Much guff has been talked about the effect of the loss of child benefit on the so called aspirant middle class. Yes, a family with one earner taxed at 40% and one at 0% will be hit. And, yes, it’s a grand less towards the school fees. But the tax system already looks after happy couples. (Two people, two tax allowances). And Cameron and Osborne knew that there was little appetite to defend them.
So who does lose out? And does it matter? Well there’s not much sympathy for working single mums who’ve managed to go up the income scale. Sure, they’re not the worst off. One blogger points out that the median income for working single parent families is £21,035 a year (compared with a median of £32,158 a year for a two parent family with one worker.) (I’m assuming this is gross.)
But single parents earning £45k aren’t an urban myth. And nor are they leading the life of Riley.
Unless she has stumbled on a lottery ticket, a single mum on £45k is out at work and shelling out on childcare, paid out of already (higher) taxed income. (Funny that an accountant is tax deductable but a nanny is not.) So her net income is far, far lower than that of the couple who generate the same income but only pay 20% of it to the tax man. (And she’s up half the night cooking and cleaning as she hasn’t time in the day or money to pay).
And so to this week’s panicky sop to middle class couples, Cameron’s: ”Let’s recognise marriage in the tax system.” Excuse me, but couples sharing a household are treated pretty well by the tax system, married or not. That’s two personal allowances: no sharing, no discount. It’s hard to see how society would benefit by skewing more income protection towards an already better-off group.
But who does lose out and who will notice the difference? Many working single mothers (of which I am one) have only one child – let’s face it, we can barely hold together working and looking after one child, let alone more. I’ve taxed them at standard or higher rate as indicated; but for simplicity’s sake I’ve excused everyone NICs (to save Robert Chote claiming a mistake) because – well I’ve got ironing to do and tomorrow’s lunch box to fill.
Single mother a
Single mum A earns £46k. She’s a talented girl so she manages to do this in three and a half days and only pays for that much childcare. (London rates around £11-12 an hour if you’re paying their tax – which you should and you have to – it’s a market). After tax and childcare costs she’s got £15,690, bumped up to £16,746k by child benefit. So she stands to lose 6 percent of not much to shout about.
But look! There’s a way out for the non-ambitious. Ask the boss to cut your pay.
Single mum b is on £42k, below the 40% threshold. She’s paying less tax and so £3639 better off. She’ll keep her child benefit and end up £4695 better off than her higher earning sister.
We know that thresholds create disincentives; but they are far greater if there is a huge non-removable non-allowable cost deducted from one group’s earnings.
But let’s compare a couple with their equivalent earning single mother neighbour.
Couple x one earns 42K other earns 23k
They’re off to the races. One earns £42k (let’s assume that’s Mr X), the second earner pulls in £23k (that’ll be the little woman) so each is taxed at 20%. Despite Labour’s failure to reward marriage they have two personal allowances so have £12,950 of untaxed income rather than £6745 (so remind me why they need an extra married couple’s allowance?). Even after the cost of childcare they keep £39,570 of their income. And they get to keep child benefit on top!
Life’s a bit tougher for the single mum C on the same income
She’s paying twice as much tax on a smaller income (as she only has half the tax allowance); so after tax and childcare costs she ends up with £27,090. Today she gets child benefit – but unlike her married neighbours she’s losing it. And, yes, two mouths eat more than one. But £12,500 more?
So how much does single mum D have to earn to catch up with the couple? Well, at first glance it’s £86k …
But she’s not going to pull in £86k part time. So she’ll need to do longer hours. So (see below) she needs 40 hours of childcare at £11 an hour (yes, it’s expensive but she’s not going to earn £86k outside London). So child care goes up to £22k whopping £7500 off her net income.
So now she’s net £7,500 behind the couple even though she’s earning an extra £20k and never sees her child. In fact, she can’t catch up (below) until she’s on nearly £99k. Which will just bring her level with a couple on £34k less (and her child will forget what she looks like).
So on £98k she catches up with the couple who had the wit or luck to have their child together – until her child benefit is withdrawn.
And, no, I’m not shedding many tears over her either. But that’s not the point.
In fact, Tory conference rage may mean that child benefit may end up being means tested, maybe even on household rather than the highest earner’s income – which will unintentionally help the wicked, wilful single mum as well as the virtuous stay at home in the home counties.
But if we wanted to cease punishing single parents and their children and get them out to work we’d make child care costs properly tax deductible. And not through a tax credit system seemingly devised with the sole purpose of preventing people qualifying or deterring them from finding out. (Why, incidentally, are tax credit application forms the only ones that HMRC declines to make available online).
A week of slightly synthetic outrage has been fun. And watching the Tories slug it out even more so. But if we want to even things up for the children of single parents, child benefit isn’t the most effective spanner in the box.
Lesley Smith is a middle class single mother.