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Politics

The Couple Penalty

123 replies

DocBennett · 05/04/2010 00:05

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!

OP posts:
ToccataAndFudge · 06/04/2010 00:50

actually - scrap that - I'd be pretty happy with 19k (gross) for 3 children.

gaelicsheep · 06/04/2010 00:53

Mortgage and bills here nearer £1000 a month with two of us plus DS. With childcare costs as well while DH attempts to make house habitable for DC2, plus trying to save for emergencies, £20k odd a year before tax is not so much fun to live on!

ToccataAndFudge · 06/04/2010 00:55

well obviously with higher outgoings 20k would be tight for you gaelic - but the OP has stated that her rent and bills are 650pcm...so it does leave a decent amount left over for a food and other stuff.

gaelicsheep · 06/04/2010 01:10

Ah, I was including food and petrol in my bills bit. Assumed OP was too so was very - but that would be amazingly little in that case I suppose. Anyhow, we're not starving but we have no disposable income whatsoever for clothes, haircuts, etc.

I think we could live for a fair amount less if we weren't in the sticks, but we have astronomical electric heating and petrol costs here. Lower mortgage though (house is a wreck) so it all balances out. At the end of the day we made our choices.

DocBennett · 06/04/2010 08:09

My £650 counts domestic bills only (rent, service charge, c. tax, water rates). I have to pay electricity, travelcard, private neurologist (as I can't get the therapy I need on the NHS), food, college fees, phone bills, tv licence and insurance on top of that. On a good month I might have a hundred pounds or so left to save. I am quite happy buying second hand clothes and second hand books though.

OP posts:
sarah293 · 06/04/2010 08:12

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DocBennett · 06/04/2010 08:23

I did say the £650 was domestic bills only. Add non-domestic bills and food, it comes to about £1000. Add college fees and my total outgoings are £1600, which is about £50 less than I take home!

Ultimately, my own circumstances were purely illustrative and the illustrated point remains: there is still a big couple penalty and no party is seeking to address it.

OP posts:
gaelicsheep · 06/04/2010 08:28

How do you take home £1550 a month on £20k gross?! My take home pay is nothing like that, even including TCs!

Riven - I couldn't agree more. The way carers are treated in today's system is an abomination. I thank God every day for the interest rate falls. If our mortgage payments were what they were when we bought the house we would definitely be homeless right now, what with DH being unable to work. I'm with you on everything except the car (which we have to have living where we do). But given what you have to do day in day out, that situation really does suck. Respect to you for what you put up with!

sarah293 · 06/04/2010 08:39

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jardy · 06/04/2010 08:52

Scaryteacher,I agree with you.Too much benefit fraud and it needs to be addressed,and not enough support for married couples.

ToccataAndFudge · 06/04/2010 08:56

ahh right - so

"My rent and bills costs around £650 pcm. Boyfriend's domestic bills and (very small) mortgage come to just over £500 pcm.
If he sold up and moved in with me, he would save just over £6000 per year"

was in fact a distortion then.

How much would your boyfriend really save if he were to move in with you.........you know including, all the other stuff that you haven't included

DocBennett · 06/04/2010 09:38

Well it isn't a distortion because all other non-domestic bills like food, mobile, car etc. are the same whether he lives with me or not. The only bills to be subracted from the couple penalty are those that would be duplicated if you live apart (rent, c.tax etc).

OP posts:
DocBennett · 06/04/2010 09:44

"How do you take home £1550 a month on £20k gross?! "

Actually I take home £1650 on 28K gross. My salary will drop to £19.4 gross when I go to part time working next year!

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ToccataAndFudge · 06/04/2010 09:55

TV licence, electricity, phone bills (you'd only have one landline rental to pay), insurance (only need one contents insurance for example), all are duplicated), and even food - it's cheaper to feed 3 people living in the same house than it is to feed 2 in one house and 1 in another. It might not look like much, but when it's one person on their own and they're buying the smaller packs of perishable stuff so that it doesn't go to waste the few pence savings on the bigger packs very quickly add up.

DocBennett · 06/04/2010 10:06

I can't imagine the savings on shared food and so on are really going to make much of a dent in the couple penalty. Home insurance would increase if we cohabited because our contents would be worth more together. It is only TV license and electricity (he doesn't have broadband or a landline) to take into account so the couple penalty is still going to exceed the £6k mark.

OP posts:
ilovemydogandmrobama · 06/04/2010 10:11

But it isn't fraud. No one from HMRC asks applicants for tax credits why they are single or not living with partner/husband/wife. Even though I live with my DP, I would really object to people being questioned about their relationships.

Yes, it's more financially beneficial for Doc and her DP to live separately, but like a lot of things in life, it isn't a cost analysis that is the final factor.

Wasn't it Oscar Wilde who said that the definition of a cynic is someone who knows the cost of everything, but the value of nothing?

ToccataAndFudge · 06/04/2010 10:13

perhaps not on a combined income of 60k they're not

Insurance wouldn' increase that much - certainly wouldn't be double.

I pay the same amount for contents insurance now as I did before when I was living with XH (same company).And I presume he wouldn't be bringing every single item with him as you already have stuff there.

scaryteacher · 06/04/2010 10:51

'Wasn't it Oscar Wilde who said that the definition of a cynic is someone who knows the cost of everything, but the value of nothing?'

And your point is?

SolidGoldBrass · 06/04/2010 11:11

IN many ways, it is much better to be a single person with an amicable co-parenting relationship with DC's other parent, financially and socially. THe obsession with couplehood isn't all that healthy, let's not forget that many people, women in particular, are single parents because the other parent is/was abusive, lazy or parasitic.

scaryteacher · 06/04/2010 11:39

Let's also remember that many of us are in happy, stable marriages and plan to keep it that way.

SolidGoldBrass · 06/04/2010 13:20

Scaryteacher - that's fine for those who are in such a situation (though many of them are struggling economically in the present climate of course).
However, any initiatives to 'promote' or 'support' marriage always make me uneasy as they always seem too prone to being used as a way of treating women as property and unpaid domestic workers.

DocBennett · 06/04/2010 16:54

I live too far away from London for bf to cycle to work as he currently does so any saving on food or insurance would be knocked out by his season ticket or motorbike fuel and parking permit (Westminster charges bikes to park).

Ilovemydog has hit the nail on the head. It is financially beneficial for us (and many other couples) to live apart. To do so isn't fraud (fraud is when you say you live apart but actually live together). But many people will choose to forsake the money anyway because money is not the over-riding factor in people's decisions.

The spleen venting seems a little misplaced but I respect opposing opinion and thank you for all your thoughts on the matter which have certainly given me an interesting perspective.

OP posts:
scaryteacher · 06/04/2010 20:42

I've never felt like either 'property' or an unpaid domestic worker during my 24 years of marriage.

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