Truss promises tax cuts for families

Liz Truss has pledged a series of fiscal interventions to help vulnerable groups such as families in the current, challenging economic climate.

The new Prime Minister believes parents who step back from work to care for an elderly relative or child will get a tax break.

A raft of tax cuts are expected to be announced on Friday as government policy-making returns following a period of mourning for the Queen.

Ms Truss previosuly outline her desire to help families in her leadership campaign. She said:

“Families are a vital part of our lives and a crucial building block for a stable society. They don’t just look after themselves, but they’re part of communities, charities and even businesses. We will review the taxation of families to ensure that people aren’t penalised".

She has since confirmed a more specific policy change to help British families – allowing people to transfer their personal tax allowance within a household. The Telegraph reports:

"Each adult is currently allowed to earn £12,570 a year before paying any income tax. However, if that person steps back from work to look after someone then the tax benefit is lost.

Under Ms Truss’s proposals, the tax allowance could be passed over to a partner in such circumstances, meaning an effective tax saving of up to £2,514 a year per couple."

Ms Truss’s decision to put the issue in her first campaign speech and later to spell out a specific policy means swift action is expected now she is in Downing Street.

A government source last night indicated that the change is more likely to be announced in the Budget later this year than this Friday’s fiscal statement."

CARE has campaigned for root and branch reform of UK income tax rules, which are targeted at the individual, and leave families seriously disadvantaged.

Tim Cairns, Senior Policy Officer at CARE, said recent policy announcements by the UK Government were a "welcome first step" but more action is needed:

"During the leadership contest, the Prime Minister highlighted the need to reform family tax policy. Unlike many other countries across Europe and North America, the UK tax system is individualised, taking no account of the needs of family units. This individualised tax system is a significant contributing factor to poverty in the UK. Households with children are among the poorest in the country. This is not a benefits crisis. Shockingly, two-thirds of children living in households that are considered to be in poverty, have at least one working parent.

"The Government’s proposal to allow families to transfer their personal allowance where only one parent is in work, is a welcome, quick fix first step to dealing with family tax reform. However, if the Prime Minister is serious about helping families, her tax policy over the long term must be more radical. In the UK, for the average one income family with two kids, to enjoy the same standard of living as a single person earning £25,000, that family would need to earn an income of nearly £60,000.

"If that same family has four children, their income would need to be £80,000 per year, and that would only allow that family to have the same standard of living as a single person on £25k. To put that in perspective, only the top 5% of earnings enjoy a salary over £80,000 per year. This seems an almost unbelievable flaw in the system, but it has been there, eating into family budgets since the 80s.

"Given the number of families that a change in the system could help, fundamental structural reform of the tax system must be implemented, simply transferring the personal allowance is not enough."