|Date:||29 April 2010|
All the main UK political parties claim to have put the needs of families at the heart of their campaigns. On launching the Labour Party's manifesto for families, Yvette Cooper, Secretary of State for Work and Pensions said that "We've always made helping families a central part of Labour's campaigns - and we are doing so again in this election". For the Conservatives, David Cameron has stated that "Above all, we will be the most family-friendly Government you've ever seen in this country, because I believe that the family is the crucible of responsibility". The Liberal Democrat manifesto states that "Liberal Democrats believe every family should get the support it needs to thrive". The Conservative Party has also pledged to end the couple penalty for all couples in the tax credit system, stating that "the tax and benefits system actually rewards couples who split up". A new election briefing note from IFS examines whether this rhetoric matches the reality of specific policy pledges; it concludes that there is a conspicuous absence of policy pledges with large price tags attached in all three parties' manifestos, and a rowing back from past aspirations, presumably because of the deep cuts that will have to be made to spending on public services over the next Parliament.
One particular policy area prone to sweeping statements is the issue of whether the tax and benefit system treats people differently depending on whether they are in a couple or single. In past years, the issue of so-called 'couple penalties' - situations where the government pays out more support to a couple if they split up than if they stay together - has been highlighted by the Liberal Democrats and the Conservative Party, and has become an increasingly debated issue.
New IFS research, funded by the Nuffield Foundation, has carefully examined these couple penalties and premiums in the tax and benefit system, explaining why they arise, whether we ought to be concerned by them, and how one could have fewer couple penalties should one wish to do so. Two adults can almost certainly save on living costs by living together, but this research simply measures how net state support varies by family situation, not whether couples would be better off living apart than living as a couple.
Whether by accident or design, all parties' proposals for reforms to taxes and benefits will alter couple penalties and premiums in the tax and benefit system, but by very small amounts. New analysis shows that the fraction of couples facing a couple penalty in the tax and benefit system would not change under government plans, and would fall very slightly under Conservative and Liberal Democrat plans (by 1 and 2 percentage points respectively). The average penalty would fall very slightly (by 0.2%) under the Conservative plans, rise very slightly (by 0.4%) under Labour's plans, and rise by a little more (by 3.1%) under the Liberal Democrats' plans.
Uniquely amongst the parties, the Conservative Party has an ambition to "end the couple penalty for all couples in the tax credit system" because "the tax and benefits system actually rewards couples who split up". A perhaps unkind, but literal, interpretation of this ambition would require assessing tax credits on an individual's own income, and cost at least £18 billion a year, vastly extending the scope of means-tested tax credits. Why is this? A woman with no income of her own who lives with a millionaire and their children would, in general, be entitled to state support for her and her children if he left her. The only ways of preventing the tax and benefit apparently "rewarding" this couple for splitting up are to not pay her benefits as a lone parent, or to pay her benefits when living with a millionaire. We cannot imagine that the Conservative Party has either of these in mind. It is more likely that the Conservative Party favour a higher working tax credit for couples with children, which currently pays lone parents and couples with children the same rate if they have the same earnings. Our analysis shows that this would reduce couple penalties in the tax and benefit system for couples with children, but would introduce new couple premiums - where couples get less state support if they split up - and would still leave the vast majority of couples with children facing a couple penalty in the tax and benefit system. Whether this would be a good idea depends, though, on one's priorities and view of fairness. There is some evidence that the existing couple penalties do distort behaviour in harmful ways, encouraging some single adults to live apart but not together, and encouraging others to live together but conceal this from the authorities. But any such impacts are small, and a more important consideration, which economic analysis alone can't answer, is whether the system would be any fairer if we paid relatively more to couples and relatively less to single adults.