The Institute for Fiscal Studies (IFS), in important new research published today, has confirmed what CARE has been saying for many years, namely that there are large couple penalties for parents with children on low incomes and particularly for one-earner couples.

IFS figures show that some couples with children living apart could find themselves over £200 per week worse-off marrying or cohabiting. For couples with children the value of couple penalties is estimated to be £23.8 billion.

Nola Leach CARE’s chief executive said, “The IFS figures are so startling that no political leader can now ignore this problem.”

The IFS has analysed and measured “couple penalties and premiums” in the tax benefit system under the 2010/11 tax system, using a large and statistically representative sample of households. It looked at over 5,700 couples with children and over 2,200 single people with children.

The IFS says that ninety five percent of all single people with children would incur a couple penalty if they marry or start to live together as husband and wife. Half of these families would face a penalty of at least £101 per week, or a drop of 16% in their net income. Ten percent of singles would incur a penalty of £214 per week if they partnered, which would represent a loss of approaching a third of the couple’s joint disposable income.

The IFS also says that 89 percent of existing couples with children are incurring a couple penalty. The average penalty amongst this group is £108.38 per week. At least half of existing couples with children have a penalty which exceeds 13% of their disposable income. Ten percent of couples with children are incurring a penalty of £182.79 per week, or a quarter of the family’s disposable income.

Nola Leach continued, “The tax and more particularly the tax credit system is unfair and does not make for stable family life. Although the tax and benefits systems appear to favour lone parents, it is lone parents who are most disadvantaged by the couple penalty. The loss of income if they marry or cohabit is so large that many must be forced to remain lone parents”

Don Draper, CARE’s fiscal policy consultant concluded, “The couple penalty problem is now so large and unfair that the next Government will need to have a fundamental review of the way in which the tax and benefit systems deal with families. Relatively minor changes to the tax and tax credit systems, although welcome, will not be sufficient.”

To read more about this at the Daily Mail go here.

More detail:

1. The Institute for Fiscal Studies (IFS), in important new research published today, has confirmed what CARE has been saying for many years, namely that there are large couple penalties for parents with children on low incomes and particularly for one-earner couples. The IFS have published today a research paper by Stuart Adam and Mike Brewer which examines for all couples (pensioner couples, couples without children as well as couples with children) couple penalties and premiums in the UK tax and benefit system in 2010/11. The paper analyses couple penalties and premiums using a large statistically representative sample of households. On one scenario, almost 95% of couples with children are found to have a penalty – the mean penalty/premium is a penalty of £85 per week (Table 1 IFS report)

2. The IFS defines “couple penalties and premiums” as the change in entitlements to benefits and tax credits and in liability to taxes that occur when two single people marry, or start to live together as husband and wife, or when a couple split-up.

3. The IFS has looked at a number of ways of measuring couple penalties and premiums. The figures quoted in this press release are on the basis that two adults, living as a couple split-up, each forming their own single-person household, but that their labour supply and other behaviour remains unchanged. Tables 24 and 25 of the IFS paper show that in 2010-11 89 % of couples face a penalty. The mean weekly penalty of those with a penalty is £108.38. For the average couple the mean penalty/premium is £90.54 per week which represents 13% of the couple’s net income.

4. To calculate the couple penalties and premiums for existing single people the IFS allocated a hypothetical partner to every single person in the Family Resources Survey. Tables 44 and 45 of the IFS paper shows resulting couple penalties and premiums for existing singles, 2010-11 by family type of the original single person. 95 % of lone parents face a penalty. The mean weekly penalty/premium is £109.48. Half of lone parents face a penalty of £101.39 or more, which represents 16% of the couple’s net income. Ten per cent of lone parents face a penalty of at least £214.07, which would involve a 30% drop in the couple’s net income. The mean weekly penalty of those with a penalty is £115.92. For more information about the IFS publication click HERE.

5. CARE has published three research papers by Don Draper, an independent fiscal policy consultant, which have measured the disposable incomes in 2006/07, 2007/08 and 2008/09 of 98 low and modest income couples living together and living apart. The CARE research was based on a very small number of couples, but the results are largely confirmed by the very much larger IFS sample. The CARE research took account of possible changes in housing costs resulting from living apart. The IFS has not attempted to do this. The CARE research can be accessed HERE.

6. For families, couple penalties are caused by tax credits and means tested social security benefits. Apart from those born before 1935, income tax and national insurance contributions are based on an individual’s circumstances. The transferable personal allowance proposed by the Conservative Party would reduce the couple penalty. Couple penalties or premiums are almost inevitable by-products of the tax and benefit system. Governments have however a great deal of choice regarding the size of the penalty or premium and the number of people impacted by the penalty or premium. For example, increases in the basic entitlement to benefits and tax credits for couples relative to the entitlements for single people would reduce the size and number of penalties.

7. The IFS says that for existing couples the value of all couple penalties (including those for pensioner couples and couples without children) is £34bn. The equivalent figure for existing couples with children only is £23.8bn. It should be understood also that it is not the cost to the Exchequer. It is the saving to the Exchequer of NOT paying benefits and tax credits by virtue of the fact that couples are living together rather than apart.