TAC0061

Written evidence submitted by Mothers at Home Matter

 

This report will address the first part of the following question: Which areas of the tax system are most in need of reform, and which are best left alone?

 

Who we are

Mothers at Home Matter (MAHM) campaigns for choice. One freedom the average mother no longer has is to choose to be at home to care for her children. Successive government policies have stacked the economic system against staying at home whilst a political and social elite have devalued the role of care in the home. Yet the reasons for making this choice – care of our children, our community, our elderly have not gone away. There is an increasing need for ‘care’ as we see rises in loneliness, depression, and mental illness.
 

MAHM’s contribution to the inquiry presents evidence to address ‘which areas of the tax system are most in need of reform, and which are best left alone?’. Specifically MAHM focuses on taxation of income which accounts for a quarter of all tax in the UK. It highlights the pressing need for a fairer family taxation system. Our system of independent taxation is not fit for purpose for taxing families and causes unfairness, injustice, and harm to families.

 

Executive summary:

Tax system is unfair

population whilst some of the richest families continue to receive it.

 

UK system is almost alone in taking no account of families

 

Traps families in poverty/ discentivises hard work

 

Separates mother from child/ husband from wife

 

 

Tax system is unfair

The tax system does not recognise the dependent nature of a family or household. Over 50 years tax policy has radically shifted from treating the family as a household unit with allowances for a dependent spouse and children, to individual taxation disregarding familial responsibilities.

 

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UK system is almost alone in taking no account of families

The UK is the only OECD country apart from Mexico that applies tax based on individual income with almost no allowances for spouses or transferrable allowances. No other large European or Commonwealth country discriminates against the family in this way. Many actively support mothers to be at home.

 

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Traps families in poverty and discentivises hard work

 

Nearly half of families caught in a tax trap. The root of the problem lies in the combination of our taxation & Universal Credit system. It is a complex system variable by location. When Tax Credits were introduced in 1999 it was to prevent families falling into poverty, because taxation took no account of family responsibilities. Tax Credits and Benefits subsidise income but an unintended consequence of this is that it has become very difficult across a wide range of incomes for the main breadwinner to increase his disposable income.Screenshot 2020-08-23 at 14.40.42.png

 

 

 

Tax trap for Higher Earners: myth of the richest 15%
The Government’s justification for the High Income Child Benefit charge (HIBC) is based on incorrect assumptions. “We have always been clear that those with the broadest shoulders should carry the greatest burden. ...Some people - the richest 15 per cent of households with children - will lose out from January next year but ... it is very difficult to justify continuing to pay for the Child Benefit of the wealthiest 15 per cent of families in society.”[3]

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Separates mother from child/ husband from wife

 

The high Marginal Effective Tax Rate across a large income range encourages family separation.

 

Tax Trap Case Study:  A family on Median Income:

Take a family with two children on the median wage, about £26k. The father is an electrician and the mother is at home looking after their two young children. The family need a car and they work out that he needs to bring in an extra £3k a year (£58 week) to meet the purchase, running and maintenance costs. The father is able to do this by taking on extra hours. However if they are able to make the calculation they will discover that to earn £3k more ‘gross’ will make very little improvement to the family’s disposable income. He would have to earn an extra £12,500 a year more to make £3k net! This is because for every extra pound he earns the Treasury takes back 76p - income tax accounts for 21p, national insurance 11p and reduction in tax credits 44p. This in economic terms is referred to as the Marginal Effective Tax Rate, and it is 76%.

What choice does this family have? It is impossible for him to earn an extra £12.5k, no employer would contemplate such a salary rise. The only alternative is for the mother to give up being at home with their children and consider bringing in a second income. But it will not be sufficient for her to earn only £3k gross. Her marginal tax rate will be 65% so she will have to earn at least £8.5k to bring home the £3k net.

 

A new tax trap for higher earners: Case Study

Take a family with three children, living in London. The father is a Head of Department at a secondary school earning £50k salary. The mother cares for their children at home. He has been offered promotion as Deputy Head at another school a bit further away. He will have extra responsibility, his will hours be longer, and he will have to travel further but he will be rewarded with an increase to his wage of an extra £10k. In practice however he will find that he brings home only £3,300 of that increase. For every extra £1 earned he loses 65p in tax, NI and loss of child benefit. He keeps only a third of the extra value he is adding for the school. Should his wife return to work instead she can earn the full £10k without paying tax, and they keep their child benefit. They will be significantly better off.

 

Greater cost to the economy

There is insufficient evidence to show the Treasury is better off by the contribution made by those balancing work and care responsibilities as a result of receiving childcare support and tax credits.

Negative impact of long hours of childcare
There is limited debate on the harmful impact of long childcare hours on the wellbeing of babies, and children, and their future health and social outcomes.

Taxation Principles:

The principles that underpin income taxation require modification. Individual earnings are not a good indicator of the prosperity of families, and so policies directed at individuals, are responsible for unsatisfactory familial outcomes.

 

 

Recommendations:

 

Short term:

 

Long term:

 

 

September 2020

 


[1] Taxation of Families: International Comparisons 2018 p10CARE & Tax & The Family

[2] Who Cares about the Family? MAHM https://www.mothersathomematter.com/economic-justice

[3] Conservative Party Press Release 29th October 2012 (Politics Home)

 

[4] https://www.gov.uk/government/statistics/childcare-and-early-years-survey-of- parents-2019

[5] Independent Taxation - 25 years on Don Draper & Leonard Beighton p33

[6] Harry Benson: Marriage Foundation: Quarter of a million couples pretend to live apart

[7] IFS Budget Briefing 2014

[8] http://www.whataboutthechildren.org.uk