anyway, no succeeding Chancellor has attempted to pursue my father’s objectives, and, later, the Married Couple’s Allowance was gradually withdrawn.
Obviously, there would be a cost to the Exchequer if transferable allowances were introduced. Don Draper estimates that it would be in the region of £6 billion a year. And, on the classic Treasury assumption that the money would have to be raised in a different way, it might well mean taxing single person households more.
A friend of mine — a former senior Treasury official, in fact — told me he got an unwelcoming response when he advanced a proposal along these lines to his own MP (a Conservative).
The MP also happened to be single, without children, and she exclaimed to him: ‘ But people like me would pay more tax!’ Well, yes.
But, as I say, aren’t the Conservatives meant to be the party of the family? And if they won’t put families first, who will?