Government family policy undermines families

If Catholic campaigners, charities and politicians were to read the signs of the times in Britain before coming up with their continual stream of commentary on welfare, what would those signs be? Certainly, whatever your views on migration, the treatment of migrants would be up there and, to their credit, Catholic agencies often raise this issue.

But the real tragedy of our times is not that the state spends too little and is cutting too much, a constant refrain of the institutionalised Catholic voice. After all, state spending is a record half of national income and half of that spending is on welfare. Never before in human history have we tried to solve the problems of poverty by sending so many Government cheques of such a size to so many people.

But, the issue that we ignore at our peril is the way in which our huge tax and welfare system punishes the very behaviour which leads to human flourishing: work, the bringing up of children and family formation. We received another dose of this recently with the government¹s childcare proposals.

For most of human history, families have chosen for themselves how to allocate work within their households. Of course, until the beginning of the 20th century, work both within and outside the house meant long hours and extreme drudgery. But, there was little interference in family matters from the state. The tax burden on families was light and it was the extended family, charity, mutual societies and the Church that helped people in need and not the state.

Since the 1970s, however, working families have become enmeshed in a tax and benefits system that provides strong incentives for particular types of family structure and for particular work patterns. The forms of work pattern and family structure most favoured have been the one-parent family in which the parent does not work, and the two-parent family where both parents work.

We have reached the stage where nearly 30 per cent of children live in families with no adult in full-time work. But, in addition, Britain has a relatively high number of families where both parents work. The single-earner family with one parent staying at home and bringing up children is becoming an endangered species.

There are some reasons for this that are simply part of the natural process of social progress: women are now better educated, for example. But the tax and benefits system plays a large part, too. The penalties on marriage, or even living together, are well known. If a couple live together, the income of the earner disqualifies the non-earner from receiving benefits. For the very large proportion of people who are receiving welfare benefits, commitment comes at a big cost. In one sense, this is reasonable. After all, those members of a family who are earning money should provide for those who are working in the home. But unlike almost every other country in Europe, our tax system does not compensate for this, for example by providing tax-free allowances on a household basis. This also means that a married couple with two earners pay a lot less tax than a married couple with one major earner. The incentives for couples not to marry and for married couples to have two earners are very considerable and have grown gradually since the 1970s.

Since 2010, things have got worse. It seems as if the Coalition Government has gone on a witch-hunt against single-earner families ­ though things will certainly get worse rather than better under a Labour government. Firstly, child benefit was removed from those families where one person was earning above £50,000. But the loss of benefit was avoided by two-earner families with a combined income of up to £100,000 if the income was split evenly between the two parents.

The latest development is the introduction of childcare vouchers. These will be available to households where no parent earns more than £150,000 and who use formal childcare facilities ­ but both parents have to work to be eligible. Total household income could be £0.3 million before the household becomes ineligible, if both parents are high earners. But, incredibly, if one person earns £151,000 and the other £20,000 then the household will be excluded.

This new childcare welfare payment will, of course, be financed by higher taxes on other groups ­ such as the hard-pressed single-earner couples. At the same time, they suffer the lost earnings from taking what George Osborne describes as a “lifestyle decision” to look after their own children. Looking after other people’s children for payment is favoured with government subsidies while looking after your own children is disparaged and penalised.

There are various solutions to this discrimination against single-earner households and marriage. The best would be to radically cut back benefits and taxes so that families could take their decisions without interference by the state. It is not necessary for the government to spend 50 per cent of national income to deal with problems of poverty not resolved in other ways ­ indeed, that level of spending and taxation is a major part of the problem.

In the short term, the most expedient move would be to move the tax system towards a system of household tax allowances. This would mean that single-earner families can have the same amount of tax-free income as dual-earner families and that couples would pay less tax to compensate for the benefits they forgo when they marry. One stepping stone towards this would be a transferable tax allowance but the government seems much less keen on implementing this manifesto promise than it does on dreaming up new welfare benefits for rich dual-earner couples. The Coalition priority seems to  be to create new welfare benefits, rather than cutting taxes on families.

In the last three years, the English and Welsh Catholic agencies have tended to echo the predictable secular commentary on welfare reform, criticising any reductions in spending. They should read the signs of the times. We have a welfare and tax system that is completely broken. Instead of supporting the family in a spirit of subsidiarity, it attacks the family. Instead of supporting work, it attacks work. Two essentials for the common good or human flourishing ­ families and work ­ are being attacked by the institution that is supposed to promote the common good.

The Deputy Prime Minister Nick Clegg has called proposals for a transferable tax allowance “patronising drivel that belong in the Edwardian age”. This makes one wonder to what age does a situation whereby nearly 30 per cent of children live in families in which nobody works full-time belong?

This article originally appeared in the Catholic Herald.

Academic and Research Director, IEA

Philip Booth is Senior Academic Fellow at the Institute of Economic Affairs. He is also Director of the Vinson Centre and Professor of Economics at the University of Buckingham and Professor of Finance, Public Policy and Ethics at St. Mary’s University, Twickenham. He also holds the position of (interim) Director of Catholic Mission at St. Mary’s having previously been Director of Research and Public Engagement and Dean of the Faculty of Education, Humanities and Social Sciences. From 2002-2016, Philip was Academic and Research Director (previously, Editorial and Programme Director) at the IEA. From 2002-2015 he was Professor of Insurance and Risk Management at Cass Business School. He is a Senior Research Fellow in the Centre for Federal Studies at the University of Kent and Adjunct Professor in the School of Law, University of Notre Dame, Australia. Previously, Philip Booth worked for the Bank of England as an adviser on financial stability issues and he was also Associate Dean of Cass Business School and held various other academic positions at City University. He has written widely, including a number of books, on investment, finance, social insurance and pensions as well as on the relationship between Catholic social teaching and economics. He is Deputy Editor of Economic Affairs. Philip is a Fellow of the Royal Statistical Society, a Fellow of the Institute of Actuaries and an honorary member of the Society of Actuaries of Poland. He has previously worked in the investment department of Axa Equity and Law and was been involved in a number of projects to help develop actuarial professions and actuarial, finance and investment professional teaching programmes in Central and Eastern Europe. Philip has a BA in Economics from the University of Durham and a PhD from City University.

1 thought on “Government family policy undermines families”

  1. Posted 30/08/2013 at 13:28 | Permalink

    The State wants women to work as they then pay taxes
    The State wants employed people to care for others’ children as then then pay taxes
    The State wants employed people to care for others’ elderly relatives as they then pay taxes
    The State wants employed people to care for our sick, infirm and demented,a s they then pay taxes

    A no point in anything connected with these do the terms ‘love’, ‘duty’, ‘personal responsibility’, or ‘family’ appear.

    They care not a jot for our children, infirm and elderly, only for the taxes collected.

    If there is one area of truly appalling State activity, it is the abomination which is the ‘Family Courts’ who see their primary function as the complete destruction of family life.

    Lawyers, however, profit immensely.

    And rich lawyers pay taxes.

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