Centre for Social Justice Part 4: The Couple Penalty

Their report has a good section on the 'couple penalty', which looks at the £-s-d differences and the maths; discusses airy topics like the difference between the 'financial penalty' and the 'material penalty' (which is the financial penalty on an equivalised basis, natch); looks at the correlation between the size of the couple penalty and the incidence of single-parenthood in different countries; and assesses the impact of the Tax Credits system, which exacerbated the couple penalty (pages 108 - 121, zip/pdf).

(Here's my crash course on the couple penalty. To cut a long, a couple with two children can improve their total net income by up to £225 a week by splitting up, pretending to split up or by not getting married/admitting to co-habiting in the first place.)

There are three main reasons to oppose the couple penalty, which are not mutually exclusive. First, the old-fashioned paternalistic Tory-Christian view that it's best for children and society in general if they are brought up by their natural parents as a couple (for which there is a lot of evidence, but the problem is distinguishing between cause and effect, or even correlation). Secondly, the libertarian-pragmatarian view that it shouldn't be up to the government to dictate how people should live or to discriminate in favour of some relationships and against others - if people see a benefit in living together they will do so, else not. Finally, the simplification campaigner's point of view that it is almost impossible to distinguish between various blurred categories, so there is just no point in trying. The latter two camps would of course also oppose any incentives for marriage for much the same reasons, of course.

So, having done all the lovely background research, the report then completely wimps out and falls at the final hurdle, yet again:

This chapter [Chapter 14, page 247 onwards] analyses four options aimed at reducing the couple penalty:
• Individualising benefits that are currently given and withdrawn on a household basis;
• Increasing the award value of Working Tax Credits for couples;
• Increasing the earnings disregard on Working Tax Credits for couples;
• Introducing a transferable tax allowance.

Working backward to the Big Anti-Climax, they rule out a transferable tax allowance (despite this being a shoo-in among right-wingers) because "... despite our earlier support for the idea of increasing the personal allowance, the Working Group does not regard them as a particularly effective way of helping the poorest couples, certainly compared to available alternatives. Rather, they concentrate the rewards on the high earners." I completely agree with that for the reasons stated.

Their specific proposals are to tinker yet again with the fundamentally flawed Working Tax Credits system, i.e. "raising the Working Tax Credit amount for couples to 1.6 times the amount for single adults" and "a more modest change to the WTC disregard for couples, by setting it to be 1.6 times that of a single person. The 2009-10 level is £6,420, so the couple disregard would be £10,270. As with the current system, it is evaluated at a household level, thus making it transferable."

Er, if we're agreed that a transferable tax allowance is a bad idea, why is having a 'transferable income disregard' any different? Isn't it exactly the same thing, only more complicated? It also leads to an added distortion that couples will then choose to work at just below the new threshold (which leads to this sort of problem). As a simplication campaigner, I can rule that out straight away.

We then *drumroll* get to the grand finale, The Charge Of The Light Brigade, Custer's Last Stand, Paulus at Stalingrad and a retreat-that-would-make-Dunkirk-look-like-a-picnic-interrupted-by-rain ...

There are three possible ways of [individualising benefits]:
1. Raising the couple value of benefits to twice that of singles – which would dramatically increase the overall benefit bill. There are quite negative employment incentives as the out-of-work position is considerably strengthened. Furthermore, there is a large static cost associated with increasing the amount given in support by so much.
2. Rebalancing the value of couple and single benefits by reducing single benefits and simultaneously raising couple benefits – without increasing the overall benefit bill. This would be very difficult to implement, given the likely opposition to decreasing out-of-work benefits.
3. Using the inflationary up-rating process to fund all increases of couple benefits. This approach somewhat reduces the cost and the political pressure, but it would take a long time to fully implement.

Again, I agree, we can rule out Option 1 for the reasons stated. Option 3 is a complete fudge and I'm not even sure what it means.

So, to paraphrase Sherlock Holmes, once we have ruled out the worst options, what we are left with must be the best option, i.e. Option 2, which is to decide how much we want to spend on poverty-alleviating measures as a total figure (in which I include the tax-free personal allowance and tax relief for pension contributions, not just actual cash welfare payments), divide it by the number of qualifying adults and Bob's your uncle. Of course some people will gain more than others and some might even end up worse off - but that is only a notional loss. If a kindly uncle always used to send you £100 on your birthday but now he only sends you £75, are you really £25 worse off? Or are you still £75 better off?

If we just look at Income Support, for example, that would mean an £9 cut for a single adult and a £9 increase for a couple*, the quid pro quo being there's no disincentive to moving in and sharing costs (which will enable single people to recoup their losses at a stroke, even if on a non-romantic basis) and the disincentive to finding a job will be greatly reduced (their proposals are to remove disincentives on an administrative rather than on a financial level, but hey).

Wake up people! We're in a recession! Tens of thousands of people are - quite undeservedly - losing their jobs every week and are suddenly hundreds of pounds a week worse off and we have no choice but to expect them to adjust somehow, don't tell me that unemployed single mum deserves the kid-gloves treatment.

Jesus wept.

* Current rates, aged 25 or over, single £64; couple £101. So a couple currently lose £27 per week if they move in together (or admit to having done so). If Income Support were individualised, it would be (say) £55 per person (£64 + £101 = £165 ÷ 3 = £55). So a single person would be £9 worse off (moving from £64 to £55) and a couple would be £9 better off (moving from £101 to £110) and there would be no financial disincentive to co-habitation, and, using their terminology, a 'material' advantage.