Our fortnightly series continues.
Families first: taxes, parental leave and benefits
Yesterday, we set out the in principle case for reducing the demand for government, which is that it differs from the conventional small state policies that haven’t worked.
Today, we turn to perhaps the main means of making it happen: the family — that voluntary mini-welfare system which, with better schools and good jobs, helps to ease demand for mental health services, youth offending services, drug, debt and alcohol counselling, prisons, probation and benefits.
The state of the British family
Our leaders therefore need to speak truthfully about the cost of family breakdown. That should start by acknowledging that British family relationships are among the weakest in Europe.
According to a report for Institute for Fiscal Studies, “a notable hallmark of British families is their greater fragility and complexity compared with other western European countries.” The UK has higher rates of lone parenthood and parental separation that most of our neighbours. Then there’s the especially unusual feature of British family life, which is the high proportion of births to parents who have never lived together. As the IFS authors note, this is “around five per cent or less in most western and northern European nations, compared with the figure of 16 per cent we have seen for England and Wales.”
We can’t afford not to care about it.
The same goes for another, even more fundamental issue — which is about whether Britons have families at all.
Across the western world and well beyond, birth rates over recent decades have plummeted. The number of live births last year hit a 20 year low, while the latest projection for the Total Fertility Rate (i.e. the average number of children each woman will have over her lifetime) has fallen to 1.59 — below the replacement rate required to keep the population stable. The situation is even worse in other countries. If the decline continues the the long-term implications for the old age support ratio (i.e. the number of working age adults per retired person) are dire.
Whether or not talk of ‘family values’ makes us squeamish, we need to think ahead to our retirements — and to who might be around to support us in our old age. Young people should care most of all. They are the ones who will, if nothing changes, retire into a world of demographic collapse and unsustainable debt.
The case for family-friendly reform
To date, the message sent by the most relevant government actions is that families don’t matter.
Examples include the freezing of child benefit during austerity, the continuing two-child cap on child benefit and the fact that just 10 per cent of the personal tax allowance can be transferred between spouses (a measly concession that nevertheless had to be fought for tooth-and-nail by the pro-family wing of the Conservative Party).
Of course, the decision to have children is a private and personal one. However, across society, there is a shared interest in the formation and resilience of families. Ultimately, our long-term solvency as a nation and, indeed, the survival of our very way of life depends upon it.
In an era of worryingly low birthrates to remain insensible to the needs of families — and of young people hoping to start a family — is fundamentally unconservative. Indeed, this may help explain why Conservative support is abysmally low among people in their twenties, thirties and forties.
A pro-family, pro-natal policy framework isn’t just a way back for our party, but a long-term survival for the nation as a whole. But again just be achieved rhetorically, a families first government needs to put its money where its mouth is.
This requires re-evaluating public policy — starting with where the state can act most directly. Top of the list would be parental leave, taxation and benefits.
Parents are entitled to 18 weeks’ leave for each child and adopted child, up to their 18th birthday (with a limit for each parent of four weeks in a year for each child (unless the employer agrees otherwise). Eligible employees can take up to 52 weeks’ maternity leave and Statutory Maternity Pay is paid for up to 39 weeks. Father may be able to claim paternity pay and one or two weeks’ paternity leave. There are Shared Parental Leave (SPL) and Statutory Shared Parental Pay schemes.
Given the importance to families and children of the first thousand days, there is a case for extending both maternity and paternity pay and leave, and for ensuring that both are more easily shared. It can also be argued that firms which support their employees at home as well as in the workplace will have more productive employees.
However, there is a limit to the demands which government can reasonably make on business — especially in the present context of relatively low economic growth, and in relation to smaller firms which provide the lions’ share of jobs. In the long-term, stronger families should, with better schools and good jobs, help to boost economic growth. In the short-term, politicians can’t avoid the trade-off between the two.
Taxing households rather than individuals
Our tax system taxes people as individuals; our benefits system pays them as household members. It makes no sense to treat these same people in different ways — and, of the two, the latter makes more sense, since people who live together tend to pool their income,.
And because it is hyper-individualised — i.e. treating the individual, not the household, as the fundamental unit of taxation — Britain has one of the most family unfriendly tax systems in the western World.
As noted in the Mirrlees Review (and the more recent Policy Exchange report, Taxing Families Fairly) households where one partner is not working in order to look after children, can end up paying thousands of pounds more in tax than a household where exactly the same income is split between two earners.
There are, of course, some allowances for family life in the tax and benefits system — like the Child Tax Credit and the zero rating of VAT on children’s clothes. However, these are policies whose primary purpose is to prevent child poverty.
That’s a laudable and necessary aim — but it leaves the most damaging assumption in the tax system unaltered: which is that personal income used to undertake the enormous and sacrificial expense of raising children deserves no special recognition.
It follows that, as no fewer than four think tanks have recommended in this series, partners with children should be entitled to entitled to transfer the full £12,570 allowance to their spouse – up to £2,514 each year per couple.”
Should government aim to support stable partnerships in the tax system — and so some children…?
But which partners? The longstanding consensus on the centre-right is that children flourish most in homes with two stable parents, that marriage empowers those parents to commit to each other and their children…and that the tax system should therefore recognise marriage (and civil partnership).
As a paper proposition, this is powerful. As a political one, it is problematic. As Frank Young of Civitas has pointed out, “2021 was the first year on record that more babies were born to unmarried, cohabiting couples than to married couples as cohabitation becomes the norm.”
“The latest set of ONS statistics for marriage rates shows they are at their lowest level ever. Next year will be the same. Our research suggests that in 2062, one couple will get married for every 400 adults in the UK compared to one couple for every 100 adults today—a drop of more than 70 per cent in two generations.”
So while transferring the full personal allowance between married couples with children, or boosting the poorly-claimed marriage allowance, would be relatively simple administratively, it would be hazardous politically — as other couples with children protested about missing out.
A workable landing zone might be the transfer of the tax allowance beween stable couples with children. But who is to decide which couples are in stable relationships and which aren’t?
Until or unless a practicable definition can be reached, such a proposal looks even more politically fragile than the transfer of the allowance between stable couples. There is no painless solution to this thorny question.
…Or child benefit, and so all of them? (Or both?)
The first point to grasp about child benefit is that it is mis-named. It is not a benefit, paid to welfare claimants. Rather, it is the old child tax allowance of some 50 years ago, available to every parent for their first two children, but paid via “the purse and not the wallet”. (This is a way of saying that while the tax allowances tended to be available to fathers, child benefit is usually claimed by mothers.) It’s currently paid at £24 a week for the oldest child and £15.90 for others.
Child benefit has been unfashionable in recent years. Gordon Brown compromised its purpose by inventing a Child Tax Credit which partly replicated its function. George Osborne froze it and withdrew it from higher rate taxpayers (and capped child tax credit or universal credit for third or subsequent children).
An alternative to transferable allowances and marriage allowances would be for government to concentrate instead on helping to boost the incomes of all families with children rather than some.
After all, one way of looking policy changes over many years is that they have transferred resources from families to pensioners — who are now some £4,000 a year better off than working families.
That trend could be reversed either by raising rates of child benefit or by re-introducing child tax allowances — with some additional support in the social security system for those who don’t pay tax. The former route looks less complex.
Finally, there is potentially another role for child benefit — as a pot in which to put money from Government childcare support schemes, in order to simplify the system and boost parental choice.
Furthermore and in this context, child benefit could be concentrated on families with very young children since, as the Institute for Fiscal Studies notes, “challenges…are particularly acute among one and two years old these families face a ‘double whammy’ of higher prices and substantially less government support.”
Cross-generational way of supporting families
One of the most striking aspects of modern Britain are the ways in which the long-term outcomes for older people vary. Government figures suggest that of those people in residential care, 91 per cent are white, two per cent black and two per cent Asian.
Many factors will be at play in these figures — but one will be cultural resistance among some ethnic minorities to putting their older relatives into care homes. As David Goodhart has written in this series, the taxpayer might gain and society benefit from subsidies for “granny flat” conversions
Next week we turn to the turn to the other foundations of a family friendly nation — beginning with child care.