New research finds:

• UK Marginal Effective Tax Rate (METR)[1] levels on both one-earner couple families and lone parent families are the highest in the developed world
• Point at which many UK families pay income tax is lower, in real terms, than it was in 1990
• Tax burden on one-earner married families for 2011 was 42 per cent greater than the OECD average
• Tax system remains insensitive to family responsibility
• UK in worst place to facilitate the creation of an ‘aspiration nation’
• Coalition Government must act on its pledge within the Coalition Agreement to recognise marriage in the tax system through the introduction of a transferable allowance

New research released today by the social policy charity, CARE, reveals the alarming truth about family taxation in the UK.

CARE’s research shows that – despite the Coalition Government’s pledge to help families by raising the income tax threshold – families in Britain face an income tax threshold[2] that is lower, in real terms, than it was in 1990.

The research reveals that in 1990-91 the threshold for a single person under 65 was £3,005; in 2012/13 it is £8,105, an increase of 170%. By contrast, in 1990-91 the tax threshold for families, both one-earner couples and lone parents, was £4,725; in 2012 it is £8,105, an increase of just over 71%. Taking account of inflation, the threshold for a single person is 24 per cent higher than it would have been if the 1990/91 threshold had been set in line with RPI. By contrast, the threshold for both one-earner couples and lone parents is 21 per cent lower.

Another piece of research by CARE – to be published on 11 December – shows that UK Marginal Effective Tax Rate levels on both one-earner couple families and lone parent families remain significantly out of line with most of the developed world.

The report, titled: ‘The Taxation of Families – International Comparisons 2011’, demonstrates that, the UK’s Marginal Effective Tax Rate – on a married couple, with two children, where one parent stays at home whilst the other goes to work, earning 75% of the average wage – is higher in the UK, at 73%, than in any other developed country (see Graph 1, below).

An METR of 73% means a household with a single earner would only see 27 pence go into the home from each additional £1 earned.

On this basis, and despite the Prime Minister’s pledge to create an aspiration nation, the UK is, in fact, in the worst place to facilitate the creation of an aspiration nation.

Moreover, the study shows that the tax burden faced by married couples on the average wage, where one parent stays at home to look after the children, is 42% higher in Britain than the OECD average.

On a comparative basis, the income tax bill faced by UK one-earner couples with children on an average wage is significantly out of line with many other developed countries. For this group, the income tax burden is 67 per cent greater than the OECD average.

The findings come despite the Government’s pledge, outlined in the Coalition Agreement, to recognise marriage in the tax system through the introduction of a transferable allowance.

Commenting on the charity’s findings, Nola Leach, Chief Executive of CARE explained:

“Our tax system remains very individualistic and insensitive to family responsibility, compared to those of comparable OECD countries.

“Recognising marriage in the tax system, as promised by the Coalition Agreement, would help bring the UK back into line with its international counterparts and go some way to address the problems highlighted by today’s research. It is unfortunate that the Coalition Government still has not introduced the necessary legislation.

“The introduction of a transferable allowance would both decrease the tax burden faced by one-earner families, whilst reducing the extortionately high METRs faced by the poorest households, due to it lowering their tax liability.

Unfortunately, time is running out. Leaving the change any later than the March 2013 Budget would provide insufficient time for the new arrangement to get properly up and running before the General Election. The Government must now prioritise implementing its marriage commitment in Budget resolutions immediately following the 2013 Budget.”

ENDS

For media inquiries, please contact Alistair Thompson of Media Intelligence Partners Ltd on Mob: 07970 162225 or 0203 008 8145, or Ruth Bessant of CARE on 020 7227 4731 or 075811 53693.

Notes to Editors:

CARE (Christian Action Research and Education) is a well-established mainstream Christian charity providing resources and helping to bring Christian insight and experience to matters of public policy and practical caring initiatives. CARE is represented in the UK Parliaments and Assemblies, at the EU in Brussels and the UN in Geneva and New York.

[1] Combined effect on a person’s earnings of income tax and national insurance increases and the withdrawal of state welfare benefits.

[2] Income point at which income tax starts to be paid.