“It’s very difficult to justify taxing people on low incomes to pay for the child benefit of those earning so much less than them.”
For example, a single-income couple with three children currently earning £42,500 (just above the higher rate threshold in 2011-12) is in the fifth decile (i.e. the poorer half of the population) with an income higher than 45% of the population. When child benefit is withdrawn, this family will fall into the fourth decile with income higher than only 38% of the population.
A single-income couple with two children currently earning £42,500 is in the sixth decile (i.e. just in the top-half of the population) with an income which is higher than 53% of the population. When child benefit is withdrawn this family will fall into the fifth decile (i.e. the poorer half of the population) with an income higher than only 48% of the population.
This disparity is caused by the fact that, when working out how rich or poor a person or family is in relation to the rest of the population, the Treasury measure household rather than individual income. However, as the examples above demonstrate, a number of families in the higher rate band are far from being wealthy while some who do not sit in the higher tax band are amongst the richest households in the population.
“Simply looking at pre-tax income does not tells us whether a family is rich, poor or in the middle. The failure to take this into account seems to be leading to poor policy choices and is confusing the debate about fairness and family taxation. Families on £42,375 and above will pay the same tax as a single person without family responsibilities. There is nothing fair about a tax system which takes the same tax from a family of four as it does from a single taxpayer whose income has only to support one person and whips away the only benefit they receive.”