It is a strange aspect of the United Kingdom’s tax system that marriage and family responsibility are not taken into account when it comes to income taxes. When people marry, they are committing to becoming a family unit, to love and support one another, to give themselves to their spouse, and to prioritize their needs and wants above their own. Yet, despite this commitment and responsibility that people choose to take, the UK tax system still treats married couples as two individuals.
To understand how the UK arrived at the place where individualism is prioritized over family identity in the tax system, we need to go back to when the income tax was formally introduced here in 1799. At that time, any income earned by a married woman, in the words of the Income Tax Act of 1806, “shall be deemed to be the profits of her husband.”1 This approach changed only a little until the election of Margaret Thatcher who felt that change was long overdue. She saw this as a system that condescendingly assumed that money was a matter for the husband, not the wife.
In 1983, Thatcher handed her Chancellor of the Exchequer, Nigel Lawson MP, the task of dealing with this deep-rooted structural problem in the tax system. In his 1985 Budget speech, Lawson set out his preferred solution:
The present structure of personal income tax is far from satisfactory ... The system discriminates against the family in which the wife stays at home to look after the children. It denies to the partners in a marriage the independence and privacy in their tax affairs... There is, therefore, a strong case for changing to a new system of personal allowances more suited to today's economic and social needs. Under this, everyone, man or woman, married or single, would have the same standard allowance; but if either a wife or husband were unable to make full use of their allowance, the unused portion could be transferred, if they so wished, to their partner.2
It is worth quoting this speech at length to highlight the specifics of Lawson’s original proposals. He wanted everyone to have their own personal allowance and for married couples to be able to transfer to their spouse, in full, any of their remaining allowance if they did not work or only worked part time. This would have been a balanced system that treated married and unmarried people equally while acknowledging family responsibility.
But transferable allowances were never introduced.
In 1990, independent taxation was enacted, but it contained no recognition of marriage or family responsibility. Recognizing that married couples might lose out under this new system, Lawson did introduce a Married Couples Allowance. This was, in his own words, a “half-way house.”3 These allowances were, however, gradually reduced in value before the Labour Chancellor Gordon Brown abolished them in 2000.4
The introduction of independent taxation was in many ways a welcome change; however its failure to recognize family responsibility and marriage has had profound consequences.
The Failure of the UK Tax System
By forcing a married couple to be treated as two individuals, the UK tax system fails as good public policy. First, our tax system is philosophically incoherent. Stable families and stable marriages are the bedrock of a strong and flourishing society. A married couple is not simply two individuals who happen to live together but is a family unit who has committed to one another for life for mutual benefit and self-giving, not individual gain. It makes no sense to treat the family unit as two individuals.
Secondly, it is inconsistent with other public policy in the UK. Our social security system rightly takes account of family size, composition, and responsibility and makes judgments accordingly. The tax system should be assessed in the same manner.
Thirdly, it is judgemental of certain family decisions. Under the current arrangement, any family where one spouse is either not working, or earning less than their personal allowance, will be fiscally punished for this arrangement. The UK tax system is judgemental against families in which only one spouse works, despite the fact that there may be very good reasons for this decision for one parent to stay at home, such as caring for young children, or sick or elderly relatives.
Just last October, the UK’s Office for National Statistics estimated that the value of the UK’s unpaid household work is £1.24 trillion per year.5 (At the time of this writing, £1 is equivalent to $1.27.) On average, this means that stay-at-home spouses who cook, clean, and wash, and look after and transport children and elderly relatives contribute at least £18,932 of value per person to the national economy each year. The current system that judges stay-at-home parents is economically illiterate.
Finally, it is anti-choice. Under the current system, families do not have a choice about whether they are taxed individually or together. It appears as though for the Government, individualism is the ultimate priority, and this is often to the detriment of family life. Couples who choose, for instance, for the husband or wife to stay at home and look after young children are being told that is the wrong choice. They are not allowed to make the choice to combine their personal allowances but rather, the non-earning spouse is being pushed into work.
It Hurts the Poorest Families
Moreover, this system of taxation has, in fact, resulted in some of the poorest families in the UK facing some of the highest tax rates. On the face of it, that statement makes little sense, since the basic tax rate for those earning between £12,500 and £50,000 is only 20 percent.6
But one must look at the effective marginal tax rate (EMTR) that people face. The EMTR is the amount of money an individual has to give back to the government for every pound earned on top of their current salary. Income tax and national insurance are a start but more important are the social security contributions that get withdrawn as your income increases, including child tax credits, working tax credits, housing benefits, and council tax benefits.
CARE research has found that the current EMTR for a single-earner married couple with two children at three-quarters average wage is 73 percent.7 Such a family would only keep 27 pence for every additional pound they earned. In the UK, it seems, we tax the poor as if they are rich. Such high tax rates kill aspiration and trap families in poverty.
When CARE looked at comparable countries, we found that the EMTRs on UK families are actually much higher than the rest of the developed world. The OECD average for the same type of family is only 35 percent.8 This means low-income families in the UK are facing double the marginal tax rate of families in comparable countries.
We found a similar story when it comes to the tax burden faced by families. At OECD average wage, a one-earner married couple with two children faces a tax burden that is 30% higher than the OECD average.9 Conversely, the tax burden on a single person without family responsibilities is significantly less than the international averages—8% less than OECD average and 18% less than the average for the EU.10
The reason EMTRs for one-earner families with low-incomes are much higher in the UK than in other OECD countries is that family responsibility is recognized not within the income tax system, but by means of social security payments that are tapered sharply.
Looking back to when independent taxation was introduced in the UK in 1990, the EMTR for a one-earner family on 75% average wage was only 34%, close to the OECD average in 2017.11 In the last 30 years, the UK has moved to the strange and illogical position where we tax low-income families, yet we then assume they need propping up with social security payments. This is tantamount to digging holes and filling them in again.
The UK tax system does not treat families fairly. They often pay more taxes and higher effective tax rates than other households that are much better off. The amount of taxes that families pay bears little relationship to family income and takes no account of family responsibility or composition. It is a strange system indeed.
Jonathan Williams is the Family Policy officer at CARE (Christian Action Research & Education) in the UK.
1. Antony Seely, Tax and Marriage, House of Commons Research Paper, July 1995.
2. House of Commons Debate 19.03.1985 cc.794-5.
3. House of Commons Debate 15.03.1988 cc.997-8.
4. House of Commons Debate 09.03.1999 cc182-183.
5. Household satellite account, UK: 2015 and 2016. ONS.
7. "The Taxation of Families, International Comparison 2017." CARE Research paper. November 2018. 8. Ibid.