Why a transferable allowance (TA) for Married Couples makes sense – Part 2

Wedding RingsFollowing on from last Monday’s post which gave a rebuttal to three points arguing that a transferable allowance for married couples wouldn’t make good sense, here’s a rebuttal to four more for your reading.

4. “The families it would help would not be poor, but would be well off.”[1]

As I demonstrated in my first point last week, under any TA policy, regardless of whether it was limited to basic or higher rate taxpayers, the majority of the benefit would go to those who are in the lower half of the income distribution.

What is more, research by CARE clearly demonstrates that many of those affected would NOT be well off at all, but in the lower half of the income distribution. A one-earner family on an annual income of £50,000 with three children for example is currently only just in the upper half of the income distribution, better off than just 51% of the population.[2] A one-earner family on an annual income of £60,000 with four children will be in the lower half of the income distribution, better off than just 49% of the population.[3]

Hence, whilst these families would only benefit from a TA if it were extended to higher rate taxpayers, or limited at the basic rate of tax, CARE’s figures show that even these families are not well off, as many would have us believe.

Moreover, if we take basic rate taxpayer family examples, then the families a TA would help would be even more badly off than the above households. If we were to take a one-earner family on an income of £26,648 (average male median income for 2012) for example, then this family is better off than just 29% of the population. A one-earner family with two children on half this income meanwhile would be better off than just 20%. [4]

Therefore, it is clear that regardless of the eligibility of a TA (i.e. limited to basic rate taxpayers, higher rate, or eligible for all but at the basic rate of tax etc.), very many of those affected would not be well off at all, but well within the lower half of the income distribution or only just above it. As demonstrated in the graph under point 1, a TA would progressively alleviate this situation.

5. “It’s only worth £2.88 a week and thus it won’t make a sizeable financial difference to hard pressed households.”[5]

This figure refers to the proposals drawn up by the Conservative Party in their 2010 manifesto,[6] which say that any TA for married couples would be limited to basic rate taxpayers and capped at £750 per year, at a cost of £550 million.  It should be noted that at the time of writing, there has been no official word from the Government on the cost, scope and eligibility of what they will end up introducing, we should be hearing more on this in George Osborne’s upcoming Autumn Statement.

Thus, whilst one would agree that the Conservative 2010 model would make a limited financial impact on hard pressed families this does not mean the policy itself is flawed. Indeed, analysis by the IFS suggests that under the plans announced by the Conservatives, the vast majority of the benefit would go to those in the lower half of the income distribution (see graph below[7]). In other words, those who would benefit would be poorer families rather than those who are richer.

TPA Distributional Impact

6. “It would undermine independent taxation and erode a partner’s financial independence.”[8]

It would be perfectly possible for a TA to be introduced without abandoning independent taxation. For example, if a TA were optional, it would be up to the couple to decide whether they wanted a TA to be applied to their earnings. What is more, research by CARE has shown that other countries manage to maintain both independent taxation and implement a TA at the same time. This is the case for many nations, including Denmark, Iceland, Japan and the Netherlands.[9]

7. What about widows, those who are divorced or those who are fleeing abusive relationships?[10]

Whilst it is true that a TA would not be given or would be ideal in all the above situations, it should be acknowledged that despite these instances, a TA would be ideal for millions of other one-earner households where the above situations don’t apply. In other words, the situations where a TA might not be particularly suitable do not negate the usefulness of a TA in other situations, and as a result a TA in my view is justified on this basis.


[1] Argument made by Kate Green MP, New Clause 5, Transferable Allowances for Married Couples, 28th June 2011, accessible here.

[2] Derived by CARE from the DWP TBMT and IFS ‘Where do you fit in’ calculator.

[3] Ibid.

[4] Ibid.

[5] Argument made by Catherine McKinnell MP, Westminster Hall debate on Transferable Allowances, 28th November 2012, Column 89WH, accessible here.

[6] Adam et al, Taxes and Benefits: The Parties plans, IFS, 2010, p.24.

[7] Figure 4.4, Adam et al, Taxes and Benefits: The Parties plans, 2010 election briefing note no.13, IFS, 2010.

[8] Argument made by Chris Leslie MP, New Clause 5, Transferable Allowances for Married Couples, 28th June 2011, accessible here.

[9] Pearson and Binder, Taxation of Families – International Comparisons, London, CARE, Appendix A, 2012

[10] Argument made by Chris Leslie MP and Fiona O’Donnell MP, New Clause 5, Transferable Allowances for Married Couples, 28th June 2011, accessible here.

– This article is also published at: http://www.care.org.uk/comment/why-a-transferable-allowance-ta-for-married-couples-makes-sense-part-2#sthash.PM54j0rb.dpuf

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