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!

It isn't fraud. It isn't a difficult query. HMRC need to know whether the couple are co-habiting. They aren't. She isn't lying or misrepresenting the situation. She isn't saying that her partner isn't contributing; just that they don't live together which is true.

Surely the rules are meant to protect families where a parent walks out (leading to loss of -usually- his income). If people have children and are in a relationship, but choose to live apart then they are either choosing a rather unusual lifestyle or have very little regard for their children's welfare.

The "couple penalty" only exists for people who have the choice to do either way - and unless you are so much on the breadline you have no choice between that and homelessness, why on earth would you choose it?

If the system is abolished it will swing back to penalising single mothers who are usually the victim of circumstances to say the least and also much more vulnerable than couples. Doesn't that seem like deja vu?

Surely the fact that you jointly earn £60K dstorts the argument that there's a couple penalty.

If you were a couple on the national average wage - say £22K or so then the cost of running 2 households would outweigh any advantage.

I'm thinking 2 lots of house insurance counsil tax, nortgage, utility bills, etc etc

I am completely confused by this thread (probably because I'm just skimming really). I genuinely am not understanding the couple penalty. I get that we would be (much) better off if DH could transfer his personal allowance to me, but as I said earlier single parents don't get that option so I don't see the difference. We don't receive more or less tax credits than a single person on the same income. I'm genuinely confused and would really appreciate a plain English explanation (I'm not usually a simpleton in these matters).

Also, can someone please explain to me why the transferable allowance only equates to £20 a week gained. At the moment I pay tax on £15k of my income (approximately). With the transferable allowance I'd pay tax on around £9k of my income. I make the difference substantially more than £20 a week. Am I missing something?

By the way, going back to the conversation earlier in the thread, an extra £2.90 an hour is a massive difference. I would be delighted to get a pay rise of that amount. It was very interesting to see the figures being banded around at that point - 17k potential take home pay wasn't it, with people saying they wouldn't be able to afford to work? I'm not being funny, but I go out to work full time and bring home around that amount after tax to support two adults and a child, pay a mortgage and run a car with no added help from benefits. And I have carefully worked out that I could still manage it anything happened to DH and I had to pay 20% childcare costs. Surely I'm not that unusual?

gaelic - I don't disagree that on £17k you can surive quite happily (presuming it's tax free)

However- that's a rather optimistic figure imo.

If someone is working 35hrs a week on the minimum wage, - you're looking at only 10k per year, that - with 3 children doesn't stretch very far........even with strict budgetting

"So taking a full time job for £15K pa would leave her with £17K (she'd still get child benefit and possibly some small amount of HB). This would mean she is (in real terms) taking home an extra £5k per year and for a 35 hour week that works out at an extra £2.90 for every hour worked which to a lot of people would hardly seem worth the effort. "

That was the bit I was referring to. But of course you're saying that it's all very well having £15k of personal allowance ^available", or even £25k in your case. But on the minimum wage you'd be nowhere close to earning that. I take your point. In that situation the ideal would be for the system to step in and top up your income to the full personal allowance. That was the assumption I was making. Not sure how they'd pay for it though!

also meant to add agree with your first two paragraphs - I don't get that either.

With regards to the £2.90 - I think that's also a bit simplistic, the person was saying that the person working would be earning £2.90 an hour more than what it currently works out at on benefits (irrc).

They forgot to take into account that there is no "simple" figure to work out what the equivalent "per hr" wage is for someone on benefits, too many factors affecting the figures. (ie I get "more" than someone with 1 child........mind you I suppose I could argue that's because I have to work 3 times as hard ) and also forgot to take into account the other costs which would be incurred - 20% of childcare, loss of housing benefit/council tax benefit, loss of free school meals, loss of free prescriptions.

Hi Gaelic. Essentially, the tax free allowance is £6475. If you get your partner's transferred to you, that means you don't pay any tax on the next £6475 too (currently you pay 20% on it) doubling your allowance to £12,950. 20% of £6475 is £1295 per year . The £1295 saving works out at £24.90 per week.

Wet August, there more likely to be couple penalty (where lost tax credits are significantly above the cost of the second home) if looking at an older demographic who bought flats before the housing boom (we are 33 and 40).

For us, even if we earned the average £22k each, the couple penalty would still be £7,200 under the conservatives and would fall to £6,700 under the current system (as we'd still get the family element).

In fact, technically, a couple penalty exists until BOTH earners are above the £50K threshold although the higher your income, the less concerned you are going to be with a £5 - £7k income loss.

sorry x posts with you there.

Yes - they are there of course assuming in that example that previously the person in question was "taking home" 12k a year on benefits.

Aha . I was taking into account NI as well, which presumably is a different issue that wouldn't be addressed. So in fact even with a transferable allowance we'd still be worse off than if we both earned half my income each.

And it has also finally dawned on me that the "couple penalty" is referring to me and DH living together as opposed to me and DH living separately. When I was busy tying myself in knots on entitledto the other night, I was comparing DH and me as a couple against a lone parent. It didn't occur to me to look at the situation if we were separated. It's a pretty cynical way to look at the world as there are many many non-financial benefits to living as a couple.

One of the problems is that the whole system is hideously complicated. It should be simplified and more cash should be shifted onto universal child benefit and away from means tested allowances.

I acknowledge the problem too tired highlights that this may "penalising single mothers who are usually the victim of circumstances to say the least and also much more vulnerable than couples".

But a balance needs to be struck. There will always be some couple penalty but it needs to be reduced to the extent that it is no longer significant enough to influence living arrangements.

Do you belong to any particular political party, OP? Interesting first thread to start in the run up to an election ...

I was a member of 'Young Conservatives' from 1992 - 1997. I stopped my support of the party about the same time Cameron took over the leadership. Most people with my fiscal views would have defected to UKIP but as a libertarian, I can't support UKIP on social policy and I am not particularly eurosceptic.

The party that most closely represents my geolibertarian stance would be the UK Libertarian party.

Now, particularly as I am to become a 'family' rather than a singleton, I am likely to vote according to how a manifesto will affect my personal circumstances rather than according to my personal political beliefs.

Personally, I would rather tax credits be scrapped altogether and we all just get a much larger tax free allowance but that is not currently affordable whoever wins power.

ahh yes the wondeful "family"...........which none of us ever though would suddenly find being a singleton with children attached.......

and the if the shit hits the fan and you end up a singleton without a job and a child you'll be really wishing those tax credits hadn't been scrapped........when you suddenly find you can't actually afford to live without them.

I count a single parent with a child as a 'family' too!

If I lost my current job, I would probably try to make a living doing some of my hobbies (web design and programming, antique book restoration, free-lance medical writing) which have often bought in extra cash over the years; plus I would probably do some private tutoring and essay mentoring which is always in demand. If that wasn't enough to live on, I'd head abroad somewhere where biomedical scientists are still in high demand.

However, I do believe in a benefit system (income support and so on) for those who don't have such options. And if you went to work and had a big tax allowance, you'd always be better off working.

"And if you went to work and had a big tax allowance, you'd always be better off working."

Not if you scrapped the tax credit a lot wouldn't - unless you're expecting them all to walk into 20k jobs......

Sorry, you'll earn 'well over the £50k threshold' but still want to claim benefits?

also - what ABetaDad said. As always, he speaks sense

Accepted. I guess it is a genuine Scylla and Charybdis situation. I still think there could be a better job of steering the good ship between the scylla of the benefit trap and the charybdis of the couple penalty.

Jareth, the bottom line is that when I go to part time working I will in fact be earning £19.6k which is hardly Jimmy Choo shoes territory!

I don't know - with rent and bills of only £650 a month, even with baby costs included that's a pretty comfortable wage to live on

I'd be very happy on that with just one child.

£650 a month? haaaahhaha, try £1250 mortgage.

OP - but you're hardly in the territory to be complaining about lack of benifits? I get your point about the couples trap, but it's FAR less of an issue than the benefit trap.

How many days will you be working for your £20k? There are plenty of people who would like to work part time, to contribute to their NI and pensions, but are unable as their take home salary would be equivalent to their childcare costs.

Nice for you - my part time salary (on 2 days a week) is £700 a month (so approx £25k a year), and I think that's pretty bloody good - and yes, despite that we're still entitled to tax credits (wrong IMO)

I don't think you'

...ve got much to complain about tbh...

I'll probably be very happy on that with just one child as well!

But I think most people would be even more happy for it to be topped up with tax credits?

Under the current system, the couple penalty can mean the difference between acute poverty and moderate poverty; or moderate poverty and comfortable living; or comfortable living and very comfortable living. The point is whatever category you fall into, you will always aspire to be in the category above.