Saturday, 10 April 2010

The real signal sent by the Tory marriage tax break: we value those marriages where one partner stays at home

If we're heading into week two, it must be time to focus on the second Tory tax cut of the campaign. If the Conservatives were elected, I wonder whether they may regret - by some time around May 7th - that they did so little in the campaign to secure a public mandate for their deficit hawk emergency budget.

We at last have the details of the proposed Conservative plan to send a signal by ""recognising marriage" in the tax system. The means of doing so is to allow one partner to use part (£750) of their spouses' personal allowance, as long as that is not already being utilised. So it depends on the main earner earning under £44,000, and the second earner still having a chunk of their personal allowance (£6475, or £9490+ for over 65s) left.

There is one previous problem which the new policy dodges: it can no longer be called the John Terry tax break, an idea which we think we may well have invented at Next Left before it was widely used elsewhere. If you want to commit adultery, remarry and keep your tax break, you will have to be a basic rate taxpayer. John Terry wannabees might be in, but not JT himself.

But here are three problems it still faces.

1. I suspect the direction of criticism of this policy may be about to change. Previously, David Cameron has said he wanted to "send a signal" that he valued marriage. That is controversial - for example, in preferring married couples to cohabiting couples - but it is obviously the point of the policy to do that. For the Conservatives, the gains of "valuing marriage" are clearly thought to outweigh the costs of liberal criticism of this.

That debate will continue. But it may be superseded, or at least joined, by another one.

The policy doesn't send a simple "pro-marriage signal" any more.

The core distinction is no longer between the married and the not married.

Instead, the policy now signals that some marriages are valued while others are not
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The result: Married couples who both work full-time are non-gainers from the policy, alongside long-term cohabiting couples with kids.

If the Conservatives think those marriages are equally valued, they do not wish to use the tax system to say that, and will use the tax system to say something else. So, one could quite legitimately conclude that they don't equally value those marriages.

As the policy is designed to "send a signal", it does not take much decoding to realise what that signal can be read as:


the Conservatives value marriages where one partner stays at home, and will change the tax system to benefit those married couples, but not married couples both in full-time work or the unmarried.


Now, gainers here would include working woman earning under £44,000 with husbands staying at home to look after the kids.

And much is being made of another "signal" sent by the inclusion of civil partnerships So it will also be happy day - worth £3 a week - for civil partnership couples where one partner earns nothing, or under £5750 too, (but not for those who both work and earn £6500+).

But my sense is that many might think the signal here is rather more "back to basics" and "back to the kitchen sink" because of the specific model of which married family units the Tory policy would exclusively benefit.

2. Another problem is identified by the Financial Times leader writer Christopher Cook, a highly incisive centre-right voice who has previously worked as an adviser to the Conservative party.

He has tweeted:


Politically, the £150 might be a mistake. It's small enough to sound like a joke and big enough to be expensive. Neither fish nor fowl.


This seems to me a good point. The risk here is that the £550 million cost of the policy could be seen to call into question whether the Conservatives' remain committed to deficit reduction as a top priority, while the £150 gain to married couples seems quite small.

Indeed, it has already been the subject of some mockery:

Labour supporting blogger Anthony Painter has tweeted:


Long time coming but it's now time for me to find a girl, settle down. There's £3 a week to be made


As Anthony believes in fair shares, he will be well aware that only £1.50 of that would be his.

3. One problem with signal-sending policies is that everybody gets the signal. The main contentiousness of this policy - which stirs strong opinions on both sides - has been an argument about whether it is fair. It is easy to come up with examples of how the policy offends fairness intutions - who would want to defend the exclusion of widowers from the policy, yet the inclusion of those on their fifth marriage? - and that is particularly important if the whole point is the signal-sending motivation.

The scale of the proposed change may also affect the public politics of this fair or not argument. Long-term cohabitees who think the point of the policy is to tell them that their choices are less valid are going to be equally offended by the principle of that whether they are missing out on a large tax break or a small one. Yet that may now be compounded if the beneficiaries are relatively agnostic about what they gain from the policy.

4. The scale of the policy may also lead to arguments about whether it is fairly pointless, and will have very few impacts on affecting marriage trends in society.

Certainly, it was always going to be unlikely that the "lever" of this tax break would have any effect on decisions to get married.

On the whole, that is probably a good thing. The evidence on the benefits of marriage remains contested, as the issue of causality remains very much unproven. But very few people would think that marriage decisions at the margin, where the tax break might prove the decisive 'nudge', are going to prove particularly strong marriages in the (perhaps unlikely) event that any such marriages were contracted.

This can be shown by looking at how the costs of getting married compare to the benefits of the policy.

If a couple who fit the criteria for the scheme could organise their wedding for under £1500, they could break even on the deal within a decade. With a still tight £3000 budget, that would be twenty years.

However, the average cost of a UK wedding is £11,000.

If you want to get married for the tax break, and spend that, then it is going to take 73 years and four months of wedded bliss before you are ahead on the tax break deal.

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Finally, a declaration of interest: the author can be pro-marriage while arguing the above on the tax break question, and happens to have been married for nine years!

I do also think it is slightly odd that liberal-left can be so proud of enabling gay marriage (and rightly so) while still appearing to be unsure as to what it should say or where it stands on marriage more generally. My colleague Tim Horton has written an interesting essay on a shaping a pro-family politics of the left.

Yet perhaps those who want to "send a signal" about marriage mattering might both think harder about exactly what that signal is meant to be, and perhaps then identity ways to send the message which don't cost £550 million a year to the Exchequer.

5 comments:

Mark Yoxon said...

It's a good, thought-provoking post, this.

Just to play devil's advocate: what's wrong with a tax break that says 'we value those marriages where one partner stays at home'?

House wives/husbands are forfeiting a gainful employment to stay at home with their children; some form of compensation is surely not beyond the pale.

It is not for government to explicitly value one position as morally superior to the other, of course - but as you say, the net gain for these couples under this policy is minimal (even negative, if you consider potential earnings lost). This is primarily a symbolic gesture that recognises a sacrifice that some couples feel compelled to make, for which at the moment they are only penalised.

I think, on balance, I support it.

Sunder Katwala said...

Mark

Thanks for your kind comment about the post. Reasoned disagreement is always welcome.

1. One question: your argument would depend on those proposing this being prepared to defend the policies in those terms. Let's see, but I personally doubt that.

The Conservatives should expect to be asked: does the policy intend to value marriages where somebody stays at home over other marriages?

I can imagine the question being ducked - 'we have had to make a start with something affordable', stressing the exclusion of higher rate payers, and ducking the exclusion of others, and treating the impacts it has there as something of a fluke rather than the obvious impact of the policy design.

2. BBC reports that IFS analysis is that 32% of married couples would be included, and 68% wouldn't.

Those out would include households with a higher rate taxpayer (by design), but also married couples with two full-time modest earners (say £15k and £12k), or with a full-time and part-time earner (say £25k and £8k) with one juggling say a couple of days work with childcare, etc.

Those in would include middle-income single earner households (eg £40k and 0) but also some low earner households with a single earner (eg £15k and £0).

These seem to me very odd effects judged from a position of accepting the policy's overall goal - to recognise and value marriage in the tax system. Of course, others challenge that goal as well, but

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There is a good case for recognising caring responsibilities in some way, and extending financial support. There is strong public support for financial support for carers, for example. The Fabian Society Solidarity Society report proposes a universal tax credit, partly because it would do something for those left out of eg tax threshold changes.

But the Conservative policy would be poorly targetted if this was its goal. Of the 4 million couples (out of 12.3 married couples) who benefit, the IFS calculate that only 35% of the gainers have children and only 17% children under 5. A third of beneficiaries are pensioners. The gainers therefore make up only a small proportion of families with children. Cohabiting couples who make the same sacrifice you describe are also excluded by design.

Simon said...

The challenge on this policy is that there is so much wrong with it that critocism gets pvercomplicated. Surely the best line is VfM. If the Tories say a figure for number of extra marriages created, we can work out the 'cost per marriage' - presumably unfavourable. If the policy doesn't incentivise extra marriage, we can label it 'the deadweight policy'. Since when was it good government to pay more for the same policy outcome?  

Simon said...

(this is a different Simon btw)

I would be v interested to know just how many couples in a civil partnership would benefit from this.

I would guess the answer would be not many assuming that those in civil partnerships have fewer children than married couples and therefore stay at home less.

Sunder Katwala said...

Hello both Simons.

Simon2,

Yes, I am keen to identify what data or survey evidence we have on civil partnered couples, to find out how far their inclusion in the policy is actual as well as theoretical, ie is there a significant difference in the % of civil partnered as opposed to straight marrieds?


Simon1,

Good point. If the question (assuming marriage benefits and undersupply arguments did stand up) was 'how could £550m be spent to encourage people to get and stay married' this wouldn't be it.

What might be? Perhaps picking (on a jury service/lottery principle) by lottery a selection of single citizens to say they could get £1000 for getting married and £5000 for being married 5 or 10 years later might have more impact on behaviour, though it would similarly face the problem of the quality of marginal marriages incentivised in this way. One might seek to screen/exclude people who already had a significant other in some way, which might raise civil liberties concerns!


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