The Couple Penalty

[DocBennett]

The Conservatives have vowed to address the well documented fact that welfare recipient and low or moderate income families are better off financially if they live apart (even after accounting for the cost of running an extra home) . The two ideas mooted being a transferable tax allowance and eradicating any couple penalty in the tax credit system.

However, this is utterly fallacious and I am afraid I'm going to have to get a bit mathematical to explain!

The Tories' rhetoric about marriage is meaningless since they propose to abolish tax credits to households with income of over £50k. The approx. £20 per week you'd gain from transferable tax allowance is dwarfed by the tax credits and other payments the non-earner would receive if they separate.

I am soon to be a mother (with a mild disability) of 1 child under one, working three days a week. My beloved partner of 12 years and I have a happy 'Living Apart Together' relationship which suits us due to our professional lives - I rent in suburbia, he owns a flat in London. As we lead autonomous, unmarried lives, I would be entitled to around 12K in tax credits (including the child care, child and working and disability element) to top up my net income (after tax and pension contributions) of about £14,000 giving me a take home pay of £26,000. I would also get £1,200 housing benefit towards my HA rent.

If we move in together, under the current system, our joint income is just over the £60k threshold (and that doesn't make you well off in London by any stretch of the imagination) so we would get no tax credits and no Housing Benefit. My partner bought his flat years ago before the boom so the cost of running it is £6000 per annum all in. Subtract this from the lost tax credits to calculate the couple penalty which is £7,200.

Under the Tories as a single parent I still get the same tax credits but if we co-habit we are still entitled to nothing being well over the £50k threshold. I cannot transfer the tax allowance to the other half even if we did marry since I work part-time, so the couple penalty is still £7,200.

The 'couple penalty' is inevitable if you want to be proportionately more generous to people on lower incomes and if you assess entitlement according to household rather than individual circumstances. That is why I favour a move towards an individualised rather than 'household' tax credit system.

Before anyone takes the moral high-ground, we are discussing our options and are likely to forsake the £7k to move in together and provide a more standard family arrangement for our child.

I am simply illustrating the persistence of the couple penalty under the Tories. And surely by lowering the Tax credit threshold to £50k, a household is MORE likely to lose the credits if they live together than under the current £60k threshold?

If any tories reading this could give some clarity, this floating voater would certainly be appreciative!

I'n not sure about this blanket transferrable 10k/5k thing actually.

How is it fair that (lets just assume it's all married couples here)

Mr and Mrs A with 4 children can earn 40k tax free

Mr and Mrs B with 1 child start getting taxed at 25k.....

And then poor old Mr C, single man, starts paying tax on the same job as Mr B has got (who is working tax free effetively) at 10k......

You see the problem is - you take away a "problem" for one sector of society........and you create ones for another

that's a proper "hmm" not a sceptical one honest

'we have three evenings apart which is absolutely essential as I need complete silence and no disturbances while I write up my thesis.' Let's hope you get it finished before you give birth then, as you won't get silence and no disturbances with a new born. Perhaps the baby is hypothetical like your whole argument here?

Whichever way you choose to parse the rules, you are in a relationship, and you are proposing to defraud the system. My husband and I spent many years together but living apart as the RN sent him away - we however, didn't choose to 'split up' for those years, we played the game and picked up the tab for our ds.

People coped before tax credits - they would cope, and perhaps think long and hard before having children, and sort out their living arrangements, if they were withdrawn.

Well no political party has ever cared too much about the single person because the majority of Mr Cs will eventually be in a family situation and many young people don't vote.

Most political parties care less about justice and principles than what will keep the swing voters in marginal seats happy.

That is why I am annoyed about the Conservative manifesto. They say they're going to eliminate the couple penalty precisely because a lot of floating voters in marginals are disgruntled couples like us who lose out by 'doing the right thing'.

But they're lying... the couple penalty will still exist after the election (based on the tangible proposals so far mooted). But unless people do the maths they're likely to be hoodwinked by the spiel.

DocBennett - sorry but only an extra £2.90 an hour is worth more than zero and the state does not owe anyone a living. It only has to make people better off by working. I do not xpect anyone to lose money by going to work.

Perhaps we should cut over generous housing benefit which really has created a massive distortion in the rental and labour market.

My landlord has 30 terraced houses all rented out to people on benefits - if housing benefits were cut he would have to cut his rents.

Why be annoyed at the Tory manifesto Doc - why not at Labour who have created all these bloody silly rules in the first place? Or perhaps that is a purely rhetorical question.

scaryteacher, I'm afraid we'll have to disagree about what constitutes 'defrauding' but it is certain that the proposal is not illegal or in contravention of the tax credit system. I respect your argument that it is 'immoral' and to some extent agree with you but there will always exist competing ideologies and moral frameworks and some people may act knowingly immorally if the gains are high. I believe the system should do more to encourage better choices.

but if you substitue Mr C for a Mrs C with 1 child - I still don't see how making her start paying tax at 15k is fair when Mr and Mrs A can earn 40k before paying a penny.

Am I right in thinking that as a SAHM with a DH who earns under £50k this would actually suit me quite well?

Betadad, I totally agree that " we should cut over generous housing benefit which really has created a massive distortion in the rental and labour market".

High housing costs should be the #1 problem to tackle. Soaring asset prices is one reason why reasonably well paid couple struggle in the first place. As you rightly point out housing allowance completely distorts the rental market.

scaryteacher, as a life long conservative voter (until fairly recently), my feelings about Labour are a given!

Actually UKIP have an interesting proposal -

1. Child Benefit, the Child Trust Fund, Child Tax Credits and the Education Maintenance Allowance should be merged into an enhanced Child Benefit payable for each of the first three children in each family

2)All other ?key benefits? as well as student maintenance grants should be rolled into a single, flat-rate Basic Cash Benefit (?BCB?), set at the same weekly rate as Jobseeker?s Allowance/Income Support.

It eliminates the couple penalty since "Entitlement to the BCB should be extended to all low- and non-earners, in particular, to married or co-habiting mothers, students and carers, irrespective of household composition, income or assets".

They would also get rid of the distortions in the housing market since "Housing Benefit and Council Tax Benefit for private tenants should be phased out and replaced with ?Workfare? jobs"

I doubt actually whether once everything is taken into account whether they would even be better off - I think tbh £2.90 if a rather optimistic figure

Spawnchorus; a SAHM with a DH who earns under £50k means you would benefit by the transferable allowance but before you get too excited, it's only an extra £20 a week.

Workfare job???

£20 extra a week = RESULT!

Still don't know if I can bring myself to defect from LibDem though.

Actually, I'm a bit peeved that you think £20 extra a week is to be sneered at.

and actually if you think Mr C are eventually going to be part of a family.............where do you think most of the "other half" of the single parents are?????

extra £20 a week is fab.

I get my extra £20 a week that I'm allowed on IS from my organ playing - amazing what a difference it makes.

Toccata, Workfare is a highly contentious and very 'DailyMailist' proposal but in reality, this country is totally broke. The debt is incomprehensibly huge and that doesn't take into account pensions, PFI schemes and other off-the-record debt. A lot of people believe the move towards a more American model of welfare (that you have to do community work if you claim benefits) in the long term is very likely, particularly as young people seem to be becomming more conservative in their outlook. Whether this is right or wrong is a extremely emotive debate where feelings inevitably run high.

Riven,

Under the Conservative proposal, you would be better off as your DH would pay no tax on the first £13k giving you a very low tax bill. The extra £20 would probably mean quite a lot to you given you are on a fairly low household income. However, due to the fact that the exchequer is totally skint, this will probably be applicable to only those with children under the age of 2.

you mean like the American workfare .

Riven..........I think you failed to mention how many children, and that you have one severely disabled child as well

SpawnChorus, I apologise for the "only £20 comment". I appreciate this is significant to many people and probably will be to me too when baby is born. To be honest with you, I have only recently found out I am expecting and still haven't quite got used to the idea of going down to a part-time wage and what babies actually cost!

and why would private tenants who are getting council tax benefit and housing benefit have to do workfare, while those in social housing, or those claiming council tax benefit living in their own (owned) homes wouldn't?

And what of those in private rents who are working, but also recieving HB?

no Riven - I believe you would be worse off as you'd lose the tax credits