Child Benefit changes amount to an increase in the tax burden of over 40%, whilst those without family responsibility see their tax burden untouched. This is unjust, says CARE.

CARE has responded with very real concern to the Chancellor of the Exchequer’s Child Benefit announcement this week.

CARE completely recognises the imperative for cuts in public spending and that the government has a very difficult balancing act to perform.

CARE also completely affirms the attempt at fairness seen by the decision to restrict changes to child benefit to higher rate tax payers.

This announcement, however, completely fails the fairness test for two reasons:

Firstly, a one-earner family with an income of £45,000 will lose child benefit, but many two-earner families with an income of more than £80,000 will be able to keep it, so long as neither salary crosses the higher rate threshold.

Secondly, if we are seeking a fair way of meeting the deficit challenge, why is it that we are working to increase the tax burden on those with family responsibilities, whilst the tax burden on single people with no family responsibility remains the same? This is a hugely important question, because if we look at the way Britain shares out the tax burden between different family types and compares its approach with other developed countries, what we find is that the tax burden on single people is already comparatively light, whereas the burden on those with family responsibilities is relatively heavy.

A one-earner family of four on £45,000 currently pays income tax of £152.30 per week. This tax burden, however, is offset by £33.70 a week in child benefit and also by £10.50 in tax credits, giving an actual weekly tax burden of £108.10. If the Chancellor’s child benefit announcement is implemented, however, (along with his tax credit emergency budget announcement), the tax burden on this family will increase from £108.10 to £152.30, a rise of over 40%!

One result of the proposed changes is that families on £45,000 will actually pay the same tax as single people on the same income without family responsibilities. Almost no other country requires families to pay the same tax as single people – typically in OECD countries a family of four pays just over half the tax a single person would pay on the same income If the changes announced are implemented in the UK, one-earner families in the middle of the income range will be paying 100% of what a single person with no family responsibilities pays!

The announcement presents the Conservative Party with a real problem. Their Broken Society narrative is very much based upon the need to strengthen family life and a chapter of their recent election manifesto pledged to ‘make Britain the most family-friendly country in Europe.’ By moving us from a situation where the tax burden on those with family responsibilities is far greater than the OECD average, but still significantly less than the burden on a single person with no family responsibilities, to the place where the burden on those with family responsibilities and those without are actually the same, puts them in a very difficult position.

This announcement is as ill-fitting with the Conservative narrative as was the abolition of the ten pence tax band with the Labour narrative.

CARE strongly advises the government to think again and to develop a way of rising to the current fiscal challenges that generates a proper balance between what is asked of those with and without family responsibilities.

To read CARE’s Briefing on the Child Benefit Announcement click here.