Christians Enter The Cuts Arena

This week, Christian charity CARE are to publish a report on the taxation of families in the run-up to the budget. The research in this report shows that the Government’s proposals on child benefit will hurt families in the poorest half of the population.

 

In his keynote address to last autumn’s Conservative Party Conference, George Osborne said

 

“It’s very difficult to justify taxing people on low incomes to pay for the child benefit of those earning so much less than them.”

 

But CARE’s report demonstrates that child benefit is going to be withdrawn from a lot of families in the bottom half of the income distribution whilst a lot of families at the top will continue to receive the benefit. Treasury Estimates show that 1.5 million families in the lower deciles are likely to be affected in this way.

 

The Government needs to urgently rethink these arrangements given the huge disparities and unfairness that will ensue.

For example, a single-income couple with three children currently earning £42,500 (just above the higher rate threshold in 2011-12) is in the fifth decile (i.e. the poorer half of the population) with an income higher than 45% of the population. When child benefit is withdrawn, this family will fall into the fourth decile with income higher than only 38% of the population.

A single-income couple with two children currently earning £42,500 is in the sixth decile (i.e. just in the top-half of the population) with an income which is higher than 53% of the population. When child benefit is withdrawn this family will fall into the fifth decile (i.e. the poorer half of the population) with an income higher than only 48% of the population.

At the same time, a double-income, two child family with a combined income of £57,000 (where neither income reaches the higher tax threshold and thus child benefit is kept) will be in the eighth decile with a higher income than 71% of the population. A double-income, two child family with two £40,000 incomes (and which will consequently again keep its child benefit) will do even better and be the ninth decile with a higher income than 88% of the population!

This disparity is caused by the fact that, when working out how rich or poor a person or family is in relation to the rest of the population, the Treasury measure household rather than individual income. However, as the examples above demonstrate, a number of families in the higher rate band are far from being wealthy while some who do not sit in the higher tax band are amongst the richest households in the population.

 

Leonard Beighton, a former deputy chairman of the board of the Treasury, said,
“Simply looking at pre-tax income does not tells us whether a family is rich, poor or in the middle. The failure to take this into account seems to be leading to poor policy choices and is confusing the debate about fairness and family taxation. Families on £42,375 and above will pay the same tax as a single person without family responsibilities. There is nothing fair about a tax system which takes the same tax from a family of four as it does from a single taxpayer whose income has only to support one person and whips away the only benefit they receive.”
This country’s tax system is rare in Europe and the OECD in basing almost all it’s measures on individual income and results in huge anomalies at a time when every penny counts in family budgets. It’s time to fix this problem.
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