Children are the ultimate losers from Labour’s Budget

Without financial incentives to grow families, Britain is doomed to decline

One important yet under-reported announcement in Wednesday’s budget threatens to cost Britain’s families dear. Hidden in the small print of Rachel Reeves’ financial statement is a decision to reverse the previous government’s commitment to implement long overdue reforms to family allowances.
For many years, parents in the United Kingdom have paid far more tax than their counterparts in other Western nations. This is because, unlike in France, Germany, and other comparable countries, the British tax system views taxpayers as isolated wage earners, blind to how many dependents each salary must support.
This individualised taxation arrangement introduces significant fiscal penalties for parents doing the vital work of raising the next generation.
For example, a couple without dependents who earn the median wage of £35,000 each and pay a combined £9,000 of income tax each year. Yet a family with three children whose total income is the same – £70,000 – but where one parent works less or not at all in order to care for children faces a significant tax penalty.
Depending on how the income is split, this household will incur a tax bill of up to £15,400. Thus the parents pay 70 per cent more tax than the childless couple despite having five mouths to feed rather than two.
Unlike in other European countries, there are no tax breaks for raising children – astonishing considering the other worthwhile activities encouraged by our tax system such as saving for a pension or investing in a startup company.
Historically, Britain has used family allowances – now called child benefit – to help with the costs of child rearing. But the value of this payment has shrunk considerably and it has not been a universal allowance since 2014, when George Osborne withdrew child benefit from families where at least one parent was a higher rate tax payer.
This unconservative and frankly iniquitous policy introduced yet another financial cliff edge for families. A couple earning £49,000 each and in receipt of state funded child care continue to be eligible for full child benefit; a single parent family with a total income of £60,000 loses the lot.
Throughout the last Parliament, I tried to convince the government to reduce the family penalties in our tax system. We are, after all, facing a birthrate crisis; if today’s young people can’t afford to have children, there will be no future taxpayers or economic growth.
Despite the fact that Universal Credit payments are based on household rather than individual income I was repeatedly told by Treasury officials that it was “too difficult” to move to a system of household assessment because HMRC did not collect the right data.
Yet in March, in his final budget as Chancellor, Jeremy Hunt opened the door to reform, announcing a consultation on using household rather than individual earnings to determine eligibility for child benefit.
This may seem like a minor tweak, and it would have benefited a relatively small number of higher income families. But crucially such a step would have compelled the Government to start collecting the data required to implement much more meaningful improvements to the way British families are taxed.
The Chancellor’s justification for scrapping this small but significant reform is absurd. Reeves claims wrongly that the plans would have “penalised” single parents; yet it is single income households who have the most to gain from this reform.
Strong families are the foundation of a strong society, yet for too long Westminster has all but ignored the importance of family life, preferring to treat us – and tax us – as atomised individuals.
While this week’s decision on child benefit is disappointing, it does at least and at last put clear blue water between Labour and the Conservatives when it comes to family policy.
I hope the new Tory leader will take inspiration from parties such as the SDP and Reform UK both of which have made family-friendly commitments that put the Conservatives to shame.