Would paying stay at home parents a wage be such a crazy idea?

In the midst of the furore surrounding the Coalition’s wide ranging welfare and benefits reform, and claims made by many that the Government’s recent childcare changes discriminate against one-earner households, I thought it worthy to consider whether stay at home parents (by which I mean, those who spend the entirety of their working week at home caring for children, or other dependents) should be paid a wage by the Government in lieu of the many jobs they do around the home. By ‘jobs’, I mean tasks which in actual fact it would not be unusual to demand a wage for, cleaning, taxi driving, cooking just to mention a few!

It’s possible to come at this from a number of angles, one such approach which is of particular import is the value (by which I mean the status and respect it commands within society) placed on the work of stay at home parents in comparison to other professions. That is, many argue that the value of being a stay at home parent is significantly less than that of a ‘professional’ man or women. Many reasons for this have been proposed, but more importantly in the context of this article, would the value and standing of stay at home parents improve throughout society if it were attached to a wage? More to the point still, would more families become one-earner households if doing so were tied to a financial incentive?

Whilst i’m not saying that  stay at home parents should consider doing so for purely financial reasons, it is intriguing to note that according to polling, many parents would consider the stay at home option if it were more financially viable. Indeed, when one considers research conducted both in the USA and UK, that suggests that when totting up all the tasks stay home parents do, it could add up to anything between approximately £30,000 and £75,000 per year.

Some will of course say that in this dire economic climate we simply cannot afford to pay stay at home parents from the public purse. Yet, as mentioned earlier, the government has found some £1.4 billion for its latest childcare plans, and has found even more, £10.7 billion by 2016-17, to raise the personal income tax threshold to £10,000, which will primarily benefit two-earner households in the upper half of the income distribution.

Hence, whilst it may be a little unrealistic to expect stay at home parents to be paid £75,000 per year by the Government, would it really be that unreasonable to give something to help households where one-parent stays at home and has significant caring responsibilities? After all, as much research has highlighted, it is one-earner households who are especially likely to be in poverty (only households where there is no one in work are likely to experience higher poverty rates, whilst lone parent families are also at high risk) and as the Christian Social Policy charity CARE has pointed out, one-earner households currently lose out when it comes to the tax system and work incentives, seeing only 27 pence come into the household for every extra £1 earned in work (this is particularly true for poorer one-earner households on the minimum wage, 50% and 75% of the OECD average wage.)

From a political and policy viewpoint, (let us not forget David Cameron’s pledge to make Britain the most ‘family friendly country in Europe’) any policy along these lines could be limited to families on incomes below a certain level, and could be limited to families with young children or with significant caring responsibilities for older children or adults. In any case, when considering the important work stay at home parents do, the value of this role in society, the raw deal one earner households currently get and the policies the Government has introduced to help other household types, maybe offering remuneration to stay at home parents isn’t such a crazy idea after all!

Agree or disagree with what i’m saying? Take part in the debate and comment below!

De-mystifying the terms around tax, welfare and benefits – what do they all mean?

It occurred to me recently that in the midst of the current hyperbole and debate around the Coalition Government’s latest welfare proposals and reforms, a lot of confusing terms have been bandied around without much consideration as to what they mean or what they refer to.

Take the latest OECD press release on their new ‘Taxing Wages 2012’ publication as a case in point. As interesting and insightful as the press release was, and as crucial as their Taxing Wages publications are to many researchers and writers around the World such as myself, the mainstream and specialist press (quite understandably might I add) published what in my mind was inaccurate information regarding how UK families ‘pay the highest tax in the OECD.’

What the OECD actually said was that UK one-earner families with two children have the highest tax wedges (or tax burdens on labour income) in the OECD at average earnings, although admittedly this isn’t made especially clear in the press release. A ‘tax wedge’ as I will set out below is quite a wide term and actually includes far more than just Income Tax and National Insurance, as some the press articles on the issue might have implied.

Please don’t misunderstand me; I am not having a go at the press (mainstream or specialist). I know as well as anyone through working in this area how complex and confusing the parallel universes of tax and benefits can be, but we (and I include myself here) must be careful when writing about these matters to make sure we mean what we say when we write about these sorts of things.

With this in mind, I decided to have a go at explaining in as plain English as possible some key terms and concepts around tax and welfare. Whilst the list below isn’t exhaustive, I hope to have covered all the key terms. If you feel that I have missed out a key term, or have defined something incorrectly, please feel free to leave a comment in the box below and I’ll do my best to rectify!

Tax Burden: This term comes up a lot in the family tax and benefits arena and is widely used by both the OECD and CARE in its ‘Taxation of Families’ publications, and when applied to the individual or household in the UK context, it refers to Income Tax plus National Insurance minus cash benefits (for example, tax credits) as a proportion of gross wages (explained below.) Hence, this term in my view, rather than ‘Tax Wedge’ better defines how much tax someone pays.

Tax Wedge: This term is far wider encompassing than Tax Burden and takes into account Income tax, employer and employee social security contributions and pay roll tax as a percentage of labour costs; hence this concept takes into account employer and labour considerations rather than just personal earnings.

Gross earnings: This term refers to the wages of an individual before Income Tax, National Insurance or any other deductions and Child Benefit, Tax Credit or any other additions.

Labour Costs: Labour costs is defined as the total expenditure borne by employers in order to employ workers, they include factors such as direct remuneration, bonuses, severance pay and benefits in kind. They also include indirect costs linked to employees, independently of the remuneration paid by the employer, such as collectively agreed, contractual and voluntary social security contributions, direct social benefits, vocational training costs, other social expenditure (cultural and medical services, transport costs, etc.), and taxes relating to employment regarded as labour costs, less any subsidies received.

Payroll Taxes: Payroll taxes consist of taxes payable by enterprises assessed either as a proportion of the wages and salaries paid or as a fixed amount per person employed.

Tax Credits: In the UK context, Tax Credits lie exclusively within the benefits system and are cash transfers from the Government to households and the amount given is based on a number of factors such as the amount of hours worked, gross earnings and the number of children in the household (for child tax credit.) Extra Credits are also available for childcare costs.

Child Benefit: Up until very recently, Child Benefit was a universal cash transfer given to families proportional to the number of children in the family, and disregarded the income of the household. However, the Coalition government have recently changed the eligibility rules so any household with an individual earning more than £50,000 per year will start to have their child benefit tapered away to the point where earnings exceed £60,000 per year, where child benefit will no longer be available. Nonetheless, for eligible families the amount given to the first child is £20.30 per week for the first child and £13.40 for each subsequent child.

Universal Credit: Universal Credit is a new means tested welfare credit in the benefits due to be introduced this year which combines many of the existing benefits and tax credits into one single payment.

Marginal Effective Tax Rates: The Marginal Effective Tax Rate, or METR, when applied to the world of tax and benefits, is the amount an earner keeps from extra earnings earned. To take a current real life example, if an earner working 30 hours per week on the minimum wage earns £100 in overtime, and is a lone parent with two children, then that earner will see £27 of that £100 come into the household due to Income Tax and National Insurance increases and Benefit withdrawal.