It appears I might have done David Cameron a disservice in suggesting that about half the couples who would be likely to benefit from his plans to ‘recognise’ marriage in the tax system would be those who don’t have dependent children – because looking at the detail of what IDS’s policy group are proposing what it isn’t is the reinstatement of a Married Couples Tax Allowance.
What they’re proposing, instead, is to give married couples a ‘transferrable tax allowance’ – in other words there is actually no new tax allowance being added to the current system, rather what they appear to proposing to do is to allow one of the two partners in a married couple to transfer their personal tax allowance, which they get whether they’re single or married, to the other partner, a system which (as I recall) was suggested back in the mid 90s, when Ken Clarke was making a pretty decent fist of being Chancellor of the Exchequer [for a Tory :P] and rejected pretty much out of hand.
Now that’s interesting because, for starters, there are currently just over 12.1 million families in the UK headed by a married couple of which:
38% (4.6 million) have dependent children,
13% (1.57 million) have non-dependent children only, and
49% (5.9 million) have no children at all.
and the Tories are projecting that the cost of this reconfiguration of existing allowance – because its not actual a new allowance, just a change in way that existing allowances can be used – will roll it around £3.2 billion a year.
So the assumption seem to be that out of 12.1 million married households, just over 3 million (about 1 in 4) will actually benefit from this scheme.
So if you are married and thinking that this tax allowance thing that the Tories are wittering on about sounds quite enticing then before you get too carried away you might want to check whether you’re likely to fall into the 25% of married couple who will get Cameron’s 20 quid a week bung, or the 75% who won’t see a penny from it.
And how might you be able to tell?
Well, ask yourself just one question – depending on who in your household is the higher earner, could you and your husband/wife/family live comfortably (or even survive) on the basis of only one income, plus the 20 quid a week that this transferable allowance will be worth?
If the answer is YES, then congratulations you could score yourself and extra 20 notes a week by voting Tory.
If the answer is NO, then tough shit – there’s nothing in this for you.
You see, this kind of transferable allowance trick will only really benefit a married couple that can live comfortably on the income of only one of the two partners, which is when it makes sense for the other to transfer their allowance to wage earner in the family because they’re not using it. If both husband and wife work, even if one of them only works part time, then transferring the allowance makes no sense at all, because what the £20 a week that one partner gains from having the additional allowance is rapidly lost because the other partner is taxed at basic rate on their full income – at a pinch, the second earner is only really doing a pin money job what brings in £100 a week or less, then it might still be worth transferring the allowance because what you lose from being taxed at basic rate on that kind of income is slightly less that the extra £20 your partner will get but the benefits are going to be pretty marginal and the closer the second income gets to £100 a week, the less benefit there will be to familiy as a whole.
Earn £50 a week, for example, and you’ll pay a tenner in tax if you transfer the allowance to your partner, so as a family you’ll be only a matter of a tenner better off than you would be hanging on to your allowance and not paying any tax at all.
So, in reality, not only is this ‘recognition of marriage’ in the tax system not a new allowance at all, merely a means for some families to juggle their existing allowances to get a extra few quid out of the system but it also only ‘recognises’ marriages in which one of the two partners earns enough of an income that the other partner does not have to go out to work and bring in a second income to help maintain the family finances.
Now, according to the National Statistical Office, 72% of married and cohabiting women with dependent children are currently is some kind of employment – sadly there’s no split figures separating marriage and cohabitation, but that figure does appear to be consistent with the underlying assumptions on uptake revealed in the Tories costings and if we simply apply that across the board to the breakdown given for marriages by number of children, given above, then of the 4.6 million married couples with dependent children on might reasonably expect only around 1.15 million to be in a position to benefit from this proposed re-jigging of personal tax allowances, out of the 3 million households projected to take up the option of transferring an allowance from one partner to the other.
And this is a policy to address family breakdown and the effect this has on children?
One that benefits only a quarter of married couples across the board and, of those, less than 40% actually have dependent children.
The policy here is all smoke and mirrors but when one wipes away the crap, one quickly discovers that all it actually amounts to is modest tax cut for the wealthy, and especially those with either no children or whose family has already effectively, if not actually, flown the nest.