Budget 2016: Why George Osborne should give married couples a break
If you read the pre-budget briefing reports in the press, George Osborne will deliver a low-key budget this week. In fact, the line from the Chancellor has been fairly grim: warnings of more cuts and gloomy economic forecasts as well. The current instability in the global economy means growth in the UK economy has slowed, so the Chancellor is being cautious. Given his personal ratings have taken a dive, it is fair to say he does not have much room to 'get creative'.
For most people what most interests them when it comes to the budget is how much tax they will have to pay. And far be it from me to pretend I'm not a keen observer of what Budgets mean for my bank balance. Above all however, what I really want tomorrow is a budget that has families at its heart. A strong society is one that recognises family responsibilities, both in the tax system and in the benefits system. But at the moment, especially for traditional families, the UK is a cold place to live. One-earner families with two children face a tax burden 35 per cent higher than the average for OECD (Organisation for Economic Cooperation and Development) member countries.
And yet marriage brings tremendous social benefits. Marriage is good for parents, children and for communities. The last few years have seen marriage made fiscally less accessible and attractive. Tomorrow, the Chancellor should start to reverse that trend. Here, then, are five commitments I want George Osborne to make.
1. Expand the marriage tax break
The current marriage tax allowance is a paltry 10 per cent, meaning a couple can transfer £212 per year, which really is not very much. But if the Chancellor made this allowance fully transferable, one-earner married couples could then transfer nearly £2,000 a year which would make a huge difference. For traditional families, this would very significantly erode the fiscal incentive not to marry and in a small number of cases actually create a fiscal incentive to marry. And this would be no bad thing.
2. Sort out the shockingly high marginal tax rates
Our last tax report (Taxation of families – International comparisons 2013) showed the UK is the worst in the world when it comes to effective marginal tax rates (EMTR) for one-earner married couples with children on 75 per cent of average wage. Put simply, a marginal tax rate is the amount of tax you would pay in any additional income you earn on top of your current salary if you were to receive a pay rise or work longer hours. It is of great importance for those on low to modest incomes whom the tax system should be incentivising to aspire to better things. Disturbingly, families on 75 per cent of the average wage - a key point at which they should be encouraged to aspire to better things - currently face a marginal rate of 73 per cent rising to 76 per cent under the universal credit. That means that for every additional pound earned the family in question will get to keep just 27 pence. When the Universal credit comes in this will rise to just 24 pence. It is deeply disturbing that those on lower incomes should be subjected to a tax rate far in advance of our top rate of tax, according to which one can take home 60 pence in the pound.
3. Stamp duty tax: why bother?
From April this year, married couples who want to buy a second home will face a huge hike in stamp duty. This is a further example of disincentivising marriage. Why should the hike apply only to married couples, as if being married should automatically make it more fiscally difficult to aspire and earn? This is grossly unfair and should be re-examined.
4. Increase funding for relationship support
Given the endemic problem of marital breakdown and the colossal personally and financial costs involved in that, we need more money for relationship support. The government has recently doubled funding for relationship support to £70 million over the next five years, but given the cost of family breakdown has soared to a staggering £47 billion per annum, we need more.
5. Use the family test
Nice and simple this one: just use it. Run every budget measure by the test and then in the interests of transparency, publish the results so we can all see how much families are prioritised (or not). And apply it, in line with the Prime Minister's intentions when he announced it, to every domestic policy and publish the results.
I have been working on the issue of tax and marriage for long enough to know nothing happens quickly. It took CARE decades of campaigning and years of producing tax reports until the government finally introduced a genuine marriage tax break. So I'm not holding out that much hope the Chancellor will read this piece and immediately adopt all my carefully thought through recommendations. But it would be great if the Chancellor delivered a budget with families at its heart. A truly strong society is one that is built upon consistent, family-friendly policies. Tomorrow, the Chancellor has a chance to radically focus on family life and to make marriage more fiscally accessible. He should seize it.
Nola Leach is chief executive of CARE