Experts urge Government to reform tax system to help struggling families

EXPERTS have urged the UK Government to reform Britain’s “individualised” tax system to assist struggling families in a coming “fiscal pandemic”. 

A new report by social policy charity CARE and tax policy consultants Tax & the Family has slammed the existing rules governing income tax and national insurance contributions.

CARE and Tax & the Family argue that these existing rules are inherently unfair, as they fail to account for the fact that households with children have far less disposable income.

The report states: “Because income tax and NICs are both based on individual income, the amount of tax paid by families – households with children – bears little relationship to how well off they are.

“Families in poverty pay income tax, often significant amounts. This problem, long ignored by successive governments and others, should be addressed now.”

The report continues by saying: “The failure of the income tax system to take account of household size and circumstances results in taxpayers with children paying a lot more tax than taxpayers without children who have the same standard of living.

“The UK is out-of-step with other Western nations that recognise the pressures families face.”

The report adds: “Comparing the UK with individual countries, the UK income tax burden is greater than the figures for France, Germany and the US.”

CARE and Tax & the Family have now called for a significant “shift in Government policy”.

They said: “Income tax should be based on household income, not individual income”.

Recognising that such a change cannot be “achieved overnight”, the groups call for several short-term changes to ease pressure on struggling homes.

They have recommended that the threshold for the High-Income Child Benefit Charge be increased, the reintroduction of child tax allowances be explored and the marriage allowance be increased, widened, and a marginal relief added.

They have also recommended that the restriction of child credits to two children in a family be repealed and child benefit be increased to restore its value in real terms

Ross Hendry, CEO of CARE, said: “Our country is facing a fiscal pandemic.

“Across the UK, household bills are rising. Many families are already feeling the strain of choosing between eating or heating.

“It is therefore timely that our annual ‘Tax and the Family’ report is published.

“The UK tax system fails to treat families fairly. The amount of tax that a family pays in the UK bears little relationship to how well off that household is.

“It is deeply concerning that any family finding themselves in poverty should pay any income tax, it is shocking that some families in the bottom half of income distribution pay tax at the higher rate.

“This unfairness in the tax system must be addressed.”

Mr Hendry adds: “This report highlights that a shift in Government policy is needed.

“What the UK needs is a tax system that is fair, and which does not trap people in poverty.

“We recognise that the change called for in this report will come at a cost and will be complex, but as a society we should always strive for what is fair, even if it’s difficult to achieve.

“Reform of the income tax system is only one way we can help families, but it could be an important step in ensuring that people across the UK are treated with fairness, at the very least, this is a debate that is worth having.”