Anti-family tax system out of line with rest of Europe - CARE

Many British families are paying a far higher proportion of their income in tax than their counterparts in other advanced countries, according to a major new research study.

The study, believed to be the first of its kind, has been conducted for the charity Christian Action, Research and Education (CARE), which is campaigning for fairer tax treatment of families with children.

It charts the way over the past 40 years in the UK, the tax system has been increasingly tilted against one-earner married couples with children.

In 2006, a one-earner married couple with two children on average earnings of £30,800 a year paid 40 per cent more tax in the UK than in comparable countries belonging to the Organisation for Economic Cooperation and Development.

Compared with European Union states, one-earner married families are paying 25 per cent more tax.

The study also finds that the UK tax system disadvantages families in comparison with single people without children.

In other OECD countries, the tax paid by one-earner married couples on average wages is around 50 per cent of that paid by a single person on the same income.

In the UK, however, the figure is 75 per cent even when tax credits and child benefit are taken into account.

"Among highly developed economies, the UK is almost alone in operating a tax system that ignores spousal obligations," the report says.

Only Finland, Sweden and New Zealand have a system like the UK's. All other such OECD countries - including the US, France, Germany, Australia and Canada - take account of family circumstances.

The study reveals that since the 1960s, in the UK the tax burden on a one-earner married couple with two children earning 75 per cent of the average wage has trebled. But the burden on a single person with no dependents has risen by only 16 per cent.

In the mid-60s, a one-earner family on an average wage paid just 9 per cent of its income in tax. In 2006/7 that figure was 20 per cent ­ more than double the level of the mid-60s.

The authors of the study, fiscal consultants Don Draper and Leonard Beighton, warn that the UK's bias against families is deepening child poverty. They point out that more than two million children live in one-earner homes and they estimate that reducing the tax burden on one-earner couples could take as many as 500,000 children out of poverty.

The new study will galvanise the debate over family taxation and child poverty with the Conservative leader David Cameron pledging to bring in a tax allowance transferable from a stay-at-home parent to a working spouse and the Liberal Democrats arguing that tax credits should recognise the financial needs of a second parent.

The authors conclude that if in 2006 there had been a transferable tax allowance this would have gone a long way towards bringing the UK into line internationally, making the tax system fairer and reducing child poverty.

In the mid-60s, a one-earner family on average income paid just 9 per cent of its income in tax. By 2006/7 that figure was 20 per cent, the study finds, and this increase is out of line with the rest of the world,the study's authors believe.

The average tax burden in OECD countries, excluding the UK, is 14.5 per cent and among 15 EU states it is 16 per cent. This compares with the 20 per cent figure in the UK.

In a foreword to the report, Professor Robert Rowthorn of Kings College, Cambridge says: "At one time, marriage and family obligations were extensively acknowledged in the British tax system through special arrangements for married couples and tax allowances for dependent children.

"These have been almost entirely abolished by politicians who regard themselves as the standard bearers of modernity and women's emancipation."

He continues: "There is now a groundswell of support for reforming the British tax and benefit system. The system is resented because it so biased against one-earner couples who wish to look after their own children."

"There is growing recognition that it penalises stable couples and encourages family breakdown and un-partnered childbearing."